-----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, OfDN5KzTub4937pIa4Nc+0+d00YxpF6CnrXmEqLyXNmbbIghOX30Xvz8gERsayxn T+fAlBRzDAhPsCYx3kJXrg== 0000052234-98-000011.txt : 19980518 0000052234-98-000011.hdr.sgml : 19980518 ACCESSION NUMBER: 0000052234-98-000011 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980515 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: 98624249 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, 1998 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, 1998 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, 1998 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, 1998, 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, 1998 INDEX Page Number PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets - (Unaudited) March 31, 1998 and December 31, 1997 3 Consolidated Statements of Income (Loss) - (Unaudited) Three Months Ended March 31, 1998 and March 31, 1997 4 Consolidated Statements of Changes in Shareholders' Equity - (Unaudited) Three Months Ended March 31, 1998 and March 31, 1997 5 Consolidated Statements of Cash Flows - (Unaudited) Three Months Ended March 31, 1998 and March 31, 1997 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, 1998 15 Management's Representation and Signatures 16 2 BULL & BEAR GROUP, INC. CONSOLIDATED BALANCE SHEETS (UNAUDITED) March 31, December 31, 1998 1997 ASSETS Current Assets: Cash and cash equivalents $ 247,239 $ 312,633 Marketable securities (Note 2) 1,971,932 1,846,028 Management, distribution and shareholder administration fees receivable 251,530 268,984 Interest, dividends and other receivables 138,889 187,954 Prepaid expenses and other assets 334,099 411,821 ----------- ----------- Total Current Assets 2,943,689 3,027,420 ---------- ----------- Real estate held for investment, net 810,736 632,682 Furniture and fixtures, net 222,128 196,416 Excess of cost over net book value of subsidiaries, net (note 1) 717,700 727,373 Other 251,435 243,183 ----------- ------------ 2,001,999 1,799,654 ----------- ------------ Total Assets $4,945,688 $ 4,827,074 ========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable $ 166,635 $ 160,849 Accrued professional fees 87,978 93,335 Accrued payroll and other related costs -- 41,042 Accrued other expenses 39,697 45,225 Current portion of capitalized lease obligation 13,644 13,644 Other current liabilities 10,408 10,408 ------------ ----------- Total Current Liabilities 318,362 364,503 ---------- ----------- Capitalized lease obligation (Note 3) 3,839 7,460 ---------- ---------- Contingencies(Note 10) -- -- Shareholders' Equity: (Notes 2, 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 6,240,179 6,236,077 Retained earnings (deficit) (1,701,574) (1,836,753) Unrealized gains on marketable securities 71,181 42,086 ----------- ------------- Total Shareholders' Equity 4,623,487 4,455,111 ---------- ----------- Total Liabilities and Shareholders' Equity $4,945,688 $ 4,827,074 ========== =========== See accompanying notes to consolidated financial statements. 3 BULL & BEAR GROUP, INC. CONSOLIDATED STATEMENTS OF INCOME (LOSS) (UNAUDITED) Three Months Ended March 31, 1998 1997 Revenues: Management, distribution and service fees $ 877,608 $ 1,235,306 Brokerage fees and commissions 567,288 652,526 Dividends, interest and other 34,244 24,059 ---------- ---------- 1,479,140 1,911,891 Expenses: General and administrative 773,304 863,672 Marketing 258,543 281,112 Expense reimbursements to the Funds (Note 9) 22,273 267,308 Clearing and brokerage charges 140,390 152,228 Subadvisory fees 81,471 115,790 Professional fees 26,881 67,928 Amortization and depreciation 36,299 31,555 ---------- ---------- 1,339,161 1,779,593 Income (loss) before income taxes 139,979 132,298 Income taxes (note 8) 4,800 16,643 ----------- ----------- Net income (loss) $ 135,179 $ 115,655 ========= ========= Per share data: Basic $ .10 $ .08 ======= ===== Diluted $ .09 $ .08 ======= ===== Average shares outstanding: Basic 1,370,017 1,370,017 ========= ========= Diluted 1,478,514 1,467,624 ========= ========= 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, 1998 AND 1997 (UNAUDITED)
Unrealized Additional Retained Gains on Total Class A Class B Class A Class B Paid-in- Earnings Marketable Shareholders' Common Common Common Common Capital (Deficit) Securities Equity ------ ------ ------ ------ --------- --------- ----------- --------- 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 ========= ====== ======= ==== ========== ============ ========= ========== Three Months Ended March 31, 1998 Balance, January 1, 1998 1,350,017 20,000 $13,501 $200 $6,236,077 $(1,836,753) $42,086 $4,455,111 Net income -- -- -- -- -- 135,179 -- 135,179 Contribution to additional paid-in-capital -- -- -- -- 4,102 -- -- 4,102 Change in unrealized gains on marketable securities -- -- -- -- -- -- 29,095 29,095 ---------- ------- -------- ----- ------------ ------------ --------- --------- Balance, March 31, 1998 1,350,017 20,000 $13,501 $200 $6,240,179 $(1,701,574) $71,181 $4,623,487 ========= ====== ======= ==== ========== ============ ========= ==========
5 BULL & BEAR GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Three Months Ended March 31, 1998 1997 --------- -------- Cash Flows from Operating Activities: Net income $ 135,179 $ 115,655 --------- --------- Adjustments to reconcile net income to net cash provided by Operating Activities: Depreciation and amortization 36,299 31,555 Other 5,369 (204) (Increase) decrease in: Management, distribution and service fees receivable 17,454 (46,121) Interest, dividends and other receivables 49,065 (19,249) Prepaid expenses and other assets 77,722 14,398 Cash value of life insurance (8,250) (8,000) Other -- (5,774) Increase (decrease) in: Accounts payable 5,786 48,837 Accrued professional fees (5,357) 24,688 Accrued payroll and other related costs (41,042) (37,225) Accrued other expenses (5,528) 8,821 ---------- --------- Total adjustments 131,518 11,726 ---------- --------- Net cash provided by Operating Activities 266,697 127,381 ---------- ---------- Cash Flows from Investing Activities: Proceeds from sale of investments 70,801 -- Purchases of investments (172,979) -- Purchases of equipment (45,946) -- Capital expenditures (184,448) (32,107) ----------- ---------- Net cash used in Investing Activities (332,572) (32,107) ---------- ---------- Cash Flows from Financing Activities: Contribution to additional paid-in-capital 4,102 -- Capitalized lease obligations (3,621) (4,252) Net cash used in Financing Activities 481 (4,252) ----------- ----------- Net increase (decrease) in cash and cash equivalents (65,394) 91,022 Cash and cash equivalents: At beginning of period 312,633 747,444 ----------- ---------- At end of period $ 247,239 $ 838,466 =========== ========== Supplemental disclosure: The Company did not pay any Federal income taxes during the three months ended March 31, 1998 or 1997. The Company paid approximately $300 and $300 in interest during the three months ended March 31, 1998 and March 31, 1997, respectively. See accompanying notes to the consolidated financial statements. 6 BULL & BEAR GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1998 AND 1997 (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, 1998 and December 31, 1997, the Company and subsidiaries had invested approximately $145,000 and $260,300, 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, 1998 AND 1997 (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 1997 financial statements have been made to conform to the 1998 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, 1998 and December 31, 1997, accumulated depreciation amounted to approximately $58,000 and $51,600, 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, 1998 and December 31, 1997, accumulated depreciation amounted to approximately $839,100 and $818,900, 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, 1998 and December 31, 1997, accumulated amortization amounted to approximately $633,100 and $623,400, 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 The Company applies Statement of Financial Accounting Standards No. 128 "Earnings Per Share". The earnings per share for 1997 have been restated to conform to the provisions of this statement. Basic earnings per share is computed using the weighted average number of shares outstanding. Diluted earnings per share is computed using the weighted average number of shares outstanding adjusted for the incremental shares attributed to outstanding options to purchase common stock. The following table sets forth the computation of basic and diluted earnings per share: MARCH 31, 1998 1997 ---- ---- Numerator for basic and diluted earnings per share: Net income $ 135,179 $ 115,655 =========== ========= Denominator: Denominator for basic earnings per share - weighted-average shares 1,370,017 1,370,017 Effect of dilutive securities: Employee Stock Options 108,497 97,607 ---------- --------- Denominator for diluted earnings per share - adjusted weighted - average shares and assumed conversions 1,478,514 1,467,624 =========== ========= 8 BULL & BEAR GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1998 AND 1997 (UNAUDITED) 2. MARKETABLE SECURITIES At March 31, 1998, marketable securities consisted of: Market Value Broker/dealer securities - at market U.S. Treasury Notes due 6/30/99 to 9/30/00 (cost $1,338,373) $1,193,670 Affiliated mutual funds 150,000 ------------ 1,343,670 Other companies Available-for-sale securities - at market U.S. Treasury Notes due 9/30/00 354,465 Equity securities 228,336 Unaffiliated mutual funds 42,205 Affiliated mutual funds 3,256 ------------- Total available-for-sale securities (cost-$557,081) 628,262 ------------ $1,971,932 At December 31, 1997, marketable securities consisted of: Broker/dealer securities - at market U.S. Treasury Notes due 6/30/99 to 9/30/00 (cost $1,260,380) $ 1,265,943 ----------- Other companies Available-for-sale securities - at market U.S. Treasury Notes due 9/30/00 353,720 Equity securities 186,884 Unaffiliated mutual funds 36,324 Affiliated mutual funds 3,157 ---------- Total available-for-sale securities (cost-$537,999) 580,085 --------- $1,846,028 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 March 31, 1998. Depreciation expense of $32,830 has been recognized on this property as of March 31, 1998. 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, 1998 14,188 1999 7,586 ----------- Total minimum lease payments 21,774 Less: amount representing interest and executory costs 670 ------------ Present value of minimum lease payments $ 21,104 ======== 9 BULL & BEAR GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1998 AND 1997 (UNAUDITED) 4. 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, 1998 and December 31, 1997, none of the Preferred Stock was issued. 5. 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, 1998, these subsidiaries had net capital of approximately $499,500 and $625,100; net capital requirements of approximately $250,000 and $25,000; excess net capital of approximately $249,500 and $600,100; and the ratios of aggregate indebtedness to net capital were approximately .57 to 1 and .24 to 1, respectively. 6. 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 and October 29, 1997 increasing the maximum number of options to 450,000. With respect to non-employee directors, only grants of non-qualified stock options and awards of restricted shares are available The current two non-employee directors were granted 10,000 options each on December 6, 1995 and 5,000 options each on October 29, 1997. 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 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, 1998 AND 1997 (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. Proforma compensation cost for the Company's plans is required by Financial Accounting Standards No.123 "Accounting for Stock-Based Compensation (SFAS 123) and has been determined based on the fair value at the grant dates for awards under these plans consistent with the method of SFAS 123. For purposes of proforma disclosure, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's proforma information follows: THREE MONTHS ENDED MARCH 31, 1998 1997 ---- ---- Net income: As reported $135,179 $115,655 Proforma $111,711 $ 71,092 Earnings per share Basic: As reported $.10 $.08 Proforma $.08 $.05 Diluted: As reported $.09 $.08 Proforma $.08 $.05 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: expected volatility of 92.83%, risk-free interest rate of 5.85% and expected life of three years. A summary of the status of the Company's stock option plans as of March 31, 1998 and December 31, 1997, 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, 1996 249,000 $2.00 Granted 167,000 $2.53 Canceled (34,000) $1.97 ----------- OUTSTANDING AT DECEMBER 31, 1997 382,000 $2.23 =========== Canceled (9,000) $2.69 ---------- OUTSTANDING AT MARCH 31, 1998 373,000 $2.22 ========= There were 332,000 and 146,000 options exercisable at March 31, 1998 and December 31, 1997. The weighted-average fair value of options granted was $1.41 for the year ended December 31, 1997. The following table summarizes information about stock options outstanding at March 31, 1998: Options Outstanding Number Weighted-Average Range of Outstanding Remaining Weighted-Average Exercise Prices At 3/31/98 Contractual Life Exercise Price - ---------------- --------------- ----------------- --------------- $1.50 - $1.875 57,000 2.6 years $1.79 $2.0625 - $2.475 290,000 3.7 years $2.25 $2.75 - $3.00 26,000 3.7 years $2.90 In addition, there were 30,000 non-qualified stock options with a range of exercise prices of $1.75 - $2.25 outstanding and exerciseable as of March 31, 1998. 11 BULL & BEAR GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1998 AND 1997 (UNAUDITED) 7. 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, 1998 and March 31, 1997 were $14, 240 and $12,655, respectively. 8. INCOME TAXES The provision for income taxes charged to operations for the three months ended March 31, 1998 and 1997 was as follows: 1998 1997 ---- ---- Current State and local $ 4,800 $16,643 Federal -- -- -------- --------- $ 4,800 $16,643 ======= ======= Deferred tax assets (liabilities) are comprised of the following at March 31, 1998 and December 31, 1997: 1998 1997 ---- ---- Unrealized loss (gain) on investments $ (24,000) $ (16,200) Net operating loss carryforwards 228,000 277,100 -------- -------- Total deferred tax assets 204,000 260,900 Deferred tax asset valuation allowance (204,000) (260,900) -------- -------- Net deferred tax assets $ - $ - =========== =========== The change in the valuation allowance for the three months ended March 31, 1998 was due to the net income for the period and the increase 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, 1997, the Company had net operating loss carryforwards for Federal income tax purposes of approximately $815,000, of which $298,600, $187,800, $62,700 and $265,900 expire in 2004, 2005, 2006 and 2011, respectively. 9. 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 $ 72,950 and $73,459 for the three months ended March 31, 1998, and 1997, 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 $22,273 and $267,308 for the three months ended March 31, 1998 and 1997, 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, 1998 AND 1997 (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, 1998, the policy had a cash surrender value of approximately $117,300 and is included in other assets in the balance sheet. The Company's discount brokerage subsidiary received brokerage commissions of approximately $45,076 and $97,167 from the Funds for the three months ended March 31, 1998 and 1997, respectively. 10. 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. Although a group called Karpus Investment Management ("KIM") previously failed to elect its slate of nominees in opposition to management at the 1997 annual meeting of stockholders of Bull & Bear U.S. Government Securities Fund, Inc. ("BBG"), a closed-end fund managed by BBAI, another BBG annual meeting is scheduled for 1998. In addition, on February 19, 1998, BBG filed a lawsuit against KIM in the United States District Court for the Southern District of New York, 98 Civ. 1190, and KIM filed a lawsuit against BBG in the Circuit Court for Baltimore City, Maryland, Case No. 9805005. The outcome of these matters and their effect on the Company or BBAI's management agreement with BBG cannot be predicted with certainty. 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, 1998, 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 equal to 80% of his average annual salary for the three year period prior to his death subject to certain adjustments to his wife until her death. 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, 1998 compared to Three Months Ended March 31, 1997 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 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 9 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 $432,751 or 23% which was primarily due to a decrease in management, distribution and shareholder administration fees of $357,698 or 29% because of a lower level of net assets under management, and to a decrease in brokerage fees and commissions. Net assets under management were approximately $400.9 million at December 31, 1996, $359 million at March 31, 1997, $328 million at June 30, 1997, $353 million at September 30, 1997, $274 million at December 31, 1997, and $301 million at March 31, 1998. While the volume of discount brokerage customers transactions for the quarter was 12% higher than a year ago, brokerage fees and commissions decreased by $85,238 or 13% due to a rapid increase in lower-priced Internet trading activity, which accounted for 30% and 0% of the volume of discount brokerage customer transactions for the three months ended March 31, 1998 and 1997, respectively. Discount brokerage customers' equity increased to $273 million or 30%. Dividends, interest and other income increased $10,185 due to higher earnings on the Company's short term investments. Total expenses decreased $440,432 or 25% as a result of a decrease in the expense reimbursements, professional fees, and general and administrative expenses. Marketing expenses decreased $22,569 or 8%. General and administrative expenses decreased $90,368 or 10% because of lower compensation costs. Expense reimbursements to the Funds decreased $245,035 or 92% which is primarily due to the expiration of the contractual expense reimbursement on August 29, 1997 for the Midas Fund. Clearing and brokerage charges decreased $11,838 or 8%. Subadvisory fees decreased $34,319 or 30% because of the lower net assets in the Midas Fund. Professional fees decreased $41,047 or 60% due to lower litigation costs relating to the Maxus lawsuit. Net income for the period was $135,179 or $.09 diluted earnings per share as compared to net income of $115,655 or $.08 diluted earnings per share for 1997. 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, 1998 December 31, 1997 -------------- ----------------- Working Capital $2,625,327 $2,662,917 Total Assets $4,945,688 $4,827,074 Long Term Debt $3,839 $7,460 Shareholders' Equity $4,623,487 $4,455,111 Working capital decreased $37,590 due to capital expenditures to develop rental property. Total assets and shareholders' equity increased $118,614 and $168,376, respectively for the three months ended March 31, 1998 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 investment companies and discount brokerage services, 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 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 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. PART II. OTHER INFORMATION ITEMS 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS DURING FIRST QUARTER OF THE YEAR ENDED DECEMBER 31, 1998 At the annual meeting of Class B shareholder held March 3, 1998, 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, 1998 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, 1998 /s/ Bassett S. Winmill ---------------------- Bassett S. Winmill Chairman of the Board, Director Dated: May 15, 1998 /s/ Robert D. Anderson ---------------------- Robert D. Anderson Vice Chairman, Director Dated: May 15, 1998 /s/ Mark C. Winmill ------------------- Mark C. Winmill Co-President, Chief Financial Officer, Director Dated: May 15, 1998 /s/ Thomas B. Winmill --------------------- Thomas B. Winmill, Esq. Co-President, General Counsel, Director Dated: May 15, 1998 /s/ ---------------------------- Charles A. Carroll, Director Dated: May 15, 1998 /s/ ----------------------------- Edward G. Webb, Jr., Director 16 EX-27 2 FDS -- MARCH 31, 1998
5 3-Mos Dec-31-1998 Jan-01-1998 Mar-31-1998 247,239 1,971,937 390,419 0 0 2,943,689 1,929,964 897,100 4,945,688 318,362 0 0 0 13,701 4,609,786 4,623,487 0 1,479,140 0 0 1,339,161 0 0 139,979 4,800 0 0 0 0 135,179 .10 .09
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