-----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, VI+OuFra+DMWa9z+kmJ98f5Sl/J9k6kbWoZexBF0AeE24s2fpFsnCo7ae9U8euou l9nRWsis9INKT9noG4IQyA== 0000052234-96-000005.txt : 19961118 0000052234-96-000005.hdr.sgml : 19961118 ACCESSION NUMBER: 0000052234-96-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961114 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BULL & BEAR GROUP INC CENTRAL INDEX KEY: 0000052234 STANDARD INDUSTRIAL CLASSIFICATION: INVESTMENT ADVICE [6282] IRS NUMBER: 131897916 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-09667 FILM NUMBER: 96664540 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 THRID QUARTER 1996 As filed with the Securities and Exchange Commission on NOVEMBER 14, 1996 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, 1996 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, 1996 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, 1996, 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 SEPTEMBER 30, 1996 INDEX Page Number PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets - (Unaudited) September 30, 1996 and December 31, 1995 3 Consolidated Statements of Income (Loss) - (Unaudited) Three and Nine Months Ended September 30, 1996 and September 30, 1995 4 Consolidated Statements of Changes in Shareholders' Equity - (Unaudited) Nine Months Ended September 30, 1996 and September 30, 1995 5 Consolidated Statements of Cash Flows - (Unaudited) Nine Months Ended September 30, 1996 and September 30, 1995 6 Notes to Consolidated Financial Statements (Unaudited) 7 tem 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 15 Management's Representation and Signatures 16 2 BULL & BEAR GROUP, INC. CONSOLIDATED BALANCE SHEETS (UNAUDITED) ASSETS September 30, December 31, 1996 1995 Current Assets: Cash and cash equivalents $ 728,520 $ 1,467,674 Marketable securities (Note 3) 1,098,164 1,257,062 Management, distribution and service fees 326,051 179,209 receivable Interest, dividends and other 227,899 248,241 receivables Prepaid expenses and other assets 313,708 433,570 ----------- ----------- Total Current Assets 2,694,342 3,585,756 ----------- ----------- Real estate held for investment, net 349,536 308,799 Furniture and fixtures, net 250,529 207,194 Excess of cost over net book value of subsidiaries, net 786,124 735,368 Other 153,813 126,675 ----------- ----------- 1,540,002 1,378,036 ----------- ----------- Total Assets $4,234,344 $ 4,963,792 ========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable $ 151,605 $ 610,242 Accrued professional fees 110,570 95,655 Accrued subadvisory fees 214,721 15,831 Obligations on Capital leases 37,834 0 Cash overdraft 43,497 0 Other 38,202 71,969 ------------ ----------- Total Current Liabilities 596,429 793,697 ----------- ----------- Shareholders' Equity: (Notes 4, 5, and 6) Common Stock, $.01 par value Class A, 10,000,000 shares authorized; 1,350,017 shares in 1996 and 1,348,017 shares in 1995 issued and outstanding 13,501 13,481 Class B, 20,000 shares authorized; 20,000 shares issued and outstanding 200 200 Additional paid-in capital 6,236,077 6,232,347 Retained earnings (deficit) (2,625,264) (2,141,953) Unrealized gains on marketable securities 13,401 66,020 (Notes 1 and 2) ----------- ------------ Total Shareholders' Equity 3,637,915 4,170,095 ---------- ----------- Total Liabilities and Shareholders' Equity $4,234,344 $ 4,963,792 ========== =========== 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, ----------------------------- --------------------- 1996 1995 1996 1995 ----------- ---------- ---------- ------- Revenues: Management, distribution and service fees $ 1,320,836 $ 850,023 $3,542,533 $2,516,320 Brokerage fees and commissions 486,422 496,937 1,782,141 1,352,615 Dividends, interest and other 97,611 16,003 161,422 110,223 ---------- ---------- ------------ ----------- 1,904,869 1,362,963 5,486,096 3,979,158 --------- --------- ---------- ---------- Expenses: General and administrative (note 9) 952,425 831,113 2,956,413 2,452,230 Marketing 344,092 143,589 1,517,496 501,199 Subadvisory fees 213,938 5,700 527,562 5,700 Clearing and brokerage charges 153,371 158,244 541,019 418,563 Professional fees 55,406 145,333 286,346 223,587 Amortization and depreciation 31,173 20,644 107,029 69,643 ---------- ---------- ------------ ----------- 1,750,405 1,304,623 5,935,865 3,670,922 --------- --------- ---------- ---------- Income (loss) before income taxes 154,464 58,340 (449,769) 308,236 Income taxes (note 7) 19,791 7,446 33,542 28,088 ---------- ---------- ------------ ----------- Net income (loss) $ 134,673 $ 50,894 $ (483,311) $ 280,148 ========== ======== =========== =========== Per share data: Primary and fully diluted Net income (loss) $.09 $.03 $(.33) $.18 ==== ==== ====== ==== Average shares outstanding: Primary 1,490,069 1,572,375 1,467,177 1,577,525 ========= ========= ========= ========= Fully diluted 1,492,916 1,577,862 1,467,177 1,577,862 ========= ========= ========= =========
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, 1996 AND 1995 (UNAUDITED) Class A Class B Class A Class B Additional Common Common Common Common Paid-in-Capital ------ ------ ------ ------ --------------- Nine Months Ended September 30, 1995 Balance, January 1, 1995 1,503,152 20,000 $15,032 $200 $6,497,796 Voiding of exercise of 1993 stock options and cancellation of related notes receivable (note 5) (280,000) - (2,800) - (297,200) Proceeds from issuance of Class A Common Stock, par value $.01 6,000 - 60 - 5,940 Collection note receivable - - - - - Net income - - - - - Unrealized gains on marketable securities - - - - - ------------ -------- ---------- ------ -------------- Balance, September 30, 1995 1,229,152 20,000 $12,292 $200 $6,206,536 ========= ====== ======= ==== ========== Nine Months Ended September 30, 1996 Balance, January 1, 1996 1,348,017 20,000 $13,481 $200 $6,232,347 Proceeds from issuance of Class A Common Stock, par value $.01 2,000 - 20 - 3,730 Net loss - - - - - Unrealized gains on marketable securities - - - - - ------------ -------- ---------- ------ -------------- Balance, September 30, 1996 1,350,017 20,000 $13,501 $200 $6,236,077 ========= ====== ======= ==== ========== Notes Unrealized Receivable Retained Gains On Total for Common Earnings Marketable Shareholders' Stock Issued (Deficit) Securities Equity ------------ --------- ---------- ------- $ (305,000) $(2,298,329) $ - $3,909,699 300,000 - - - - - 6,000 5,000 - - 5,000 - 280,148 - 280,148 - - 58,063 58,063 --- --------------- ------- ----------- - $(2,018,181) $58,063 $4,258,910 ========= =========== ======= ========== - $(2,141,953) $ 66,020 $4,170,095 - - - 3,750 - (483,311) - (483,311) - - (52,619) (52,619) ----------- --------------- ----------- ----------- - $(2,625,264) $ 13,401 $3,637,915 ========= =========== ========= ========== See accompanying notes to consolidated financial statements.
BULL & BEAR GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Nine Months Ended September 30, 1996 1995 ------------ --------- Cash Flows from Operating Activities: Net income (loss) $ (483,311) $ 280,148 ----------- ------------ Adjustments to reconcile net income to net cash provided by (used in) Operating Activities: Depreciation and amortization 107,029 69,643 Increase in cash value of life insurance (22,500) (22,500) Gain on sale of investments (70,228) - Other 0 (29,183) (Increase) decrease in: Management, distribution and service fees receivable (146,842) 14,678 Interest, dividends and other receivables 20,342 (40,244) Prepaid expenses and other assets 119,862 (87,295) Other (4,638) 12,802 Increase (decrease) in: Accounts payable (458,637) (31,855) Accrued professional fees 14,915 26,775 Accrued subadvisory fees 198,890 5,700 Obligations on capital leases 37,834 - Cash overdraft 43,497 - Other (33,767) 50,258 ------------- ------------- Total adjustments (194,243) (31,221) ----------- -------------- Net cash provided by (used in) Operating Activities (677,554) 248,927 ----------- ------------ Cash Flows from Investing Activities: Proceeds from sales of investments 185,763 275,331 Purchases of investments (9,256) (1,213,924) Capital expenditures (208,385) (52,098) Sale of real estate 43,762 - Acquisition of intangible assets (77,234) (192,500) ----------- ------------- Net cash provided by (used in) Investing Activities (65,350) (1,183,191) ----------- ------------ Cash Flows from Financing Activities: (Issuance) collection of note receivable - 5,000 Proceeds from issuance of Class A Common Stock 3,750 6,000 ----------- ------------- Net cash provided by (used in) Financing Activities 3,750 11,000 ----------- ------------ Net increase (decrease) in cash and cash equivalents (739,154) (923,264) Cash and cash equivalents: At beginning of period 1,467,674 2,316,040 ----------- ----------- At end of period $ 728,520 $ 1,392,776 =========== ===========
Supplemental disclosure: The Company did not pay any interest or Federal income taxes during the nine months ended September 30, 1996 or 1995. See accompanying notes to the consolidated financial statements. 6 BULL & BEAR GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1996 AND 1995 (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 Growth 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 majority-owned 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. CASH AND CASH EQUIVALENTS Investments in money market funds are considered to be cash equivalents. At September 30, 1996 and December 31, 1995, the Company and subsidiaries had invested approximately $725,639 and $1,196,300, respectively, in an affiliated money market fund. MARKETABLE SECURITIES The Company's method of accounting for marketable securities conforms to Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" (SFAS 115). SFAS 115 requires that, except for debt securities classified as "held-to-maturity," marketable securities are to be reported at fair value. The marketable securities for the non broker/dealer subsidiaries 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. 7 BULL & BEAR GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1996 AND 1995 (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 1995 financial statements have been made to conform to the 1996 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, 1996 and December 31, 1995, accumulated depreciation amounted to $23,464 and $123,138, respectively. Equipment, furniture and fixtures are recorded at cost and are depreciated on the straight-line basis over their estimated useful lives, 5 to 10 years. At September 30, 1996 and December 31, 1995, accumulated depreciation amounted to $732,199 and $680,039, 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, 1996 and December 31, 1995, accumulated amortization amounted to $575,142 and $548,664, respectively. EARNINGS PER SHARE Primary and fully diluted earnings per share for the three and nine months ended September 30, 1996 is determined by dividing net income by the weighted average number of common shares outstanding after giving effect for common stock equivalents arising from stock options assumed converted to common stock. 2. ACQUISITIONS During the year ended December 31, 1995, the Company purchased the assets relating to the management of Midas Fund, Inc. for $182,500, plus related costs of $120,413. During the nine months ended September 30, 1996, the Company assumed the assets relating to the management of Rockwood Growth Fund, Inc. and incurred related costs of $41,732. Both purchases were capitalized as part of excess of cost over net book value and is being amortized over fifteen years using the straight-line method. 8 BULL & BEAR GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1996 AND 1995 (UNAUDITED) 3. MARKETABLE SECURITIES At September 30, 1996, marketable securities consisted of: Market Value Broker/dealer subsidiaries - at market U.S. Treasury Note due 5/15/97 to 7/31/99 957,145 Total broker/dealer securities (cost-$958,087) 957,145 Other companies Available-for-sale securities - at market Equity securities 107,495 Unaffiliated mutual funds 25,154 Affiliated mutual funds 8,370 ---------- Total available-for-sale securities (cost-$127,618) 141,019 --------- $1,098,164 At December 31, 1995 marketable securities consisted of: Broker/dealer securities - at market U.S. Treasury Note, due 7/31/97 $ 200,876 Affiliated mutual funds 62,494 --------- Total broker/dealer securities (cost-$264,104) 263,370 --------- Other companies Available-for-sale securities - at market Unaffiliated mutual funds 29,024 Affiliated mutual funds 6,220 Equity securities 181,413 U.S. Treasury Notes, due 5/15/97 - 6/30/99 777,035 ---------- Total available-for-sale securities (cost-$927,672) 993,692 --------- $ 1,257,062 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 September 30, 1996 and December 31, 1995, 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 September 30, 1996, these subsidiaries had net capital of approximately $ 439,524 and $439,746; net capital requirements of approximately $250,000 and $25,000; excess net capital of approximately $189,524 and $414,746; and the ratios of aggregate indebtedness to net capital were approximately .60 to 1 and .84 to 1, respectively. 9 BULL & BEAR GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1996 AND 1995 (UNAUDITED) 6. 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 February 5, 1998 and the remaining 5,000 options are exercisable on February 5, 1999. 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, 1996 1995 1996 1995 ----- ---- ----- ---- Net income(loss): As reported $134,673 $50,894 $(483,311) $280,148 Proforma $92,631 $47,951 $(592,599) $276,474 Earnings per share Primary and fully diluted: As reported $.09 $.03 $(.33) $.18 Proforma $.06 $.03 $(.40) $.18
There were 29,000 options granted during the nine months ended September 30, 1995. 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 1996 and 1995, respectively: expected volatility of 93.82% and 95.90%, risk-free interest rate of 5.30% and 5.90% and expected life of five years for all grants. 10 BULL & BEAR GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1996 AND 1995 (UNAUDITED) A summary of the status of the Company's stock option plans as of September 30, 1996 and December 31, 1995, 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, 1994 146,000 $1.12 Voided exercise of previously issued stock options (see below) 280,000 $1.07 Granted 29,000 $1.91 Exercised (268,020) $1.07 Canceled (137,980) $1.05 -------- OUTSTANDING AT DECEMBER 31, 1995 49,000 $1.76 Granted 229,000 $1.95 Exercised (2,000) $1.875 Canceled (5,000) $1.50 ---------- OUTSTANDING AT SEPTEMBER 30, 1996 271,000 $1.93 =========== The were no options exercisable at September 30, 1996 and December 31, 1995. The weighted-average fair value of options granted were $ 1.42 for the nine months ended September 30, 1996 and $1.45 for the year ended December 31, 1995. The following table summarizes information about stock options outstanding at September 30, 1996: Options Outstanding Number Weighted-Average Range of Outstanding Remaining Weighted-Average Exercise Prices At 9/30/96 Contractual Life Exercise Price $1.50 - $1.625 20,000 3.5 years $1.54 $1.875 - $2.75 251,000 4.3 years $1.96 In addition, there were 20,000 non-qualified stock options with an exercise price of $1.75 outstanding as of September 30, 1996. During the nine months ended September 30, 1995, the exercise of 280,000 previously issued stock options with an exercise price of $1.00 to $1.10 were voided. The Company's Board of Directors determined, at a meeting of the board held on November 6, 1995, that the 1993 exercise of the 280,000 incentive stock options by certain officers be voided and the 4.86% promissory notes given in consideration ("1993 Notes") and Class A shares issued therefor ("1993 Shares") be canceled. As a result, the stock options were restored to their previous outstanding status. Further, on November 6, 1995, 241,020 of these stock options were exercised. In December 1995, an additional 7,000 of these stock options were exercised. The Company received $7,000 in cash and 149,155 shares of Class A shares in payment for the exercise of these options. The shares acquired by the Company were canceled and retired. The cancellation of the 1993 Notes resulted in a reduction of interest income of $29,768 in 1995. 11 BULL & BEAR GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1996 AND 1995 (UNAUDITED) 7. INCOME TAXES The provision for income taxes charged to operations for the nine months ended September 30, 1996 and 1995 was as follows: 1996 1995 ---- ---- Current State and local $33,542 $28,088 Federal - -- ---------- --------- $33,542 $28,088 ======= ======= Deferred tax assets (liabilities) are comprised of the following at September 30, 1996 and December 31, 1995: 1996 1995 ---- ---- Unrealized loss (gain) on investments $ (4,000) $ (20,000) Net operating loss carryforwards 614,000 456,600 --------- -------- Total deferred tax assets 610,000 436,600 Deferred tax asset valuation allowance (610,000) (436,600) --------- --------- Net deferred tax assets $ - $ - ============ =========== The change in the valuation allowance for the nine months ended September 30, 1996 was due to the net loss 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, 1995, the Company had net operating loss carryforwards for Federal income tax purposes of approximately $1,284,200, of which $1,033,700, $187,800 and $62,700 expire in 2004, 2005 and 2006, respectively. 8. PENSION PLAN The Company has a 401(k) retirement plan for substantially all of its qualified employees. Contributions to this are based upon a percentage of earnings of eligible employees and are accrued and funded on a current basis. Total pension expense for the nine months ended September 30, 1996 and September 30, 1995 were $31,600 and $24,914, respectively. 9. 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 $193,066 and $312,259 for the nine months ended September 30, 1996, and 1995, respectively. In connection with management services, the Company's investment managers waived or reimbursed management fees to the Funds in the amount of $250,296 and $222,604 for the nine months ended September 30, 1996 and 1995, respectively, and are included in general and administrative expenses in the Statement of Income (Loss). 12 BULL & BEAR GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1996 AND 1995 (UNAUDITED) 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, 1996, the policy had a cash surrender value of approximately $69,175 and is included in other assets in the balance sheet. The Company's discount brokerage subsidiary received brokerage commissions of approximately $ 157,757 and $130,923 from the Funds for the nine months ended September 30, 1996 and 1995, respectively. 10. COMMITMENTS AND CONTINGENCIES The Company has a lease for approximately 11,400 square feet of office space. The rent is approximately $116,250 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 brokerage subsidiary has a branch office in Boca Raton, Florida consisting of approximately 1,000 square feet. The rent is approximately $21,600 per annum and is cancelable at the option of the Company on six months' notice. 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 colllectively own or control 93,500 shares, or approximately 6.9% 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. The original and supplemental complaints filed by Maxus contain various claims which the Company has previously disclosed. On April 11, 1996, the district court dismissed as a matter of law all claims brought by Maxus except those relating to the voiding of certain stock options exercises that occurred in November 1993, the exercise by the Company's Chairman of stock options that he received in 1990 in accordance with their original terms, and plaintiffs' request for counsel fees from the Company. The Company believes that the lawsuit is without merit and intends to continue defending the remaining claims vigorously. From time to time, the Company and/or its subsidiaries are threatened or named as defendants in litigation arising in the normal course of business. As of September 30, 1996, neither the Company nor any of its subsidiaries was involved in any other litigation that, in the opinion of management, would have a material adverse impact on the consolidated financial statements. In July 1994, the Company entered into a Death Benefit Agreement ("Agreement") with the Company's Chairman. Following his death, the Agreement provides for annual payments to his wife until her death amounting to 80% of his average annual salary for the three year period prior to his death subject to certain adjustments. The Company's obligations under the Agreement are not secured and will terminate if he leaves the Company's employ under certain conditions. 13 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Three Months Ended September 30, 1996 compared to Three Months Ended September 30, 1995 Drastic declines in the securities markets can have a significant effect on the Company's business. Volatile stock markets may affect management and distribution fees earned by the Company's subsidiaries. If the market value of securities owned by the Funds declines, shareholder redemptions may occur, either by transfer out of the equity Funds and into the fixed income Funds, which generally have lower management and distribution fee rates than the equity Funds, or by transfer out of the Funds entirely. Lower asset levels in the Funds may also cause or increase reimbursements to the Funds pursuant to expense limitations as described in Note 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 increased $541,906 or 40% which was primarily due to a increase in management, distribution and shareholder administrative fees of $470,813 because of a higher level of net assets under management. Brokerage fees and commissions decreased $10,515 or 2% because of a lower level of customer transactions processed. Net assets under management were approximately $236.9 million at June 30, 1995, $247.2 million at September 30, 1995, $393.2 million at June 30, 1996 and $432.1 million at September 30, 1996. Dividends, interest and other income increased $81,608 due to gain on sale of investments. Total expenses increased $445,782 or 34% primarily as a result of an increase in marketing expenses of $200,503 or 139% related to the launching of the Midas Fund, the introduction of Bull & Bear PC Online Investment Center and the promotion of the American Airlines AAdvantage Miles program through Bull & Bear Securities, Inc. General and administrative expenses increased $121,312 or 15% because of higher compensation costs relating to the growth in the Company's businesses. Clearing and brokerage charges decreased $4,873 or 3% because of a lower level of discount brokerage customer transactions processed, as previously noted. Professional fees decreased $89,927 or 62% due to lower litigation costs relating to the Maxus lawsuit. Subadvisory fees increased $208,238 because of the growth in assets of the Midas Fund. Net income for the period was $134,673 or $.09 per share as compared to net income of $50,894 or $.03 per share for 1995. Nine Months Ended September 30, 1996 compared to Nine Months Ended September 30, 1995 Total revenues increased $1,506,938 or 37% which was due to an increase in management, distribution and shareholder administrative fees and brokerage fees and commissions. Management, distribution and shareholder administrative fees increased $1,026,213 or 41% because of a higher level of net assets under management. Brokerage fees and commissions increased $429,526 or 32% because of an increased level of customer transactions processed. Net assets under management were approximately $236.1 million at December 31, 1994, $235.1 million at March 31, 1995, $236.9 million at June 30, 1995, $247.2 million at September 30, 1996, $237.4 million at December 31, 1995, $317.6 million at March 31, 1996, $393.2 million at June 30, 1996 and $432.1 million at September 30, 1996. Dividends, interest and other income increased $51,199 due to gain on sale of investments. Total expenses increased $2,264,943 or 62% primarily as a result of an increase in marketing expenses of $1,016,297 or 203% related to the launching of the Midas Fund, the introduction of Bull & Bear PC Online Investment Center and the promotion of the American Airlines AAdvantage Miles program through Bull & Bear Securities, Inc. General and administrative expenses increased $504,183 or 21% because of higher compensation costs relating to the growth in the Company's businesses. Clearing and brokerage charges increased $122,458 or 29% because of an increased level of discount brokerage customer transactions processed. Professional fees increased $62,759 or 28% due to litigation costs relating to the Maxus lawsuit. Subadvisory fees increased $521,862 because of the growth in assets of the Midas Fund. Net loss for the period was $483,311 or $(.33) per share as compared to net income of $280,148 or $.18 per share for 1995. 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, 1996 December 31, 1995 ------------------ ----------------- Working Capital $2,128,913 $2,792,059 Total Assets $4,230,344 $4,963,792 Long Term Debt -- -- Shareholders' Equity $3,637,915 $4,170,095 Working capital and total assets decreased $663,146 and $733,448 respectively for the nine months ended September 30, 1996 due to the net loss and payment of liabilities for the period. Shareholders' equity decreased $532,180 for the nine months ended September 30, 1996 primarily as a result of the net loss 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. 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: November 14, 1996 By: 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, 1996 Bassett S. Winmill Chairman of the Board, Director Dated: November 14, 1996 Robert D. Anderson Vice Chairman, Director Dated: November 14, 1996 Mark C. Winmill Co-President, Chief Financial Officer, Director Dated: November 14, 1996 Thomas B. Winmill, Esq. Co-President, General Counsel, Director Dated: November 14, 1996 Charles A. Carroll, Director Dated: November 14, 1996 Edward G. Webb, Jr., Director 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, 1996 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, 1996 /s/ Bassett S. Winmill ---------------------- Bassett S. Winmill Chairman of the Board, Director Dated: November 14, 1996 /s/ Robert D. Anderson ---------------------- Robert D. Anderson Vice Chairman, Director Dated: November 14, 1996 /s/ Mark C. Winmill ------------------- Mark C. Winmill Co-President, Chief Financial Officer, Director Dated: November 14, 1996 /s/ Thomas B. Winmill --------------------- Thomas B. Winmill, Esq. Co-President, General Counsel, Director Dated: November 14, 1996 /s/ Charles A. Carroll ---------------------- Charles A. Carroll, Director Dated: November 14, 1996 /s/ Edward G. Webb, Jr. ----------------------- Edward G. Webb, Jr., Director 16 EX-27 2 6/30/96 FINANCIALS
5 9-Mos Dec-31-1996 Jan-01-1996 Sep-20-1996 728,520 1,098,164 553,950 0 0 2,694,342 1,355,728 755,663 4,203,344 565,429 0 0 0 13,701 3,624,214 4,203,344 0 5,486,096 0 0 5,935,865 0 0 (449,769) 33,542 0 0 0 0 (483,311) (.33) (.33)
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