-----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, OpcnRcjuQDINXmty1hJJwRlnXXVvmc8MFadA2No6aRmkW1ctabjq7fi5yDqMVusA tZXSwRo/fAraNBMcmesllQ== 0000950116-97-001450.txt : 19970812 0000950116-97-001450.hdr.sgml : 19970812 ACCESSION NUMBER: 0000950116-97-001450 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970811 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: TREMONT ADVISERS INC CENTRAL INDEX KEY: 0000880320 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MANAGEMENT CONSULTING SERVICES [8742] IRS NUMBER: 061210532 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 033-43331 FILM NUMBER: 97655897 BUSINESS ADDRESS: STREET 1: 555 THEODORE FREMD AVE CITY: RYE STATE: NY ZIP: 10580 BUSINESS PHONE: 9149213400 MAIL ADDRESS: STREET 1: 555 THEODORE FREMD AVE CITY: RYE STATE: NY ZIP: 10580 10QSB 1 U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB (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, 1997 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________________ to ________________ Commission File Number: 33-89966 TREMONT ADVISERS, INC. (Exact name of small business issuer as specified in its charter) Delaware 06-1210532 - ------------------------------- ----------------------------------- (State or other jurisdiction or (I.R.S. Employer Identification No) incorporation or organization) 555 Theodore Fremd Avenue, Rye, New York 10580 ------------------------------------------------------ (Address of principal executive offices) (Zip Code) (914) 921-3400 ----------------------------------- (Issuer's telephone number) (Former name, former address and former fiscal year, if changed since last report) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period) that the issuer was required to file such reports, and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------ ------- APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDING DURING THE PRECEDING FIVE YEARS Check whether the issuer filed all documents and reports required to be filed by Section 12, 13, or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes No ------ ------- APPLICABLE ONLY TO CORPORATE ISSUERS: The number of shares outstanding of the Registrant's Class A Common Stock, $0.01 par value, as of the close of business on July 31, 1997 was 1,284,718, and the number of shares outstanding of the Registrant's Class B Common Stock, $0.01 par value, was 2,802,104 as of the same date. INDEX Tremont Advisers, Inc. PART I - FINANCIAL INFORMATION Item 1. Financial Statements. (Unaudited) Page Condensed Consolidated Balance Sheets - June 30, 1997 (unaudited) 1 and December 31, 1996 (audited) Condensed Consolidated Statements of Income - six and three months ended June 30, 1997 and 1996 2 Condensed Consolidated Statements of Cash Flows - six and three months ended June 30, 1997 and 1996 3 Notes to Condensed Consolidated Financial Statements 4 Item 2. Management's Discussion and Analysis 7 PART II - OTHER INFORMATION Item 1. Legal Proceedings 11 Item 4. Submission of Matters to a Vote of Security Holders 11 Item 6. Exhibits and Reports on Form 8-K 11 SIGNATURE 12 Exhibit 27. Financial Data Schedule PART I - FINANCIAL INFORMATION Item 1. Financial Statements. Tremont Advisers, Inc. Condensed Consolidated Balance Sheets
June 30 December 31 1997 1996 ----------- ----------- (Unaudited) (Audited) Assets Current Assets Cash and cash equivalents $ 544,581 $ 551,710 Accounts receivable, net 1,097,957 1,419,578 Prepaid expenses and other 131,197 31,616 ----------- ----------- Total current assets 1,773,735 2,002,904 Investments in limited partnerships (Cost--$803,467 and $668,467) 1,098,053 871,378 Investments in joint ventures (Cost--$317,609 and $317,400) 129,411 169,250 Other investments (Cost--$86,100 and $170,000) 86,100 170,000 Fixed assets, net 239,471 233,716 Other assets 32,708 34,495 ----------- ----------- Total assets $ 3,359,478 $ 3,481,743 =========== =========== Liabilities and shareholders' equity Current liabilities Accounts payable and accrued expenses $ 722,524 $ 1,222,576 Deferred revenue 28,334 -- Income taxes payable 47,064 3,000 Deferred income taxes payable 171,500 171,500 ----------- ----------- Total current liabilities 969,422 1,397,076 Deferred income taxes payable 35,350 22,600 Redeemable preferred stock Series A Preferred Stock, $1 par value, 650,000 shares authorized, issued and outstanding - none -- -- Shareholders' equity Preferred Stock $1 par value, 350,000 shares authorized, issued and outstanding - none -- -- Class A Common Stock, $0.01 par value, 5,000,000 shares authorized, 1,284,718 shares issued and outstanding 12,847 12,847 Class B Common Stock, $0.01 par value, 5,000,000 shares authorized, 2,599,739 shares issued and outstanding 25,997 25,997 Additional paid in capital 4,004,063 4,004,063 Accumulated deficit (1,688,201) (1,980,840) ----------- ----------- Total shareholders' equity 2,354,706 2,062,067 ----------- ----------- Total liabilities and shareholders' equity $ 3,359,478 $ 3,481,743 =========== ===========
See accompanying notes. Note: The condensed Consolidated Balance Sheet at December 31, 1996 has been derived from the audited financial statements at that date. 1 Tremont Advisers, Inc. Condensed Consolidated Statements of Income (Unaudited)
Six months Ended Three Months Ended June 30 June 30 1997 1996 1997 1996 --------------------------- -------------------------- Revenues Consulting fees $ 2,316,269 $ 1,745,180 $ 1,207,807 $ 900,261 Performance fees 177,941 144,616 76,387 68,569 Commissions 122,244 82,058 83,583 40,298 ----------- ----------- ----------- ----------- Total Revenues 2,616,454 1,971,854 1,367,777 1,009,128 Expenses Compensation 1,420,269 1,235,416 699,885 622,887 General & administrative 569,718 510,089 311,585 281,064 Consulting 277,913 167,216 140,120 81,222 Depreciation & amortization 54,492 51,752 27,811 22,179 ----------- ----------- ----------- ----------- Total expenses 2,322,392 1,964,473 1,179,401 1,007,352 Equity earnings of limited partnerships, net 91,675 52,232 53,571 25,006 Loss from operations of joint ventures, net (40,048) (35,000) (13,187) (25,900) Other income, net 16,550 6,154 9,931 3,572 Realized investment gain -- 96,744 -- 96,744 ----------- ----------- ----------- ----------- Income before income taxes 362,239 127,511 238,691 101,198 Provision for income taxes 69,600 14,400 51,850 14,400 ----------- ----------- ----------- ----------- Net income $ 292,639 $ 113,111 $ 186,841 $ 86,798 =========== =========== =========== =========== Net income per Common Share $ 0.07 $ 0.03 $ 0.05 $ 0.02 =========== =========== =========== =========== Weighted average Common Shares and Common Share Equivalents outstanding 3,998,382 3,844,457 4,006,713 3,844,457 =========== =========== =========== ===========
See accompanying notes. 2 Tremont Advisers, Inc. Condensed Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended June 30 1997 1996 --------- --------- Operating Activities Net income $ 292,639 $ 113,111 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 54,492 51,752 Equity earnings of limited partnerships (91,675) (52,232) Loss from operations of joint ventures 40,048 35,000 Gain on marketable securities -- (96,744) Changes in operating assets and liabilities: Accounts receivable 321,621 (145,815) Prepaid expenses and other (99,581) (24,846) Accounts payable and accrued expenses (500,052) 191,270 Deferred revenue 28,334 74,649 Income taxes, net 56,814 12,100 Other -- (4,437) --------- --------- Net cash provided by operating activities 102,640 153,808 Investing activities Purchase of fixed assets (58,460) (44,079) Investments in limited partnerships (135,000) (85,928) Investment in joint ventures (209) (80,000) Investment in other investments (100) (17,408) Proceeds from sale of other investments 84,000 -- Purchase of marketable securities -- (128,516) --------- --------- Net cash used by investing activities (109,769) (355,931) Net decrease in cash and cash equivalents (7,129) (202,123) Cash and cash equivalents at beginning of period 551,710 455,149 --------- --------- Cash and cash equivalents at end of period $ 544,581 $ 253,026 ========= =========
See accompanying notes. 3 Tremont Advisers, Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) NOTE A - Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB and Item 310(b) of Regulation S-B. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments ( consisting of normal recurring accruals) necessary for a fair presentation have been included. Operating results for the six and three months ended June 30, 1997 are not necessarily indicative of the results that may be expected for the year ending December 31, 1997. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-KSB for the fiscal year ended December 31, 1996. Net Income Per Common Share: Per share amounts are based on the weighted average number of shares of common stock outstanding during the period, plus the effect of common stock equivalents in the periods where there is a dilutive effect. In February 1997, the Financial Accounting Standards Board issued Statement No. 128, Earnings per Share, which is required to be adopted on December 31, 1997. At that time, the Company will be required to change the method currently used to compute earnings per share and to restate all prior periods. Under the new requirements for calculating primary earnings per share, the dilutive effect of stock options will be excluded. There will be no impact on primary earnings per share for the six and three months ended June 30, 1997 and June 30, 1996, respectively. The impact of Statement 128 on the calculation of fully diluted earnings per share for these quarters is not expected to be material. Concentrations of Credit Risk: The Company's accounts receivable are not concentrated in any specific geographic region, but are concentrated in the investment industry. At June 30, 1997, the Company had accounts receivable of $202,761 from Starvest Funds, Ltd. Although the Company's exposure to credit risk associated with nonpayment by customers is affected by conditions within the investment industry, no other customer exceeded 10% of the Company's net receivables at June 30, 1997. Income Taxes: The provision for income taxes includes federal and state taxes currently payable and those deferred because of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is recorded, based on available evidence when it is more likely than not that some portion or all of the deferred tax assets will not be realized. The income tax provision also gives effect to permanent differences between financial and taxable income, resulting in a lower effective tax rate than the statutory income tax rate, primarily due to undistributed earnings of the foreign subsidiary. 4 NOTE B - Investments in Limited Partnerships At June 30, 1997 and December 31, 1996, Tremont Partners Inc.'s ("TPI") investment in The Broad Market Fund, L.P. was $616,251 and $559,847 and represented .5% and .8% of the fund's net assets, respectively. Summarized unaudited financial information of The Broad Market Fund, L.P. is as follows: June 30, 1997 December 31, 1996 ------------- ----------------- Total assets $139,883,621 $75,908,923 Total liabilities 125,532,208 6,264,461 Six Months ended June 30 1997 1996 --------------------------- Net investment income $1,156,111 $ 297,658 Net realized and unrealized gain on investments 8,574,940 3,071,610 ---------- ---------- Net income $9,731,051 $3,369,268 ========== ========== At June 30, 1997, TPI's investments in The Ultima Fund, L.P., GamTree, L.P and The F.W. Thompson Fund, L.P. were $273,110, $170,093 and $38,599, respectively. At December 31, 1996, TPI's investments in The Ultima Fund, L.P., GamTree, L.P and The F.W. Thompson Fund, L.P. were $116,549, $158,429 and $36,553, respectively. The aggregated summarized unaudited financial information of these entities, as reported by the Funds' underlying investment managers, is as follows: June 30, 1997 December 31, 1996 ------------- ----------------- Total assets $76,967,429 $70,688,495 Total liabilities 1,475,353 7,342,820 Six Months ended June 30 1997 1996 --------------------------- Net investment loss ($ 633,570) ($ 428,076) Net realized and unrealized gain on investments 6,016,979 6,111,834 ---------- ---------- Net income $ 5,383,409 $ 5,683,758 =========== =========== NOTE C - Investments in Joint Ventures At June 30, 1997, Tremont (Bermuda) Limited's ("TBL") investments in Tremont International Insurance Ltd. ("TIIL"), N-Compass Financial Services Limited ("N-Compass") and Tremont Capital Limited ("TCL") were $60,532, $40,971 and $27,908, respectively. At December 31, 1996, TBL's investments in TIIL, N-Compass and TCL were $60,532, $79,650, and $29,068, respectively. The aggregated summarized unaudited financial information of these entities, as reported by the Funds' underlying investment managers, is as follows: June 30, 1997 December 31, 1996 ------------- ----------------- Total assets $5,466,113 $685,113 Total liabilities 448,762 159,059 Six Months ended June 30 1997 1996 --------------------------- Revenues $208,356 $ 46,995 Expenses 282,105 153,532 -------- -------- Net loss ($ 73,749) ($106,537) ========== ========== 5 NOTE D - Accounts Payable and Accrued Expenses Accounts payable and accrued expenses consist of the following: June 30, 1997 December 31, 1996 ------------- ----------------- Professional and consulting fees $235,983 $930,454 Compensation 246,000 150,000 Accounts payable 104,366 90,606 Note payable 112,001 --- Other 24,174 51,516 ------- ------- $722,524 $1,222,576 ======== ========== The note payable consists of a thirty month note payable relating to the purchase of certain employee related insurance policies. NOTE E - Stock Options On May 15, 1997 and June 12, 1997, options to purchase 20,000 shares and 125,000 shares, respectively, of Class B Common Stock were granted to the directors and certain employees at a price of $3.75 per share. The options vest 25% on grant date, 25% on the first anniversary of the grant date, 50% on the second anniversary of the grant date and expire on the fifth anniversary of the grant date. The Company will have the first right to purchase any vested options or shares in the event the directors or employees, as the case may be, desire to sell, assign or transfer such shares. NOTE F - Contingencies In February 1997 a case was tried in the Supreme Court, New York County before a judge and jury against the Company, TPI and TBL by Mr. Sass Khazzam, Capulet Management Inc. and Kazco Management Inc. alleging that there was an agreement whereby the plaintiffs would recover 20% of the fees generated from the Global Advisors Portfolio, N.V. Effective with the close of business on November 15, 1996, the board of directors of the Global Advisors Portfolio N.V. terminated TBL and as a result, no further fees were generated after that date. With regard to the lawsuit, TBL recorded reserves which it estimated adequately covered the alleged liability. The complaint against Ms. Manzke was dismissed and at commencement of the trial, all claims asserted by plaintiffs Sass Khazzam and Capulet Management, Inc. against the Company, TPI and TBL were discontinued with prejudice. On February 11, 1997, the jury determined that there was no agreement between the parties, and returned a verdict in favor of plaintiff Kazco Mgt., Inc. and against TBL in the amount of $125,000, as the reasonable value of the services rendered by plaintiff. As a result of the verdict, Kazco Mgt., Inc. became entitled to a judgment against TBL for $125,000 together with interest at 9% per annum from January, 1995, and the Court ordered the dismissal of the complaint against the Company and TPI. After entry of the verdict, the Company's counsel was informed by plaintiffs' counsel that there would be no appeal and that no judgment would be entered against TBL, provided that the amount awarded by the jury was paid. On March 31, 1997, TBL paid Kazco Mtg., Inc. the sum of $151,689, which represented the full amount awarded by the jury including interest and court costs. General releases were exchanged and the action was discontinued with prejudice. NOTE G - Subsequent Events In July, the Company entered into a series of transactions whereby Mutual Risk Management, an international risk management company ("MRM"), acquired an equity interest in the Company. In June 1997, MGL Investment Ltd. ("MGL"), a wholly-owned subsidiary of MRM, began a tender offer to purchase 615,000 shares of previously outstanding Class B Common Stock, par value $0.01 at a price of $3.75 per share. This transaction was completed on July 7, 1997 for the entire 615,000 shares. In addition, pursuant to a certain stock purchase agreement, the Company sold to MGL 202,365 shares of its Class B Common Stock, par value $0.01 at a price of $3.75 per share. As a result of these transactions, MRM indirectly owns, through MGL, 20% of the Company's outstanding common stock which includes Class A Common Stock and Class B Common Stock. In addition, MRM invested $5 million in TIIL, a Cayman Island insurance company established for the purpose of providing offshore life insurance products such as variable annuities and variable life policies. TBL, a wholly-owned subsidiary of the Company, owns a 24.5% interest in TIIL. In July 1997, TBL formed, with MRM and another party, and acquired a 40% interest in Tremont MRM Services Limited ("TMRM"), a company incorporated under the laws of Bermuda. TMRM will provide product development, marketing and administrative services to TIIL, as more fully set forth in an agreement between the parties. MRM has invested $1 million in this venture to initially capitalize and develop this business. 6 Item 2. Management's Discussion and Analysis Tremont Advisers, Inc.'s ("the Company") revenues are derived from consulting and specialized investment services provided to institutional and other clients, as well as management fees from certain funds under management. Consulting fees are generally a function of the amount of assets under management and the percentage fees charged to clients. Management fees are based on a percentage of the assets of the managed fund and are usually paid on a monthly basis. The Company also receives asset-based fees for investments placed by Tremont (Bermuda) Limited ("TBL"), its wholly-owned offshore subsidiary, in certain offshore mutual funds. The Company provides other consulting services generally on a fixed fee basis, whether as annual retainer fees or single project fees. The Company's principal operating expenses consist of its costs of personnel and independent consultants. It is management's intention to adjust the Company's focus to launching new products and take advantage of its growing world-wide relationships to expand its operations. Consulting fees for the six months ended June 30, 1997 increased by $571,089 or approximately 32.7% as compared to the six months ended June 30, 1996. At the Companys' wholly-owned domestic subsidiary, Tremont Partners, Inc. ("TPI"), consulting fees increased from $982,500 for the six months ended June 30, 1996 to approximately $1,449,820 for the six months ended June 30, 1997. The increase is primarily due to increases in revenues from The Broad Market Fund, L.P. ($270,646), Winston Partners II LLC ($47,691), and Security Equity Life Insurance Company ($75,165). TBL's consulting fees increased from $762,680 for the six months ended June 30, 1996 to approximately $866,449 for the six months ended June 30, 1997. The increase is primarily due to increases in revenues from Kingate Global Fund Class B Shares ($159,711) and Winston Partners II Offshore ($75,179). These increases, as well as others, were partially offset by declines in revenues from Global Advisors Portfolio, N.V. ($146,800) and Global Advisers Portfolio II, N.V. ($19,834). The increases or decreases in revenue were primarily as a result of increases or decreases in the value of the assets within the respective investment vehicles, as well as a larger client base. Consulting fees for the Company for the three months ended June 30, 1997 increased by $307,546, or approximately 34.2%, as compared to the three months ended June 30, 1996. TPI's consulting fees increased from $524,132 for the three months ended June 30, 1996 to approximately $762,482 for the three months ended June 30, 1997. The increase is primarily due to increases in revenues from The Broad Market Fund, L.P. ($145,064), Security Equity Life Insurance Company ($45,525), Chrysler Minority Equity Trust ($27,204) and Winston Partners II LLC ($17,975). TBL's consulting fees increased from $376,129 for the three months ended June 30, 1996 to approximately $445,325 for the three months ended June 30, 1997. The increase is primarily due to increases in revenues from Kingate Global Fund Class B Shares ($83,790), Winston Partners II Offshore ($24,323) and AD Holdings LDC ($15,108). These increases in revenues, as well as other increases in revenues, at TBL were partially offset by declines in revenues from Global Advisors Portfolio, N.V. ($67,526) and Global Advisors Portfolio II, N.V. ($9,362). The increases or decreases in revenues were primarily as a result of increases or decreases in the value of the assets within the respective investment vehicles, as well as a larger client base. Performance fees for the six and three months ended June 30, 1997 increased by $33,325, or 23% and $7,818 or 11.4%, respectively, as compared to the six and three months ended June 30, 1996 primarily as a result of underlying investment vehicles outperforming their established benchmarks. 7 Commissions received by the Company's wholly-owned subsidiary, Tremont Securities, Inc. ("TSI"), increased by $40,186 or 49.0% and $43,285 or 107.4%, respectively, for the six and three months ended June 30, 1997 compared to similar periods in 1996. These increases are primarily as a result of an increase in the commissions received by TSI and an increase in new clients. Management expects that for the remainder of 1997, the Company will become less dependent on a small number of large clients, as the Company is developing relationships with a variety of different entities. The Company is also utilizing these relationships to create diversified ways to package and distribute proprietary products of its subsidiaries. In addition, management expects performance fee revenue to increase during periods of positive market conditions, but management cannot predict with any accuracy whether such income from performance fees will continue in the future due to changing market conditions and outside factors. Compensation expense increased for the six and three months ended June 30, 1997 by $184,853 or 15.0% and $76,998 or 12.4%, respectively, as compared to the six and three months ended June 30, 1996, as a result of the Company's continued efforts to attract and retain qualified employees. Such efforts resulted in an increase in the number of employees to 28 at June 30, 1997 from 26 at June 30, 1996. In addition to the increase in the number of employees, compensation expense also increased due to salary increases for certain employees that became effective January 1, 1997 and as a result of increased health care costs due to the increase in the number of employees. General and administrative expenses increased $59,629 or 11.7% and $30,521 or 10.9%, respectively, for the six and three months ended June 30, 1997, as compared to similar periods in 1996, and such increases consist primarily of increases in telecommunications, travel and entertainment, publications and other related expenses. These increases were partially offset by decreases in outside professional services. The increase in general and administrative expenses was primarily due to costs related to the Company's continued expansion to service its business growth. Consulting expenses increased $110,697 or 66.2% and $58,898 or 72.5%, respectively, for the six and three months ended June 30, 1997, as compared to the six and three months ended June 30, 1996, primarily as a result of the increase in the number of clients as well as an increase in revenues from the clients that participate in revenue sharing arrangements. For example, TSI has an arrangement for securities clearance services with a clearing broker dealer whereby a certain percentage of the commissions earned are shared. Also, TPI and TBL have revenue sharing arrangements which relate to certain clients. Depreciation and amortization increased $2,740 or 5.3% and $5,632 or 25.4%, respectively, for the six and three months ending June 30, 1997 compared to similar periods in 1996. The increase is as a result of the purchases of fixed assets after June 30, 1996. These purchases included computer upgrades, software purchases and new office machines. The Company made capital expenditures of $58,460 during the six months ended June 30, 1997. Equity earnings of limited partnerships increased $39,443 or 75.5% and $28,565 or 114.2%, respectively, for the six and three months ended June 30, 1997, compared to similar periods in 1996. This increase was primarily due to increased performance compared to similar periods in 1996, as well as earnings on contributions of $250,000 made to The Ultima Fund, L.P. during December 1996 ($115,000) and January 1997 ($135,000), respectively. 8 In 1996, the Company had a realized investment gain of $96,744 as a result of the exercise of warrants to purchase shares of common stock of an unaffiliated public company and the subsequent sale of such shares. In 1997, the Company had no such gain. At June 30, 1997, TBL owns warrants to purchase 87,500 shares of common stock of the same unaffiliated public corporation at $3.78 per share until October 19, 1998 and 18,750 shares at $3.63 per share until October 30, 1998, respectively. Such warrants have been valued at zero on June 30, 1997 since the exercise price of these warrants exceed the quoted market value of the unaffiliated corporation's common stock at June 30, 1997. Cash provided by operations was $102,640 for the six months ended June 30, 1997 as compared to $153,808 in the comparable period of 1996. The $179,528 increase in net income for the period was offset by changes in working capital accounts. Accounts receivable balances decreased $321,621 as compared to December 31, 1996. Such decrease was offset by decreases in accounts payable and accrued expenses ($500,052). The Broad Market Prime Fund, L.P. ("BMPF") is the newest addition to TPI's line of proprietary products. This domestic multi-manager limited partnership was launched on July 1, 1997 by means of a private offering and has received subscriptions for $14.5 million. It was created for the purpose of achieving long term capital growth through a leveraged investment strategy. TPI is the General Partner of the limited partnership and, as such, is involved in the day-to-day management of the partnership. BMPF will pay TPI a quarterly management fee based upon the Net Asset Value of the partnership as of the end of each quarter. In addition, TPI will be reimbursed for certain allocable expenses. In July, the Company entered into a series of transactions whereby Mutual Risk Management, an international risk management company ("MRM"), acquired an equity interest in the Company. In June 1997, MGL Investment Ltd. ("MGL"), a wholly-owned subsidiary of MRM, began a tender offer to purchase 615,000 shares of previously outstanding Class B Common Stock, par value $0.01 at a price of $3.75 per share. This transaction was completed on July 7, 1997 for the entire 615,000 shares. In addition, pursuant to a certain stock purchase agreement, the Company sold to MGL 202,365 shares of its Class B Common Stock, par value $0.01 at a price of $3.75 per share. As a result of these transactions, MRM indirectly owns, through MGL, 20% of the Company's outstanding common stock which includes Class A Common Stock and Class B Common Stock. In addition, MRM invested $5 million in Tremont International Insurance Ltd., a Cayman Island insurance company ("TIIL") recently established for the purpose of providing offshore life insurance products such as variable annuities and variable life policies. TBL owns a 24.5% interest in TIIL. In July 1997, TBL formed, with MRM and another party, and acquired a 40% interest in Tremont MRM Services Limited ("TMRM"), a company incorporated under the laws of Bermuda. TMRM will provide product development, marketing and administrative services to TIIL, as more fully set forth in an agreement between the parties. MRM has invested $1 million in this venture to initially capitalize and develop this business. Profitability is dependent on the ability of the Company to maintain existing client relationships, several of which currently account for a significant portion of the Company's revenues, to increase assets under management for its clients, and to market its services to new accounts. The Company believes it has adequate capital resources and working capital to bring to market those products currently in the developmental stage, and that the revenue stream from these, as well as from existing products, will be sufficient to support future growth. The Company has no material short-term or long-term debt obligations. TBL had entered into an agreement to provide a loan facility to Tremont Capital Limited up to $175,000 at 12% interest. At June 30, 1997 no amounts have been drawn against this facility and it has been canceled. 9 On May 15, 1997 and June 12, 1997, options to purchase 20,000 shares and 125,000 shares, respectively, of Class B Common Stock were granted to the directors and certain employees at a price of $3.75 per share. The options vest 25% on grant date, 25% on the first anniversary of the grant date, 50% on the second anniversary of the grant date and expire on the fifth anniversary of the grant date. The Company will have the first right to purchase any vested options or shares in the event the directors or employees, as the case may be, desire to sell, assign or transfer such shares. In February 1997 a case was tried in the Supreme Court, New York County before a judge and jury against the Company, TPI and TBL by Mr. Sass Khazzam, Capulet Management Inc. and Kazco Management Inc. alleging that there was an agreement whereby the plaintiffs would recover 20% of the fees generated from the Global Advisors Portfolio, N.V. Effective with the close of business on November 15, 1996, the board of directors of the Global Advisors Portfolio N.V. terminated TBL and as a result, no further fees were generated after that date. With regard to the lawsuit, TBL recorded reserves which it estimated adequately covered the alleged liability. The complaint against Ms. Manzke was dismissed and at commencement of the trial, all claims asserted by plaintiffs Sass Khazzam and Capulet Management, Inc. against the Company, TPI and TBL were discontinued with prejudice. On February 11, 1997, the jury determined that there was no agreement between the parties, and returned a verdict in favor of plaintiff Kazco Mgt., Inc. and against TBL in the amount of $125,000, as the reasonable value of the services rendered by plaintiff. As a result of the verdict, Kazco Mgt., Inc. became entitled to a judgment against TBL for $125,000 together with interest at 9% per annum from January, 1995, and the Court ordered the dismissal of the complaint against the Company and TPI. After entry of the verdict, the Company's counsel was informed by plaintiffs' counsel that there would be no appeal and that no judgment would be entered against TBL, provided that the amount awarded by the jury was paid. On March 31, 1997, TBL paid Kazco Mtg., Inc. the sum of $151,689, which represented the full amount awarded by the jury including interest and court costs. General releases were exchanged and the action was discontinued with prejudice. 10 PART II - OTHER INFORMATION Item 1. Legal Proceedings In February 1997 a case was tried in the Supreme Court, New York County before a judge and jury against the Company, TPI and TBL by Mr. Sass Khazzam, Capulet Management Inc. and Kazco Management Inc. alleging that there was an agreement whereby the plaintiffs would recover 20% of the fees generated from the Global Advisors Portfolio, N.V. Effective with the close of business on November 15, 1996, the board of directors of the Global Advisors Portfolio N.V. terminated TBL and as a result, no further fees were generated after that date. With regard to the lawsuit, TBL recorded reserves which it estimated adequately covered the alleged liability. The complaint against Ms. Manzke was dismissed and at commencement of the trial, all claims asserted by plaintiffs Sass Khazzam and Capulet Management, Inc. against the Company, TPI and TBL were discontinued with prejudice. On February 11, 1997, the jury determined that there was no agreement between the parties, and returned a verdict in favor of plaintiff Kazco Mgt., Inc. and against TBL in the amount of $125,000, as the reasonable value of the services rendered by plaintiff. As a result of the verdict, Kazco Mgt., Inc. became entitled to a judgment against TBL for $125,000 together with interest at 9% per annum from January, 1995, and the Court ordered the dismissal of the complaint against the Company and TPI. After entry of the verdict, the Company's counsel was informed by plaintiffs' counsel that there would be no appeal and that no judgment would be entered against TBL, provided that the amount awarded by the jury was paid. On March 31, 1997, TBL paid Kazco Mtg., Inc. the sum of $151,689, which represented the full amount awarded by the jury including interest and court costs. General releases were exchanged and the action was discontinued with prejudice. Item 4. Submission of Matters to a Vote of Security Holders At the Company's Annual Meeting of Stockholders held on June 12, 1997, the stockholders elected the following to serve as directors until the next Annual Meeting of Stockholders and until their successors are duly elected and qualified. For Against Sandra L. Manzke 5,776,562 4,150 Robert I. Schulman 5,774,602 6,110 John L. Keeley, Jr. 5,776,602 4,110 Jimmy L. Thomas 5,776,602 4,110 Alan A. Rhein 5,774,562 6,150 The stockholders also voted to ratify the selection of Ernst & Young LLP to serve as the Company's auditors for the fiscal year ending December 31, 1997. The vote was as follows: For Against Abstain 5,773,752 6,140 820 Item 6. Exhibits and Reports on Form 8-K There were no reports on Form 8-K filed during the quarter ended June 30, 1997. 11 Signature Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Tremont Advisers, Inc. Date: August 11, 1997 /s/ Stephen T. Clayton --------------------------- Stephen T. Clayton Chief Financial Officer (Duly authorized Officer and Principal Financial and Accounting Officer) 12 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS UNAUDITED SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED FINANCIAL STATEMENTS AS OF JUNE 30, 1997 AND FOR THE SIX MONTH PERIOD THEN ENDED. THIS INFORMATION IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONDENSED FINANCIAL STATEMENTS. 6-MOS JUN-30-1996 DEC-31-1997 544,581 0 1,122,957 (25,000) 0 1,773,735 519,070 (279,599) 3,359,478 969,422 0 0 0 38,844 2,315,862 3,359,478 0 2,616,454 0 2,322,392 0 0 0 362,239 69,600 292,639 0 0 0 292,639 .07 0
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