-----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, IIl8PSJcs6tk4GnSqt47YGCkSvZ2e1lsrIDY1UfV2pglo3cMdfpA0WADoRTohfxH RwHy3lCYi+o4DM4GbwOmww== 0000052234-00-000027.txt : 20001130 0000052234-00-000027.hdr.sgml : 20001130 ACCESSION NUMBER: 0000052234-00-000027 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001114 DATE AS OF CHANGE: 20001114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WINMILL & CO INC CENTRAL INDEX KEY: 0000052234 STANDARD INDUSTRIAL CLASSIFICATION: 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: 768669 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 FORMER COMPANY: FORMER CONFORMED NAME: BULL & BEAR GROUP INC DATE OF NAME CHANGE: 19920703 10-Q 1 0001.txt FORM 10-Q As filed with the Securities and Exchange Commission on November 14, 2000 ------------------------------------------------------------------------- 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, 2000 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, 2000 Commission File Number 0-9667 WINMILL & CO. INCORPORATED - - - -------------------------------------------------------------------------------- (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 September 30, 2000, were as follows: Class A Common Stock non-voting, par value $.01 per share - 1,635,017 shares Class B Common Stock voting, par value $.01 per share - 20,000 shares WINMILL & CO. INCORPORATED FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2000 INDEX Page Number PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets - (Unaudited) September 30, 2000 and December 31, 1999 3 Consolidated Statements of Income (Loss) - (Unaudited) Three and Nine Months Ended September 30, 2000 4 and September 30, 1999 Consolidated Statements of Changes in Shareholders' Equity 5 - (Unaudited) Nine Months Ended September 30, 2000 and September 30, 1999 Consolidated Statements of Cash Flows - (Unaudited) Nine Months Ended September 30, 2000 6 and September 30, 1999 Notes to Consolidated Financial Statements (Unaudited) 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 15 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 17 During Third Quarter of the Year Ended December 31, 2000 Management's Representation and Signatures 18 WINMILL & CO. INCORPORATED CONSOLIDATED BALANCE SHEETS (Unaudited) September 30, December 31, 2000 1999 ------------- ------------ ASSETS Current Assets: Cash and cash equivalents $ 1,226,421 $ 2,560,093 Marketable securities (Note 3) 4,016,680 4,600,928 Management, distribution and shareholder administration fees receivable 51,953 272,800 Interest, dividends and other receivables 114,682 43,429 Prepaid expenses and other assets 391,773 128,962 ------------ ------------ Total Current Assets 5,801,509 7,606,212 ------------ ------------ Real estate, net 1,316,213 1,325,693 Equipment, furniture and fixtures, net 77,844 102,702 Excess of cost over net book value of subsidiaries, net 457,360 650,001 Deferred income taxes (Note 10) 114,000 140,000 Other 290,171 265,421 ------------ ------------ 2,255,588 2,483,817 ------------ ------------ Total Assets $ 8,057,097 $ 10,090,029 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accrued income taxes $ 60,720 $ 1,866,600 Accounts payable 186,358 201,926 Accrued professional fees 70,657 75,055 Accrued payroll and other related costs 29,310 72,049 Accrued other expenses -- 25,928 Other current liabilities 9,836 9,836 ------------ ------------ Total Current Liabilities 356,881 2,251,394 ------------ ------------ Shareholders' Equity: (Notes 3, 6, 7 and 8) Common Stock, $.01 par value Class A, 10,000,000 shares authorized; 1,635,017 shares issued and outstanding 16,351 16,351 Class B, 20,000 shares authorized; 20,000 shares issued and outstanding 200 200 Additional paid-in capital 6,872,454 6,872,454 Retained earnings 1,409,186 1,203,303 Notes receivable for common stock issued (603,675) (603,675) Accumulated other comprehensive income 5,700 350,002 ----------- ------------ Total Shareholders' Equity 7,700,216 7,838,635 ----------- ------------ Total Liabilities and Shareholders' $ 8,057,097 $ 10,090,029 Equity =========== ============ See accompanying notes to consolidated financial statements. WINMILL & CO. INCORPORATED CONSOLIDATED STATEMENTS OF INCOME (LOSS) (Unaudited) Three Months Ended Nine Months Ended Sept. 30, Sept. 30, ------------------ ----------------- 2000 1999 2000 1999 ---- ---- ---- ---- Revenues: Management, distribution, service $550,478 $716,660 $1,780,777 $2,233,911 and administrative fees Real estate rental income 64,261 55,391 199,058 152,977 Consulting fee 50,000 50,000 150,000 100,000 Net realized and unrealized gains 127,894 (394,106) 342,984 (338,276) from investments Dividends, interest and other 79,156 137,912 273,530 220,042 -------- -------- --------- ---------- 871,789 565,857 2,746,349 2,368,654 -------- -------- --------- ---------- Expenses: General and administrative 503,611 455,172 1,471,112 1,494,693 Marketing 76,886 118,942 260,244 369,027 Expense reimbursements to the 68,286 68,414 223,624 220,056 Funds (Note 11) Subadvisory fees -- 37,652 -- 120,301 Professional 52,992 31,029 146,969 149,597 Amortization and depreciation 35,425 36,794 109,392 116,424 Write-down of intangible assets 162,500 -- 162,500 -- -------- -------- --------- ---------- 899,700 748,003 2,373,841 2,470,098 -------- -------- --------- ---------- Income (loss) from continuing operations before income taxes (27,911) (182,146) 372,508 (101,444) Income taxes (Note 10) 38,723 (42,999) 166,625 (7,553) -------- -------- --------- ---------- Income (loss) from continuing (66,634) (139,147) 205,883 (93,891) operations -------- -------- --------- ---------- Discontinued Operations: Income (loss) from discontinued -- -- -- 2,354,642 operations (Note 2) -------- -------- --------- ---------- Net Income (loss) $(66,634) $(139,147) $205,883 $2,260,751 ========= ========= ========= ========== Per share data: Basic Income (loss) from continuing $ (.04) $ (.08) $.12 $ (.06) operations Income (loss) from discontinued (.00) (.00) (.00) 1.42 operation -------- -------- --------- --------- Net Income $ (.04) $ (.08) $ .12 $ 1.36 ======== ======== ========= ========= Diluted Income (loss) from continuing $ (.04) $ (.08) $ .12 $ (.06) operations Income (loss) from discontinued (.00) (.00) (.00) 1.40 operations -------- -------- --------- --------- Net Income $ (.04) $ (.08) $ .12 $ 1.34 ======== ======== ========= ========= Average shares outstanding: Basic 1,655,017 1,655,017 1,655,017 1,655,017 ========= ========= ========= ========= Diluted 1,655,017 1,655,017 1,659,839 1,684,605 ========= ========= ========= ========= See accompanying notes to the consolidated financial statements. WINMILL & CO. INCORPORATED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY Nine Months Ended September 30, 2000 and 1999 (Unaudited)
Notes Additional Receivable Retained Class A Class B Class A Class B Paid-in- For Common Earnings Common Common Common Common Capital Stock Issued (Deficit) ------- ------- ------- ------- ---------- ------------ --------- Nine Months Ended Sept.30, 1999 - - - ------------------------------- Balance, January 1, 1999 1,635,017 20,000 $16,351 $200 $6,872,454 $(603,675) $(1,325,338) Net income -- -- -- -- -- -- 2,260,751 Other comprehensive income Change in unrealized gains on marketable securities -- -- -- -- -- -- -- --------- ------- ------- ---- ---------- ---------- ------------ Comprehensive income Balance, September 30, 1999 1,635,017 20,000 $16,351 $200 $6,872,454 $(603,675) $935,413 ========= ====== ======= ==== ========== ========== ======== Nine Months Ended Sept. 30, 2000 - - - -------------------------------- Balance, January 1, 2000 1,635,017 20,000 $16,351 $200 Net income -- -- -- -- Other comprehensive income Change in unrealized gains on marketable securities -- -- -- -- --------- ------- -------- ---- Comprehensive income Balance, September 30, 2000 1,635,017 20,000 $16,351 $200 ========= ====== ======= ====
Accumulated other Total Comprehensive Shareholders' Income Equity ------------- ------------- Nine Months Ended Sept.30, 1999 - - - ------------------------------- $(976) $4,959,016 Balance, January 1, 1999 -- 2,260,751 Net income Other comprehensive income Change in unrealized gains (13,780) (13,780) on marketable securities -------- ---------- 2,246,971 Comprehensive income ---------- $(14,756) $7,205,987 Balance, September 30, 1999 ========= ========== Nine Months Ended Sept. 30, 2000 - - - -------------------------------- Balance, January 1, 2000 $350,002 $7,838,635 Net income -- 205,883 Other comprehensive income Change in unrealized gains on marketable securities (344,302) (344,302) --------- ---------- Comprehensive income (138,419) ---------- Balance, September 30, 2000 $ 5,700 $7,700,216 ======== ========== WINMILL & CO. INCORPORATED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Nine Months Ended September 30, ----------------------- 2000 1999 -------- ------- Cash Flows from Operating Activities: Net income (loss) $ 205,883 $2,260,751 --------- ---------- Adjustments to reconcile net income to net cash provided by (used in) Operating Activities: Depreciation and amortization 109,391 116,424 Write-down of intangible asset 162,500 -- Realized gain from sale of BBSI -- (2,354,642) Net realized and unrealized gains from (342,984) 338,276 investments Cash value of life insurance (24,750) (24,750) Other 3,167 (16,976) (Increase) decrease in: Management, distribution and shareholder administration fees receivable 220,847 87,744 Interest, dividends and other receivables (71,253) (100,030) Prepaid expenses and other assets (262,811) 292,500 Deferred tax credits 26,000 (115,000) Other -- 43,763 Increase (decrease) in: Accrued income taxes (1,805,880) 86,428 Accounts payable (15,568) 13,312 Accrued professional fees (4,398) (284,802) Accrued payroll and other related costs (42,739) (907,592) Accrued other expenses (25,928) 37,307 Other -- 17,607 ---------- ----------- Total adjustments (2,074,406) (2,770,431) ----------- ----------- Net cash used in Operating Activities (1,868,523) (509,680) ----------- --------- Cash Flows from Investing Activities: Proceeds from sale of BBSI (net of cash in discontinued operations) -- 5,752,254 Proceeds from sales of investments 2,245,520 202,368 Purchases of investments (1,665,757) (1,845,367) Purchases of equipment -- (13,067) Capital expenditures (44,912) (49,530) ----------- ----------- Net cash provided by Investing Activities 534,851 4,046,658 ----------- --------- Cash Flows from Financing Activities: Capitalized lease obligations -- (4,749) ----------- --------- Net cash provided by (used in) Financing -- (4,749) Activities ----------- --------- Net increase (decrease) in cash and cash (1,333,672) 3,532,229 equivalents Cash and cash equivalents: At beginning of period 2,560,093 1,403,931 ---------- --------- At end of period $1,226,421 $4,936,160 ========== ========== Supplemental disclosure: The Company paid $1,475,000 and $0 in Federal income taxes during the nine months ended September 30, 2000 and 1999. See accompanying notes to the consolidated financial statements. WINMILL & CO. INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 2000 and 1999 (Unaudited) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF BUSINESS Winmill & Co. Incorporated ("Company") is a holding company. Its subsidiaries' business consists of providing investment management and distribution services for the Midas Funds (six open-end funds) and three closed-end funds as well as real estate investment and operations. BASIS OF PRESENTATION The consolidated financial statements include the accounts of the Company 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, 2000 and December 31, 1999, the Company and subsidiaries had invested approximately $847,000 and $2,199,800, 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 are marked to market, with the unrealized gain or loss included in stockholders' equity. Marketable securities for the broker/dealer subsidiary are marked to market with unrealized gains and losses included in earnings. WINMILL & CO. INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 2000 and 1999 (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 1999 financial statements have been made to conform to the 2000 presentation. REAL ESTATE HELD FOR INVESTMENT AND EQUIPMENT Real estate is recorded at cost and is depreciated on a straight-line basis over its estimated useful life. At September 30, 2000 and December 31, 1999, real estate accumulated depreciation amounted to approximately $215,700 and $166,100, respectively. The Company has signed an agreement in connection with the sale of this real estate (see Note 5). 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, 2000 and December 31, 1999, equipment, furniture and fixtures accumulated depreciation amounted to approximately $827,900 and $796,900, 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 September 30, 2000 and December 31, 1999, accumulated amortization amounted to approximately $581,000 and $550,800, 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. In connection with this review of intangible assets, $162,500 of excess of cost over net book value of subsidiaries relating to a certain investment management contract was written off through a charge to operations during the third quarter of 2000. The impairment was calculated based upon the difference between fair value and the related carrying amount of the assets. COMPREHENSIVE INCOME The Company discloses comprehensive income in the financial statements. Total comprehensive income includes net income and unrealized gains and losses on marketable securities, which is reported as other comprehensive income in shareholders' equity. SEGMENT INFORMATION The Company's operating segments were organized around services provided and are classified into three groups - investment management, real estate and discount brokerage. Due to the sale of BBSI, the Company's discount brokerage business is classified as "income from discontinued operations" on the financial statements (see Note 2). The Company's remaining business is in two industry segments. WINMILL & CO. INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 2000 and 1999 (Unaudited) EARNINGS PER SHARE 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: 3 months ended 9 months ended Sept. 30, Sept. 30, -------------- -------------- 2000 1999 2000 1999 ---- ---- ---- ---- Numerator for basic and diluted earnings per share: Net income (loss) $(66,634) $(139,147) $205,883 $2,260,751 =========== ========== -------- ---------- Denominators: Denominator for basic earnings per share - weighted-average shares 1,655,017 1,655,017 1,655,017 1,655,017 Effect of dilutive securities: Employee Stock Options -- -- 4,822 29,588 --------- --------- --------- --------- Denominator for diluted earnings per share - adjusted weighted - average shares and assumed conversions 1,655,017 1,655,017 1,659,839 1,684,605 =========== ========= ========= ========= 2. SALE OF SUBSIDIARY On December 17, 1998, the Company signed an agreement to sell the outstanding stock of the discount brokerage business, to a subsidiary of Royal Bank of Canada for $6 million. The sale closed on March 31, 1999. In connection with the sale, the rights to the name "Bull & Bear" was transferred to Royal Bank of Canada. In addition, Royal Bank agreed that it will cause, for the three-year period following the closing, BBSI to offer exclusively Dollar Reserves to its customers as the sole money market fund into which cash balances held by BBSI's customers may be swept on a daily basis for so long as certain conditions are met, including certain performance rankings by the Fund, in consideration of a monthly fee equal to one-twelfth of 0.25% of the aggregate average daily amount of such balances. At September 30, 2000, the value invested in Dollar Reserves by BBSI's customers was approximately $30,331,000. Further, the Company has agreed to provide or to cause its subsidiaries to provide to BBSI for a period of three years following the closing certain services with respect to the operation of a securities brokerage business for a monthly administrative fee of $16,666.67, subject to certain conditions. Nine Months Ended September 30, 2000 September 30, 1999 ------------------ ------------------ Income (loss) from $ -- $ 15,249 discontinued operations Gain on sale of -- 2,339,393 discontinued operations ------------------ ------------------ Total income (loss) $ -- $ 2,354,642 from discontinued operations ================== ================== 3. MARKETABLE SECURITIES At September 30, 2000, marketable securities consisted of: Market Value ------------ Securities held by broker/dealer subsidiary - marked to market Investment companies advised by subsidiaries $ 2,188,839 Equity securities 1,282,972 ----------- Total broker/dealer securities (cost $3,705,584) 3,471,811 ----------- Available-for-sale securities held by other companies - marked to market Investment companies advised by subsidiaries 500,000 Equity securities 27,467 Unaffiliated mutual funds 17,402 ---------- Total available-for-sale securities (cost $539,169) 544,869 ---------- $ 4,016,680 At December 31, 1999, marketable securities consisted of: Securities held by broker/dealer subsidiary - marked to market Investment companies advised by subsidiaries $ 2,063,205 Equity securities 435,875 ----------- Total broker/dealer securities (cost $2,861,134) 2,499,080 ----------- Available-for-sale securities held by other companies - marked to market Investment companies advised by subsidiaries 2,046,439 Unaffiliated mutual funds 23,622 Equity securities 31,787 ---------- Total available-for-sale securities (cost $1,751,846) 2,101,848 ----------- $ 4,600,928 4. LEASE COMMITMENTS The Company leases office space under a lease which expires December 31, 2001. The rent is approximately $103,000 per annum including electricity. 5. REAL ESTATE OPERATIONS The Company owns an office building which is 100% leased as of October 31, 2000. Future minimum lease payment receivables under noncancellable leasing arrangements as of December 31, 1999 are as follows: Year ending December 31, ------------------------ 2000 $ 175,500 2001 189,500 2002 176,100 2003 154,900 2004 159,400 2005 - 2008 611,000 ------------ Net minimum future lease receipts $1,466,400 ========== In October 2000, the Company signed an agreement for the sale of its rental real estate property for $2.25 million, before closing adjustments and brokerage fees. The closing date is set for December 1, 2000. The Company anticipates recording a gain on this sale at closing. WINMILL & CO. INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 2000 and 1999 (Unaudited) 6. 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, 2000 and December 31, 1999, none of the Preferred Stock was issued. 7. NET CAPITAL REQUIREMENTS The Company's broker/dealer subsidiary, Investor Service Center, Inc. ("ISC"), is a member firm of the National Association of Securities Dealers, Inc. and is registered with the Securities and Exchange Commission as a broker/dealer. 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 $100,000, when engaged in the sale of redeemable shares of registered investment companies and trading for its own account, or 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, 2000, the subsidiary had net capital of approximately $1,088,300; net capital requirement of approximately $116,300; excess net capital of approximately $972,000; and the ratio of aggregate indebtedness to net capital were approximately 1.60 to 1. 8. STOCK OPTIONS In December 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 in February 1996 to make certain technical changes, in October 1997 to increase the maximum number of options to 450,000, and in March 1999 to increase the maximum number of options to 600,000. With respect to non-employee directors, only grants of non-qualified stock options and awards of restricted shares are available. Two of the non-employee directors were granted 10,000 options each on December 6, 1995 and 5,000 options each on October 29, 1997. New non-employee directors were granted 10,000 options on September 8, 1998 and June 13, 2000. In September 1999, three non-employee directors were granted 10,000 options each. 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. The Company applied 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 Sept. 30, ---------------------------- 2000 1999 ------------------------ Net income (loss) As Reported $(66,634) $(139,147) Proforma $(88,011) $(218,614) Earnings per share Basic As Reported $(.04) $(.08) Proforma $(.05) $(.13) Diluted As Reported $(.04) $(.08) Proforma $(.05) $(.13) Nine Months Ended Sept. 30, --------------------------- 2000 1999 ------------------------ Net income (loss) As Reported $205,883 $2,260,751 Proforma $181,988 $2,018,140 Earnings per share Basic As Reported $.12 $1.36 Proforma $.11 $1.22 Diluted As Reported $.12 $1.34 Proforma $.11 $1.20 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 2000 and 1999: expected volatility of 46.02% and 54.31%, risk-free interest rate of 5.95% and 4.55% and expected life of three years, respectively. WINMILL & CO. INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 2000 and 1999 (Unaudited) A summary of the status of the Company's stock option plans as of September 30, 2000 and December 31, 1999 and changes during the periods ending on those dates is presented below: Weighted Number Average of Exercise Stock Options Shares Price ------------- -------- ----------- Outstanding at December 31, 1998 119,000 $2.05 Granted 280,000 $2.98 Canceled (160,000) $3.28 -------- Outstanding at December 31, 1999 239,000 $2.32 Canceled (47,000) $2.29 Granted 45,000 $1.98 ------- Outstanding at September 30, 2000 237,000 $2.26 ======= There were 222,000 and 239,000 options exercisable at September 30, 2000 and December 31, 1999 with a weighted-average exercise price of $2.28 and $2.32, respectively. The weighted-average fair value of options granted was $.68 and $1.18 for the nine months period ended September 30, 2000 and for the year ended December 31, 1999, respectively. There were 45,000 options granted during the nine months ended September 30, 2000. The following table summarizes information about stock options outstanding at September 30, 2000: Options Outstanding ------------------------------------------------------- Weighted-Average Range of Number Remaining Weighted-Average Exercise Prices Outstanding Contractual Life Exercise Price --------------- ----------- ------------------- ---------------- $1.75 - $2.25 107,000 2.4 years $1.94 $2.375 - $2.6125 130,000 3.8 years $2.52 In connection with the exercise of the options, the Company received from certain officers notes with an interest rate of 4.47% per annum payable December 15, 2003. The balance of the notes at September 30, 2000 and December 31, 1999 was $603,675, which was classified as "notes receivable for common stock issued." 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 salaries of eligible employees and are accrued and funded on a current basis. Total pension expense for the nine months ended September 30, 2000 and September 30, 1999 was approximately $35,100 and $24,700, respectively. 10. INCOME TAXES The provision for income taxes for the nine months ended September 30, 2000 and 1999 are as follows: 2000 1999 ---- ---- Current State and local $ 32,625 $ (1,883) Federal 108,000 (5,650) -------- --------- 140,625 (7,533) Deferred 26,000 -- From discontinued operations -- 2,070,000 -------- --------- $ 166,625 $2,062,467 ========= ========== WINMILL & CO. INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 2000 and 1999 (Unaudited) The difference between the statutory federal tax rate of 34% and the effective tax rate in the financial statements is primarily attributable to the write-down of intangible assets for which no income tax benefit is available. Deferred tax assets are comprised of the following at September 30, 2000 and December 31, 1999: 2000 1999 ---- ---- Unrealized loss on investments $94,000 $130,000 Depreciation -- 10,000 Allowance for doubtful accounts 20,000 -- ------ -- $114,000 $140,000 ======== ======== 11. RELATED PARTIES All management and distribution fees are a result of services provided 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. During the nine months ended September 30, 2000 and 1999, the Funds paid approximately $117,700 and $153,500, respectively, for co-transfer agent record keeping services to ISC, which paid such amounts to certain brokers for performing such services. These payments for record keeping services are included in management, distribution, service and administrative fees on the income statement. In connection with investment management services, the Company's investment managers and distributor waived management and distribution fees and reimbursed expenses to the Funds in the amount of $223,624 and $220,056 for the nine months ended September 30, 2000 and 1999, 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, 2000, the policy had a cash surrender value of approximately $199,800 and is included in other assets in the balance sheet. 12. FINANCIAL INFORMATION BY BUSINESS SEGMENT The following details selected financial information by business segment. Investment Real Estate Management Operations Total ---------- ----------- ----- September 30, 2000 Revenues $1,930,777 $ 199,058 $2,129,835 Investment income 615,630 884 616,514 Income (loss) from operations 265,188 (59,305) 205,883 Depreciation and amortization 56,642 52,750 109,392 Capital expenditures -- 44,912 44,912 Gross identifiable assets 6,559,822 1,497,275 8,057,097 September 30, 1999 Revenues $2,333,911 $ 152,977 $2,486,888 Investment income (loss) (118,700) 466 (118,234) Income (loss) from operations (80,619) (13,272) (93,891) Depreciation and amortization 58,696 57,728 116,424 Capital expenditures 13,067 49,530 62,597 Gross identifiable assets 7,899,675 1,478,766 9,378,441 WINMILL & CO. INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 2000 and 1999 (Unaudited) 13. CONTINGENCIES 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, 2000, neither the Company nor any of its subsidiaries was involved in any litigation that, in the opinion of management, would have a material adverse impact on the consolidated financial statements. In July 2994, 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. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - - - -------------------------------------------------------------------------------- Three Months Ended September 30, 2000 compared to Three Months Ended September 30, 1999 - - - -------------------------------------------------------------------------------- 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 net asset levels in the Funds may also cause or increase reimbursements to the Funds pursuant to expense limitations as described in Note 11 of the financial statements. On December 17, 1998, the Company signed an agreement to sell the outstanding stock of Bull & Bear Securities, Inc ("BBSI"), the discount brokerage business, to a subsidiary of Royal Bank of Canada. The transaction, which was approved by the regulatory authorities in Canada and the United States, closed on March 31, 1999. The Company received $6 million in proceeds from the sale. At the time of the sale, BBSI had net equity of $500,000. In connection with the sale, the rights to the name "Bull & Bear" were transferred to Royal Bank of Canada, and the Company and certain of its subsidiaries changed their names. The Company recorded a gain from the sale of $2,354,642, net of related expenses including professional fees, closing bonuses and income tax expense. Total revenues increased $305,932 or 54% reflecting primarily net realized and unrealized gains of $127,894 from investments versus realized and unrealized losses of $394,106 for the three months ended September 30, 1999. Management and distribution fees decreased $166,182 or 23% reflecting lower net assets under management. Net assets under management were approximately $258 million at December 31, 1998, $248 million at March 31, 1999, $242 million at June 30, 1999, $249 million at September 30, 1999, $258 million at December 31, 1999, $222 million at March 31, 2000, $198 million at June 30, 2000 and $189 million at September 30, 2000. Dividends, interest and other income decreased $58,756 due to lower earnings from the Company's investments. Total expenses increased $151,697 or 20% reflecting primarily the write down of intangible assets by $162,500. Marketing expenses decreased $42,056 or 35% due to lower fulfillment expenses and lower payments to other brokers for distributing the Company's open-end Funds. Effective December 1, 1999, the Midas Fund's subadvisory agreement was discontinued, resulting in decreased subadvisory fees of $37,652. Professional fees increased $21,963 or 71%. Net loss from continuing operations for the period was $66,634 or $.04 per share on a diluted basis as compared to net loss of $139,147 or $.08 diluted earnings per share for 1999. Nine Months Ended September 30, 2000 compared to Nine Months Ended September 30, 1999 - - - -------------------------------------------------------------------------------- Total revenues increased $377,695 or16% reflecting primarily net realized and unrealized gains of $342,984 from investments versus realized and unrealized losses of $338,276 for the nine months ended September 30, 1999. Management and distribution fees decreased $453,134 or 20%. Net assets under management were approximately $258 million at December 31, 1998, $248 million at March 31, 1999, $242 million at June 30, 1999, $249 million at September 30, 1999, $258 million at December 31, 1999, $222 million at March 31, 2000, $198 million at June 30, 2000 and $189 million at September 30, 2000. Dividends, interest and other income increased $53,488 due to higher earnings from the Company's securities investments. Total expenses decreased $96,257 or 4%. Marketing expenses decreased $108,783 or 29% due to lower fulfillment expenses and lower payments to other brokers for distributing the Company's open-end Funds. Effective December 1, 1999, the Midas Funds subadvisory agreement was discontinued, resulting in decreased subadvisory fees of $120,301. Net income from continuing operations for the period was $205,883 or $.12 per share on a diluted basis as compared to net loss of $93,891 or $.06 per share on a diluted basis for 1999. Gain from discontinued operations for 1999 was $2,354,642 or $1.40 per share on a diluted basis as a result of the sale of the Company's brokerage business. Net income for the period was $205,883 or $.12 per share on a diluted basis as compared to net income of $2,260,751 or $1.34 per share on a diluted basis for 1999. In October 2000, the Company signed an agreement for the sale of its rental real estate property for $2.25 million, before closing adjustments and brokerage fees. The closing date is set for December 1, 2000. The Company anticipates recording a gain on this sale at closing. 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, 2000 December 31, 1999 ------------------ ----------------- Working Capital $5,444,628 $5,354,818 Total Assets $8,057,097 $10,090,029 Shareholders' Equity $7,700,216 $7,838,635 Total assets and shareholders' equity decreased $2,032,932 and $138,419, respectively, and working capital increased $89,810 for the nine months ended September 30, 2000 . Total assets decreased due to the payment of federal, state, and local income taxes in the first quarter of 2000 and the write-down of intangible assets of $162,500. The decrease in shareholders' equity was primarily the result of the decrease in other comprehensive income of $344,302 (marketable securities with unrealized gains were sold in 2000 and included in realized gains on the income statement), and net income of $205,883 which is net of the write-down of intangible assets of $162,500. 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. 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, 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 related cash inflows or outflows in its mutual funds; fluctuations in the financial markets resulting in appreciation or depreciation of assets under management; 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; the ability of the Company to maintain investment management fees at current levels; competitive conditions in the mutual funds industry; the introduction of new mutual funds and investment products; 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 Third -------- ----------------------------------------------------------------- Quarter of the Year Ended - December 31, 2000 --------------------------------------------- At a special meeting of the Class B shareholders held September 12, 2000, the Bylaws of the Company were amended to decrease to six the number of directors of the Company. 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. WINMILL & CO. INCORPORATED Dated: November 14, 2000 By:/s/ ---------------------------------------- Amy H. Ling Treasurer, Chief Financial 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, 2000 /s/ ---------------------------------------- Bassett S. Winmill Chairman of the Board, Director Dated: November 14, 2000 /s/ ------------------------------------------- Robert D. Anderson Vice Chairman, Director Dated: November 14, 2000 /s/ ------------------------------------------- Thomas B. Winmill, Esq. President, General Counsel, Director Dated: November 14, 2000 /s/ ---------------------------------------- Charles A. Carroll, Director Dated: November 14, 2000 /s/ ---------------------------------------- Edward G. Webb, Jr., Director Dated: November 14, 2000 /s/ ---------------------------------------- Mark C. Winmill, Director REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS The Board of Directors and Shareholders of Winmill & Co. Incorporated We have reviewed the accompanying balance sheets and statements of income (losses) of Winmill & Co. Incorporated and consolidated subsidiaries as of September 30, 2000 and for the three-month and nine-month periods then ended. These financial statements are the responsibility of the company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the accompanying financial statements for them to be in conformity with generally accepted accounting principles. Tait, Weller & Baker Philadelphia, Pennsylvania November 8, 2000 -----END PRIVACY-ENHANCED MESSAGE-----