-----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, M2zvDnegA0wIv2+Ge1xoSulCwE0R+u3AWVxLupeVocndvGS+Ocb3XHtiDE/M+Bep tcgRFVSmnoLSq32LMxIMiA== 0000052234-99-000025.txt : 19990624 0000052234-99-000025.hdr.sgml : 19990624 ACCESSION NUMBER: 0000052234-99-000025 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990527 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WINMILL & CO 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/A SEC ACT: SEC FILE NUMBER: 000-09667 FILM NUMBER: 99636013 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/A 1 10-Q AMENDED As filed with the Securities and Exchange Commission on May 27, 1999 SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q/A (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, 1999 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, 1999 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 April 30, 1999, 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 1 WINMILL & CO. INCORPORATED FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1999 INDEX Page Number PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets - (Unaudited) March 31, 1999 and December 31, 1998 3 Consolidated Statements of Income (Loss) - (Unaudited) Three Months Ended March 31, 1999 and March 31, 1998 4 Consolidated Statements of Changes in Shareholders' Equity - (Unaudited) Three Months Ended March 31, 1999 and March 31, 1998 5 Consolidated Statements of Cash Flows - (Unaudited) Three Months Ended March 31, 1999 and March 31, 1998 6 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 During First Quarter of the Year Ended December 31, 1999 18 Management's Representation and Signatures 19 2
WINMILL & CO. INCORPORATED CONSOLIDATED BALANCE SHEETS (Unaudited) March 31, December 31, 1999 1998 ASSETS Current Assets: Cash and cash equivalents $ 7,114,234 $ 1,403,931 Marketable securities (Note 3) 377,558 353,385 Management, distribution and shareholder administration fees receivable 212,752 257,313 Interest, dividends and other receivables 163,309 205,786 Prepaid expenses and other assets 157,058 506,950 ------------- ------------- Total Current Assets 8,024,911 2,727,365 ------------ ------------ Real estate held for investment, net 1,184,724 1,198,173 Furniture and fixtures, net 129,952 209,339 Excess of cost over net book value of subsidiaries, net (Note 1) 679,015 688,687 Deferred income taxes (Note (9) 25,000 215,400 Other 240,671 276,183 ------------- ------------ 2,259,362 2,587,782 ------------ ----------- Total Assets $10,284,273 $ 5,315,147 =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Income taxes payable $ 1,890,628 13,668 Accounts payable 96,626 $ 104,934 Accrued professional fees 95,745 143,025 Accrued payroll and other related costs 876,580 64,667 Accrued other expenses 31,626 15,252 Current portion of capitalized lease obligation (Note 4) 2,927 4,749 Other current liabilities 9,836 9,836 ------------- ------------ Total Current Liabilities 3,003,968 356,131 Contingencies (Note 11) ------------- ------------ Shareholders' Equity: (Notes 3, 5, 6 and 7) 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 (deficit) 1,010,773 (1,325,338) Notes receivable for common stock issued (603,675) (603,675) Accumulated other comprehensive income (15,798) (976) -------------- --------------- Total Shareholders' Equity 7,280,305 4,959,016 ------------ ----------- Total Liabilities and Shareholders' Equity $10,284,273 $ 5,315,147 =========== =========== See accompanying notes to consolidated financial statements.
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WINMILL & CO. INCORPORATED CONSOLIDATED STATEMENTS OF INCOME (LOSS) (Unaudited) Three Months Ended March 31, 1999 1998 Revenues: Management, distribution and shareholder administration fees $ 669,371 $ 877,608 Realized gains from investments 54,521 -- Dividends, interest and other 50,914 24,081 ---------- ---------- 774,806 901,689 --------- --------- Expenses: General and administrative 504,924 434,834 Marketing 94,711 105,205 Expense reimbursements to the Funds (Note 10) 72,430 22,273 Subadvisory fees 42,136 81,471 Professional fees 19,683 20,856 Amortization and depreciation 43,106 25,721 ---------- ---------- 776,990 690,360 --------- -------- Income (loss) from continuing operations before income taxes (2,184) 211,329 Income taxes (Note 9) 16,347 4,800 ---------- ---------- Income (loss) from continuing operations (18,531) 206,529 =========== ========= Discontinued Operations: Income (loss) from discontinued operations (net of $2,070,000 in income taxes)(Note 2) 2,354,642 (71,350) ----------- ----------- Net Income $2,336,111 $ 135,179 ========== ========= Per share data: Basic Income (loss) from continuing operations $ (.01) $ .15 Income (loss) from discontinued operations 1.42 (.05) ------- ------- Net Income $ 1.41 $ .10 ====== ====== Diluted Income (loss) from continuing operations $ (.01) $ .14 Income (loss) from discontinued operations 1.39 (.05) ------- -------- Net Income $ 1.38 $ .09 ====== ====== Average shares outstanding: Basic 1,655,017 1,370,017 ========= ========= Diluted 1,694,453 1,478,514 ========= ========= See accompanying notes to the consolidated financial statements.
4 WINMILL & CO. INCORPORATED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY Three Months Ended March 31, 1999 and 1998 (Unaudited)
Additional Class A Class B Class A Class B Paid-in- Common Common Common Common Capital --------- ------ ------- ---- ---------- Three Months Ended March 31, 1998 Balance, January 1, 1998 1,350,017 20,000 $13,501 $200 $6,236,077 Net income -- -- -- -- -- Other comprehensive income Change in unrealized gains on marketable securities -- -- -- -- -- Comprehensive income (loss) Contribution to additional paid-in- capital -- -- -- -- 4,102 --------- ------ ------- ---- ---------- Balance, March 31, 1998 1,350,017 20,000 $13,501 $200 $6,240,179 ========= ====== ======= ==== ========== Three Months Ended March 31, 1999 Balance, January 1, 1999 1,635,017 20,000 $16,351 $200 $6,872,454 Net income -- -- -- -- -- Other comprehensive income Change in unrealized gains on marketable securities -- -- -- -- -- --------- ------ ------- ---- ---------- Comprehensive income Balance, March 31, 1999 1,635,017 20,000 $16,351 $200 $6,872,454 ========= ====== ======= ==== ========== Notes Accumulated Receivable Retained other Total For Common Earnings Comprehensive Shareholders' Stock Issued (Deficit) Income Equity ------------ ----------- ------------- ------------- Three Months Ended March 31, 1998 Balance, January 1, 1998 -- $(1,836,753) $ 42,086 $4,455,111 Net income -- 135,179 -- 135,179 Other comprehensive income Change in unrealized gains on marketable securities -- -- 29,095 29,095 -------- ---------- Comprehensive income (loss) 164,274 ---------- Contribution to additional paid-in- capital -- -- -- 4,102 --------- ----------- -------- ---------- Balance, March 31, 1998 $ -- $(1,701,574) $ 71,181 $4,623,487 ========= =========== ======== ========== Three Months Ended March 31, 1999 Balance, January 1, 1999 $(603,675) $(1,325,338) $ (976) $4,959,016 Net income -- 2,336,111 -- 2,336,111 Other comprehensive income Change in unrealized gains on marketable securities -- -- (14,822) (14,822) --------- ----------- -------- ---------- Comprehensive income 2,321,289 ---------- Balance, March 31, 1999 $(603,675) $ 1,010,773 $(15,798) $7,280,305 ========= =========== ======== ==========
WINMILL & CO. INCORPORATED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended March 31, ----------------------------- 1999 1998 ----------- ----------- Cash Flows from Operating Activities: Net income $ 2,336,111 $ 135,179 ----------- ----------- Adjustments to reconcile net income to net cash provided by (used in) Operating Activities: Depreciation and amortization 43,106 36,299 Realized gain from sale of BBSI (2,354,642) -- Realized gains from investments (54,521) -- Other (4,908) 5,369 (Increase) decrease in: Management, distribution and shareholder administration fees receivable 44,561 17,454 Interest, dividends and other receivables (124,412) 49,065 Prepaid expenses and other assets 249,529 77,722 Cash value of life insurance (8,250) (8,250) Other 43,762 -- Increase (decrease) in: Income taxes payable (2,640) -- Accounts payable 88,069 5,786 Accrued professional fees (254,301) (5,357) Accrued payroll and other related costs (56,673) (41,042) Accrued other expenses 16,374 (5,528) ----------- ----------- Total adjustments (2,374,946) 131,518 ----------- ----------- Net cash provided by (used in) Operating Activities (38,835) 266,697 ----------- ----------- Cash Flows from Investing Activities: Proceeds from sale of BBSI (net of cash in discontinued operations) 5,752,254 -- Proceeds from sales of investments 87,422 70,801 Purchases of investments (65,791) (172,979) Purchases of equipment (13,067) (45,946) Capital expenditures (9,858) (184,448) ----------- ----------- Net cash provided by (used in) Investing Activities 5,750,960 (332,572) ----------- ----------- Cash Flows from Financing Activities: Contribution to additional paid-in-capital -- 4,102 Capitalized lease obligations (1,822) (3,621) Net cash provided by (used in) Financing Activities (1,822) 481 ----------- ----------- Net increase (decrease) in cash and cash equivalents 5,710,303 (65,394) Cash and cash equivalents: At beginning of period 1,403,931 312,633 ----------- ----------- At end of period $ 7,114,234 $ 247,239 =========== =========== Supplemental disclosure: The Company did not pay any Federal income taxes during the three months ended March 31, 1999 or 1998. The Company paid approximately $20 and $300 in interest during the three months ended March 31, 1999 and March 31, 1998, respectively. See accompanying notes to the consolidated financial statements.
6 WINMILL & CO. INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 1999 and 1998 (Unaudited) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF BUSINESS Winmill & Co. Incorporated (formerly Bull & Bear Group, Inc.) ("Company") is a holding company with six principal subsidiaries: CEF Advisers, Inc., formerly Bull & Bear Advisers, Inc. ("CEF"), Investor Service Center, Inc. ("ISC"), Midas Management Corporation ("MMC"), Rockwood Advisers, Inc. ("RAI"), Performance Properties, Inc. ("Performance Properties") and Hanover Direct Advertising Company, Inc. ("Hanover"). Its subsidiaries' business consists of providing investment management and distribution services for the six open-end funds and three closed-end funds ("Funds"). On March 31, 1999, the Company sold its wholly owned subsidiary Bull & Bear Securities, Inc. ("BBSI") to a subsidiary of Royal Bank of Canada. 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 March 31, 1999 and December 31, 1998, the Company and subsidiaries had invested approximately $6,742,500 and $1,378,700, 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. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK In the normal course of business, BBSI's customer activities involve the execution and settlement of customer transactions. These activities may expose BBSI to risk of loss in the event the customer is unable to fulfill its contracted obligations, in which case BBSI 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. 7 WINMILL & CO. INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 1999 and 1998 (Unaudited) BROKERAGE INCOME AND EXPENSES BBSI's brokerage commission and fee income and clearing and brokerage expenses are recorded on a settlement date basis. The difference between recording such income and expenses on a settlement date basis as opposed to trade date, as required by generally accepted accounting principles, is not material to the consolidated financial statements. INCOME TAXES The Company and its wholly-owned subsidiaries file consolidated income tax returns. The Company's method of 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 1998 financial statements have been made to conform to the 1999 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, 1999 and December 31, 1998, accumulated depreciation amounted to approximately $115,700 and $92,400, respectively. Equipment, furniture and fixtures are recorded at cost and are depreciated on the straight-line basis over their estimated useful lives, 3 to 10 years. At March 31, 1999 and December 31, 1998, accumulated depreciation amounted to approximately $765,700 and $908,400, 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, 1999 and December 31, 1998, accumulated amortization amounted to approximately $521,800 and $662,100, respectively. Periodically, the Company reviews its intangible assets for events or changes in circumstances that may indicate that the carrying amounts of the assets are not recoverable. COMPREHENSIVE INCOME The Company applies Statement of Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting Comprehensive Income". SFAS 130 establishes the disclosure requirements for reporting comprehensive income in an entity's financial statements. Total comprehensive income includes net income and unrealized gains and losses on marketable securities. Accumulated other comprehensive income, a component of stockholders' equity, was formerly reported as unrealized gains and losses on marketable securities. SEGMENT INFORMATION Statement of Financial Accounting Standards No. 131 ("SFAS 131") "Disclosures About Segments of an Enterprise and Related Information" was applied by the Company. SFAS 131 requires companies to present segment information using the management approach. The management approach is based on operating decisions and assessing performance. The Company's operating segments are organized around services provided and are classified into two groups - investment management and discount brokerage. Due to the sale of BBSI, the discount brokerage business is classified as "income from discontinued operations" on the financial statements (See Note 2). The Company's remaining business is in one industry segment. 8 WINMILL & CO. INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 1999 and 1998 (Unaudited) EARNINGS PER SHARE The Company applies Statement of Financial Accounting Standards No. 128 "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:
March 31, --------------------------- 1999 1998 ---- ---- Numerator for basic and diluted earnings per share: Net income $ 4,190,711 $ 135,179 =========== ============ Denominator: Denominator for basic earnings per share - weighted-average shares 1,655,017 1,370,017 Effect of dilutive securities: Employee Stock Options 39,436 108,497 ------------- ------------ Denominator for diluted earnings per share - adjusted weighted - average shares and assumed conversions 1,694,453 1,478,514 =========== ===========
2. DISCONTINUED OPERATIONS On December 17, 1998, the Company signed an agreement to sell the outstanding stock of 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. The results from BBSI are shown as discontinued operations in the statement of income with the prior period restated. Income (loss) from operations is summarized as follows:
Three Months Ended -------------------------------------- March 31, 1999 March 31, 1998 -------------- -------------- Revenues $ 748,786 $ 577,451 Expenses 733,537 648,801 ----------- ------------ Income (loss) from discontinued operations 15,249 (71,350) ------------ ------------ Gain on sale of discontinued operations: Proceeds, net of basis 5,500,000 -- Professional fees (222,021) -- Closing bonuses (868,586) -- Income taxes (2,070,000) -- ----------- Total gain on sale $2,339,393 -- Total income (loss) from discontinued operations $2,354,642 $ (71,350) =========== ===========
9 WINMILL & CO. INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 1999 and 1998 (Unaudited) 3. MARKETABLE SECURITIES At March 31, 1999, marketable securities consisted of:
Market Value ------------ Securities held by broker/dealer subsidiary - marked to market Affiliated mutual funds (cost $159,882) $ 131,128 ----------- Other companies Available-for-sale securities - marked to market Equity securities 216,736 Unaffiliated mutual funds 27,586 Affiliated mutual funds 2,108 ------------- Total available-for-sale securities (cost-$262,228) 246,430 ------------ $ 377,558 At December 31, 1998, marketable securities consisted of: Securities held by broker/dealer subsidiary - marked to market Affiliated mutual funds (cost $159,882) $ 128,945 ----------- Other companies Available-for-sale securities - marked to market Unaffiliated mutual funds 38,820 Affiliated mutual funds 2,268 Equity securities 183,352 ------------ Total available-for-sale securities (cost - $225,416) 224,440 ------------ $ 353,385 ============
4. LEASE COMMITMENTS AS LESSEE The Company has a lease for approximately 7,600 square feet of office space. The rent is approximately $138,000 per annum plus $20,600 per annum for electricity. The lease expires December 31, 1999 and is cancelable at the option of the Company on three months' notice. The Company leases office equipment under capital leases expiring in 1999. The related property is included in furniture and equipment at a cost of $22,729 at March 31, 1999. Depreciation expense of approximately $21,000 has been recognized on this property as of March 31, 1999. 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, 1999 2,947 ----------- Total minimum lease payments 2,947 Less: amount representing interest and executory costs 20 ------------ Present value of minimum lease payments $ 2,927 ========= 10 WINMILL & CO. INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 1999 and 1998 (Unaudited) AS LESSOR The Company owns an office building which is leased to various tenants. Future minimum lease payment receivables under noncancellable leasing arrangements as of December 31, 1998 are as follows: Year ending December 31, 1999 $ 152,300 2000 172,400 2001 189,800 2002 176,000 2003 154,600 2004 - 2008 797,000 ---------- Net minimum future lease receipts $1,642,100 ========== 5. SHAREHOLDERS' EQUITY The Class A and Class B Common Stock are identical in all respects except for voting rights, which are vested solely in the Class B Common Stock. The Company also has 1,000,000 shares of Preferred Stock, $.01 par value, authorized. As of March 31, 1999 and December 31, 1998, none of the Preferred Stock was issued. 6. NET CAPITAL REQUIREMENTS The Company's broker/dealer subsidiary, 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 $25,000, when engaged solely in the sale of redeemable shares of registered investment companies, 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 March 31, 1999, the subsidiary had net capital of approximately $609,400; net capital requirement of approximately $25,000; excess net capital of approximately $584,400; and the ratio of aggregate indebtedness to net capital were approximately .16 to 1. 7. STOCK OPTIONS On December 6, 1995, the Company adopted a Long-Term Incentive Plan which provides for the granting of a maximum of 300,000 options to purchase Class A Common Stock to directors, officers and key employees of the Company or its subsidiaries. The plan was amended on February 5, 1996 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. 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. The new non-employee director was granted 10,000 options on September 8, 1998. 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 five years. 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 five 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. 11 WINMILL & CO. INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 1999 and 1998 (Unaudited) 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 March 31, ---------------------------- 1999 1998 ---- ---- Net income As Reported $2,336,111 $135,179 Proforma $2,179,092 $111,711 Earnings per share Basic As Reported $1.41 $.10 Proforma $1.32 $.08 Diluted As Reported $1.38 $.09 Proforma $1.29 $.08 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 1999 and 1998, respectively: expected volatility of 54.31% and 73.95%, risk-free interest rate of 4.55% and 5.11% and expected life of three years. A summary of the status of the Company's stock option plans as of March 31, 1999 and December 31, 1998 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, 1997 412,000 $ 2.21 Granted 12,000 $ 1.81 Exercised (285,000) $ 2.25 Canceled (20,000) $ 2.64 ------- Outstanding at December 31, 1998 119,000 $ 2.05 Granted 125,000 $ 3.47 Canceled (3,000) $ 2.25 ------- Outstanding at March 31, 1999 241,000 $ 2.84 ======= There were 209,000 and 97,000 options exercisable at March 31, 1999 and December 31, 1998 with a weighted-average exercise price of $2.87 and $1.99, respectively. The weighted-average fair value of options granted was $1.35 and $0.94 for the three months ended March 31, 1999 and the year ended December 31, 1998, respectively. The following table summarizes information about stock options outstanding at March 31, 1999: Options Outstanding ---------------------------------- Weighted-Average Range of Number Remaining Weighted-Average Exercise Prices Outstanding Contractual Life Exercise Price --------------- ----------- ---------------- ------------------- $1.50 - $1.8125 35,000 2.3 years $1.68 $1.875 - $2.475 61,000 2.4 years $1.99 $2.75 - $3.00 20,000 2.6 years $2.88 $3.36 - $3.70 125,000 5.0 years $3.47 12 WINMILL & CO. INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 1999 and 1998 (Unaudited) 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 March 31, 1999 and December 31, 1998 was $603,675, which was classified as "notes receivable for common stock issued." 8. PENSION PLAN The Company has a 401(k) retirement plan for substantially all of its qualified employees. Contributions to this are based upon a percentage of salaries of eligible employees and are accrued and funded on a current basis. Total pension expense for the three months ended March 31, 1999 and March 31, 1998 were $8,862 and $8,796, respectively. 9. INCOME TAXES The provision for income taxes for the three months ended March 31, 1999 and 1998 are as follows: 1999 1998 ---------- ---------- Current State and local $ 866,347 $ 4,800 Federal 1,220,000 -- ---------- ---------- $2,086,347 $ 4,800 ========== ========== Deferred tax assets (liabilities) are comprised of the following at March 31, 1999 and December 31, 1998: 1999 1998 -------- -------- Unrealized loss (gain) on investments $ 15,000 $ 12,400 Depreciation 10,000 10,000 Accrued expenses -- 40,000 Net operating loss carryforwards -- 153,000 -------- -------- Total deferred tax assets 25,000 215,400 Deferred tax asset valuation allowance -- -- -------- -------- Net deferred tax assets $ 25,000 $215,400 ======== ======== Due to the sale of BBSI, the net operating loss carryforwards will be fully realized in 1999. 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. 10. 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. Shareholder administration fees represent reimbursement of costs incurred by subsidiaries of the Company on behalf of the open-end Funds. Such reimbursement amounted to $0 and $ 72,950 for the quarter ended March 31, 1999, and 1998, respectively. During the quarter ended March 31, 1999 and 1998, the Funds paid approximately $51,441 and $36,000, respectively, for co-transfer agent services to ISC, which paid such amounts to certain brokers for performing such services. These reimbursements were recorded as a reduction to marketing expenses. 13 WINMILL & CO. INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 1999 and 1998 (Unaudited) In connection with management services, the Company's investment managers, CEF, MMC, and RAI waived or reimbursed management fees to the Funds in the amount of $72,430 and $22,273 for the quarter ended March 31, 1999 and 1998, 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 March 31, 1999, the policy had a cash surrender value of approximately $150,300 and is included in other assets in the balance sheet. The Company's discount brokerage subsidiary received brokerage commissions of approximately $17,129 and $45,076 from the Funds for the three months ended March 31, 1999 and 1998, respectively. 11. CONTINGENCIES A group called Karpus Investment Management ("KIM") at the 1997 annual meeting of Bull & Bear U.S. Government Securities Fund, Inc. ("BBG") sought to elect its slate of nominees in opposition to management and at the 1998 annual meeting of BBG made a counter-solicitation on all management proposals and a solicitation to terminate the investment management agreement. On February 19, 1998, KIM filed a lawsuit against BBG in the Circuit Court for Baltimore City, Maryland, Case No. 9805005, which was dismissed with prejudice on October 1, 1998. 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. On December 22, 1998, KIM filed a lawsuit against BBG in the United States District Court for the District of Maryland Court, 98-CV-4161 and BBG has made counterclaims. KIM has submitted a proposal to BBG for inclusion in proxy material at the next meeting of shareholders to terminate the investment management contract of CEF with BBG. On May 25, 1999, BBG and KIM announced that they had entered into a settlement of all litigation in the United States District Court for the Southern District of New York and in the United States District Court for the District of Maryland. The settlement is subject to the approval of the Board of Directors of BBG. In connection with the settlement, KIM has agreed to sell its 12.7% stake in BBG of 96,550 shares to ISC. ISC will pay $12 7/8 per share. The outcome of these matters and their effect on the Company or CEF's management agreement with BBG cannot be predicted with certainty. BBG's net assets at March 31, 1999 amounted to approximately $10.4 million. 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, 1999, 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. 14 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Three Months Ended March 31, 1999 compared to Three Months Ended March 31, 1998 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 10 of the financial statements. On December 17, 1998, the Company signed an agreement to sell the outstanding stock of 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 decreased $126,883 or 14% which was primarily due to a decrease in management, distribution and shareholder administration fees of $208,237 or 24% because of a lower level of net assets under management. In addition, effective January 1999, the Company discontinued shareholder administration services to the Funds. Net assets under management were approximately $274 million at December 31, 1997, $301 million at March 31, 1998, $278 million at June 30, 1998, $261 million at September 30, 1998, $258 million at December 31, 1998, and $248 million at March 31, 1999. The Company had realized gains of $54,521 on the sale of the Company's investments. Dividends, interest and other income increased $26,833 due to rental income from the Company's investment in real estate. The Company began leasing space to its tenants in May 1998. Total expenses increased $86,630 or 13% as a result of an increase in general and administrative expenses and expense reimbursements to the Funds. General and administrative expenses increased $70,090 or 16% because of higher rent expense and writeoff of barter credits. Expense reimbursements to the Funds increased $50,157 or 225% due to higher waivers of management fees in certain Funds. Marketing expenses decreased $10,494 or 9%. Subadvisory fees decreased $39,335 or 48% because of the lower net assets in the Midas Fund. Professional fees decreased $1,173 or 6%. Net loss from continuing operations for the period was $18,531 or $.01 per share as compared to net income of $206,529 or $.14 diluted earnings per share for 1998. Net gain from discontinued operations for the period was $2,354,642, which included income from operations of $15,249, or $1.39 diluted earnings per share as compared to a net loss from discontinued operations of $71,350 or $.05 per share for 1998. Net income for the period was $2,336,111 or $1.38 diluted earnings per share for the period as compared to net income of $135,179 or $.09 diluted earnings per share for 1998. 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, 1999 December 31, 1998 -------------- ----------------- Working Capital $5,020,943 $2,371,234 Total Assets $10,284,273 $5,315,147 Long Term Debt -- -- Shareholders' Equity $7,280,305 $4,959,016 Working capital, total assets and shareholders' equity increased $2,649,709, $4,969,126 and $2,321,289, respectively for the three months ended March 31, 1999 primarily as a result of the sale of BBSI. 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. 15 Effects of Inflation and Changing Prices Since the Company derives most of its revenues from acting as the manager and distributor of investment companies, 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. Year 2000 The Year 2000 discussion below contains forward looking statements, including those concerning the Company's plans and expected completion dates, cost estimates, assessments of Year 2000 readiness for the Company as well as for third parties, and the potential risks of any failure on the part of the Company or third parties to be Year 2000 ready on a timely basis. Forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ from those projected. While the Company continues to evaluate and pursue discussions with its various vendors with respect to their preparedness for Year 2000 issues, no assurance can be made that all such parties will be Year 2000 ready. While the Company cannot fully determine its impact, the inability to complete Year 2000 readiness for its computer systems could result in significant difficulties in processing and completing fundamental transactions. In such events, the Company's results of operations, financial position and cash flows could be materially adversely affected. Many companies and organizations have computer programs that use only two digits to identify a year in the date field. These programs were designed and developed without considering the impact of the upcoming change in the century. If not corrected, this could cause a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions. State of Readiness. In addressing the Year 2000 issue, the Company has substantially completed an inventory of its computer programs and hardware and assessed its Year 2000 readiness. The Company's computer programs include third-party purchased programs and third-party custom developed programs. For programs and hardware which were identified as not being Year 2000 ready, the Company is in the process of implementing a remedial plan which includes repairing or replacing the programs or hardware and appropriate testing for Year 2000. In addition, the Company has initiated communications with third parties to determine the extent to which the Company's interface systems are vulnerable to those third parties' failure to remediate their own Year 2000 issues. If such modifications and conversions are not made, or are not timely completed, or if the systems of the companies on which the Company's interface system relies are not timely converted, the Year 2000 issue could have a material impact on the operations of the Company. However, the Company believes that with modifications to existing software and hardware and conversions to new software and hardware, the Year 2000 issue will not pose significant operational problems for its computer systems. Year 2000 Risks. The Company continues to evaluate the principal risks associated with its information technology and non-information technology systems, as well as third party systems if they were not to be Year 2000 ready on a timely basis. Areas that could be affected include, but are not limited to, the ability to: accurately track pricing and trading information, obtain and process customer orders and investor transactions, properly track and record revenue movements and order and obtain critical supplies. The Company believes, however, that the risks involved with the successful completion of its Year 2000 conversion relate primarily to available resources and third party readiness. The key success factors include the proper quality and quantity of human capital resources to address the complexity and costs of the project tasks. The Company believes it has allocated adequate resources to the Year 2000 project and believes that it is adequately staffed by employees. The inability to complete Year 2000 readiness for the computer systems of the Company could result in significant difficulties in processing and completing critical transactions. In addition, the Company is taking precautions to ensure its third party relationships have been adequately addressed. Based on work performed and information received to date, the Company believes its key suppliers and other significant third party relationships will be prepared for the Year 2000 in all material respects within an acceptable time frame (or that acceptable alternatives will be available); however, management of the Company makes no assurances that all such parties will be Year 2000 ready within an acceptable time frame. 16 In the event that the Company or key third parties are not Year 2000 ready, the Company's results of operations, financial position and cash flows could be materially adversely affected. Contingency Plans. The Company and its subsidiaries are in the process of identifying alternative plans in the event that the Year 2000 project is not completed on a timely basis or otherwise does not meet anticipated needs. The Company is also making alternative arrangements in the event that critical suppliers, customers, utility providers and other significant third parties are not Year 2000 ready. Year 2000 Costs. In the opinion of management, the cost of addressing the Year 2000 issue is not expected to have a material adverse effect on the Company's financial condition or its results of operations. Forward Looking Information Information or statements provided by or on behalf of the Company from time to time, including those within this Form 10-Q Quarterly Report, may contain certain "forward-looking information", including information relating to anticipated growth in revenues or earnings per share, anticipated changes in the amount and composition of assets under management, 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. 17 Part II. Other Information Items 4. Submission of Matters to a Vote of Security Holders During First Quarter of the Year Ended December 31, 1999 At the annual meeting of Class B shareholder held March 2, 1999, the following matters were unanimously approved: the selection of Tait, Weller & Baker as the independent accountants of the Company; the election of Robert D. Anderson, Bassett S. Winmill, Charles A. Carroll, Mark C. Jones, Mark C. Winmill, Edward G. Webb, Jr. and Thomas B. Winmill as directors of the Company; the amendment of the Company's Certificate of Incorporation to change the Company's name to Winmill & Co. Incorporated; and, the ratification of the actions of the Board of Directors of the Company in adopting the amendment to the Bull & Bear Group, Inc. 1995 Long-Term Incentive Plan (as amended and restated as of October 29, 1997). 18 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: May 27, 1999 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 27, 1999 /s/ Bassett S. Winmill ---------------------------------- Bassett S. Winmill Chairman of the Board, Director Dated: May 27, 1999 /s/ Robert D. Anderson ---------------------------------- Robert D. Anderson Vice Chairman, Director Dated: May 27, 1999 /s/ Thomas B. Winmill ---------------------------------- Thomas B. Winmill, Esq. Co-President, General Counsel, Director Dated: May 27, 1999 ---------------------------------- Charles A. Carroll, Director Dated: May 27, 1999 /s/Edward G. Webb, Jr. Edward G. Webb, Jr., Director Dated: May 27, 1999 ---------------------------------- Mark C. Jones, Director 19 EX-27 2 FINANCIAL DATA SCHEDULE
5 0000052234 Winmill & Co. Incorporated 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 7,114,234 377,558 376,061 0 0 8,024,911 895,652 765,700 10,284,273 3,003,968 0 0 0 16,551 7,263,754 7,280,305 0 774,806 0 0 776,990 0 0 (2,184) 16,347 (18,531) 2,354,642 0 0 2,336,111 1.41 1.38
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