-----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, A5rGrzg5gFkhdbWXDHCEMs05xRDuTM0YH5FIcAPXVCGdLMemPwItivnvrLgJka6e js78N284bBhyi61z+zbk5g== 0000052234-97-000010.txt : 19971117 0000052234-97-000010.hdr.sgml : 19971117 ACCESSION NUMBER: 0000052234-97-000010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 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: SEC FILE NUMBER: 000-09667 FILM NUMBER: 97721480 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 NOVEMBER 14, 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 SEPTEMBER 30, 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 SEPTEMBER 30, 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 October 31, 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 BULL & BEAR GROUP, INC. FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1997 INDEX Page Number PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets - (Unaudited) September 30, 1997 and December 31, 1996 3 Consolidated Statements of Income (Loss) - (Unaudited) Three and Nine Months Ended September 30, 1997 and September 30, 1996 Consolidated Statements of Changes in Shareholders' Equity - (Unaudited) Nine Months Ended September 30, 1997 and September 30, 1996 5 Consolidated Statements of Cash Flows - (Unaudited) Nine Months Ended September 30, 1997 and September 30, 1996 6 Notes to Consolidated Financial Statements (Unaudited) 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 14 Management's Representation and Signatures 17 2 BULL & BEAR GROUP, INC. CONSOLIDATED BALANCE SHEETS (UNAUDITED) September 30, December 31, 1997 1996 ------------- ------------ ASSETS Current Assets: Cash and cash equivalents $ 1,397,785 $ 747,444 Marketable securities (Note 4) 736,528 1,176,547 Management, distribution and service fees receivable 280,403 207,944 Interest, dividends and other receivables 219,239 204,684 Prepaid expenses and other assets 332,386 289,712 ----------- ----------- Total Current Assets 2,966,341 2,626,331 ----------- ----------- Real estate held for investment, net 588,381 438,187 Furniture and fixtures, net 208,185 237,851 Excess of cost over net book value of subsidiaries, net 737,045 765,665 Other 234,933 205,076 ----------- ----------- 1,768,544 1,646,779 ----------- ----------- Total Assets $4,734,885 $ 4,273,110 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable $ 150,366 $ 134,544 Accrued professional fees 104,906 81,285 Accrued subadvisory fees 35,708 40,388 Current portion of capitalized lease obligation 12,282 12,282 Accrued payroll and other 60,618 53,012 Other 34,883 11,620 ----------- ----------- Total Current Liabilities 398,763 333,131 ----------- ----------- Capitalized lease obligation 12,460 22,093 ----------- ----------- Shareholders' Equity: (Notes 4, 5, and 6) 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) (1,967,492) (2,462,478) Unrealized gains on marketable securities (Notes 1 and 4) 41,376 130,586 ---------- ---------- Total Shareholders' Equity 4,323,662 3,917,886 ---------- ---------- Total Liabilities and Shareholders' Equity $4,734,885 $ 4,273,110 ========== =========== See accompanying notes to consolidated financial statements. 3 BULL & BEAR GROUP, INC. CONSOLIDATED STATEMENTS OF INCOME (LOSS) (UNAUDITED)
Three Months Ended Nine Months Ended September 30, September 30, 1997 1996 1997 1996 ---- ---- ---- ---- Revenues: Management, distribution and service fees $1,053,299 $1,320,836 $3,371,701 $3,542,533 Brokerage fees and commissions 594,629 486,422 1,811,152 1,782,141 Realized gains from investments 0 70,228 86,458 70,228 Dividends, interest and other 36,204 27,383 92,707 91,194 ---------- ---------- ------------ ----------- 1,684,132 1,904,869 5,362,018 5,486,096 --------- --------- ---------- --------- Expenses: General and administrative 782,487 824,909 2,448,435 2,706,117 Marketing 220,937 344,092 733,120 1,517,496 Clearing and brokerage charges 159,345 153,371 463,027 541,019 Expense reimbursements to the Funds (note 10) 132,427 127,516 594,496 250,296 Subadvisory fees 88,254 213,938 297,497 527,562 Amortization and depreciation 36,164 31,173 99,991 107,029 Professional fees 33,974 55,406 197,372 286,346 ---------- --------- ------------ ----------- 1,453,588 1,750,405 4,833,938 5,935,865 --------- --------- ---------- ---------- Income (loss) before income taxes 230,544 154,464 528,080 (449,769) Income taxes (note 8) 14,800 19,791 33,094 33,542 ----------- ----------- ----------- ----------- Net income (loss) $ 215,744 $ 134,673 $ 494,986 $(483,311) ========= ========= ========= ========== Per share data: Primary and fully diluted Net income (loss) $.15 $.09 $.34 $(.33) ==== ==== ===== ====== Average shares outstanding: Primary 1,452,019 1,490,096 1,464,172 1,467,177 ========= ========= ========= ========= Fully diluted 1,454,245 1,492,916 1,467,730 1,467,177 ========= ========= ========= =========
See accompanying notes to the consolidated financial statements. 4 BULL & BEAR GROUP, INC. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY NINE MONTHS ENDED SEPTEMBER 30, 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 ------ ------ ------ ------ --------------- ----------- ---------- ---------- Nine Months Ended September 30, 1996 Balance, January 1, 1996 1,348,017 20,000 13,481 200 6,232,347 (2,141,953) 66,020 4,170,095 Proceeds from issuance of Class A Common Stock, par value $.01 2,000 -- 20 -- 3,730 -- -- 3,750 Net loss -- -- -- -- -- (483,311) -- (483,311) Change in unrealized gains on marketable securities -- -- -- -- -- -- (52,619) (52,619) ---------- ------- ------- ----- ------------ ------------ ---------- ------------ Balance, September 30, 1996 $1,350,017 $20,000 $13,501 $200 $6,236,077 $(2,625,264) $13,401 $3,637,915 ========== ======= ======= ==== ========== ============ ======== ========== Nine Months Ended September 30, 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 -- -- -- -- -- 494,986 -- 494,986 Change in unrealized gains on marketable securities -- -- -- -- -- -- (89,210) (89,210) ---------- ------- -------- ----- ----------- ------------ -------- ---------- Balance, September 30, 1997 $1,350,017 $20,000 $13,501 $200 $6,236,077 $(1,967,492) $ 41,376 $4,323,662 ========== ======= ======= ==== ========== ============ ======== ==========
See accompanying notes to the consolidated financial statements. 5 BULL & BEAR GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Nine Months Ended September 30, 1997 1996 ----------- ----------- Cash Flows from Operating Activities: Net income (loss) $ 494,986 $ (483,311) --------- ------------- Adjustments to reconcile net income to net cash provided by (used in) Operating Activities: Depreciation and amortization 99,991 107,029 Increase in cash value of life insurance (24,083) (22,500) Gain on sale of investments (86,458) (70,228) Other (11,775) - (Increase) decrease in: Management, distribution and service fees receivable (72,459) (146,842) Interest, dividends and other receivables (14,555) 20,342 Prepaid expenses and other assets (42,674) 119,862 Other (5,774) (4,638) Increase (decrease) in: Accounts payable 15,822 (458,637) Accrued professional fees 23,621 14,915 Accrued subadvisory fees (4,680) 198,890 Obligations on capital leases (9,633) 37,834 Accrued payroll and other costs 7,606 - Cash overdraft - 43,497 Other 23,263 (33,767) ----------- ---------- Total adjustments (101,788) (194,243) ----------- ---------- Net cash provided by (used in) Operating Activities 393,198 (677,554) ----------- ---------- Cash Flows from Investing Activities: Proceeds from sales of investments 547,129 185,763 Purchases of investments (98,040) (9,256) Capital expenditures (168,785) (208,385) Purchases of equipment (23,161) - Sale of real estate - 43,762 Acquisition of intangible assets - (77,234) ----------- ---------- Net cash provided by (used in) Investing Activities 257,143 (65,350) ----------- --------- Cash Flows from Financing Activities: Proceeds from issuance of Class A Common Stock - 3,750 ----------- --------- Net cash provided by Financing Activities - 3,750 ----------- --------- Net increase (decrease) in cash and cash equivalents 650,341 (739,154) Cash and cash equivalents: At beginning of period 747,444 1,467,674 ------------ ---------- At end of period $ 1,397,785 $ 728,520 =========== ========== Supplemental disclosure: The Company did not pay any interest or Federal income taxes during the nine months ended September 30, 1997 or 1996. The Company paid approximately $900 and $375 in interest expense during the nine months ended September 30, 1997 and 1996. See accompanying notes to the consolidated financial statements. 6 BULL & BEAR GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1997 AND 1996 (UNAUDITED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF BUSINESS Bull & Bear Group, Inc. ("Company") is a holding company. Its subsidiaries' businesses consist 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 September 30, 1997 and December 31, 1996, the Company and subsidiaries had invested approximately $1,312,771 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 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. INCOME TAXES The Company and its wholly-owned subsidiaries file consolidated income tax returns. The Company's method of 7 BULL & BEAR GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1997 AND 1996 (UNAUDITED) 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 September 30, 1997 and December 31, 1996, accumulated depreciation amounted to $45,991 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 September 30, 1997 and December 31, 1996, accumulated depreciation amounted to $802,126 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 September 30, 1997 and December 31, 1996, accumulated amortization amounted to $613,767 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 and nine months ended September 30, 1997 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 fifteen years using the straight-line method. 3. 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 2,000 square feet. The rent is approximately $55,000 per annum and expires on August 30, 1999. 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 $26,180 has been recognized on this property as of September 30, 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 ========== 8 BULL & BEAR GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1997 AND 1996 (UNAUDITED) 4. MARKETABLE SECURITIES At September 30, 1997, marketable securities consisted of: Market Value ------------ Broker/dealer subsidiaries - at market U.S. Treasury Note due 6/30/99 507,968 ----------- Total broker/dealer securities (cost-$504,343) 507,968 ----------- Other companies Available-for-sale securities - at market Equity securities 175,238 Unaffiliated mutual funds 48,275 Affiliated mutual funds 5,047 ----------- Total available-for-sale securities (cost-$187,184) 228,560 ----------- $ 736,528 ========== 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 ========== 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 September 30, 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 September 30, 1997, these subsidiaries had net capital of approximately $658,000 and $590,000; net capital requirements of approximately $250,000 and $25,000; excess net capital of approximately $408,000 and $565,000; and the ratios of aggregate indebtedness to net capital were approximately .29 to 1 and .47 to 1, respectively. 9 BULL & BEAR GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1997 AND 1996 (UNAUDITED) 7. STOCK OPTIONS On December 6, 1995, the Company adopted a Long-Term Incentive Plan which provides for the granting 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. On February 5, 1996, 210,000 options were granted to six executive officers and 9,000 options were granted to non-executive officer employees, of which 214,000 options are exercisable on 2/5/98 and the remaining 5,000 options are exercisable on 2/5/99. 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. 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 September 30, Nine Months Ended September 30, 1997 1996 1997 1996 ---- ---- ---- ---- Net income(loss): As reported $215,744 $134,673 $494,986 $(483,311) Proforma $168,505 $95,346 $356,458 $(585,542) Earnings per share Primary and fully diluted: As reported $.15 $.09 $.34 $(.33) Proforma $.12 $.06 $.24 $(.40) 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%, riskfree interest rate of 6.59% and 5.3% and expected life of five years. 10 BULL & BEAR GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1997 AND 1996 (UNAUDITED) A summary of the status of the Company's stock option plans as of September 30, 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 Canceled (7,000) $2.20 ----------- OUTSTANDING AT SEPTEMBER 30, 1997 269,000 $2.02 ========== The weighted-average fair value of options granted were $2.16 for the nine months ended September 30, 1997 and $1.42 for the year ended December 31, 1996. The following table summarizes information about stock options outstanding at September 30, 1997: Options Outstanding Number Weighted-Average Range of Outstanding Remaining Weighted-Average Exercise Prices At 9/30/97 Contractual Life Exercise Price - --------------- ----------- ---------------- ---------------- $1.50 - $1.625 20,000 2.4 years $1.54 $1.875 - $2.0625 214,000 3.4 years $1.92 $2.75 - $3.00 35,000 4.2 years $2.93 In addition, there were 20,000 non-qualified stock options with an exercise price of $1.75 outstanding as of September 30, 1997, which were exercisable at September 30, 1997 and December 31, 1996. The remaining 249,000 options were not exercisable at September 30, 1997 and December 31, 1996. 8. INCOME TAXES The provision for income taxes charged to operations for the nine months ended September 30, 1997 and 1996 was as follows: 1997 1996 ---- ---- Current State and local $33,094 $33,542 Federal - -- ----------- --------- $33,094 $33,542 ======= ======= Deferred tax assets (liabilities) are comprised of the following at September 30, 1997 and December 31, 1996: 1997 1996 ---- ---- Unrealized loss (gain) on investments $(14,000) $(45,800) Net operating loss carryforwards 332,000 509,500 --------- --------- Total deferred tax assets 318,000 463,700 Deferred tax asset valuation allowance (318,000) (463,700) --------- --------- Net deferred tax assets $ - $ - ========= ========= 11 BULL & BEAR GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1997 AND 1996 (UNAUDITED) The change in the valuation allowance for the nine months ended September 30, 1997 was due to the net income and a decrease in 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. 9. 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 earnings of eligible employees and are accrued and funded on a current basis. Total pension expense for the nine months ended September 30, 1997 and September 30, 1996 were $34,810 and $31,600, respectively. 10. RELATED PARTIES All management and distribution fees are from providing services to the Funds, pursuant to written 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 administrative fees represent reimbursement of costs incurred by subsidiaries of the Company on behalf of the Funds. Such reimbursement amounted to $212,103 and $193,066 for the nine months ended September 30, 1997, and 1996, respectively. In connection with management services, the Company's investment managers waived or reimbursed management fees to the Funds in the amount of $594,496 and $250,296 for the nine months ended September 30, 1997 and 1996, respectively. Certain officers of the Company also serve as officers and/or directors of the Funds. 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 September 30, 1997, the policy had a cash surrender value of approximately $100,758 and is included in other assets in the balance sheet. The Company's discount brokerage subsidiary received brokerage commissions of approximately $174,297 and $157,757 from the Funds for the nine months ended September 30, 1997 and 1996, respectively. 11. COMMITMENTS AND 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. 12 BULL & BEAR GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1997 AND 1996 (UNAUDITED) 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 September 30, 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. Although a group called Karpus Investment Management is proposing a slate of nominees in opposition to management at the upcoming annual meeting of stockholders of Bull & Bear U.S. Government Securities Fund, Inc., a closed-end fund managed by a Company subsidiary, such meeting is scheduled for November 20, 1997 and the outcome cannot be predicted with certainty. 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 September 30, 1997 compared to Three Months Ended September 30, 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, total fund assets under management may decline by depreciation or by shareholder redemptions, either by transfer out of the equity Funds and into the money market Fund, which has 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 decreased $220,737 or 12% which was due to a decrease in management, distribution and shareholder administrative fees. Management, distribution and shareholder administrative fees decreased $267,537 or 20% because of a lower level of net assets under management. Net assets under management were approximately $393 million at June 30, 1996, $432.1 million at September 30, 1996, $328 million at June 30, 1997 and $353 million at September 30, 1997. Brokerage fees and commissions increased $108,207 or 22% while brokerage customers' equity increased to $251 million or 41% from September 30, 1996 to September 30, 1997. The increase in brokerage commissions was due to an increase in customer transaction activity. Dividends, interest and other income increased $8,821 due to higher earnings on the Company's investments. Total expenses decreased $296,817 or 17% as a result of a decrease in marketing expenses and subadvisory fees. Marketing expenses decreased $123,155 or 36%. Subadvisory fees decreased $125,684 or 59% because of a lower level of net assets in the Midas Fund. General and administrative expenses decreased $42,422 or 5%. Clearing and brokerage charges increased $5,974 or 4% because of an increased level of discount brokerage customer transactions processed, as previously noted. Professional fees decreased $21,432 or 39% due to lower litigation costs relating to the Maxus lawsuit. Net income for the period was $215,744 or $.15 per share as compared to net income of $134,673 or $.09 per share for 1996. Nine Months Ended September 30, 1997 compared to Nine Months Ended September 30, 1996 Total revenues decreased $124,078 or 2% which was primarily due to a decrease in management, distribution and shareholder administrative fees. Management, distribution and shareholder administrative fees decreased $170,832 or 5% because of a lower level of net assets under management. Net assets under management were approximately $237 million at December 31, 1995, $318 million at March 31, 1996, $393 million at June 30, 1996, $432.1 million at September 30, 1996, $401 million at December 31, 1996, $359 million at March 31, 1997, $328 million at June 30, 1997 and $353 million at September 30, 1997. Brokerage commissions increased $29,011 or 2% while brokerage customers' equity increased to $251 million or 41% from September 30, 1996 to September 30, 1997. The increase in brokerage commissions was due to an increase in customer transaction activity. In 1997, the Company had $86,458 in realized gains from the sale of investments in certain equity positions. Dividends, interest and other income increased $1,513 due to higher earnings on the Company's investments. Total expenses decreased $1,101,927 or 19% primarily as a result of a decrease in marketing expenses of $784,376 or 52%. General and administrative expenses decreased $257,682 or 10% because of lower compensation costs. Clearing and brokerage charges decreased $77,992 or 14% due to savings generated by a new clearing agreement commencing July, 1996. Professional fees decreased $88,974 or 31% due to lower litigation costs relating to the Maxus lawsuit. Subadvisory fees decreased $230,065 or 44% because of higher expense reimbursements and lower net assets of Midas Fund. Net income for the period was $494,986 or $.34 per share as compared to a net loss of $483,311 or $.33 per share for 1996. 14 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: September 30, 1997 December 31, 1996 ------------------ ----------------- Working Capital $2,567,578 $2,293,200 Total Assets $4,734,885 $4,273,110 Long Term Debt $ 12,460 $ 22,093 Shareholders' Equity $4,323,662 $3,917,886 Working capital, total assets and shareholders' equity increased $274,378, $461,775 and $405,776, respectively for the nine months ended September 30, 1997 primarily as a result of the net income of $494,986 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. Forward Looking Information Information or statements provided by or on behalf of the Company from time to time, including those within this Form 10-Q Quarterly Report, may contain certain "forward-looking information", including information relating to anticipated growth in revenues or earnings per share, anticipated changes in the amount and composition of assets under management and discount brokerage customers' equity and trading, anticipated expense levels, and expectations regarding financial market conditions. The Company cautions readers that any forward-looking information provided by or on behalf of the Company is not a guarantee of future performance and that actual results may differ materially from those in forward-looking information as a result of various factors, including but not limited to those discussed below. Further, such forward-looking statements speak only as of the date on which such statements are made, and the Company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. The Company's future revenues may fluctuate due to factors such as: the total value and composition of assets under management and discount brokerage customers' equity and trading, and related cash inflows or outflows in mutual funds and discount brokerage firms; fluctuations in the financial markets resulting in appreciation or depreciation of assets under management and discount brokerage customers' equity and trading; the relative investment performance of the Company's sponsored investment products as compared to competing products and market indices; the expense ratios and fees of the Company's sponsored products and services; investor sentiment and investor confidence in mutual funds and discount brokerage firms; the ability of the Company to maintain investment management fees and brokerage commissions at current levels; competitive conditions in the mutual funds and discount brokerage industries; the introduction of new mutual funds and investment products and new discount brokerage services; the ability of the Company to contract with the Funds for payment for administrative services offered to the Funds and Fund shareholders; the continuation of trends in the retirement plan marketplace favoring defined contribution plans and participant-directed investments; and the amount and timing of income from the Company's investment portfolio. The Company's future operating results are also dependent upon the level of operating expenses, which are subject to fluctuation for the following or other reasons: changes in the level of advertising expenses in response to market conditions or other factors; variations in the level of compensation expense incurred by the Company, including performance-based compensation based on the Company's financial results, as well as changes in response to the size of the total employee population, competitive factors, or other reasons; expenses and capital costs, including depreciation, amortization and other non-cash charges, incurred by the Company to maintain its administrative and service infrastructure; and unanticipated costs that may be incurred by the Company from time to 15 time to protect investor accounts and client goodwill. The Company's revenues are substantially dependent on revenues from the Funds, which could be adversely affected if the independent directors of one or more of the Funds determined to terminate or renegotiate the terms of one or more investment management agreements. The Company's business is also subject to substantial governmental regulation, and changes in legal, regulatory, accounting, tax, and compliance requirements may have a substantial effect on the Company's business and results of operations, including but not limited to effects on the level of costs incurred by the Company and effects on investor interest in mutual funds in general or in particular classes of mutual funds. 16 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: November 14, 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: November 14, 1997 /s/ Bassett S. Winmill ---------------------- Bassett S. Winmill Chairman of the Board, Director Dated: November 14, 1997 /s/ Robert D. Anderson ---------------------- Robert D. Anderson Vice Chairman, Director Dated: November 14, 1997 /s/ Mark C. Winmill ------------------- Mark C. Winmill Co-President, Chief Financial Officer, Director Dated: November 14, 1997 /s/ Thomas B. Winmill --------------------- Thomas B. Winmill, Esq. Co-President, General Counsel, Director Dated: November 14, 1997 ---------------------------- Charles A. Carroll, Director Dated: November 14, 1997 ----------------------------- Edward G. Webb, Jr., Director 17 EX-27 2 FDS -- SEPTEMBER 30,1997
5 9-Mos Dec-31-1997 Jan-01-1997 Sep-30-1997 1,397,785 736,528 499,642 0 0 2,966,341 1,644,683 848,117 4,734,885 398,763 0 0 0 13,701 4,309,961 4,323,662 0 5,362,018 0 0 4,833,938 0 0 528,080 33,094 0 0 0 0 494,986 .34 .34
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