As filed with the Securities and Exchange Commission on AUGUST 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 JUNE 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 JUNE 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 July 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 JUNE 30, 1996
INDEX
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
- - (Unaudited) June 30, 1996 and December 31, 1995 3
Consolidated Statements of Income (Loss)
- - (Unaudited) Three and Six Months Ended June 30, 1996 and June 30, 1995 4
Consolidated Statements of Changes in Shareholders' Equity
- - (Unaudited) Six Months Ended June 30, 1996 and June 30, 1995 5
Consolidated Statements of Cash Flows
- - (Unaudited) Six Months Ended June 30, 1996 and June 30, 1995 6
Notes to Consolidated Financial Statements (Unaudited) 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 14
PART II. OTHER INFORMATION
Item 5. Other Information 15
Management's Representation and Signatures 16
2
<PAGE>
BULL & BEAR GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
June 30, December 31,
1996 1995
ASSETS
Current Assets:
Cash and cash equivalents $ 584,489 $ 1,467,674
Marketable securities (Note 3) 1,311,112 1,257,062
Management, distribution and service fees receivable 318,174 179,209
Interest, dividends and other receivables 260,131 248,241
Prepaid expenses and other assets 328,840 433,570
----------- -----------
Total Current Assets 2,802,746 3,585,756
---------- -----------
Real estate held for investment, net 333,755 308,799
Furniture and fixtures, net 248,720 207,194
Excess of cost over net book value of
subsidiaries, net 718,229 735,368
Other 141,675 126,675
----------- ------------
1,442,379 1,378,036
----------- ------------
Total Assets $4,245,125 $4,963,792
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 293,302 $ 610,242
Accrued professional fees 74,142 95,655
Accrued subadvisory fees 223,716 15,831
Accrued compensation and benefits 11,200 43,208
Other 47,891 28,761
---------- --------
Total Current Liabilities 650,251 793,697
--------- -----------
Shareholders' Equity: (Notes 3, 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) (2,759,937) (2,141,953)
Unrealized gains on marketable securities (Notes 1) 105,033 66,020
----------- ----------
Total Shareholders' Equity 3,594,874 4,170,095
---------- ----------
Total Liabilities and Shareholders' Equity $4,245,125 $ 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 Six Months Ended
June 30, June 30,
1996 1995 1996 1995
---- ---- ---- ----
Revenues:
<S> <C> <C> <C> <C>
Management, distribution and service fees $1,307,685 $833,714 $2,221,697 $1,666,297
Brokerage fees and commissions 723,800 438,336 1,295,719 846,479
Dividends, interest and other 23,273 51,570 63,811 103,419
---------- --------- ------------ -----------
2,054,758 1,323,620 3,581,227 2,616,195
--------- --------- ---------- ----------
Expenses:
General and administrative (note 9) 1,011,580 844,592 2,003,988 1,621,117
Marketing 642,229 163,232 1,173,404 357,610
Clearing and brokerage charges 209,038 133,435 387,648 260,319
Subadvisory fees 223,717 -- 313,624 --
Professional fees 119,670 41,381 230,940 78,254
Amortization and depreciation 38,983 24,500 75,856 48,999
---------- ---------- ----------- -----------
2,245,217 1,207,140 4,185,460 2,366,299
--------- --------- ---------- ----------
Income (loss) before income taxes (190,459) 116,480 (604,233) 249,896
Income taxes (note 7) 9,251 990 13,751 20,642
----------- ------------ ----------- -----------
Net income (loss) $ (199,710) $ 115,490 $ (617,984) $ 229,254
=========== ========= =========== ==========
Per share data:
Primary and fully diluted
Net income (loss) $(.13) $.07 $(.42) $.14
====== ==== ===== ====
Average shares outstanding:
Primary and fully diluted 1,516,520 1,587,263 1,460,665 1,581,208
========= ========= ========== ==========
</TABLE>
See accompanying notes to the consolidated financial statements.
4
<PAGE>
BULL & BEAR GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
Notes Unrealized
Receivable Retained Gains on Total
Class A Class B Class A Class B Additional for Common Earnings Marketable Shareholders
Common Common Common Common Paidd-in-Capital Stock Issued (Deficit) Securities Equity
------ ------ ------ ------ ------------ ------------ ----------- ---------- ---------
Six Months Ended
June 30, 1995
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1995 1,503,152 20,000 $15,032 $200 $6,497,796 $ (305,000) $(2,298,329) -- $3,909,699
Proceeds from issuance
of Class A Common Stock
, par value $.01 6,000 -- 60 -- 5,940 -- -- -- 6,000
Collection of note
receivable -- -- -- -- -- 5,000 -- -- 5,000
Net income -- -- -- -- -- -- 229,254 -- 229,254
Unrealized gains on
marketable securities - -- -- -- -- -- -- 40,630 40,630
------------ ------- ------- ---- ----------- ------------- ------------- -------- ---------
Balance, June 30, 1995 1,509,152 20,000 $15,092 $200 $6,503,736 $ (300,000) $(2,069,075) $ 40,630 $4,190,583
========= ====== ======= ==== ========== ========== =========== -------- ==========
Six Months Ended
June 30, 1996
Balance, January 1, 1996 1,348,017 20,000 $13,481 $200 $6,232,347 $ - $(2,141,953) 66,020 $4,170,095
Proceeds from issuance
of Class A Common Stock,
par value $.01 2,000 -- 20 -- 3,730 -- -- -- 3,750
Net loss -- -- -- -- -- -- (617,984) -- (617,984)
Unrealized gains on
marketable securities -- -- -- -- -- -- -- 39,013 39,013
------- ------ ----- --- ---------- ----------- ---------- -------- --------
Balance, June 30, 1996 1,350,017 20,000 $13,501 $200 $6,236,077 $ -- $(2,759,937) $105,033 3,594,874
========= ====== ======= ==== ========== ==--------- ============ ======== =========
</TABLE>
See accompanying notes to the consolidated financial statements.
5
<PAGE>
BULL & BEAR GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
Six Months Ended June 30,
1996 1995
------------ --------
Cash Flows from Operating Activities:
<S> <C> <C>
Net income (loss) $ (617,984) $ 229,254
---------- -----------
Adjustments to reconcile net income to net cash provided by
Operating Activities:
Depreciation and amortization 75,856 48,999
Increase in cash value of life insurance (15,000) (15,000)
Other 4,587 (23,360)
(Increase) decrease in:
Management, distribution and service fees receivable (138,965) 2,527
Interest, dividends and other receivables (11,890) (58,657)
Prepaid expenses and other assets 104,730 17,657
Other -- 12,802
Increase (decrease) in:
Accounts payable (316,940) (22,985)
Accrued professional fees (21,513)
Accrued subadvisory fees 207,885
Accrued compensation and benefits (32,008)
Other 19,130 (19,240)
------------ ------------
Total adjustments (124,128) (57,257)
------------- ------------
Net cash provided by (used in) Operating Activities (742,112) 171,997
------------ -----------
Cash Flows from Investing Activities:
Proceeds from sales of investments -- 17,392
Purchases of investments (19,624) (1,206,845)
Capital expenditures (125,199) (6,590)
------------ -------------
Net cash used in Investing Activities (144,823) (1,196,043)
------------ -------------
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 Financing Activities 3,750 11,000
------------ -----------
Net increase (decrease) in cash and cash equivalents (883,185) (1,013,046)
Cash and cash equivalents:
At beginning of period 1,467,674 2,316,040
---------- -----------
At end of period $ 584,489 $ 1,302,994
========== ===========
</TABLE>
Supplemental disclosure: The Company did not pay any interest or
Federal income taxes during the six months ended June
30, 1996 or 1995.
See accompanying notes to the consolidated financial statements.
6
<PAGE>
BULL & BEAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 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 and Midas 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 June 30, 1996 and December 31, 1995, the Company and
subsidiaries had invested approximately $492,901 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
JUNE 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 June 30, 1996 and December 31, 1995, accumulated depreciation
amounted to $146,675 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 June 30, 1996 and December 31, 1995, accumulated
depreciation amounted to $713,603 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 June 30, 1996 and December 31, 1995,
accumulated amortization amounted to $565,805 and $548,664,
respectively.
MARKETING COSTS
Expenses in connection with the sale of the Funds' shares are
charged to operations as incurred.
EARNINGS PER SHARE
Primary and fully diluted earnings per share for the three and six
months ended June 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. ACQUISITION
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. This purchase was 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
JUNE 30, 1996 AND 1995
(UNAUDITED)
3. MARKETABLE SECURITIES
At June 30, 1996, marketable securities consisted of:
Market Value
Broker/dealer subsidiaries - at market
Affiliated mutual funds $ 64,279
U.S. Treasury Note due 5/15/97 to 7/31/99 954,860
-----------
Total broker/dealer securities (cost-$1,023,340) 1,019,139
-----------
Other companies
Available-for-sale securities - at market
Equity securities 248,920
Unaffiliated mutual funds 34,743
Affiliated mutual funds 8,310
----------
Total available-for-sale securities (cost-$186,940) 291,973
---------
$1,311,112
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 June 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 June 30, 1996,
these subsidiaries had net capital of approximately $517,842 and $393,149;
net capital requirements of approximately $250,000 and $36,340; excess net
capital of approximately $267,842 and $356,809; and the ratios of
aggregate indebtedness to net capital were approximately .53 to 1 and 1.39
to 1, respectively.
9
<PAGE>
BULL & BEAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 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
2/5/98 and the remaining 5,000 options are exercisable on 2/5/99. 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 June 30, Six Months Ended June 30,
1996 1995 1996 1995
----- ---- ----- ----
<S> <C> <C> <C> <C>
Net income(loss): As reported $(199,710) $115,490 $(617,984) $229,254
Proforma $(237,285) $114,759 $(678,270) $228,523
Earnings per share
Primary and fully diluted: As reported $(.13) $.07 $(.42) $.14
Proforma $(.16) $.07 $(.46) $.14
</TABLE>
There were 22,000 options granted during the six months ended June 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 94.04% and 96.19%, risk-free interest
rate of 5.3% and 5.90% and expected life of five years for all grants.
10
<PAGE>
BULL & BEAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996 AND 1995
(UNAUDITED)
A summary of the status of the Company's stock option plans as of June 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 219,000 $1.92
Exercised (2,000) $1.875
Canceled (5,000) $1.50
----------
OUTSTANDING AT JUNE 30, 1996 261,000 $1.90
==========
The 261,000 options were not exercisable at June 30, 1996 and December 31,
1995. The weighted-average fair value of options granted were $1.39 for
the six months ended June 30, 1996 and $1.45 for the year ended December
31, 1995
The following table summarizes information about stock options outstanding
at June 30, 1996:
Options Outstanding
Number Weighted-Average
Range of Outstanding Remaining Weighted-Average
Exercise Prices At 6/30/96 Contractual Life Exercise Price
$1.50 - $1.625 20,000 3.7 years $1.54
$1.875 - $2.0625 241,000 4.5 years $1.93
In addition, there were 20,000 non-qualified stock options with an
exercise price of $1.75 outstanding as of June 30, 1996. During the six
months ended June 30, 1995, 6,000 non-qualified stock options with an
exercise price of $1.00 were exercised.
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
JUNE 30, 1996 AND 1995
(UNAUDITED)
7. INCOME TAXES
The provision for income taxes charged to operations for the six months
ended June 30, 1996 and 1995 was as follows:
1996 1995
---- ----
Current
State and local $13,751 $20,642
Federal -- --
----------- ----------
$13,751 $20,642
======= =======
Deferred tax assets (liabilities) are comprised of the following at June 30,
1996 and December 31, 1995:
1996 1995
---- ----
Unrealized loss (gain) on investments $ (34,000) $ (29,400)
Net operating loss carryforwards 650,000 436,600
-------- --------
Total deferred tax assets 616,000 407,200
Deferred tax asset valuation allowance (616,000) (407,200)
--------- ---------
Net deferred tax assets $ - $ -
============= ==============
The change in the valuation allowance for the six months ended June 30,
1996 was the increase in net operating loss carryforwards and the increase
in the 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 six months ended June 30, 1996 and June 30, 1995 were $22,265
and $17,534, 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 $122,780 and $229,700 for the six months ended June 30, 1996, and 1995,
respectively.
12
<PAGE>
In connection with management services, the Company's investment manager, Bull &
Bear Advisers, Inc., waived or reimbursed management fees to the Funds in the
amount of $107,880 and $150,092 for the six months ended June 30, 1996 and 1995,
respectively, and are included in general and administrative expenses in the
Statement of Income (Loss).
Certain officers of the Company also serve as officers and/or directors of the
Funds.
Commencing August 1992, the Company obtained a key man life insurance policy on
the life of the Company's Chairman which provides for the payment of $1,000,000
to the Company upon his death. As of June 30, 1996, the policy had a cash
surrender value of approximately $61,675 and is included in other assets in the
balance sheet.
The Company's discount brokerage subsidiary received brokerage commissions of
approximately $128,931 and $105,242 from the Funds for the six months ended June
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 $32,250 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. as plaintiffs (collectively "Maxus") claiming
to collectively own or control 152,700 shares, or approximately 11.3%, 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 complaint alleges, among other
things, that defendants breached fiduciary duties to the Company regarding the
adoption and implementation of the Company's 1990 incentive stock option plan
("ISOP") . The complaint seeks rescission of the ISOP and an accounting,
attorneys' fees, the imposition of a constructive trust and restitution
regarding all allegedly improper benefits. On December 21, 1995, plaintiffs
moved to file a supplemental complaint challenging the voiding of certain stock
option exercises that occurred in November 1993, and the exercise by the
Company's Chairman of stock options that he received in 1990 in accordance with
their original terms. The supplemental complaint also seeks attorneys' fees. On
April 11, 1996, the district court dismissed as a matter of law all claims in
the supplemental complaint except those relating to the voiding of certain stock
option exercises, the Chairman's exercise of stock options 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 June
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 June 30, 1996 compared to Three Months Ended June 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 $731,138 or 56% 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 $473,971 or 57% because of a higher level of net assets under
management. Brokerage fees and commissions increased $285,464 or 65% because of
an increased level of customer transactions processed. Net assets under
management were approximately $235.1 million at March 31, 1995, $236.9 million
at June 30, 1995, $317.6 million at March 31, 1996 and $393.2 million at June
30, 1996. Dividends, interest and other income decreased $28,297 due to lower
earnings on the Company's investments.
Total expenses increased $1,038,077 or 86% primarily as a result of an
increase in marketing expenses of $478,997 or 293% 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 $166,988 or
20% because of higher compensation costs relating to the growth in the Company's
businesses. Clearing and brokerage charges increased $75,603 or 57% because of
an increased level of discount brokerage customer transactions processed, as
previously noted. Professional fees increased $78,289 or 189% due to litigation
costs relating to the Maxus lawsuit. Subadvisory fees increased $223,717 because
of the growth in assets of the Midas Fund. Net loss for the period was $199,710
or $.13 per share as compared to net income of $115,490 or $.07 per share for
1995.
Six Months Ended June 30, 1996 compared to Six Months Ended June 30, 1995
Total revenues increased $965,032 or 37% which was due to a increase in
management, distribution and shareholder administrative fees and brokerage fees
and commissions. Management, distribution and shareholder administrative fees
increased $555,400 or 33% because of a higher level of net assets under
management. Brokerage fees and commissions increased $449,240 or 53% because of
a 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, $237.4 million at
December 31, 1995, $317.6 million at March 31, 1996 and $393.2 million at June
30, 1996. Dividends, interest and other income decreased $39,608 due to lower
earnings on the Company's investments.
Total expenses increased $1,819,161 or 77% primarily as a result of an
increase in marketing expenses of $815,794 or 228% 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 $382,871 or
24% because of higher compensation costs relating to the growth in the Company's
businesses. Clearing and brokerage charges increased $127,329 or 49% because of
an increased level of discount brokerage customer transactions processed, as
previously noted. Professional fees increased $152,686 or 195% due to litigation
costs relating to the Maxus lawsuit. Subadvisory fees increased $313,624 because
of the growth in assets of the Midas Fund. Net loss for the period was $617,984
or $.42 per share as compared to net income of $229,254 or $.14 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:
June 30, 1996 December 31, 1995
------------- -----------------
Working Capital $2,152,495 $2,792,059
Total Assets $4,245,125 $4,963,792
Long Term Debt -- --
Shareholders' Equity $3,594,874 $4,170,095
Working capital, total assets and shareholders' equity decreased $639,564,
$718,667 and $575,221, respectively for the six months ended June 30, 1996
primarily as a result of the net loss of $617,984 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.
PART II. OTHER INFORMATION
ITEMS 5. OTHER INFORMATION
The Company organized an investment management subsidiary, Rockwood
Advisers, Inc. ("RAI"). On June 6, 1996, RAI entered into an Agreement and Plan
of Succession ("Plan of Succession") with Aspen Securities and Advisory, Inc.
("Aspen") and The Rockwood Growth Fund, Inc. ("Fund"). The Plan of Succession
contemplates that Fund shareholders would be asked to approve (1) an investment
management agreement between RAI and the Fund providing for a fee based on the
average daily net assets of the Fund, at the annual rate of 1% on the first $200
million and declining thereafter as a percentage of average daily net assets;
(2) a Plan of Distribution and Distribution Agreement with Investor Service
Center, Inc. ("ISC"), a Company subsidiary. Pursuant to the Distribution
Agreement, ISC would act as the Fund's principal agent for the sale of its
shares. Pursuant to the Plan, the Fund would pay ISC a monthly distribution fee
in an amount of 0.25% per annum of the Fund's average daily net assets for
distribution and service activities; (3) a subadvisory agreement between RAI and
Aspen. RAI (not the Fund) would pay Aspen monthly a percentage of RAI's net fees
based upon the Fund's performance and its total net assets ranging from ten to
fifty percent; (4) the election of new directors to replace the current board.
ISC also would provide the Fund shareholder administration at cost. All costs
and expenses incurred by the Fund in connection with the proxy solicitation
would be borne by RAI. A meeting of the Fund's shareholders to consider the
foregoing matters is currently scheduled for August 15, 1996.
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: August 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: August 14, 1996
Bassett S. Winmill
Chairman of the Board,
Director
Dated: August 14, 1996 /s/ Robert D. Anderson
----------------------
Robert D. Anderson
Vice Chairman, Director
Dated: August 14, 1996 /s/ Mark C. Winmill
-------------------
Mark C. Winmill
Co-President,
Chief Financial Officer, Director
Dated: August 14, 1996 /s/ Thomas B. Winmill
---------------------
Thomas B. Winmill, Esq.
Co-President,
General Counsel, Director
Dated: August 14, 1996
Charles A. Carroll, Director
Dated: August 14, 1996
Edward G. Webb, Jr., Director
16
<PAGE>
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<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-START> Jan-01-1996
<PERIOD-END> Jun-30-1996
<CASH> 584,489
<SECURITIES> 1,311,112
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