As filed with the Securities and Exchange Commission on NOVEMBER 14, 1996
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(MARK ONE)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1996
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From _____________ to ____________
For Quarter Ended SEPTEMBER 30, 1996 Commission File Number 0-9667
BULL & BEAR GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-1897916
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11 HANOVER SQUARE, NEW YORK, NEW YORK 10005
(Address of principal executive offices) (Zip Code)
212-785-0900
(Company's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
The number of shares outstanding of each of the registrant's classes of common
stock, as of October 31, 1996, were as follows:
Class A Common Stock non-voting, par value $.01 per share - 1,350,017 shares
Class B Common Stock voting, par value $.01 per share - 20,000 shares
1
<PAGE>
BULL & BEAR GROUP, INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1996
INDEX
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
- (Unaudited) September 30, 1996 and December 31, 1995 3
Consolidated Statements of Income (Loss)
- (Unaudited) Three and Nine Months Ended September 30, 1996
and September 30, 1995 4
Consolidated Statements of Changes in Shareholders' Equity
- (Unaudited) Nine Months Ended September 30, 1996
and September 30, 1995 5
Consolidated Statements of Cash Flows
- (Unaudited) Nine Months Ended September 30, 1996
and September 30, 1995 6
Notes to Consolidated Financial Statements (Unaudited) 7
tem 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 15
Management's Representation and Signatures 16
2
<PAGE>
BULL & BEAR GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS September 30, December 31,
1996 1995
Current Assets:
Cash and cash equivalents $ 728,520 $ 1,467,674
Marketable securities (Note 3) 1,098,164 1,257,062
Management, distribution and service fees 326,051 179,209
receivable Interest, dividends and other 227,899 248,241
receivables Prepaid expenses and other assets 313,708 433,570
----------- -----------
Total Current Assets 2,694,342 3,585,756
----------- -----------
Real estate held for investment, net 349,536 308,799
Furniture and fixtures, net 250,529 207,194
Excess of cost over net book value of
subsidiaries, net 786,124 735,368
Other 153,813 126,675
----------- -----------
1,540,002 1,378,036
----------- -----------
Total Assets $4,234,344 $ 4,963,792
========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 151,605 $ 610,242
Accrued professional fees 110,570 95,655
Accrued subadvisory fees 214,721 15,831
Obligations on Capital leases 37,834 0
Cash overdraft 43,497 0
Other 38,202 71,969
------------ -----------
Total Current Liabilities 596,429 793,697
----------- -----------
Shareholders' Equity: (Notes 4, 5, and 6)
Common Stock, $.01 par value
Class A, 10,000,000 shares authorized;
1,350,017 shares in 1996 and 1,348,017 shares
in 1995 issued and outstanding 13,501 13,481
Class B, 20,000 shares authorized;
20,000 shares issued and outstanding 200 200
Additional paid-in capital 6,236,077 6,232,347
Retained earnings (deficit) (2,625,264) (2,141,953)
Unrealized gains on marketable securities 13,401 66,020
(Notes 1 and 2) ----------- ------------
Total Shareholders' Equity 3,637,915 4,170,095
---------- -----------
Total Liabilities and Shareholders' Equity $4,234,344 $ 4,963,792
========== ===========
See accompanying notes to consolidated financial statements.
3
<PAGE>
BULL & BEAR GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(UNAUDITED)
<TABLE>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- ---------------------
1996 1995 1996 1995
----------- ---------- ---------- -------
Revenues:
<S> <C> <C> <C> <C>
Management, distribution and service fees $ 1,320,836 $ 850,023 $3,542,533 $2,516,320
Brokerage fees and commissions 486,422 496,937 1,782,141 1,352,615
Dividends, interest and other 97,611 16,003 161,422 110,223
---------- ---------- ------------ -----------
1,904,869 1,362,963 5,486,096 3,979,158
--------- --------- ---------- ----------
Expenses:
General and administrative (note 9) 952,425 831,113 2,956,413 2,452,230
Marketing 344,092 143,589 1,517,496 501,199
Subadvisory fees 213,938 5,700 527,562 5,700
Clearing and brokerage charges 153,371 158,244 541,019 418,563
Professional fees 55,406 145,333 286,346 223,587
Amortization and depreciation 31,173 20,644 107,029 69,643
---------- ---------- ------------ -----------
1,750,405 1,304,623 5,935,865 3,670,922
--------- --------- ---------- ----------
Income (loss) before income taxes 154,464 58,340 (449,769) 308,236
Income taxes (note 7) 19,791 7,446 33,542 28,088
---------- ---------- ------------ -----------
Net income (loss) $ 134,673 $ 50,894 $ (483,311) $ 280,148
========== ======== =========== ===========
Per share data:
Primary and fully diluted
Net income (loss) $.09 $.03 $(.33) $.18
==== ==== ====== ====
Average shares outstanding:
Primary 1,490,069 1,572,375 1,467,177 1,577,525
========= ========= ========= =========
Fully diluted 1,492,916 1,577,862 1,467,177 1,577,862
========= ========= ========= =========
</TABLE>
See accompanying notes to the consolidated financial statements.
4
<PAGE>
<TABLE>
BULL & BEAR GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
Class A Class B Class A Class B Additional
Common Common Common Common Paid-in-Capital
------ ------ ------ ------ ---------------
Nine Months Ended September 30, 1995
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1995 1,503,152 20,000 $15,032 $200 $6,497,796
Voiding of exercise of 1993 stock options and
cancellation of related notes receivable (note 5) (280,000) - (2,800) - (297,200)
Proceeds from issuance of Class
A Common Stock, par value $.01 6,000 - 60 - 5,940
Collection note receivable - - - - -
Net income - - - - -
Unrealized gains on marketable securities - - - - -
------------ -------- ---------- ------ --------------
Balance, September 30, 1995 1,229,152 20,000 $12,292 $200 $6,206,536
========= ====== ======= ==== ==========
Nine Months Ended September 30, 1996
Balance, January 1, 1996 1,348,017 20,000 $13,481 $200 $6,232,347
Proceeds from issuance of Class
A Common Stock, par value $.01 2,000 - 20 - 3,730
Net loss - - - - -
Unrealized gains on marketable securities - - - - -
------------ -------- ---------- ------ --------------
Balance, September 30, 1996 1,350,017 20,000 $13,501 $200 $6,236,077
========= ====== ======= ==== ==========
Notes Unrealized
Receivable Retained Gains On Total
for Common Earnings Marketable Shareholders'
Stock Issued (Deficit) Securities Equity
------------ --------- ---------- -------
$ (305,000) $(2,298,329) $ - $3,909,699
300,000 - -
- - - 6,000
5,000 - - 5,000
- 280,148 - 280,148
- - 58,063 58,063
--- --------------- ------- -----------
- $(2,018,181) $58,063 $4,258,910
========= =========== ======= ==========
- $(2,141,953) $ 66,020 $4,170,095
- - - 3,750
- (483,311) - (483,311)
- - (52,619) (52,619)
----------- --------------- ----------- -----------
- $(2,625,264) $ 13,401 $3,637,915
========= =========== ========= ==========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
BULL & BEAR GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended September 30,
1996 1995
------------ ---------
Cash Flows from Operating Activities:
<S> <C> <C>
Net income (loss) $ (483,311) $ 280,148
----------- ------------
Adjustments to reconcile net income to net cash
provided by (used in) Operating Activities:
Depreciation and amortization 107,029 69,643
Increase in cash value of life insurance (22,500) (22,500)
Gain on sale of investments (70,228) -
Other 0 (29,183)
(Increase) decrease in:
Management, distribution and service fees receivable (146,842) 14,678
Interest, dividends and other receivables 20,342 (40,244)
Prepaid expenses and other assets 119,862 (87,295)
Other (4,638) 12,802
Increase (decrease) in:
Accounts payable (458,637) (31,855)
Accrued professional fees 14,915 26,775
Accrued subadvisory fees 198,890 5,700
Obligations on capital leases 37,834 -
Cash overdraft 43,497 -
Other (33,767) 50,258
------------- -------------
Total adjustments (194,243) (31,221)
----------- --------------
Net cash provided by (used in) Operating Activities (677,554) 248,927
----------- ------------
Cash Flows from Investing Activities:
Proceeds from sales of investments 185,763 275,331
Purchases of investments (9,256) (1,213,924)
Capital expenditures (208,385) (52,098)
Sale of real estate 43,762 -
Acquisition of intangible assets (77,234) (192,500)
----------- -------------
Net cash provided by (used in) Investing Activities (65,350) (1,183,191)
----------- ------------
Cash Flows from Financing Activities:
(Issuance) collection of note receivable - 5,000
Proceeds from issuance of Class A Common Stock 3,750 6,000
----------- -------------
Net cash provided by (used in) Financing Activities 3,750 11,000
----------- ------------
Net increase (decrease) in cash and cash equivalents (739,154) (923,264)
Cash and cash equivalents:
At beginning of period 1,467,674 2,316,040
----------- -----------
At end of period $ 728,520 $ 1,392,776
=========== ===========
</TABLE>
Supplemental disclosure: The Company did not pay any interest or Federal income
taxes during the nine months ended September 30, 1996 or 1995.
See accompanying notes to the consolidated financial statements.
6
<PAGE>
BULL & BEAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Bull & Bear Group, Inc. ("Company") is a holding company. Its
subsidiaries' businesses consist of providing investment management,
distribution and shareholder administration services for the Bull &
Bear Funds, Midas Fund, and Rockwood Growth Fund ("Funds") and
discount brokerage services.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Bull &
Bear Group, Inc. and all of its majority-owned subsidiaries.
Substantially all intercompany accounts and transactions have been
eliminated.
ACCOUNTING ESTIMATES
In preparing financial statements in conformity with generally
accepted accounting principles, management makes estimates and
assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements, as well as the
reported amounts of revenues and expenses during the reporting
period.
Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Investments in money market funds are considered to be cash
equivalents. At September 30, 1996 and December 31, 1995, the
Company and subsidiaries had invested approximately $725,639 and
$1,196,300, respectively, in an affiliated money market fund.
MARKETABLE SECURITIES
The Company's method of accounting for marketable securities
conforms to Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities" (SFAS 115). SFAS
115 requires that, except for debt securities classified as
"held-to-maturity," marketable securities are to be reported at fair
value. The marketable securities for the non broker/dealer
subsidiaries are considered to be "available-for-sale" and recorded
at market value, with the unrealized gain or loss included in
stockholders' equity. Marketable securities for the broker/dealer
subsidiaries are valued at market with unrealized gains and losses
included in earnings.
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
In the normal course of business, the Company's activities involve
the execution and settlement of customer transactions. These
activities may expose the Company to risk of loss in the event the
customer is unable to fulfill its contracted obligations, in which
case the Company may have to purchase or sell financial instruments
at prevailing market prices. Any loss from such transactions is not
expected to have a material effect on the Company's financial
statements.
BROKERAGE INCOME AND EXPENSES
Brokerage commission and fee income and clearing and brokerage
expenses are recorded on a settlement date basis. The difference
between recording such income and expenses on a settlement date
basis as opposed to trade date, as required by generally accepted
accounting principles, is not material to the consolidated financial
statements.
7
<PAGE>
BULL & BEAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
INCOME TAXES
The Company and its wholly-owned subsidiaries file consolidated
income tax returns. The Company's method of accounting for income
taxes conforms to Statement of Financial Accounting Standards No.
109 "Accounting for Income Taxes". This method requires the
recognition of deferred tax assets and liabilities for the expected
future tax consequences of temporary differences between the
financial reporting basis and the tax basis of assets and
liabilities.
RECLASSIFICATIONS
Certain reclassifications of the 1995 financial statements have been
made to conform to the 1996 presentation.
REAL ESTATE HELD FOR INVESTMENT AND EQUIPMENT
Real estate held for investment is recorded at cost and is
depreciated on a straight-line basis over its estimated useful life.
At September 30, 1996 and December 31, 1995, accumulated
depreciation amounted to $23,464 and $123,138, respectively.
Equipment, furniture and fixtures are recorded at cost and are
depreciated on the straight-line basis over their estimated useful
lives, 5 to 10 years. At September 30, 1996 and December 31, 1995,
accumulated depreciation amounted to $732,199 and $680,039,
respectively.
EXCESS OF COST OVER NET BOOK VALUE OF SUBSIDIARIES
The excess of cost over net book value of subsidiaries is
capitalized and amortized over fifteen and forty years using the
straight-line method. At September 30, 1996 and December 31, 1995,
accumulated amortization amounted to $575,142 and $548,664,
respectively.
EARNINGS PER SHARE
Primary and fully diluted earnings per share for the three and nine
months ended September 30, 1996 is determined by dividing net income
by the weighted average number of common shares outstanding after
giving effect for common stock equivalents arising from stock
options assumed converted to common stock.
2. ACQUISITIONS
During the year ended December 31, 1995, the Company purchased the assets
relating to the management of Midas Fund, Inc. for $182,500, plus related
costs of $120,413. During the nine months ended September 30, 1996, the
Company assumed the assets relating to the management of Rockwood Growth
Fund, Inc. and incurred related costs of $41,732. Both purchases were
capitalized as part of excess of cost over net book value and is being
amortized over fifteen years using the straight-line method.
8
<PAGE>
BULL & BEAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
3. MARKETABLE SECURITIES
At September 30, 1996, marketable securities consisted of:
Market Value
Broker/dealer subsidiaries - at market
U.S. Treasury Note due 5/15/97 to 7/31/99 957,145
Total broker/dealer securities (cost-$958,087) 957,145
Other companies
Available-for-sale securities - at market
Equity securities 107,495
Unaffiliated mutual funds 25,154
Affiliated mutual funds 8,370
----------
Total available-for-sale securities (cost-$127,618) 141,019
---------
$1,098,164
At December 31, 1995 marketable securities consisted of:
Broker/dealer securities - at market
U.S. Treasury Note, due 7/31/97 $ 200,876
Affiliated mutual funds 62,494
---------
Total broker/dealer securities (cost-$264,104) 263,370
---------
Other companies
Available-for-sale securities - at market
Unaffiliated mutual funds 29,024
Affiliated mutual funds 6,220
Equity securities 181,413
U.S. Treasury Notes, due 5/15/97 - 6/30/99 777,035
----------
Total available-for-sale securities (cost-$927,672) 993,692
---------
$ 1,257,062
4. SHAREHOLDERS' EQUITY
The Class A and Class B Common Stock are identical in all respects except
for voting rights, which are vested solely in the Class B Common Stock.
The Company also has 1,000,000 shares of Preferred Stock, $.01 par value,
authorized. As of September 30, 1996 and December 31, 1995, none of the
Preferred Stock was issued.
5. NET CAPITAL REQUIREMENTS
The Company's broker/dealer subsidiaries are member firms of the National
Association of Securities Dealers, Inc. and are registered with the
Securities and Exchange Commission as broker/dealers. Under the Uniform
Net Capital Rule (Rule 15c3-1 under the Securities Exchange Act of 1934),
a broker/dealer must maintain minimum net capital, as defined, of not less
than (a) $250,000 or, when engaged solely in the sale of redeemable shares
of registered investment companies, $25,000, or (b) 6-2/3% of aggregate
indebtedness, whichever is greater; and a ratio of aggregate indebtedness
to net capital, as defined, of not more than 15 to 1. At September 30,
1996, these subsidiaries had net capital of approximately $ 439,524 and
$439,746; net capital requirements of approximately $250,000 and $25,000;
excess net capital of approximately $189,524 and $414,746; and the ratios
of aggregate indebtedness to net capital were approximately .60 to 1 and
.84 to 1, respectively.
9
<PAGE>
BULL & BEAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
6. STOCK OPTIONS
On December 6, 1995, the Company adopted a Long-Term Incentive Plan which
provides for the granting of 300,000 options to purchase Class A Common
Stock to directors, officers and key employees of the Company or its
subsidiaries. The plan was amended on February 5, 1996. With respect to
non-employee directors, only automatic grants of stock options of 10,000
are available on the date the non-employee director is elected, except for
the current two non-employee directors who were granted 10,000 options
each on December 6, 1995. On February 5, 1996, 210,000 options were
granted to six executive officers and 9,000 options were granted to non-
executive officer employees, of which 214,000 options are exercisable on
February 5, 1998 and the remaining 5,000 options are exercisable on
February 5, 1999. The option price per share may not be less than the fair
value of such shares on the date the option is granted, and the maximum
term of an option may not exceed ten years except as to non-employee
directors for which the maximum term is five years. If the recipient of
any option owns 10% or more of the Class B shares, the option price must
be at least 110% of the fair market value and the option must be exercised
within five years of the date the option is granted. The plan also
provides for reload options in which non-qualified options may be granted
to officers and key employees when payment of the option price of the
original outstanding options is with previously owned shares of the
Company. These reload options have to be equal to the number of shares
surrendered in payment of the option price of the original options, have
an option price equal to the fair market value of such shares on the date
the reload option is granted and have the same expiration date as the
original option.
The 1990 Incentive Stock Option Plan provided for the granting of a
maximum of 500,000 options to purchase Class A Common Stock to directors,
officers and key employees of the Company. The option price per share may
not be less than the greater of 100% of the fair market value or the par
value of such shares on the date the option is granted, and the maximum
term of an option may not exceed ten years. If the recipient of any option
owns 10% or more of the total combined voting power of all classes of
stock, the option price must be at least 110% of the fair market value and
the option must be exercised within five years of the date the option is
granted.
The Company applies APB Opinion 25 and related interpretations in
accounting for its stock option plans. Accordingly, no compensation cost
has been recognized for its stock option plans. Had compensation cost for
the Company's plans been determined based on the fair value at the grant
dates for awards under these plans consistent with the method of Financial
Accounting Standards No.123 "Accounting for Stock-Based Compensation (SFAS
123); the Company's net income and earnings per share would have been
reduced to the proforma amounts indicated below:
<TABLE>
Three Months Ended September 30, Nine Months Ended September 30,
1996 1995 1996 1995
----- ---- ----- ----
<S> <C> <C> <C> <C>
Net income(loss): As reported $134,673 $50,894 $(483,311) $280,148
Proforma $92,631 $47,951 $(592,599) $276,474
Earnings per share
Primary and fully diluted: As reported $.09 $.03 $(.33) $.18
Proforma $.06 $.03 $(.40) $.18
</TABLE>
There were 29,000 options granted during the nine months ended September
30, 1995. The fair value of each option grant is estimated on the date of
grant using the Black-Scholes option-pricing model with the following
weighted average assumptions used for grants in 1996 and 1995,
respectively: expected volatility of 93.82% and 95.90%, risk-free interest
rate of 5.30% and 5.90% and expected life of five years for all grants.
10
<PAGE>
BULL & BEAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
A summary of the status of the Company's stock option plans as of
September 30, 1996 and December 31, 1995, and changes during the periods
ending on those dates is presented below:
NUMBER WEIGHTED AVERAGE
OF EXERCISE
STOCK OPTIONS SHARES PRICE
OUTSTANDING AT DECEMBER 31, 1994 146,000 $1.12
Voided exercise of previously issued
stock options (see below) 280,000 $1.07
Granted 29,000 $1.91
Exercised (268,020) $1.07
Canceled (137,980) $1.05
--------
OUTSTANDING AT DECEMBER 31, 1995 49,000 $1.76
Granted 229,000 $1.95
Exercised (2,000) $1.875
Canceled (5,000) $1.50
----------
OUTSTANDING AT SEPTEMBER 30, 1996 271,000 $1.93
===========
The were no options exercisable at September 30, 1996 and December 31,
1995. The weighted-average fair value of options granted were $ 1.42 for
the nine months ended September 30, 1996 and $1.45 for the year ended
December 31, 1995.
The following table summarizes information about stock options outstanding
at September 30, 1996:
Options Outstanding
Number Weighted-Average
Range of Outstanding Remaining Weighted-Average
Exercise Prices At 9/30/96 Contractual Life Exercise Price
$1.50 - $1.625 20,000 3.5 years $1.54
$1.875 - $2.75 251,000 4.3 years $1.96
In addition, there were 20,000 non-qualified stock options with an
exercise price of $1.75 outstanding as of September 30, 1996. During the
nine months ended September 30, 1995, the exercise of 280,000 previously
issued stock options with an exercise price of $1.00 to $1.10 were voided.
The Company's Board of Directors determined, at a meeting of the board
held on November 6, 1995, that the 1993 exercise of the 280,000 incentive
stock options by certain officers be voided and the 4.86% promissory notes
given in consideration ("1993 Notes") and Class A shares issued therefor
("1993 Shares") be canceled. As a result, the stock options were restored
to their previous outstanding status. Further, on November 6, 1995,
241,020 of these stock options were exercised. In December 1995, an
additional 7,000 of these stock options were exercised. The Company
received $7,000 in cash and 149,155 shares of Class A shares in payment
for the exercise of these options. The shares acquired by the Company were
canceled and retired. The cancellation of the 1993 Notes resulted in a
reduction of interest income of $29,768 in 1995.
11
<PAGE>
BULL & BEAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
7. INCOME TAXES
The provision for income taxes charged to operations for the nine
months ended September 30, 1996 and 1995 was as follows:
1996 1995
---- ----
Current
State and local $33,542 $28,088
Federal - --
---------- ---------
$33,542 $28,088
======= =======
Deferred tax assets (liabilities) are comprised of the following at
September 30, 1996 and December 31, 1995:
1996 1995
---- ----
Unrealized loss (gain) on investments $ (4,000) $ (20,000)
Net operating loss carryforwards 614,000 456,600
--------- --------
Total deferred tax assets 610,000 436,600
Deferred tax asset valuation allowance (610,000) (436,600)
--------- ---------
Net deferred tax assets $ - $ -
============ ===========
The change in the valuation allowance for the nine months ended September
30, 1996 was due to the net loss and a decrease in unrealized gain on
investments.
The provision for income taxes differs from the amount of income taxes
determined by applying the applicable U.S. statutory Federal tax rates to
pre-tax income as a result of utilization of net operating loss
carryforwards.
At December 31, 1995, the Company had net operating loss carryforwards for
Federal income tax purposes of approximately $1,284,200, of which
$1,033,700, $187,800 and $62,700 expire in 2004, 2005 and 2006,
respectively.
8. PENSION PLAN
The Company has a 401(k) retirement plan for substantially all of its
qualified employees. Contributions to this are based upon a percentage of
earnings of eligible employees and are accrued and funded on a current
basis. Total pension expense for the nine months ended September 30, 1996
and September 30, 1995 were $31,600 and $24,914, respectively.
9. RELATED PARTIES
All management and distribution fees are from providing services to the
Funds, pursuant to written agreements that set forth the fees to be
charged for these services. These agreements are subject to annual review
and approval by each Fund's Board of Directors and a majority of the
Fund's non-interested directors. Shareholder administrative fees represent
reimbursement of costs incurred by subsidiaries of the Company on behalf
of the Funds. Such reimbursement amounted to $193,066 and $312,259 for the
nine months ended September 30, 1996, and 1995, respectively.
In connection with management services, the Company's investment managers
waived or reimbursed management fees to the Funds in the amount of
$250,296 and $222,604 for the nine months ended September 30, 1996 and
1995, respectively, and are included in general and administrative
expenses in the Statement of Income (Loss).
12
<PAGE>
BULL & BEAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
Certain officers of the Company also serve as officers and/or directors of
the Funds.
Commencing August 1992, the Company obtained a key man life insurance
policy on the life of the Company's Chairman which provides for the
payment of $1,000,000 to the Company upon his death. As of September 30,
1996, the policy had a cash surrender value of approximately $69,175 and
is included in other assets in the balance sheet.
The Company's discount brokerage subsidiary received brokerage commissions
of approximately $ 157,757 and $130,923 from the Funds for the nine months
ended September 30, 1996 and 1995, respectively.
10. COMMITMENTS AND CONTINGENCIES
The Company has a lease for approximately 11,400 square feet of office
space. The rent is approximately $116,250 per annum plus $32,550 per annum
for electricity. The lease expires December 31, 1998 and is cancelable at
the option of the Company on three months' notice. In addition, the
Company's discount brokerage subsidiary has a branch office in Boca Raton,
Florida consisting of approximately 1,000 square feet. The rent is
approximately $21,600 per annum and is cancelable at the option of the
Company on six months' notice.
The Company and its directors are defendants in a lawsuit brought on April
24, 1995 by Maxus Investment Group, Maxus Capital Partners, Maxus Asset
Management, Inc., and Maxus Securities Corp. (collectively "Maxus"), which
now claim to colllectively own or control 93,500 shares, or approximately
6.9% of the Class A common stock of the Company. The action, seeking
declaratory and injunctive relief, was filed in the federal district court
for the Southern District of New York and purports to be brought on the
plaintiffs' own behalf and derivatively on behalf of the Company. The
original and supplemental complaints filed by Maxus contain various claims
which the Company has previously disclosed. On April 11, 1996, the
district court dismissed as a matter of law all claims brought by Maxus
except those relating to the voiding of certain stock options exercises
that occurred in November 1993, the exercise by the Company's Chairman of
stock options that he received in 1990 in accordance with their original
terms, and plaintiffs' request for counsel fees from the Company. The
Company believes that the lawsuit is without merit and intends to continue
defending the remaining claims vigorously.
From time to time, the Company and/or its subsidiaries are threatened or
named as defendants in litigation arising in the normal course of
business. As of September 30, 1996, neither the Company nor any of its
subsidiaries was involved in any other litigation that, in the opinion of
management, would have a material adverse impact on the consolidated
financial statements.
In July 1994, the Company entered into a Death Benefit Agreement
("Agreement") with the Company's Chairman. Following his death, the
Agreement provides for annual payments to his wife until her death
amounting to 80% of his average annual salary for the three year period
prior to his death subject to certain adjustments. The Company's
obligations under the Agreement are not secured and will terminate if he
leaves the Company's employ under certain conditions.
13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Three Months Ended September 30, 1996 compared to Three Months Ended September
30, 1995
Drastic declines in the securities markets can have a significant effect
on the Company's business. Volatile stock markets may affect management and
distribution fees earned by the Company's subsidiaries. If the market value of
securities owned by the Funds declines, shareholder redemptions may occur,
either by transfer out of the equity Funds and into the fixed income Funds,
which generally have lower management and distribution fee rates than the equity
Funds, or by transfer out of the Funds entirely. Lower asset levels in the Funds
may also cause or increase reimbursements to the Funds pursuant to expense
limitations as described in Note 9 of the financial statements. In addition,
volatile stock markets could have a significant effect on the brokerage
commissions earned by BBSI by affecting the number of transactions processed.
Total revenues increased $541,906 or 40% which was primarily due to a
increase in management, distribution and shareholder administrative fees of
$470,813 because of a higher level of net assets under management. Brokerage
fees and commissions decreased $10,515 or 2% because of a lower level of
customer transactions processed. Net assets under management were approximately
$236.9 million at June 30, 1995, $247.2 million at September 30, 1995, $393.2
million at June 30, 1996 and $432.1 million at September 30, 1996. Dividends,
interest and other income increased $81,608 due to gain on sale of investments.
Total expenses increased $445,782 or 34% primarily as a result of an
increase in marketing expenses of $200,503 or 139% related to the launching of
the Midas Fund, the introduction of Bull & Bear PC Online Investment Center and
the promotion of the American Airlines AAdvantage Miles program through Bull &
Bear Securities, Inc. General and administrative expenses increased $121,312 or
15% because of higher compensation costs relating to the growth in the Company's
businesses. Clearing and brokerage charges decreased $4,873 or 3% because of a
lower level of discount brokerage customer transactions processed, as previously
noted. Professional fees decreased $89,927 or 62% due to lower litigation costs
relating to the Maxus lawsuit. Subadvisory fees increased $208,238 because of
the growth in assets of the Midas Fund. Net income for the period was $134,673
or $.09 per share as compared to net income of $50,894 or $.03 per share for
1995.
Nine Months Ended September 30, 1996 compared to Nine Months Ended September 30,
1995
Total revenues increased $1,506,938 or 37% which was due to an increase in
management, distribution and shareholder administrative fees and brokerage fees
and commissions. Management, distribution and shareholder administrative fees
increased $1,026,213 or 41% because of a higher level of net assets under
management. Brokerage fees and commissions increased $429,526 or 32% because of
an increased level of customer transactions processed. Net assets under
management were approximately $236.1 million at December 31, 1994, $235.1
million at March 31, 1995, $236.9 million at June 30, 1995, $247.2 million at
September 30, 1996, $237.4 million at December 31, 1995, $317.6 million at March
31, 1996, $393.2 million at June 30, 1996 and $432.1 million at September 30,
1996. Dividends, interest and other income increased $51,199 due to gain on sale
of investments.
Total expenses increased $2,264,943 or 62% primarily as a result of an
increase in marketing expenses of $1,016,297 or 203% related to the launching of
the Midas Fund, the introduction of Bull & Bear PC Online Investment Center and
the promotion of the American Airlines AAdvantage Miles program through Bull &
Bear Securities, Inc. General and administrative expenses increased $504,183 or
21% because of higher compensation costs relating to the growth in the Company's
businesses. Clearing and brokerage charges increased $122,458 or 29% because of
an increased level of discount brokerage customer transactions processed.
Professional fees increased $62,759 or 28% due to litigation costs relating to
the Maxus lawsuit. Subadvisory fees increased $521,862 because of the growth in
assets of the Midas Fund. Net loss for the period was $483,311 or $(.33) per
share as compared to net income of $280,148 or $.18 per share for 1995.
14
<PAGE>
Liquidity and Capital Resources
The following table reflects the Company's consolidated working capital,
total assets, long term debt and shareholders' equity as of the dates indicated:
September 30, 1996 December 31, 1995
------------------ -----------------
Working Capital $2,128,913 $2,792,059
Total Assets $4,230,344 $4,963,792
Long Term Debt -- --
Shareholders' Equity $3,637,915 $4,170,095
Working capital and total assets decreased $663,146 and $733,448
respectively for the nine months ended September 30, 1996 due to the net loss
and payment of liabilities for the period. Shareholders' equity decreased
$532,180 for the nine months ended September 30, 1996 primarily as a result of
the net loss for the period.
As discussed previously, significant changes in the securities markets can
have a dramatic effect on the Company's results of operations. Based on current
information available, management believes that current resources are sufficient
to meet its liquidity needs.
Effects of Inflation and Changing Prices
Since the Company derives most of its revenues from acting as the manager
and distributor of mutual funds, discount brokerage services and from general
investments, it is not possible for it to discuss or predict with accuracy the
impact of inflation and changing prices on its revenue from continuing
operations.
15
<PAGE>
MANAGEMENT'S REPRESENTATION
The information furnished in this report reflects all adjustments which
are, in the opinion of management, necessary to a fair statement of the results
of the period.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
BULL & BEAR GROUP, INC.
Dated: November 14, 1996 By:
Joseph Leung
Treasurer, Chief Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Company and in the capacities and on the date indicated.
Dated: November 14, 1996
Bassett S. Winmill
Chairman of the Board,
Director
Dated: November 14, 1996
Robert D. Anderson
Vice Chairman, Director
Dated: November 14, 1996
Mark C. Winmill
Co-President,
Chief Financial Officer, Director
Dated: November 14, 1996
Thomas B. Winmill, Esq.
Co-President,
General Counsel, Director
Dated: November 14, 1996
Charles A. Carroll, Director
Dated: November 14, 1996
Edward G. Webb, Jr., Director
16
<PAGE>
MANAGEMENT'S REPRESENTATION
The information furnished in this report reflects all adjustments which
are, in the opinion of management, necessary to a fair statement of the results
of the period.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
BULL & BEAR GROUP, INC.
Dated: November 14, 1996 By: /s/ Joseph Leung
----------------
Joseph Leung
Treasurer, Chief Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Company and in the capacities and on the date indicated.
Dated: November 14, 1996 /s/ Bassett S. Winmill
----------------------
Bassett S. Winmill
Chairman of the Board,
Director
Dated: November 14, 1996 /s/ Robert D. Anderson
----------------------
Robert D. Anderson
Vice Chairman, Director
Dated: November 14, 1996 /s/ Mark C. Winmill
-------------------
Mark C. Winmill
Co-President,
Chief Financial Officer,
Director
Dated: November 14, 1996 /s/ Thomas B. Winmill
---------------------
Thomas B. Winmill, Esq.
Co-President,
General Counsel, Director
Dated: November 14, 1996 /s/ Charles A. Carroll
----------------------
Charles A. Carroll, Director
Dated: November 14, 1996 /s/ Edward G. Webb, Jr.
-----------------------
Edward G. Webb, Jr., Director
16
<PAGE>
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<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-START> Jan-01-1996
<PERIOD-END> Sep-20-1996
<CASH> 728,520
<SECURITIES> 1,098,164
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