-----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, J4mYfnYUq88Lpg2eOfT1HsUAxgEgVW98QLWyTvhB+JTlmiKkMb1mnywod5DzGyKX 12cKaT/OHhPGU15iJbC4Cw== 0001050929-98-000066.txt : 19980514 0001050929-98-000066.hdr.sgml : 19980514 ACCESSION NUMBER: 0001050929-98-000066 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980513 SROS: NASD 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: 10-Q SEC ACT: SEC FILE NUMBER: 033-43331 FILM NUMBER: 98617893 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 10-Q 1 10-Q WITH FINANCIAL STATEMNET 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: March 31, 1998 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 incorporation or organization) (I.R.S. Employer Identification No) 555 Theodore Fremd Avenue, Rye, New York 10580 (Address of principal executive offices) (Zip Code) (914) 925-1140 (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 May 8, 1998 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 - March 31, 1998 (unaudited) and December 31, 1997 (audited) 1 Condensed Consolidated Statements of Income - three months ended March 31, 1998 and 1997 2 Condensed Consolidated Statements of Cash Flows - three months ended March 31, 1998 and 1997 3 Notes to Condensed Consolidated Financial Statements 4 Item 2. Management's Discussion and Analysis 7 Part II - Other Information Item 6. Exhibits and Reports on Form 8-K 10 Signature 10 Exhibit 27 - Financial Data Schedule 11 PART I - FINANCIAL INFORMATION Item 1. Financial Statements. Tremont Advisers, Inc. Condensed Consolidated Balance Sheets March 31 December 31 1998 1997 (Unaudited) (Audited) Assets Current Assets Cash and cash equivalents $ 782,134 $ 820,801 Accounts receivable, less allowances for bad debts of $35,000 and $25,000, respectively 2,131,281 2,011,445 Receivable from officer 115,000 200,000 Prepaid expenses and other 113,955 123,103 Total current assets 3,142,370 3,155,349 Investments in limited partnerships (cost $808,467 and $803,467) 1,304,081 1,221,487 Investments in joint venture (cost $457,667 and $371,667) 158,481 99,345 Other investments (cost $86,000 and $86,000) 71,807 75,420 Fixed assets, net 380,296 401,153 Other assets 28,958 28,958 Total assets $ 5,085,993 $ 4,981,712 Liabilities and shareholders' equity Current liabilities Accounts payable $ 65,919 $ 50,490 Accrued expenses 758,998 1,112,734 Income taxes payable 174,888 1,143 Deferred income taxes payable 171,500 171,500 Total current liabilities 1,171,305 1,335,867 Deferred income taxes payable 160,600 160,600 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, 2,802,104 shares issued and outstanding 28,021 28,021 Additional paid in capital 4,725,293 4,725,293 Accumulated deficit (1,012,073) (1,280,916) Total shareholders' equity 3,754,088 3,485,245 Total liabilities and shareholders' equity $ 5,085,993 $ 4,981,712
See accompanying notes. Note: The Condensed Consolidated Balance Sheet at December 31, 1997 has been derived from the audited financial statements as of that date. Tremont Advisers, Inc. Condensed Consolidated Statements of Income (Unaudited) Three Months Ended March 31 1998 1997 Revenues Consulting fees $ 2,000,760 $ 1,108,462 Performance fees 35,882 101,554 Commissions 120,442 38,661 Total revenues 2,157,084 1,248,677 Expenses Compensation 857,248 720,384 General and administrative 546,527 258,133 Consulting 316,049 137,793 Depreciation 40,491 26,681 Total expenses 1,760,315 1,142,991 Equity earnings of limited partnerships, net 77,594 38,104 Loss from operations of joint ventures, net (26,864) (26,861) Other income, net 8,167 6,619 Income before income taxes 455,666 123,548 Provision for income taxes 186,823 17,750 Net income $ 268,843 $ 105,798 Net income per Common Share $ .07 $ .03 Net income per Common Share - assuming dilution $ .06 $ .03 See accompanying notes. Tremont Advisers, Inc. Condensed Consolidated Statements of Cash Flows (Unaudited) Three Months Ended March 31 1998 1997 Operating Activities Net income $ 268,843 $ 105,798 Adjustments to reconcile net income to cash provided (used) by operating activities: Depreciation 40,491 26,681 Equity earnings of limited partnerships (77,594) (38,104) Loss from operations of joint ventures 26,864 26,861 Loss from other investments, net 3,613 --- Changes in operating assets and liabilities: Accounts receivable, net (119,836) 308,342 Receivable from officer 85,000 --- Accounts payable 15,429 (12,799) Accrued expenses (353,736) (516,780) Income taxes, net 173,745 15,905 Other 9,148 16,422 Net cash provided (used) by operating activities 71,967 (67,674) Investing activities Purchase of fixed assets (19,634) (30,616) Investments in limited partnerships (5,000) (135,000) Investments in joint ventures (86,000) --- Net cash used by investing activities (110,634) (165,616) Net decrease in cash and cash equivalents (38,667) (233,290) Cash and cash equivalents at beginning of period 820,801 551,710 Cash and cash equivalents at end of period $ 782,134 $ 318,420 See accompanying notes. 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 three month period ended March 31, 1998 are not necessarily indicative of the results that may be expected for the year ending December 31, 1998. 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, 1997. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from such estimates. Net Income Per Common Share: Basic earnings per share is based on the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is based on the weighted average number of shares of common stock outstanding during the period adjusted for the effects of dilutive securities. 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 March 31, 1998, the Company had accounts receivable of $285,998 and $246,375 from Starvest Funds, Ltd. and The Broad Market Fund, L.P. respectively. 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 March 31, 1998. Income Taxes: The provision for income taxes includes federal and state taxes currently payable and those deferred because of temporary differences between the financial statement and the tax basis of assets and liabilities. 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. NOTE B - Investments in Limited Partnerships At March 31, 1998 and December 31, 1997, Tremont Partners, Inc.'s ("TPI") investment in The Broad Market Fund, L.P. was $723,714 and $688,592 representing .46% and .51%, respectively, of the fund's net assets. Summarized financial information of The Broad Market Fund, L.P. is as follows: March 31, 1998 December 31, 1997 (Unaudited) (Audited) Total assets $159,564,828 $162,511,390 Total liabilities 1,304,924 28,567,596 NOTE B - Investments in Limited Partnerships (continued) Three months ended March 31, 1998 March 31, 1997 Net investment income $ 981,236 $ 295,630 Net realized and unrealized gain on investments 6,268,587 4,351,753 Net income $7,249,823 $4,647,383 At March 31, 1998, TPI's investments in Meridian Horizon Fund, L.P., GamTree, L.P and The F.W. Thompson Fund, L.P. were $335,471, $188,734 , and $56,162, respectively. At December 31, 1997, TPI's investment in Meridian Horizon Fund, L.P., Gamtree, L.P. and The F.W. Thompson Fund, L.P. was $299,483, $186,717, and $46,695 respectively. At March 31, 1998 TPI did not have an investment in The Broad Market Prime Fund, L.P.; however, as General Partner, TPI has a commitment to fund up to 1% of the limited partnership losses if and when such losses occur. For the three months ended March 31, 1998, TPI did not have any equity in earnings of limited partnerships for this limited partnership. The aggregated summarized financial information of these entities is as follows: March 31, 1998 December 31, 1997 (Unaudited) (Audited) Total assets $330,543,517 $249,504,158 Total liabilities 56,104,431 60,805,159 Three months ended March 31 March 31 1998 1997 Net investment loss $ (750,408) $ (306,313) Net realized and unrealized gain on investments 18,833,770 1,305,848 Net income $18,083,362 $ 999,535 NOTE C - Accrued Expenses Accrued expenses consist of the following: March 31, 1998 December 31, 1997 (Unaudited) (Audited) Professional and consulting fees $ 415,759 $ 741,105 Compensation 182,000 200,000 Note payable 75,810 87,840 Employee benefit plan 46,566 46,566 Other 38,863 37,223 $ 758,998 $ 1,112,734 NOTE D - Earnings Per Share The following table sets forth the computation of basic and diluted earnings per share: Three Months Ended March 31 1998 1997 Numerator: Net Income - numerator for basic and dilutive earnings per share (income available to shareholders) $ 268,843 $ 105,798 Denominator: Denominator for basic earnings per share - weighted- average shares 4,086,822 3,884,457 Effect of dilutive securities: Employee stock options 207,193 97,966 Denominator for diluted earnings per share - adjusted weighted-average shares and assumed conversions 4,294,015 3,982,423 Basic earnings per share $ 0.07 $ 0.03 Diluted earnings per share $ 0.06 $ 0.03
Item 2. Management's Discussion and Analysis The Company's 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 or quarterly basis. The Company also receives asset-based fees for investments placed by Tremont (Bermuda) Limited 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 continue the Company's focus on launching new products and to taking advantage of its growing world-wide relationships to expand its operations. Consulting fees for the three months ended March 31, 1998 increased by $892,298, or approximately 80.5%, as compared to the three months ended March 31, 1997. At the Company's principal domestic subsidiary, Tremont Partners, Inc., consulting fees increased from $687,388 for the three months ended March 31, 1997 to approximately $1,375,873 for the three months ended March 31, 1998. This increase was primarily due to increases in revenues from the following related entities: The Broad Market Prime Fund, L.P. ($287,296), Meridian Horizon Fund, L.P. ($131,964), and The Broad Market Fund, L.P. ($114,203). Consulting fees also increased domestically as a result of TSI realizing consulting fees from the sale of limited partnership interests. These fees amounted to $8,189 for the three months ended March 31, 1998 and did not occur during the three months ended March 31, 1997. At Tremont (Bermuda) Limited, the Company's foreign subsidiary, consulting fees increased from $421,121 for the three months ended March 31, 1997 to approximately $616,698 for the three months ended March 31, 1998. This increase was primarily due to an increase in revenues from Kingate Global Fund Class B Shares ($93,972), increases in assets within the respective investment vehicles and from new clients. Performance fees for the three months ended March 31, 1998 decreased by $65,672, or 64.67%, as compared to the three months ended March 31, 1997 because fewer investment vehicles outperformed pre-established benchmarks. Commissions increased by $81,781, or 211.53%, for the three months ended March 31, 1998 compared to the three months ended March 31, 1997. These increases resulted primarily from increased trading activities of TSI's clients. Management expects that during the remainder of 1998 the Company will become less dependent on a small number of large clients, as the Company is developing relationships with additional entities. The Company is also utilizing these relationships to create diversified ways to package and distribute its proprietary products. 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 three months ended March 31, 1998 by $136,864, or 19%, as compared to the three months ended March 31, 1997, as a result of the Company's continued efforts to attract and retain qualified employees. These efforts resulted in an increase in the number of employees from 28 at March 31, 1997 to 31 at March 31, 1998. In addition to the increase in the number of employees, compensation expense also increased due to salary increases of certain employees that became effective January 1, 1998 and as a result of increased health care costs due to the increase in the number of employees. General and administrative expenses consist primarily of rent, telecommunications, travel and entertainment, professional fees and other related expenses. General and administrative expenses were $546,527 and $258,133 for the three months ended March 31, 1998 and March 31, 1997, respectively. The increase in general and administrative expenses was primarily due to costs related to the Company's continued expansion to service its growth, including moving to a larger office facility in September, 1997. It is also due to an increase in professional fees and other related costs of launching new business ventures which are currently in the start-up phase. Consulting expenses increased $178,256 or 129.37% for the three months ended March 31, 1998 as compared to the three months ended March 31, 1997 primarily as a result of the increase in revenues from the clients that participate in revenue sharing arrangements. For example, Tremont Securities, Inc. has an arrangement for securities clearance services with a clearing broker dealer whereby a certain percentage of the commissions earned are shared. Also, Tremont Partners, Inc. and Tremont (Bermuda) Limited have revenue sharing arrangements with other parties relating to certain clients. Depreciation increased $13,810 or 51.76% for the three months ended March 31, 1998 compared to the three months ended March 31, 1997. The increase resulted from purchases of fixed assets after March 31, 1997. These purchases include computer upgrades, new software and the expansion of the computer network as well as furniture and fixtures for the Company's new executive offices. The Company made capital expenditures of $19,634 during the three months ended March 31, 1998. Equity earnings of limited partnerships increased $39,490, or 103.64% ,for the three months ended March 31, 1998 as compared to the three months ended March 31, 1997. This increase was a result of increased performance as well as a greater asset base. 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. Cash provided by operations was $71,967 for the three months ended March 31, 1998 as compared to cash used in operations of $67,674 for the three months ended March 31 1997. Cash provided by operating activities was primarily a result of profitable operations, a decrease in a receivable from an officer and increased taxes payable partially offset by increases in accounts receivable and decreases in accrued expenses. These positive changes in cash flow, as well as others, were offset by investing activities of $110,634. At March 31, 1998, the Company owned options to purchase 8,000 shares of a non-publicly registered investment adviser specializing in 401(k) investment allocation advice over the Internet. The options were granted at $10 per share and have vested or will vest 25% on January 1, 1996; 25% in equal installments at the end of each month between January 1, 1997 and December 31, 1997; and 50% in equal installments at the end of each month between January 1, 1998 and December 31, 1998. The options have a five year term and were valued at zero by the Company at March 31, 1998. At March 31, 1998, the Company owns 30,000 shares of common stock of a non-public financial services company formed in 1996. The shares were received by the Company as a result of an employee's participation as a board member of such company. At March 31, 1998, the shares of common stock were valued at zero. 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 The Year 2000 issue is the result of computer programs being written using two digits rather than four to determine the applicable year. Any computer programs that have time sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculation causing significant disruptions of operations, including, among other things, a temporary inability to process transactions or engage in similar normal business activities. Based on a recent assessment, the Company determined its computer systems are currently enabled for year 2000 entries. The cost of such assessment was immaterial to the Company. However, the Company could be adversely affected if the computer systems used by the Company's service providers do not properly process and calculate date-related information and data from and after January 1, 2000. The Company is currently in communication with these other companies to determine if there is reasonable cause for concern. Certain statements in this Management's Discussion and Analysis constitute "forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance, or achievements of the Company to be materially different from any future results, performance, or achievements expressed or implied by such forward looking statements. These forward looking statements were based on various factors and were derived utilizing numerous important assumptions and other factors that could cause actual results to differ materially from those in the forward looking statements, including, but not limited to: uncertainty as to the Company's future profitability and the Company's ability to develop and implement operational and financial systems to manage rapidly growing operations, competition in the Company's existing and potential future lines of business, and other factors. Other factors and assumptions not identified above were also involved in the derivation of these forward looking statements, and the failure of such other assumptions to be realized, as well as other factors, may also cause actual results to differ materially from those projected. The Company assumes no obligation to update these forward looking statements to reflect actual results, changes in assumptions or changes in other factors affecting such forward looking statements. PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K There were no reports on Form 8-K filed during the quarter ended March 31, 1998. 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: May 13, 1998 /s/ Stephen T. Clayton Stephen T. Clayton Chief Financial Officer (Duly authorized Officer and Principal Financial and Accounting Officer) EXHIBIT 27 FINANCIAL DATA SCHEDULE TREMONT ADVISERS, INC. MARCH 31, 1998 THIS SCHEDULE CONTAINS UNAUDITED SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED FINANCIAL STATEMENTS AS OF MARCH 31, 1998 AND FOR THE QUARTER THEN ENDED. THIS INFORMATION IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONDENSED FINANCIAL STATEMENTS. Cash and cash equivalents $ 782,134 Marketable securities --- Accounts Receivable 2,166,281 Allowances for doubtful accounts (35,000) Inventory --- Total current assets 3,142,370 Property, plant and equipment 779,936 Accumulated depreciation (399,640) Total assets 5,085,993 Current liabilities 1,171,305 Bonds --- Preferred stock-mandatory redemption --- Preferred stock-no mandatory redemption --- Common stock 40,868 Other shareholders' equity 3,741,241 Total liabilities and shareholders' equity 5,085,993 Sales --- Total revenues 2,157,084 Cost of goods sold --- Total expenses 1,760,315 Other expenses --- Loss provision --- Interest expense --- Income before taxes 455,666 Provision for income tax 186,823 Income from continuing operations 268,843 Income from discontinuing operations --- Extraordinary items --- Changes in accounting principles --- Net Income 268,843 Earnings per share-basic .07 Earnings per share-assuming dilution .06 -----END PRIVACY-ENHANCED MESSAGE-----