SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------------------------
AMENDMENT NO. 1 ON FORM 10-Q/A
TO FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 2000
-------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from ___________________ to ___________________
Commission File No. 0-26072
THCG, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 87-0415597
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
512 Seventh Avenue, 17th Floor, New York, NY 10018
(Address of Principal Executive Office) (Zip Code)
Registrant's telephone number, including area code: (212) 223-0440
Indicate by check |X| 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 |X| No ___
As of November 10, 2000, there were 13,335,317 shares of the
registrant's Common Stock outstanding.
<PAGE>
THCG, Inc.
Amendment No. 1 on Form 10-Q/A to the Quarterly Report on Form 10-Q for the
Quarterly Period Ended March 31, 2000
Explanatory Note
On November 14, 2000, THCG, Inc. (the "Company") filed Amendment No. 2
on Form 10-K/A to its Annual Report on Form 10-K for the year ended December 31,
1999. The Amendment included restated financial statements for the fiscal year
ended December 31, 1999 (the "1999 Restatement").
The 1999 Restatement related solely to the values assigned to Walnut
Financial Services, Inc. ("WFS") and Mercury Coast, Inc. ("Mercury Coast") in
connection with the Company's acquisition of these two companies in 1999. Both
acquisitions were accounted for, and continue in the 1999 Restatement to be
accounted for, using the purchase method.
In the financial statements included in the Company's original Annual
Report on Form 10-K for the year ended December 31, 1999, the calculation of the
equity consideration paid for each of these acquisitions was calculated based
upon the market price of the Company's common stock at the time the transactions
closed. However, the Company subsequently determined that the more appropriate
valuation date is the date of the announcement of the transaction rather than
the closing date. The 1999 Restatement reduced the equity consideration paid for
WFS and Mercury Coast and the related amount of goodwill and associated
amortization charge. The Company is revising its interim financial statements
for the three months ended March 31, 2000 and the six months ended June 30, 2000
to reflect the changes to goodwill and the amortization charge for those periods
required by the change made in the 1999 Restatement. These revisions will also
reflect a corresponding reduction in Stockholders' Equity and a corresponding
increase in Net Income and Earnings Per Share.
The Financial Statements, Notes to Consolidated Financial Statements
and Management Discussion and Analysis of Financial Condition and Results of
Operations in this filing have been accordingly revised.
The items amended are as follows:
Part I, Item 1 Financial Statements
Part I, Item 2 Management's Discussion and Analysis of
Financial Condition and Results of
Operations
Part II, Item 6 Exhibits and Reports on Form 8-K
2
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TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements Page
Consolidated Statements of Financial Condition -
as of March 31, 2000 (unaudited) and December 31, 1999........5
Consolidated Statements of Operations - for the three
months ended March 31, 2000 (unaudited) and March 31, 1999
(unaudited)....................................................6
Consolidated Statement of Changes in Stockholders'
Equity - for the three months ended March 31, 2000
(unaudited) ..................................................7
Consolidated Statements of Cash Flows - for the three
months ended March 31, 2000 (unaudited) and March 31, 1999
(unaudited)..................................................8
Notes to Consolidated Financial Statements (unaudited)...........9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...........................12
PART II. OTHER INFORMATION
Item 6. Exhibits........................................................15
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<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The following Consolidated Financial Statements of THCG, Inc.
and its subsidiaries are presented on pages 5 through 9 hereof as set forth
below:
Consolidated Statements of Financial Condition - as of
March 31, 2000 (unaudited) and December 31, 1999............................5
Consolidated Statements of Operations - for the three
months ended March 31, 2000 (unaudited) and March 31, 1999
(unaudited).................................................................6
Consolidated Statement of Changes in Stockholders' Equity -
for the three months ended March 31, 2000 (unaudited) ......................7
Consolidated Statements of Cash Flows - for the three
months ended March 31, 1999 (unaudited) and March 31, 2000
(unaudited).................................................................8
Notes to Consolidated Financial Statements (unaudited)........................9
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<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(in thousands, except share and per share data)
March 31, December 31,
2000 1999
(unaudited)
------------------ --------------
(Note 1) (Note 1)
ASSETS
<S> <C> <C>
Cash and cash equivalents $6,552 $1,592
Marketable securities 683 2,812
Nonmarketable securities, partnership, limited liability company and other
interests (See Note 2) 20,757 7,104
Ownership interest in company accounted for on the equity method
(See Note 4) 5,025 -----
Fees and other receivables, net of allowance 793 352
Prepaid expenses and other assets 262 279
Loan receivable, related party 589 312
Furniture, fixtures and equipment - net 77 104
Goodwill and other intangible assets, net of accumulated amortization 15,719 16,610
Assets of discontinued operations (See Note 3) ---- 6,537
------------- ----------
Total Assets $50,457 $35,702
============= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, accrued expenses and other $2,076 $1,933
Loan payable ---- 565
Notes payable ---- 600
Deferred income taxes payable 1,916 495
------------- ----------
Total Liabilities 3,992 3,593
------------- ----------
Stockholders' Equity
Common stock, $.01 par value, 50,000,000 shares authorized; 12,603,969 and
11,751,113 issued and outstanding at March 31, 2000 and December 31,
1999, respectively 126 118
Additional paid-in capital 81,457 68,777
Deferred compensation (27,167) (27,294)
Accumulated deficit (7,951) (9,492)
------------- ----------
Total Stockholders' Equity 46,465 32,109
------------- ----------
Total Liabilities and Stockholders' Equity $ 50,457 $ 35,702
============= ==========
</TABLE>
See Notes to Consolidated Financial Statements
-5-
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data) Three Months Ended
-------------------------------------------
March 31, March 31,
2000 1999
(unaudited) (unaudited)
------------------- -----------------
Revenues (Note 1)
<S> <C> <C>
Venture service fees $ 1,483 $ 266
Realized and unrealized gains on investments 12,812 ----
------------- ----------
Total Revenues 14,295 266
Expenses
Selling, general and administrative 3,007 503
Equity-based compensation 2,087 -----
Amortization of acquired intangibles 891 -----
------------- ----------
Total Expenses 5,985 503
Income (loss) from continuing operations 8,310 (237)
Provision for income taxes 3,583 12
------------- ----------
Net income (loss) from continuing operations 4,727 (249)
Loss from discontinued operations (3,186) ----
------------- ----------
Net income (loss) $ 1,541 $ (249)
============= ==========
Basic Earnings Per Share
Basic income (loss) per share from continuing
Operations $ 0.39 $ (0.07)
Basic loss per share from discontinued
Operations (0.26) ----
------------- ----------
Basic income (loss) per share $ 0.13 $ (0.07)
============= ==========
Shares Used In Calculation 12,139,524 3,723,000
============= ==========
Diluted Earnings Per Share
Diluted income (loss) per share from continuing
Operations $ 0.31 $ (0.07)
Diluted (loss) per share from discontinued
Operations (0.21) ----
------------- ----------
Diluted income (loss) per share $ 0.10 $ (0.07)
============= ==========
Shares Used In Calculation 15,374,696 3,723,000
============= ==========
</TABLE>
See Notes to Consolidated Financial Statements
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<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(in thousands, except share data)
Common Stock Additional
Number of Paid-in Deferred Accumulated
Shares Amount Capital Compensation Deficit Total
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1999 11,751,113 $118 $68,777 ($27,294) ($9,492) $32,109
Proceeds from exercise of warrants for
common stock 633,373 6 5,694 --- --- $5,700
Proceeds from exercise of options for
common stock 1,000 --- 3 --- --- $3
Issuance of common stock in connection
with investment 218,483 2 5,023 --- --- $5,025
Deferred compensation for stock options
issued to employees --- --- 1,960 (1,960) --- ---
Amortization of deferred compensation --- --- --- 2,087 --- $2,087
Net Income 1,541 $1,541
------------------------------------------------------------------------
Balance, March 31, 2000 12,603,969 $126 $81,457 ($27,167) ($7,951) $46,465
========================================================================
</TABLE>
See Notes to Consolidated Financial Statements
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<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands) For the Three Months Ended
-------------------------------------
March 31, March 31,
2000 1999
(unaudited) (unaudited)
-------------- --------------
Cash flows from operating activities:
<S> <C> <C>
Net income (loss) $ 1,541 $(249)
Adjustment to reconcile net income (loss) to net cash used in
continuing operating activities-
Loss from discontinued operations 3,186 ---
Net change in unrealized appreciation of investments (12,631) ---
Equity-based compensation 2,087 ---
Depreciation and amortization 41 4
Amortization of intangible assets 891 ---
Bad debt expense 201 ---
Deferred income tax provision 1,421 ---
Changes in operating assets and liabilities:
Fees and other receivables (642) 200
Loan receivable-officer (89) ---
Prepaid expenses and other assets 17 (199)
Due from related parties (188) ---
Accounts payable, accrued expenses and other 1,945 (181)
------------ ------------
Net cash used in operating activities (2,220) (425)
------------ ------------
Cash flows from investing activities:
Proceeds from sale of marketable securities 2,903 ---
Investments (1,385) ---
Purchase of furniture and equipment (14) ---
------------ ------------
Net cash provided by investing activities 1,504 ---
------------ ------------
Cash flows from financing activities:
Proceeds from the exercise of warrants for common stock 5,700 ---
Proceeds from the exercise of options for common stock 3 ---
------------ ------------
Net cash provided by financing activities 5,703 ---
------------ ------------
Net cash used in discontinued operations (27) ---
------------ ------------
Net increase (decrease) in cash and cash equivalents 4,960 (425)
Cash and cash equivalents - January 1, 1,592 610
------------ ------------
Cash and cash equivalents - March 31, $6,552 $ 185
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid:
Interest $27 ---
Taxes --- $48
Supplemental disclosure of noncash investing and financing activities
Issuance of stock in connection with Global Credit Services, Inc. $5,025 ---
</TABLE>
See Notes to Consolidated Financial Statements
-8-
<PAGE>
THCG, Inc.
Notes to CONSOLIDATED financial statements
March 31, 2000
NOTE 1 - BASIS OF PRESENTATION
The accompanying consolidated financial statements as of March 31, 2000
are unaudited; however, in the opinion of the management of THCG, Inc., a
Delaware corporation (the "Company" or "THCG"), such statements include all
adjustments (consisting of normal recurring accruals) necessary to present a
fair statement of the information presented therein. The balance sheet at
December 31, 1999 was derived from the audited financial statements at such
date.
Pursuant to accounting requirements of the Securities and Exchange
Commission (the "SEC") applicable to Quarterly Reports on Form 10-Q, the
accompanying financial statements and these Notes do not include all disclosures
required by generally accepted accounting principles for audited financial
statements. Accordingly, these statements should be read in conjunction with the
Company's audited financial statements included in Amendment No. 2 on Form
10-K/A to its Annual Report on Form 10-K for the fiscal year ended December 31,
1999.
Results of operations for interim periods are not necessarily
indicative of those to be achieved for fiscal years.
The financial statements of the Company include the accounts of its
wholly owned subsidiaries, Mercury Coast Inc. ("Mercury Coast") and Tower Hill
Securities, Inc. ("Tower Hill Securities") and its wholly owned subsidiaries,
THCG LLC and THCG Ventures LLC. THCG Ventures LLC is a management company for
two related venture capital companies, THCG Venture Partners I LLC ("Venture I")
and THCG Partners LLC. THCG Ventures LLC has a 0.45% member's interest in THCG
Partners LLC. THCG Partners LLC and THCG LLC have a 15.1% and a 9.9% membership
interest, respectively, in Venture I. All significant intercompany accounts and
transactions are eliminated in consolidation. Pacific Financial Services Corp.
("Pacific Financial") and Inland Financial Corporation ("Inland Financial") are
wholly owned subsidiaries of the Company whose operations have been
discontinued. See Note 3 of the Notes to Consolidated Financial Statements.
Revised Financial Statement
Initially, the calculations of the equity consideration paid for the
acquisitions of WFS and Mercury Coast, Inc. ("Mercury Coast") were based upon
the market price of the common stock at the time the transactions closed. In the
case of WFS, the average of the high and low sales prices of WFS common stock on
November 1, 1999 ($3.625) was used to calculate equity consideration of
$13,367,000. In the case of Mercury Coast, the calculation was based on the
average price of the Company's common stock over the four days commencing two
days prior to the close of the transaction on December 29, 1999 ($29.69 per
share), resulting in equity consideration of $20,782,000.
The Company has determined that the more appropriate valuation date is
the date of the announcement of the transaction rather than the closing date. As
a result, the equity consideration in the WFS transaction has been recalculated
based on the closing price of WFS common stock on August 4, 1999 ($2.19),
resulting in equity consideration of $8,593,000. The equity consideration in the
Mercury Coast transaction has been recalculated based on the closing price of
THCG common stock on December 8, 1999 ($18.25), resulting in equity
consideration of $12,732,000.
The effect of changing the values of these transactions is that
Goodwill and Other Intangible Assets on the Consolidated Balance Sheet as at
December 31, 1999 has been reduced to $16,610,000 (net of amortization of
$86,000), from $29,266,000 (net of amortization of $254,000) and Stockholders'
Equity has been reduced to $32,109,000 from $44,765,000. Consequently,
Amortization of Acquired Intangibles on the Consolidated Statement of Operations
for the three months ended March 31, 2000 has also been reduced to $891,000 from
$1,532,000. The result of these changes has been that net income for the three
months ended March 31, 2000 has been increased to $1,541,000 from $900,000;
Basic Income Per Share has been increased to $0.13 from $0.07; and Diluted
Income Per Share has been increased to $0.10 from $0.06.
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<PAGE>
NOTE 2 - PARTNERSHIP, LIMITED LIABILITY COMPANY AND OTHER INTERESTS
THCG owns 100% of the general partner of Walnut Growth Partners, L.P.
("WGP"). The general partner owns 1% of WGP and manages WGP's assets, for which
services it is entitled to management fees and additional compensation in the
form of a carried interest equal to 20% of the profits of WGP after the limited
partner's capital is returned.
On February 11, 2000, webMethods, Inc. ("webMethods"), a company in the
WGP portfolio, issued stock to the public at $35.00 per share. The price of
webMethods' stock has been extremely volatile. On March 31, 2000, the stock
price of webMethods was $241.38 per share. The price of webMethods' stock
declined to as low as $44.50 per share on April 17, 2000. On September 29, 2000,
the price of webMethods' stock was $115.125 per share.
Given that the WGP position in webMethods is subject to a lock-up
agreement and that market sentiment towards Internet companies has changed, THCG
has reduced the value of its interest in and unrealized profit from the WGP
portfolio. As of March 31, 2000, THCG's interest in WGP was valued at $13.8
million, assuming a webMethods stock price of approximately $100. This value
reflects a permanent impairment of $20.4 million.
Venture I increased the number of its investments during the first
quarter. As of March 31, 2000, THCG's interest in these venture partner
companies through Venture I and THCG Partners LLC aggregated $1.7 million.
On February 7, 2000, THCG exchanged $5.0 million of its common stock
for a 25% interest in Global Credit Services, Inc. ("Global Credit") and Venture
I simultaneously invested in Global Credit. THCG is accounting for its holdings
in Global Credit using the equity method of accounting.
NOTE 3 - DISCONTINUED OPERATIONS
Two of THCG's subsidiaries, Pacific Financial and Inland Financial,
engage in the factoring business in the state of Washington. THCG has completed
a strategic review and has concluded that the factoring business is not
consistent with THCG's current focus and corporate objectives. Accordingly, THCG
is winding down the operations of these two subsidiaries and has accounted for
these businesses as discontinued operations.
Total
Inland Pacific Discontinued
Financial Financial Operations
---------- --------- ------------
Total Assets $1,988,000 $4,549,000 $6,537,000
Total Liabilities 770,000 2,197,000 2,967,000
---------- ---------- ----------
Net Assets $1,218,000 $2,352,000 $3,570,000
========== ========== ==========
NOTE 4 - SUBSEQUENT EVENTS
On April 11, 2000, THCG announced the acquisition of $300,000 of assets
of certain businesses operated under the Giza Group ("Giza") name in Israel.
Zinook Ltd. ("Zinook") is the entity's new name. The transaction closed on
September 1, 2000 and is being accounted for using the purchase method of
accounting. The businesses acquired are the investment banking and equity
research operations of Giza. THCG issued 750,000 shares of common stock in
connection with the acquisition.
On August 2, 2000, THCG issued 5,000 shares of its Series A Convertible
Participating Preferred Stock (the "Preferred Stock") and a related Warrant (the
"Warrant") in a private placement to Castle Creek Technology Partners LLC
("Castle Creek"), a private investment fund focused primarily on the technology
sector. The gross proceeds of the offering were $5.0 million.
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<PAGE>
The Preferred Stock is convertible (subject to anti-dilution
protections) into THCG common stock, par value $0.01 per share (the "Common
Stock"), at a fixed conversion price of $5.039 per share at any time prior to
December 29, 2000. Thereafter, the conversion price will be the lower of $5.039
per share and 90% of the prevailing market price of the Common Stock, provided
that regardless of the market price for the Common Stock, a maximum of 2,529,568
shares of Common Stock are issuable upon conversion of the Preferred Stock. If
the market price of the Common Stock is greater than 200% of the then fixed
conversion price of the Preferred Stock for at least 10 consecutive days and if
certain other conditions are met, THCG may cause the Preferred Stock to be
automatically converted into Common Stock. Unless previously converted by the
holder, the Preferred Stock automatically converts into Common Stock on August
2, 2003, and is subject to optional redemption by THCG at any time subject to
the payment of premiums and the satisfaction of other conditions.
A premium is payable quarterly on the Preferred Stock on the last
business day of each calendar quarter in an amount equal to 10% per annum of the
stated value of the Preferred Stock ($5.0 million). The premium is payable in
cash until THCG's registration statement described below is declared effective
and thereafter, if the conditions described in the certificate of designations
are satisfied, the premium is payable, at THCG's election, in cash, in
additional shares of common stock (valued at a price per share equal to the
market price, as defined in the certificate of designations, of the common stock
on the date the premium is paid) or in additional shares of Preferred Stock
valued at its stated value.
The Warrant has a four-year term and entitles the holder to purchase up
to 396,899 shares of Common Stock at a fixed exercise price of $5.039 per share
throughout the term of the Warrant (subject to anti-dilution protections). If
the market price of the Common Stock is greater than 200% of the then fixed
exercise price of the Warrant for at least 10 consecutive days and if certain
other conditions are met, THCG may cause the Warrant to be automatically
exercised for Common Stock.
Pursuant to a registration rights agreement, THCG filed a registration
statement under the Securities Act of 1933, as amended, registering for resale
by the holders thereof the Common Stock underlying the Preferred Stock and the
Warrant. The registration statement has not yet been declared effective. THCG
may be required to pay Castle Creek certain amounts as specified in the
registration rights agreement if the registration statement is not declared
effective within 120 days of August 2, 2000 and is not maintained effective.
On September 30, 2000, THCG negotiated the termination WGP. THCG owns
100% of the general partner of WGP. The general partner owned 1% of WGP and
managed WGP's assets, for which services it was entitled to management fees and
additional compensation in the form of a carried interest equal to 20% of the
profits of WGP after the limited partner's capital was returned.
As a result of the termination of WGP, THCG received 133,932 shares of
webMethods and WGP's positions in private companies. THCG is currently settling
the compensation due to a former employee. This compensation will approximate
10% of the positions received by THCG in the liquidation of WGP.
On October 23, 2000, THCG announced a plan to repurchase up to 500,000
shares of its stock from time-to-time in open market transactions at prevailing
market prices. As of November 8, 2000, THCG had repurchased 52,100 shares at a
cost of approximately $102 thousand.
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
As used in this Item 2, "we," "our" and "us" refer to THCG.
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains a number of forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Specifically, all statements
other than statements of historical facts included in this Report, or
incorporated herein by reference, regarding our financial position, business
strategy and the plans and objectives of management for future operations are
forward-looking statements. These forward-looking statements are based on the
beliefs of management, as well as assumptions made by and information currently
available to management. When used in this Report, including the information
incorporated by reference, the words "anticipate," "believe," "estimate,"
"expect," "may," "will," "continue," "intend" and "plan" and words or phrases of
similar import, as they relate to our financial position, business strategy and
plans, or objectives of management, are intended to identify forward-looking
statements. These cautionary statements reflect our current view regarding
future events and are subject to risks, uncertainties and assumptions related to
various factors which include but may not be limited to those listed under the
heading "Factors Affecting our Future Performance" and other cautionary
statements in our Annual Report on Form 10-K for our fiscal year ended December
31, 1999, filed with the SEC, which information is incorporated into this Report
by reference.
Although we believe that our expectations are reasonable, we cannot
assure you that our expectations will prove to be correct. Based upon changing
conditions, should any one or more of these risks or uncertainties materialize,
or should any underlying assumptions prove incorrect, actual results may vary
materially from those described in this Report as anticipated, believed,
estimated, expected, intended or planned. All subsequent written and oral
forward-looking statements attributable to us (or to persons acting on our
behalf) are expressly qualified in their entirety by these cautionary
statements.
Overview
We are an active Internet accelerator providing V3 global enterprise
enhancing services--a seamless integration of venture development, venture
banking and venture funding services--both to companies in which we acquire
direct or indirect equity interests as well as to third parties to which we
provide services in exchange for fees. We are penetrating new markets by
developing our international operations and by expanding our global coverage of
the Internet industry. Our venture partner and venture portfolio companies
include advanced technology and service companies, established "brick and
mortar" companies implementing an Internet-based strategy and global
Internet-based businesses. By providing our venture partner companies with our
unique V3 services offerings, we believe that we help our venture partner
companies focus on their core strengths, so that they may bring their products
and services to market more rapidly.
On November 1, 1999, Walnut Financial Services, Inc. ("Walnut Financial
Services") acquired Tower Hill Securities. However, for financial statement
purposes, Tower Hill Securities acquired Walnut Financial Services and is the
surviving entity. Tower Hill Securities is the successor to Hambro America
Securities, Inc., the former U.S. investment banking subsidiary of Hambros, plc,
a British merchant banking firm. In March 1998, the investment banking
operations of Hambros, plc were sold to Societe Generale, a French bank. On
April 1, 1998, Joseph D. Mark and Adi Raviv, the principal executives of Hambro
America Securities, Inc., acquired the company from Societe Generale.
As part of our new business strategy, on December 29, 1999, we acquired
Mercury Coast, a corporation engaged in the business of providing business
acceleration services, including strategic planning, operations and marketing
consulting services, to Internet-based businesses.
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<PAGE>
The financial statements contained in this Report reflect the
operations of THCG for the three months ended March 31, 2000 and the operations
of Tower Hill Securities for the three months ended March 31, 1999.
Three Months Ended March 31, 2000 as compared to the Three Months Ended March
31, 1999
Revenues
Revenues for the three months ended March 31, 2000 increased to $14.3
million from $266 thousand for the three months ended March 31, 1999. The
increase in revenues was primarily due to significant appreciation of our
venture partner and venture portfolio company securities portfolio and an
increase in the sales of our venture banking services.
Venture service fees for the three months ended March 31, 2000
increased to $1.5 million from $266 thousand for the three months ended March
31, 1999. The increase in these fees was primarily due to an increase in fees
earned from providing our venture banking services.
Appreciation in securities and interest income consists of the net
increases (decreases) in the value of the venture partner and venture portfolio
company securities that we acquired or that we received in exchange for
services, as well as interest income. Appreciation in securities was $12.8
million for the three months ended March 31, 2000. The increase was due
primarily to the $12.3 million increase in the value of our wholly owned
subsidiary that is the general partner of Walnut Growth Partners, L.P. ("WGP").
See Note 2 of the Notes to Consolidated Financial Statements. Tower Hill
Securities was not engaged in these activities during the comparable period in
1999.
Expenses
Selling, general and administrative expenses for the three months ended
March 31, 2000 increased to $3.0 million from $503 thousand for the three months
ended March 31, 1999. The increase was primarily due to increases in
compensation and related benefits and professional fees. Compensation and
related benefits expense increased to $1 million for the three months ended
March 31, 2000 from $306 thousand for the three months ended March 31, 1999.
Compensation expenses included bonuses to professionals related to the improved
results from our venture banking services, as well as our hiring of additional
employees to provide venture development and venture banking services to our
venture partner companies. Professional fees for the three months ended March
31, 2000 increased to $1.3 million from $20 thousand for the three months ended
March 31, 1999. The increase in professional fees primarily related to fees paid
to legal and accounting professional services firms for services in connection
with the preparation and filing of documents with the SEC and for professional
fees related to our provision of venture funding services, which services Tower
Hill Securities did not provide prior to 1999.
Equity-based compensation for the three months ended March 31, 2000 was
$2.1 million. There was no equity-based compensation for the three months ended
March 31, 1999.
Amortization for the three months ended March 31, 2000 increased to
$891 thousand from $7 hundred for the three months ended March 31, 1999. The
increase in amortization expenses is primarily related to the amortization of
goodwill from our merger with Walnut Financial Services on November 1, 1999 and
the acquisition of Mercury Coast on December 29, 1999.
Our provision for income taxes for the three months ended March 31,
2000 increased to $3.6 million from $12 thousand for the three months ended
March 31, 1999. This increase was primarily due to the increase in net income
for the three month period ended March 31, 2000.
We incurred a loss in the three months ended March 31, 2000 from
discontinued operations of $5.4 million ($3.2 million after-tax). We decided to
discontinue the accounts receivable factoring business. See Note 3 of the Notes
to Consolidated Financial Statements.
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<PAGE>
Liquidity and Capital Resources
Our business is capital intensive. In the future, we expect
periodically to raise funds to acquire equity interests in and establish new
partner companies, to support our operations and expand our venture development
and venture banking services, and to support the operations and growth of our
partner companies. Our future capital requirements will depend in large part on
the number of partner companies in which we acquire equity interests and which
we establish, the amounts of capital we provide to these companies and the
timing of these payments. Our plans and the related capital requirements will be
dependent on various factors, such as developments in our markets and the
availability of acquisition and entrepreneurial opportunities. If we are
successful in selling additional equity securities, our then existing
stockholders may suffer significant dilution. However, we may not be able to
obtain financing on acceptable terms, or at all, when we need it. If we require,
but are unable to obtain, additional financing in the future on acceptable
terms, or at all, we will not be able to continue our business strategy, respond
to changing business or economic conditions, withstand adverse operating results
or compete effectively, and our business, financial condition and operating
results may be materially and adversely affected as a result.
In February, 2000, we called for the redemption of our outstanding
Class A Warrants (the "Warrants"), thereby causing the holders to exercise all
of the Warrants for $9 per share of common stock. This resulted in proceeds to
us of approximately $5.7 million. We issued 633,373 new shares of common stock
upon exercise of the Warrants. We filed a registration statement with the SEC
covering the resale of these shares for a period of 90 days. This period will
end on August 7, 2000.
During the three months ended March 31, 2000, cash used in operating
activities was $2.2 million compared to $425 thousand for the three months ended
March 31, 1999.
Cash provided by financing activities was $5.7 million for the three
months ended March 31, 2000 compared to none for the three months ended March
31, 1999. This consisted primarily of proceeds from the exercise of the
Warrants. We intend to continue to raise capital to finance our strategy of
building dominant venture partner companies.
Certain of our venture partner companies have the right to require that
we purchase additional equity interests in these companies in an aggregate
amount of cash approximating $350 thousand.
New Accounting Pronouncements
In December 1999, the SEC issued Staff Accounting Bulletin ("SAB") No.
101, "Revenue Recognition in Financial Statements." SAB No. 101 expresses the
views of the SEC staff in applying generally accepted accounting principles to
certain revenue recognition issues. In June 2000, the SEC issued SAB No. 101B to
defer the effective date of the implementation of SAB No. 101 until the fourth
quarter of fiscal 2000. Management is currently evaluating the impact of
adopting this SAB, but does not believe that this SAB will have a material
impact on its financial position or its results of operations.
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<PAGE>
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS
(a) Exhibits
The following exhibit replaces the previously filed Exhibit No. 27.1 in
its entirety:
Exhibit No. Description
----------- -----------
27.1 Financial Data Schedule.
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<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Amendment No. 1 on
Form 10-Q/A to be signed on its behalf by the undersigned, thereunto duly
authorized.
THCG, INC.
By: /s/ Adi Raviv
---------------------------------
Name: Adi Raviv
Title: Co-Chairman of the Board of
Directors and Chief Financial
Officer
Date: November 14, 2000
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<PAGE>
EXHIBIT LIST
Exhibit No. Description
----------- -----------
27.1 Financial Data Schedule.
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