-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TU/cXStFG1mqwPes/AdSvaER/5qu5C9/vI8wm1Lt/haQay16ii/pYVcseeAntFYq cvG8gu/fbiQCAiMOu1B3kQ== 0000052234-97-000005.txt : 19970520 0000052234-97-000005.hdr.sgml : 19970520 ACCESSION NUMBER: 0000052234-97-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970515 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BULL & BEAR GROUP INC CENTRAL INDEX KEY: 0000052234 STANDARD INDUSTRIAL CLASSIFICATION: INVESTMENT ADVICE [6282] IRS NUMBER: 131897916 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-09667 FILM NUMBER: 97607988 BUSINESS ADDRESS: STREET 1: 11 HANOVER SQ CITY: NEW YORK STATE: NY ZIP: 10005 BUSINESS PHONE: 2127850900 MAIL ADDRESS: STREET 1: 11 HANOVER SQ CITY: NEW YORK STATE: NY ZIP: 10005 10-Q 1 QUARTERLY REPORT As filed with the Securities and Exchange Commission on MAY 15, 1997 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 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, 1997 or TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period From _____________ to ____________ For Quarter Ended MARCH 31, 1997 Commission File Number 0-9667 BULL & BEAR GROUP, INC. (Exact name of registrant as specified in its charter) DELAWARE 13-1897916 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 11 HANOVER SQUARE, NEW YORK, NEW YORK 10005 (Address of principal executive offices) (Zip Code) 212-785-0900 (Company's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes X No The number of shares outstanding of each of the registrant's classes of common stock, as of April 30, 1997, were as follows: Class A Common Stock non-voting, par value $.01 per share - 1,350,017 shares Class B Common Stock voting, par value $.01 per share - 20,000 shares 1 BULL & BEAR GROUP, INC. FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1997 INDEX Page Number PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets - (Unaudited) March 31, 1997 and December 31, 1996 3 Consolidated Statements of Income (Loss) - (Unaudited) Three Months Ended March 31, 1997 and March 31, 1996 4 Consolidated Statements of Changes in Shareholders' Equity - (Unaudited) Three Months Ended March 31, 1997 and March 31, 1996 5 Consolidated Statements of Cash Flows - (Unaudited) Three Months Ended March 31, 1997 and March 31, 1996 6 Notes to Consolidated Financial Statements (Unaudited) 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 14 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders During First Quarter of the Year Ended December 31, 1997 15 Management's Representation and Signatures 16 2 BULL & BEAR GROUP, INC. CONSOLIDATED BALANCE SHEETS (UNAUDITED) March 31, December 31, 1997 1996 ASSETS Current Assets: Cash and cash equivalents $ 838,466 $ 747,444 Marketable securities (Note 3) 1,153,633 1,176,547 Management, distribution and shareholder administration fees receivable 254,065 207,944 Interest, dividends and other receivables 223,933 204,684 Prepaid expenses and other assets 275,314 289,712 ----------- ----------- Total Current Assets 2,745,411 2,626,331 ---------- ----------- Real estate held for investment, net 453,783 438,187 Furniture and fixtures, net 232,135 237,851 Excess of cost over net book value of subsidiaries, net (note 2) 756,289 765,665 Other 218,850 205,076 ----------- ------------ 1,661,057 1,646,779 ----------- ------------ Total Assets $4,406,468 $ 4,273,110 ========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable $ 183,381 $ 134,544 Accrued professional fees 105,973 81,285 Accrued payroll and other related costs 15,787 53,012 Accrued expenses 49,209 40,388 Current portion of capitalized lease obligation 12,282 12,282 Other current liabilities 11,620 11,620 ------------ ----------- Total Current Liabilities 378,252 333,131 ---------- ----------- Capitalized lease obligation (Note 4) 17,841 22,093 ----------- ----------- Contingencies(Note 11) - - Shareholders' Equity: (Notes 3, 5, 6 and 7) Common Stock, $.01 par value Class A, 10,000,000 shares authorized; 1,350,017 shares issued and outstanding 13,501 13,501 Class B, 20,000 shares authorized; 20,000 shares issued and outstanding 200 200 Additional paid-in capital 6,236,077 6,236,077 Retained earnings (deficit) (2,346,823) (2,462,478) Unrealized gains on marketable securities 107,420 130,586 ------------ ------------ Total Shareholders' Equity 4,010,375 3,917,886 ---------- ----------- Total Liabilities and Shareholders' Equity $4,406,468 $ 4,273,110 ========== =========== See accompanying notes to consolidated financial statements. 3
BULL & BEAR GROUP, INC. CONSOLIDATED STATEMENTS OF INCOME (LOSS) (UNAUDITED) Three Months Ended March 31, 1997 1996 Revenues: Management, distribution and service fees $ 1,235,306 $ 914,012 Brokerage fees and commissions 652,526 571,919 Dividends, interest and other 24,059 40,538 ---------- ---------- 1,911,891 1,526,469 Expenses: General and administrative 863,672 943,301 Marketing 281,112 531,175 Expense reimbursements to the Funds (Note 10) 267,308 49,107 Clearing and brokerage charges 152,228 178,610 Subadvisory fees 115,790 89,907 Professional fees 67,928 111,270 Amortization and depreciation 31,555 36,873 ---------- ---------- 1,779,593 1,940,243 Income (loss) before income taxes 132,298 (413,774) Income taxes (note 9) 16,643 4,500 ----------- ----------- Net income (loss) $ 115,655 $(418,274) ========== ========== Per share data: Primary and fully diluted Net income (loss) $ .08 $ (.30) ======= ======= Average shares outstanding: Primary 1,467,624 1,417,324 ========= ========= Fully Diluted 1,474,292 1,417,324 ========= =========
See accompanying notes to the consolidated financial statements. 4 BULL & BEAR GROUP, INC. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY THREE MONTHS ENDED MARCH 31, 1997 AND 1996 (UNAUDITED) Unrealized Retained Gains on Total Class A Class B Class A Class B Additional Earnings Marketable Shareholders' Common Common Common Common Paid-in-Capital (Deficit) Securities Equity ------ ------ ------ ------ ---------- ------------- ----------- --------- Three Months Ended March 31, 1996 Balance, January 1, 1996 1,348,017 20,000 $13,481 $200 $6,232,347 $(2,141,953) $ 66,020 $4,170,095 Net loss -- -- -- -- -- (418,274) -- (418,274) Change in unrealized gains on marketable securities -- -- -- -- -- -- (5,717) (5,71 ---------- ------- -------- --------------- ----------- -------- ---------- Balance, March 31, 1996 1,348,017 20,000 $13,481 $200 $6,232,347 (2,560,227) $60,303 $3,746,104 ========= ====== ======= ==== ========== =========== ======= ========== Three Months Ended March 31, 1997 Balance, January 1, 1997 1,350,017 20,000 $13,501 $200 $6,236,077 (2,462,478) $130,586 $3,917,886 Net income -- -- -- -- -- 115,655 -- 115,655 Change in unrealized gains on marketable securities -- -- -- -- -- -- (23,166) (23,166) --------- ------ -------- --------------- ------------ --------- --------- Balance, March 31, 1997 1,350,017 20,000 $13,501 $200 $6,236,077 $(2,346,823) $107,420 $4,010,375 ========= ====== ======= === ========== ============ ======== ==========
5 BULL & BEAR GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Three Months Ended March 31, 1997 1996 ------------ ------- Cash Flows from Operating Activities: Net income (loss) $ 115,655 $(418,274) --------- ---------- Adjustments to reconcile net income (loss) to net cash provided by Operating Activities: Depreciation and amortization 31,555 36,873 Other (204) 9,011 (Increase) decrease in: Management, distribution and service fees receivable (46,121) (57,167) Interest, dividends and other receivables (19,249) (27,118) Prepaid expenses and other assets 14,398 9,118 Cash value of life insurance (8,000) (7,500) Other (5,774) (14,998) Increase (decrease) in: Accounts payable 48,837 (322,052) Accrued professional fees 24,688 - Accrued payroll and other related costs (37,225) - Accrued other expenses 8,821 123,768 Other - 33,393 --------------- ------------ Total adjustments 11,726 (216,672) ------------ ------------ Net cash provided by (used in) Operating Activities 127,381 (634,946) ----------- ------------ Cash Flows from Investing Activities: Purchases of investments - (10,585) Capital expenditures (32,107) (61,600) ------------ ------------ Net cash used in Investing Activities (32,107) (72,185) ------------ -------- Cash Flows from Financing Activities: Capitalized lease obligations (4,252) - -------------- -------------- Net cash used in Financing Activities (4,252) - -------------- -------------- Net increase (decrease) in cash and cash equivalents 91,022 (707,131) Cash and cash equivalents: At beginning of period 747,444 1,467,674 ----------- ---------- At end of period $ 838,466 $ 760,543 =========== ===========
Supplemental disclosure: The Company did not pay any Federal income taxes during the three months ended March 31, 1997 or 1996. The Company paid $309 and $132 in interest during the three months ended March 31, 1997 and March 31, 1996, respectively. See accompanying notes to the consolidated financial statements. 6 BULL & BEAR GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1997 AND 1996 (UNAUDITED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF BUSINESS Bull & Bear Group, Inc. ("Company") is a holding company. Its subsidiaries' business consists of providing investment management, distribution and shareholder administration services for the Bull & Bear Funds, Midas Fund and Rockwood Fund ("Funds") and discount brokerage services. BASIS OF PRESENTATION The consolidated financial statements include the accounts of Bull & Bear Group, Inc. and all of its subsidiaries. Substantially all intercompany accounts and transactions have been eliminated. ACCOUNTING ESTIMATES In preparing financial statements in conformity with generally accepted accounting principles, management makes estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses and other liabilities approximate fair value because of the short maturity of these items. Marketable securities are recorded at market value which represents the fair value of the securities. CASH AND CASH EQUIVALENTS Investments in money market funds are considered to be cash equivalents. At March 31, 1997 and December 31, 1996, the Company and subsidiaries had invested approximately $651,236 and $657,500, respectively, in an affiliated money market fund. MARKETABLE SECURITIES The Company and its non-broker/dealer subsidiaries' marketable securities are considered to be "available- for-sale" and recorded at market value, with the unrealized gain or loss included in stockholders' equity. Marketable securities for the broker/dealer subsidiaries are valued at market with unrealized gains and losses included in earnings. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK In the normal course of business, the Company's customer activities involve the execution and settlement of customer transactions. These activities may expose the Company to risk of loss in the event the customer is unable to fulfill its contracted obligations, in which case the Company may have to purchase or sell financial instruments at prevailing market prices. Any loss from such transactions is not expected to have a material effect on the Company's financial statements. BROKERAGE INCOME AND EXPENSES Brokerage commission and fee income and clearing and brokerage expenses are recorded on a settlement date basis. The difference between recording such income and expenses on a settlement date basis as opposed to trade date, as required by generally accepted accounting principles, is not material to the consolidated financial statements. 7 BULL & BEAR GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1997 AND 1996 (UNAUDITED) INCOME TAXES The Company and its wholly-owned subsidiaries file consolidated income tax returns. The Company's method of accounting for income taxes conforms to Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes". This method requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting basis and the tax basis of assets and liabilities. RECLASSIFICATIONS Certain reclassifications of the 1996 financial statements have been made to conform to the 1997 presentation. REAL ESTATE HELD FOR INVESTMENT AND EQUIPMENT Real estate held for investment is recorded at cost and is depreciated on a straight-line basis over its estimated useful life. At March 31, 1997 and December 31, 1996, accumulated depreciation amounted to $31,398 and $27,400, respectively. Equipment, furniture and fixtures are recorded at cost and are depreciated on the straight-line basis over their estimated useful lives, 3 to 10 years. At March 31, 1997 and December 31, 1996, accumulated depreciation amounted to $765,528 and $749,300, respectively. EXCESS OF COST OVER NET BOOK VALUE OF SUBSIDIARIES The excess of cost over net book value of subsidiaries is capitalized and amortized over fifteen and forty years using the straight-line method. At March 31, 1997 and December 31, 1996, accumulated amortization amounted to $594,523 and $585,100, respectively. Periodically, the Company reviews its intangible assets for events or changes in circumstances that may indicate that the carrying amounts of the assets are not recoverable. EARNINGS PER SHARE Primary and fully diluted earnings per share for the three months ended March 31, 1997 and March 31, 1996 is determined by dividing net income by the weighted average number of common shares outstanding after giving effect for common stock equivalents arising from stock options assumed converted to common stock. 2. ACQUISITION During the year ended December 31, 1996, the Company acquired the management of Rockwood Fund for approximately $31,300. This purchase was capitalized as part of excess of cost over net book value and is being amortized over 15 years using the straight-line method. 8 BULL & BEAR GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1997 AND 1996 (UNAUDITED) 3. MARKETABLE SECURITIES At March 31, 1997, marketable securities consisted of: Market Value Broker/dealer securities - at market U.S. Treasury Notes due 5/15/97 to 6/30/99 (cost $955,764) $ 958,500 ----------- Other companies Available-for-sale securities - at market Equity securities 150,917 Unaffiliated mutual funds 38,486 Affiliated mutual funds 5,730 ---------- Total available-for-sale securities (cost-$87,713) 195,133 --------- $1,153,633 At December 31, 1996, marketable securities consisted of: Broker/dealer securities - at market U.S. Treasury Notes due 5/15/97 to 6/30/99 (cost $956,925) $ 961,000 ----------- Other companies Available-for-sale securities - at market Equity securities 170,634 Unaffiliated mutual funds 37,251 Affiliated mutual funds 7,662 ---------- Total available-for-sale securities (cost-$84,961) 215,547 --------- $1,176,547
4. LEASE COMMITMENTS The Company has a lease for approximately 11,400 square feet of office space. The rent is approximately $144,000 per annum plus $32,550 per annum for electricity. The lease expires December 31, 1998 and is cancelable at the option of the Company on three months' notice. In addition, the Company's discount broker/dealer has a branch office in Boca Raton, Florida consisting of approximately 1,000 square feet. The rent is approximately $22,200 per annum and is cancelable at the option of the Company on six months' notice. The Company leases office equipment under capital leases expiring in 1999. The related property is included in furniture and equipment at a cost of $45,457 at December 31, 1996. Depreciation expense of $17,386 has been recognized on this property as of March 31, 1997. Future annual minimum lease payments under the capital leases together with the present value of the net minimum lease payments are as follows: Year Ending December 31, 1997 $ 13,201 1998 15,173 1999 7,586 ----------- Total minimum lease payments 35,960 Less amount representing interest and executory costs 1,585 ---------- Present value of minimum lease payments $ 34,375 ========= 9 BULL & BEAR GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1997 AND 1996 (UNAUDITED) 5. SHAREHOLDERS' EQUITY The Class A and Class B Common Stock are identical in all respects except for voting rights, which are vested solely in the Class B Common Stock. The Company also has 1,000,000 shares of Preferred Stock, $.01 par value, authorized. As of March 31, 1997 and December 31, 1996, none of the Preferred Stock was issued. 6. NET CAPITAL REQUIREMENTS The Company's broker/dealer subsidiaries are member firms of the National Association of Securities Dealers, Inc. and are registered with the Securities and Exchange Commission as broker/dealers. Under the Uniform Net Capital Rule (Rule 15c3-1 under the Securities Exchange Act of 1934), a broker/dealer must maintain minimum net capital, as defined, of not less than (a) $250,000 or, when engaged solely in the sale of redeemable shares of registered investment companies, $25,000, or (b) 6-2/3% of aggregate indebtedness, whichever is greater; and a ratio of aggregate indebtedness to net capital, as defined, of not more than 15 to 1. At March 31, 1997, these subsidiaries had net capital of approximately $668,700 and $643,500; net capital requirements of approximately $250,000 and $25,000; excess net capital of approximately $418,700 and $618,500; and the ratios of aggregate indebtedness to net capital were approximately .23 to 1 and .40 to 1, respectively. 7. STOCK OPTIONS On December 6, 1995, the Company adopted a Long-Term Incentive Plan which provides for the granting of a maximum of 300,000 options to purchase Class A Common Stock to directors, officers and key employees of the Company or its subsidiaries. The plan was amended on February 5, 1996. With respect to non-employee directors, only automatic grants of stock options of 10,000 are available on the date the non-employee director is elected, except for the current two non-employee directors who were granted 10,000 options each on December 6, 1995. The option price per share may not be less than the fair value of such shares on the date the option is granted, and the maximum term of an option may not exceed ten years except as to non-employee directors for which the maximum term is five years. If the recipient of any option owns 10% or more of the Class B shares, the option price must be at least 110% of the fair market value and the option must be exercised within five years of the date the option is granted. The plan also provides for reload options in which non-qualified options may be granted to officers and key employees when payment of the option price of the original outstanding options is with previously owned shares of the Company. These reload options have to be equal to the number of shares surrendered in payment of the option price of the original options, have an option price equal to the fair market value of such shares on the date the reload option is granted and have the same expiration date as the original option. The 1990 Incentive Stock Option Plan provided for the granting of a maximum of 500,000 options to purchase Class A Common Stock to directors, officers and key employees of the Company. The option price per share may not be less than the greater of 100% of the fair market value or the par value of such shares on the date the option is granted, and the maximum term of an option may not exceed ten years. If the recipient of any option owns 10% or more of the total combined voting power of all classes of stock, the option price must be at least 110% of the fair market value and the option must be exercised within five years of the date the option is granted. 10 BULL & BEAR GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1997 AND 1996 (UNAUDITED) The Company applies APB Opinion 25 and related interpretations in accounting for its stock option plans. Accordingly, no compensation cost has been recognized for its stock option plans. Had compensation cost for the Company's plans been determined based on the fair value at the grant dates for awards under these plans consistent with the method of Financial Accounting Standards No.123 "Accounting for Stock-Based Compensation (SFAS 123); the Company's net income and earnings per share would have been reduced to the proforma amounts indicated below: Three Months Ended March 31, 1997 1996 Net income(loss): As reported $115,655 $(418,274) Proforma $ 71,092 $(440,985) Earnings per share Primary and fully diluted: As reported $.08 $(.30) Proforma $.05 $(.31) The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions used for grants in 1997 and 1996: expected volatility of 86.80 and 94.04%, risk-free interest rate of 6.59% and 5.3% and expected life of five years. A summary of the status of the Company's stock option plans as of March 31, 1997 and December 31, 1996, and changes during the periods ending on those dates is presented below: NUMBER WEIGHTED AVERAGE OF EXERCISE STOCK OPTIONS SHARES PRICE OUTSTANDING AT DECEMBER 31, 1995 49,000 $1.76 Granted 229,000 $1.95 Exercised (2,000) $1.88 Canceled (27,000) $1.91 ----------- OUTSTANDING AT DECEMBER 31, 1996 249,000 $1.92 =========== Granted 27,000 $3.00 ----------- OUTSTANDING AT MARCH 31, 1997 276,000 $2.03 ========= There were no options exercisable at March 31, 1997 and December 31, 1996. The weighted-average fair value of options granted were $2.16 for the three months ended March 31, 1997 and $1.42 for the year ended December 31, 1996 The following table summarizes information about stock options outstanding at March 31, 1997: Options Outstanding Number Weighted-Average Range of Outstanding Remaining Weighted-Average Exercise Prices At 3/31/97 Contractual Life Exercise Price - ----------------- --------------- ----------------- --------------- $1.50 - $1.625 20,000 3.0 years $1.54 $1.875 - $2.0625 219,000 3.9 years $1.92 $2.75 - $3.00 27,000 4.7 years $2.92 In addition, there were 20,000 non-qualified stock options with an exercise price of $1.75 outstanding as of March 31, 1997, none of which were exercisable. 11 BULL & BEAR GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1997 AND 1996 (UNAUDITED) 8. PENSION PLAN The Company has a 401(k) retirement plan for substantially all of its qualified employees. Contributions to this are based upon a percentage of salaries of eligible employees and are accrued and funded on a current basis. Total pension expense for the three months ended March 31, 1997 and March 31, 1996 were $12,655 and $12,175, respectively. 9. INCOME TAXES The provision for income taxes charged to operations for the three months ended March 31, 1997 and 1996 was as follows: 1997 1996 ---- ---- Current State and local $16,643 $4,500 Federal -- -- -------- --------- $16,643 $4,500 ======= ====== Deferred tax assets (liabilities) are comprised of the following at March 31, 1997 and December 31, 1996: 1997 1996 ---- ---- Unrealized loss (gain) on investments $ (37,000) $ (45,800) Net operating loss carryforwards 464,000 509,500 -------- -------- Total deferred tax assets 427,000 463,700 Deferred tax asset valuation allowance (427,000) (463,700) -------- -------- Net deferred tax assets $ - $ - =========== =========== The change in the valuation allowance for the three months ended March 31, 1997 was due to the decrease in net operating losses at the end of the period and the decrease in the unrealized gain on investments. The provision for income taxes differs from the amount of income taxes determined by applying the applicable U.S. statutory Federal tax rates to pre-tax income as a result of utilization of net operating loss carryforwards. At December 31, 1996, the Company had net operating loss carryforwards for Federal income tax purposes of approximately $1,498,600, of which $1,033,100, $187,800, $62,700 and $215,000 expire in 2004, 2005, 2006 and 2011, respectively. 10. RELATED PARTIES All management and distribution fees are from providing services to the Funds. All such services are provided pursuant to agreements that set forth the fees to be charged for these services. These agreements are subject to annual review and approval by each Fund's Board of Directors and a majority of the Fund's non-interested directors. Shareholder administration fees represent reimbursement of costs incurred by subsidiaries of the Company on behalf of the Funds. Such reimbursement amounted to $73,459 and $52,593 for the three months ended March 31, 1997, and 1996, respectively. In connection with management services, the Company's investment managers, Bull & Bear Advisers, Inc., Midas Management Corporation and Rockwood Advisers, Inc. waived or reimbursed management fees to the Funds in the amount of $267,308 and $49,107 for the three months ended March 31, 1997 and 1996, respectively. Certain officers of the Company also serve as officers and/or directors of the Funds. 12 BULL & BEAR GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1997 AND 1996 (UNAUDITED) Commencing August 1992, the Company obtained a key man life insurance policy on the life of the Company's Chairman which provides for the payment of $1,000,000 to the Company upon his death. As of March 31, 1997, the policy had a cash surrender value of approximately $84,700 and is included in other assets in the balance sheet. The Company's discount brokerage subsidiary received brokerage commissions of approximately $97,167 and $34,148 from the Funds for the three months ended March 31, 1997 and 1996, respectively. 11. CONTINGENCIES The Company and its directors are defendants in a lawsuit brought on April 24, 1995 by Maxus Investment Group, Maxus Capital Partners, Maxus Asset Management, Inc., and Maxus Securities Corp. (collectively "Maxus"), which now claim to collectively own or control 144,000 shares, or approximately 10.7% of the Class A Common stock of the Company. The action, seeking declaratory and injunctive relief, was filed in the federal district court for the Southern District of New York and purports to be brought on the plaintiffs' own behalf and derivatively on behalf of the Company. On April 11, 1996, the district court dismissed as a matter of law all claims brought by the plaintiffs except those relating to the voiding of 1993 exercises, the exercise of certain 1990 stock options and plaintiffs' request for attorneys' fees from the Company. Defendants thereafter filed answers denying liability. The Company believes that the lawsuit is without merit and intends to continue defending the remaining claims vigorously. From time to time, the Company and/or its subsidiaries are threatened or named as defendants in litigation arising in the normal course of business. As of March 31, 1997, neither the Company nor any of its subsidiaries was involved in any other litigation that, in the opinion of management, would have a material adverse impact on the consolidated financial statements. In July 1994, the Company entered into a Death Benefit Agreement ("Agreement") with the Company's Chairman. Following his death, the Agreement provides for annual payments to his wife until her death amounting to 80% of his average annual salary for the three year period prior to his death subject to certain adjustments. The Company's obligations under the Agreement are not secured and will terminate if he leaves the Company's employ under certain conditions. 13 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Three Months Ended March 31, 1997 compared to Three Months Ended March 31, 1996 Drastic declines in the securities markets can have a significant effect on the Company's business. Volatile stock markets may affect management and distribution fees earned by the Company's subsidiaries. If the market value of securities owned by the Funds declines, shareholder redemptions may occur, either by transfer out of the equity Funds and into the fixed income Funds, which generally have lower management and distribution fee rates than the equity Funds, or by transfer out of the Funds entirely. Lower asset levels in the Funds may also cause or increase reimbursements to the Funds pursuant to expense limitations as described in Note 10 of the financial statements. In addition, volatile stock markets could have a significant effect on the brokerage commissions earned by BBSI by affecting the number of transactions processed. Total revenues increased $385,422 or 25% which was primarily due to an increase in management, distribution and shareholder administration fees of $321,294 or 35% because of a higher level of net assets under management, and due to an increase in brokerage fees and commissions of $80,607 or 14% because of an increased level of discount brokerage customer transactions processed. Net assets under management were approximately $237.4 million at December 31, 1995, $317.6 million at March 31, 1996, $393.2 million at June 30, 1996, $432.1 million at September 30, 1996, $400.9 million at December 31, 1996, and $359 million at March 31, 1997. Discount brokerage customers' equity increased to $200 million or 27%. Dividends, interest and other income decreased $16,479 due to lower earnings on the Company's short term investments. Total expenses decreased $160,650 or 8% primarily as a result of a decrease in marketing expenses of $250,063 or 47%. General and administrative expenses decreased $79,629 or 8% primarily because of lower compensation costs. Expense reimbursements to the Funds increased $218,201 or 444% which is primarily due to an increase in the expense reimbursement to the Midas Fund. Clearing and brokerage charges decreased $26,382 or 15% due to the savings from a new clearing agreement signed in July of 1996. Subadvisory fees increased $25,883 because of the growth in assets of the Midas Fund. Professional fees decreased $43,342 or 39% due to lower litigation costs relating to the Maxus lawsuit. Net income for the period was $115,655 or $.08 per share as compared to a net loss of $418,274 or $.30 per share for 1996. Liquidity and Capital Resources The following table reflects the Company's consolidated working capital, total assets, long term debt and shareholders' equity as of the dates indicated: March 31, 1997 December 31, 1996 -------------- ----------------- Working Capital $2,367,159 $2,293,200 Total Assets $4,406,468 $4,273,110 Long Term Debt $17,841 $22,093 Shareholders' Equity $4,010,375 $3,917,886 Working capital, total assets and shareholders' equity increased $73,959, $133,358 and $92,489, respectively for the three months ended March 31, 1997 primarily as a result of the net income for the period. As discussed previously, significant changes in the securities markets can have a dramatic effect on the Company's results of operations. Based on current information available, management believes that current resources are sufficient to meet its liquidity needs. Effects of Inflation and Changing Prices Since the Company derives most of its revenues from acting as the manager and distributor of mutual funds, discount brokerage services and from general investments, it is not possible for it to discuss or predict with accuracy the impact of inflation and changing prices on its revenue from continuing operations. 14 PART II. OTHER INFORMATION ITEMS 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS DURING FIRST QUARTER OF THE YEAR ENDED DECEMBER 31, 1997 At the annual meeting of Class B shareholder held March 4, 1997, the following matters were unanimously approved: the selection of Tait, Weller & Baker as the independent accountants of the Company and the election of Robert D. Anderson, Bassett S. Winmill, Charles A. Carroll, Mark C. Winmill, Edward G. Webb, Jr. and Thomas B. Winmill as directors of the Company. 15 MANAGEMENT'S REPRESENTATION The information furnished in this report reflects all adjustments which are, in the opinion of management, necessary to a fair statement of the results of the period. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. BULL & BEAR GROUP, INC. Dated: May 15, 1997 By:/s/ Joseph Leung ---------------- Joseph Leung Treasurer, Chief 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 the Company and in the capacities and on the date indicated. Dated: May 15, 1997 /s/ Bassett S. Winmill ---------------------- Bassett S. Winmill Chairman of the Board, Director Dated: May 15, 1997 /s/ Robert D. Anderson ---------------------- Robert D. Anderson Vice Chairman, Director Dated: May 15, 1997 /s/ Mark C. Winmill ------------------- Mark C. Winmill Co-President, Chief Financial Officer, Director Dated: May 15, 1997 /s/ Thomas B. Winmill --------------------- Thomas B. Winmill, Esq. Co-President, General Counsel, Director Dated: May 15, 1997 /s/ Charles A. Carroll, Director Dated: May 15, 1997 /s/ Edward G. Webb, Jr., Director 16 EX-27 2 FDS --
5 3-Mos Dec-31-1997 Jan-01-1997 Mar-31-1997 836,466 1,153,633 477,998 0 0 2,745,411 1,482,844 796,926 4,406,468 378,252 0 0 0 13,701 3,996,674 4,406,468 0 1,911,891 0 0 1,779,593 0 0 132,298 16,643 0 0 0 0 115,655 .08 .08
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