-----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, JwgL3ukX7/5NJzc9sOqIgcTBdTfu0V+yJ5Z/deBhxTmPuNIEM5k/ZqOPJ5aYxTV8 cPDtIYZlJhilu/haDgEokQ== 0000052234-99-000026.txt : 19990827 0000052234-99-000026.hdr.sgml : 19990827 ACCESSION NUMBER: 0000052234-99-000026 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990816 DATE AS OF CHANGE: 19990826 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: 99694053 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 10Q As filed with the Securities and Exchange Commission on August 16, 1999 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 June 30, 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 June 30, 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 July 31, 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 JUNE 30, 1999 INDEX ----- Page Number PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets - (Unaudited) June 30, 1999 and December 31, 1998 3 Consolidated Statements of Income (Loss) - (Unaudited) Three and Six Months Ended June 30, 1999 and June 30, 1998 4 Consolidated Statements of Changes in Shareholders' Equity - (Unaudited) Six Months Ended June 30, 1999 and June 30, 1998 5 Consolidated Statements of Cash Flows - (Unaudited) Six Months Ended June 30, 1999 and June 30, 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 Second Quarter of the Year Ended December 31, 1999 18 Management's Representation and Signatures 19 2 WINMILL & CO. INCORPORATED CONSOLIDATED BALANCE SHEETS (Unaudited)
June 30, December 31, 1999 1998 ASSETS Current Assets: Cash and cash equivalents $ 5,950,449 $ 1,403,931 Marketable securities (Note 3) 810,641 353,385 Management, distribution, and service fees receivable 199,630 257,313 Interest, dividends and other receivables 145,172 205,786 Prepaid expenses and other assets 132,963 506,950 ----------- ----------- Total Current Assets 7,238,855 2,727,365 ---------- ----------- Real estate held for investment, net 1,184,371 1,198,173 Furniture and fixtures, net 119,150 209,339 Excess of cost over net book value of subsidiaries, net (Note 1) 669,344 688,687 Deferred Income Taxes (Note 10) 16,500 215,400 Other 248,921 276,183 ----------- ------------ 2,238,286 2,587,782 ----------- ------------ Total Assets $9,477,141 $5,315,147 ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities: Income taxes payable $ 1,891,528 $ 13,668 Accounts payable 46,054 104,934 Accrued professional fees 44,245 143,025 Accrued expenses 89,592 15,252 Accrued payroll and other related costs 16,818 64,667 Current portion of capitalized lease obligation (Note 4) 171 4,749 Other 14,836 9,836 ------------ ---------- Total Current Liabilities 2,103,244 356,131 Contingencies (Note 12) -- -- Shareholders' Equity: (Notes 3, 6, 7 and 8) Common Stock, $.01 par value Class A, 10,000,000 shares authorized; 1,650,017 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) 1,074,560 (1,325,338) Notes receivable for common stock issued (603,675) (603,675) Accumulated other comprehensive income 14,007 (976) ----------- ------------- Total Shareholders' Equity 7,373,897 4,959,016 ---------- ----------- Total Liabilities and Shareholders' Equity $9,477,141 $ 5,315,147 ========== ===========
See accompanying notes to consolidated financial statements. 3 CONSOLIDATED STATEMENTS OF INCOME (LOSS) (Unaudited)
Three Months Ended June 30, Six Months Ended June 30, 1999 1998 1999 1998 ---- ---- ---- ---- Revenues: Management, distribution, service, and administrative fees $ 812,566 $1,036,780 $1,517,251 $1,945,497 Real estate rental income 51,455 4,377 97,586 4,377 Consulting fee 50,000 0 50,000 0 Realized gains from investments 1,309 0 55,830 0 Dividends, interest and other 77,346 26,111 82,130 50,192 ----------- ---------- ------------- ----------- 992,676 1,067,268 1,802,797 2,000,066 ---------- --------- ---------- ---------- Expenses: General and administrative 499,283 514,206 1,039,521 980,149 Marketing 155,374 186,761 250,085 291,966 Expense reimbursements to the Funds (Note 11) 79,212 27,373 151,642 49,646 Subadvisory fees 40,513 56,346 82,649 137,817 Professional 98,885 93,366 118,568 114,222 Amortization and depreciation 36,524 28,577 79,630 54,298 ---------- ---------- ----------- ----------- 909,791 906,629 1,722,095 1,628,098 --------- --------- ---------- ---------- Income (loss) from continuing operations before income taxes 82,885 160,639 80,702 371,968 Income taxes (Note 10) 19,099 5,100 35,446 9,900 ---------- ---------- ----------- ---------- Income (loss) from continuing operations 63,786 155,539 45,256 362,068 ---------- -------- ----------- -------- Discontinued Operations: Income (loss) from discontinued operations (Note 2) -- (14,232) 2,354,642 (85,582) ----------- ----------- ----------- ----------- Net Income $ 63,786 $ 141,307 $2,399,898 $ 276,486 ======== ========= ========== ========= Per share data: Basic Income (loss) from continuing operations $ .04 $ .11 $ .03 $ .26 Income (loss) from discontinued operations .00 (.01) 1.42 (.06) ------- ------- ------- ------- Net Income $ .04 $ .10 $ 1.45 $ .20 ======= ====== ====== ====== Diluted Income (loss) from continuing operations $ .04 $ .11 $ .03 $ .25 Income (loss) from discontinued operations .00 (.01) 1.39 (.06) ------- -------- ------- -------- Net Income $ .04 $ .10 $ 1.42 $ .19 ======= ====== ====== ====== Average shares outstanding: Basic 1,655,017 1,370,017 1,655,017 1,370,017 ========= ========= ========= ========= Diluted 1,690,212 1,476,764 1,690,056 1,476,871 ========= ========= ========= =========
See accompanying notes to the consolidated financial statements. 4 WINMILL & CO. INCORPORATED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY Six Months Ended June 30, 1999 and 1998 (Unaudited)
Paid-in- Paid-in- Class A Class B Capital Capital Additional Common Common Class A Class B Paid-in- Shares Shares Common Common Capital -------- -------- ------ ------ --------- Six Months Ended June 30, 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 ............ -- -- -- -- -- Contribution to additional paid-in- capital ....................... -- -- -- -- 4,102 ----------- ----------- ----------- ----------- ----------- Balance, June 30, 1998 ............ 1,350,017 20,000 $ 13,501 $ 200 $ 6,240,179 =========== =========== =========== =========== =========== Six Months Ended June 30, 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, June 30, 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 ------------ ----------- -------- ---------- -- $(1,836,753) $ 42,086 $ 4,455,111 -- 276,486 -- 276,486 -- -- 16,797 16,797 ----------- ----------- ----------- ----------- -- -- 16,797 293,283 ----------- -- -- -- 4,102 ----------- ----------- ----------- ----------- $ -- $(1,560,267) $ 58,883 $ 4,752,496 =========== =========== =========== =========== $ (603,675) $(1,325,338) $ (976) $ 4,959,016 -- 2,399,898 -- 2,399,898 -- -- 14,983 14,983 ----------- ----------- ----------- ----------- -- 2,399,898 14,983 2,414,881 ----------- $ (603,675) $ 1,074,560 $ 14,007 $ 7,373,897 =========== =========== =========== ===========
See accompanying notes to the consolidated financial statements. 5 WINMILL & CO. INCORPORATED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Six Months Ended June 30, 1999 1998 ------------ -------- Cash Flows from Operating Activities: Net income $2,399,898 $ 276,486 ---------- ---------- Adjustments to reconcile net income to net cash provided by Operating Activities: Realized gain from sale of BBSI (2,354,642) -- Depreciation and amortization 79,630 78,100 Increase in cash value of life insurance (16,500) (16,500) Realized (gain) on investments (55,830) -- Deferred tax asset 8,500 -- Other (3,336) (1,274) (Increase) decrease in: Management, distribution and service fees receivable 57,683 54,049 Interest, dividends and other receivables (106,275) (110,814) Prepaid expenses and other assets 273,624 56,561 Other 43,762 -- Increase (decrease) in: Accounts payable 37,497 (102,888) Accrued professional fees (305,801) 24,633 Accrued expenses 60,672 (24,551) Accrued payroll and other related costs (916,417) (294) Income taxes payable 11,928 -- Other 5,000 -- ------------- --------------- Total adjustments (3,180,505) (42,978) ------------ -------------- Net cash provided by (used in) Operating Activities (780,607) 233,508 ------------- ------------ Cash Flows from Investing Activities: Proceeds from sale of BBSI (net of cash in discontinued operations) 5,752,254 -- Proceeds from sales of investments 176,863 424,920 Purchases of investments (558,857) (182,807) Purchases of equipment (13,067) (54,020) Capital expenditures (25,490) (535,856) -------------- -------------- Net cash provided by (used in) Investing Activities 5,331,703 (347,763) ------------ -------------- Cash Flows from Financing Activities: Capitalized lease obligations (4,578) (7,243) Contribution to additional paid-in-capital -- 4,102 Net cash used in Financing Activities (4,578) (3,141) --------------- --------------- Net increase (decrease) in cash and cash equivalents 4,546,518 (117,396) Cash and cash equivalents: At beginning of period 1,403,931 312,633 ------------ ------------ At end of period $ 5,950,449 $ 195,237 =========== =========== Supplemental disclosure: The Company did not pay any Federal income taxes during the six months ended June 30, 1999 and 1998. The Company paid approximately $40 and $500 in interest during the six months ended June 30, 1999 and 1998, respectively.
See accompanying notes to the consolidated financial statements. 6 WINMILL & CO. INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 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 June 30, 1999, the Bull & Bear Funds and the Rockwood Fund changed their names and became part of the Midas Funds family. 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 June 30, 1999 and December 31, 1998, the Company and subsidiaries had invested approximately $5,644,800 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 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. BROKERAGE INCOME AND EXPENSES The brokerage commission and fee income and clearing and brokerage expenses of the discontinued operations, BBSI 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 WINMILL & CO. INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 1999 and 1998 (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 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 a period up to 30 years. At June 30, 1999 and December 31, 1998, accumulated depreciation amounted to $131,700 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 June 30, 1999 and December 31, 1998, accumulated depreciation amounted to $776,500 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 or forty years using the straight-line method. At June 30, 1999 and December 31, 1998, accumulated amortization amounted to $531,500 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 June 30, 1999 and 1998 (Unaudited) COMPUTATION OF AVERAGE BASIC AND DILUTED SHARES 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:
3 months ended June 30, 6 months ended June 30, ------------------------ ------------------------ 1999 1998 1999 1998 ---- ---- ---- ---- Numerator for basic and diluted earnings per share: Net income $ 63,786 $ 141,307 $2,399,898 $ 276,486 ========== ========= ========== ========= Denominator: Denominator for basic earnings per share - weighted-average shares 1,655,017 1,370,017 1,655,017 1,370,017 Effect of dilutive securities: Stock Options 35,195 106,747 35,039 106,854 ------------- ------------ ----------- ------------ Denominator for diluted earnings per share - adjusted weighted - average shares and assumed conversions 1,690,212 1,476,764 1,690,056 1,476,871 =========== =========== ========== ===========
2. DISCONTINUED OPERATIONS On March 31, 1999, the Company sold its wholly-owned subsidiary, BBSI, the discount brokerage business, to a subsidiary of Royal Bank of Canada. The Company received $6,000,000 cash 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. In addition, the Company has entered into an agreement to provide consulting services to BBSI for an annual fee of $200,000 for a period of three years following the sale. 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:
Six Months Ended June 30, 1999 June 30, 1998 Revenues $ 748,786 $1,191,545 Expenses 733,537 1,277,127 ----------- ----------- Income (loss) from discontinued operations 15,249 (85,582) ------------ ------------ 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 $ (85,582) =========== ===========
9 WINMILL & CO. INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 1999 and 1998 (Unaudited) 3. MARKETABLE SECURITIES
At June 30, 1999, marketable securities consisted of: Market Value Securities held by broker/dealer subsidiary - marked to market Funds managed by the Company (cost $549,503) $ 521,197 ----------- Other companies Available-for-sale securities - marked to market Equity securities and unaffiliated mutual funds 288,191 Funds managed by the Company 1,253 Total available-for-sale securities (cost-$275,437) 289,444 ------------ $ 810,641 At December 31, 1998, marketable securities consisted of: Securities held by broker/dealer subsidiary - marked to market Funds managed by the Company (cost $159,882) $ 128,945 ----------- Other companies Available-for-sale securities - marked to market Funds managed by the Company 2,268 Equity securities and unaffiliated mutual funds 222,172 Total available-for-sale securities (cost - $225,416) 224,440 ------------ $ 353,385
4. LEASE COMMITMENTS 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. In addition, the Company leases office equipment under capital leases expiring in 1999. Such office equipment is included in furniture and equipment at a cost of $22,729 at June 30, 1999. Depreciation expense of approximately $22,000 has been recognized on this property as of June 30, 1999. Future annual minimum lease payments under the capital leases together with the present value of the net minimum lease payments is approximately $200. 5. REAL ESTATE The Company owns an office building which is approximately 90% leased to various tenants. Future minimum lease payment receivables under noncancellable leasing arrangements are as follows: Six months ended December 31, 1999 $ 84,800 Year ending December 31, ------------------------ 2000 189,100 2001 206,600 2002 192,800 2003 161,600 2004 - 2008 797,000 ----------- Net minimum future lease receipts $1,631,900 ========== 10 WINMILL & CO. INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 1999 and 1998 (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 June 30, 1999 and December 31, 1998, none of the Preferred Stock was issued. 7. 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), such 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 June 30, 1999, ISC had net capital of approximately $775,000; net capital requirement of $25,000; excess net capital of approximately $750,000; and a ratio of aggregate indebtedness to net capital were .19 to 1. 8. 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. In addition, the plan was amended in March, 1999 increasing 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. 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 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 are as follows:
Three Months Ended June 30, Six Months Ended June 30, 1999 1998 1999 1998 ---- ---- ---- ---- Net income: As reported $63,786 $141,307 $2,399,898 $276,486 Proforma $58,806 $133,591 $2,236,754 $244,672 Earnings per share Basic: As reported $.04 $.10 $1.45 $.20 Proforma $.04 $.10 $1.35 $.18 Diluted: As reported $.04 $.10 $1.42 $.19 Proforma $.03 $.09 $1.32 $.17
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: expected volatility of 84.99%, risk-free 11 WINMILL & CO. INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 1999 and 1998 (Unaudited) interest rate of 4.55% and expected life of three years. A summary of the status of the Company's stock option plans as of June 30, 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 $3.57 Canceled (35,000) $2.21 Outstanding at June 30, 1999 209,000 $2.94 There were 199,000 and 97,000 options exercisable at June 30, 1999 and December 31, 1998 with a weighted-average exercise price of $2.99 and $1.99, respectively. The weighted-average fair value of options granted was $1.36 and $0.94 for the six months ended June 30, 1999 and the year ended December 31, 1998, respectively. The following table summarizes information about stock options outstanding at June 30, 1999:
Options Outstanding ------------------------------------------------------------------ Weighted-Average Range of Number Remaining Weighted-Average Exercise Prices Outstanding Contractual Life Exercise Price --------------- ----------- ------------------- ---------------------- $1.50 - $1.8125 22,000 2.0 years $1.78 $1.875 - $2.475 55,000 2.0 years $1.96 $2.75 - $3.00 7,000 2.3 years $2.82 $3.36 - $3.70 125,000 4.7 years $3.57
In connection with the exercise of options for 270,000 shares in 1998, the Company received from certain officers, cash representing par value per share and the balance with notes with an interest rate of 4.47% per annum payable December 15, 2003. The balance of the notes at June 30, 1999 and December 31, 1998 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 earnings of eligible employees and are accrued and funded on a current basis. Total pension expense for the six months ended June 30, 1999 and June 30, 1998 were $19,717 and $27,654, respectively. 12 10. INCOME TAXES The provision for income taxes for the six months ended June 30, 1999 and 1998 are as follows: 1999 1998 ---- ---- State and local $ 11,468 $ 9,900 Federal 23 978 -- ------------ --------- 35,446 -- From discontinued operations 2,070,000 -- $2,105,446 $ 9,900 ========== ======= Deferred tax assets (liabilities) are comprised of the following at June 30, 1999 and December 31, 1998: 1999 1998 ---- ---- Unrealized loss (gain) on investments $ 6,500 $ 12,400 Depreciation 10,000 10,000 Accrued expenses -- 40,000 Net operating loss carryforwards -- 153,000 ---------- -------- Total deferred tax assets 16,500 215,400 Deferred tax asset valuation allowance -- -- Net deferred tax assets $ 16,500 $ 215,400 ======== ========= Due to the sale of BBSI, the net operating loss carryforwards will be fully realized in 1999. 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. 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 $168,731 for the six months ended June 30, 1999, and 1998, respectively. During the six months ended June 30, 1999 and 1998, the Funds paid approximately $103,662 and $81,453, respectively, for co-transfer agent services to ISC, which paid such amounts to certain brokers for performing such services. Such amounts are included in management, distribution, service and administrative fees in the consolidated financial statements. Fees for administrative services provided to the Funds were $73,877 and $67,846 for the six months ended June 30, 1999 and June 30, 1998, respectively. 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 $151,642 and $49,646 for the six months ended June 30, 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 June 30, 1999, the policy had a cash surrender value of approximately $158,500 and is included in other assets in the balance sheet. BBSI, the Company's former affiliated discount brokerage subsidiary, received brokerage commissions of approximately $17,100 and $74,200 from the Funds for the six months ended June 30, 1999 and 1998, respectively. 13 12. CONTINGENCIES A group called Karpus Investment Management ("KIM") at the 1997 annual meeting of Bull & Bear U.S. Government Securities Fund, Inc. ("BXL") sought to elect its slate of nominees in opposition to management and at the 1998 annual meeting of BXL 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 BXL in the Circuit Court for Baltimore City, Maryland, Case No. 9805005, which was dismissed with prejudice on October 1, 1998. On February 19, 1998, BXL 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 BXL in the United States District Court for the District of Maryland Court, 98-CV-4161 and BXL made counterclaims. On May 25, 1999, BXL 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. In connection with the settlement, KIM sold its 12.7% stake in BXL of 95,175 shares to ISC for $12 7/8 per share in July and August, 1999. 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 June 30, 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 June 30, 1999 compared to Three Months Ended June 30, 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 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 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 $74,592 or 7% which was primarily due to a decrease in management, distribution and shareholder administration fees of $224,214 or 22% due to lower 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, $248 million at March 31, 1999, and $242 million at June 30, 1999. Rental income increased $47,078. The increase was attributable to additional tenants in 1999 and the Company commenced leasing office space in May 1998. In the second quarter of 1999, the Company earned $50,000 in consulting fees from BBSI. The Company had realized gains of $1,309 on the sale of the Company's investments. Dividends, interest and other income increased $51,235 due to higher earnings from the Company's investments. Total expenses increased $3,162 or 1%. General and administrative expenses decreased $14,923 or 3%. Expense reimbursements to the Funds increased $51,839 or 189% due to higher waivers of management fees in certain Funds. Marketing expenses decreased $31,387 or 17% due to lower fulfillment expenses and lower payments to other brokers for distributing the Company's open-end Funds. Subadvisory fees decreased $15,833 or 28% because of the lower net assets in the Midas Fund. Professional fees increased $5,519 or 6%. Net income from continuing operations for the period was $63,786 or $.04 per share as compared to net income of $155,539 or $.11 diluted earnings per share for 1998. Income from discontinued operations for the period was $0 as compared to a net loss from discontinued operations of $14,232 or $.01 per share for 1998. Net income for the period was $63,786 or $.04 diluted earnings per share for the period as compared to net income of $141,307 or $.10 diluted earnings per share for 1998. Six Months Ended June 30, 1999 compared to Six Months Ended June 30, 1998 Total revenues decreased $197,269 or 10% which was primarily due to a decrease in management, distribution and shareholder administration fees of $428,246 or 22% reflecting lower 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, $248 million at March 31, 1999, and $242 million at June 30, 1999. Rental income increased $93,209. The increase was attributable to additional tenants in 1999 and the Company commenced leasing office space in May 1998. In 1999, the Company earned $50,000 in consulting fees from BBSI. The Company had realized gains of $55,830 on the sale of the Company's investments. Dividends, interest and other income increased $31,938 due to higher earnings from the Company's securities investments. Total expenses increased $93,997 or 6% as a result of an increase in general and administrative expenses and expense reimbursements to the Funds. General and administrative expenses increased $59,372 or 6% because of higher rent expense and writeoff of certain assets. Expense reimbursements to the Funds increased $101,996 or 205% due to higher waivers of management fees in certain Funds. Marketing expenses decreased $41,881 or 14% due to lower fulfillment expenses and lower payments to other brokers for distributing the Company's open end funds. Subadvisory fees decreased $55,168 or 40% because of the lower net assets in the Midas Fund. Professional fees increased $4,346 or 4%. Net income from continuing operations for the period 15 was $45,256 or $.03 per share as compared to net income of $362,068 or $.25 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 $85,852 or $.06 per share for 1998. Net income for the period was $2,399,898 or $1.42 diluted earnings per share for the period as compared to net income of $276,486 or $.19 diluted earnings per share for 1998. The following table summarizes the Funds' assets under management on which the Company earns its fees: June 30,1999 December 31,1998 Midas Fund $77,865,000 $87,841,000 Midas Special Equities Fund 33,518,000 36,807,000 Midas Magic 606,000 548,000 M Midas U.S. and Overseas Fund 6,355,000 7,340,000 Midas Investors 6,003,000 6,293,000 Dollar Reserves 66,318,000 65,535,000 Global Income Fund 29,584,000 30,100,000 Tuxis Corporation 11,609,000 12,512,000 U.S. Government Securities Fund 9,774,000 10,921,000 ---------------- --------------- Total assets under management $ 241,632,000 $ 257,897,000 ============= ============= 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: June 30, 1999 December 31, 1998 ------------- ----------------- Working Capital $5,135,611 $2,371,234 Total Assets $9,477,141 $5,315,147 Long Term Debt $ -- $ -- Shareholders' Equity $7,373,897 $4,959,016 Working capital, total assets and shareholders' equity increased $2,764,377, $4,161,994, and $2,414,881, respectively for the six months ended June 30, 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. Effects of Inflation and Changing Prices Since the Company derives most of its revenues from acting as the investment manager and distributor of investment companies 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. 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. 16 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. 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 17 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 Items4. Submission of Matters to a Vote of Security Holders During Second Quarter of the Year Ended December 31, 1999 By unanimous written consent of the Class B common stockholder on April 1, 1999, the By-Laws in the form filed with Company's 10-K/A on April 13, 1999 were adopted as the Company's By-Laws. 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: August 16, 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: August 16, 1999 /s/ Bassett S. Winmill -------------------------------------- Bassett S. Winmill Chairman of the Board, Director Dated: August 16, 1999 /s/ Robert D. Anderson -------------------------------------- Robert D. Anderson Vice Chairman, Director Dated: August 16, 1999 /s/ Thomas B. Winmill ----------------------------------- Thomas B. Winmill, Esq. President, General Counsel, Director Dated: August 16, 1999 /s/ -------------------------------------- Charles A. Carroll, Director Dated: August 16, 1999 /s/ -------------------------------------- Edward G. Webb, Jr., Director Dated: August 16, 1999 /s/ ---------------------------------- Mark C. Jones, Director 19 EX-27 2 FDS --
5 0000052234 Winmill & Co. Incorporated 6-MOS DEC-31-1999 JAN-01-1999 JUN-30-1999 5,950,449 810,641 344,802 0 0 7,238,855 895,650 776,500 9,477,141 2,103,244 0 0 0 16,551 7,357,346 7,373,897 0 1,802,797 0 0 1,722,095 0 0 80,702 35,446 45,256 2,354,642 0 0 2,399,898 1.45 1.42
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