As filed with the Securities and Exchange Commission on MAY 15, 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 MARCH 31, 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 MARCH 31, 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 April 30, 1996, were as follows:
Class A Common Stock non-voting, par value $.01 per share - 1,348,017 shares
Class B Common Stock voting, par value $.01 per share - 20,000 shares
1
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BULL & BEAR GROUP, INC.
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1996
INDEX
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
- (Unaudited) March 31, 1996 and December 31, 1995 3
Consolidated Statements of Income (Loss)
- (Unaudited) Three Months Ended March 31, 1996 and March 31, 1995 4
Consolidated Statements of Changes in Shareholders' Equity
- (Unaudited) Three Months Ended March 31, 1996 and March 31, 1995 5
Consolidated Statements of Cash Flows
- (Unaudited) Three Months Ended March 31, 1996 and March 31, 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 4. Submission of Matters to a Vote of Security Holders During
First Quarter of the Year Ended December 31, 1996 15
Management's Representation and Signatures 16
2
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BULL & BEAR GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
March 31, December 31,
1996 1995
ASSETS
Current Assets:
Cash and cash equivalents 760,543 $ 1,467,674
Marketable securities (Note 2) 1,267,919 1,257,062
Management, distribution and service fees receivable 236,376 179,209
Interest, dividends and other receivables 275,359 248,241
Prepaid expenses and other assets 424,452 433,570
----------- -----------
Total Current Assets 2,964,649 3,585,756
---------- -----------
Real estate held for investment, net 310,159 308,799
Furniture and fixtures, net 239,130 207,194
Excess of cost over net book value of
subsidiaries, net 726,799 735,368
Other 134,173 126,675
----------- ------------
1,410,261 1,378,036
----------- ------------
Total Assets $4,374,910 $ 4,963,792
========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 288,190 $ 610,242
Accrued professional fees 196,535 111,486
Accrued payroll and other related costs - 43,208
Accrued expenses 97,308 15,381
Other 46,773 13,380
----------- ---------
Total Current Liabilities 628,806 793,697
---------- ---------
Contingencies(Note 10) - -
Shareholders' Equity: (Notes 3, 4, 5)
Common Stock, $.01 par value
Class A, 10,000,000 shares authorized;
1,348,017 shares
issued and outstanding 13,481 13,481
Class B, 20,000 shares authorized;
20,000 shares issued and outstanding 200 200
Additional paid-in capital 6,232,347 6,232,347
Retained earnings (deficit) (2,560,227) (2,141,953)
Unrealized gains on marketable securities 60,303 66,020
------------ -----------
Total Shareholders' Equity 3,746,104 4,170,095
---------- -----------
Total Liabilities and Shareholders' Equity $4,374,910 $ 4,963,792
========== ===========
See accompanying notes to consolidated financial statements.
3
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BULL & BEAR GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(UNAUDITED)
Three Months Ended March 31,
1996 1995
Revenues:
Management, distribution and service fees $ 914,012 $ 832,583
Brokerage fees and commissions 571,919 380,914
Dividends, interest and other 40,538 79,078
---------- ----------
1,526,469 1,292,575
Expenses:
General and administrative (note 7) 992,408 755,239
Marketing 531,175 185,129
Clearing and brokerage charges 178,610 155,900
Professional fees 201,177 38,392
Amortization and depreciation 36,873 24,499
----------
1,940,243 1,159,159
Income (loss) before income taxes (413,774) 133,416
Income taxes (note 6) 4,500 19,652
----------- -----------
Net income (loss) (418,274) 113,764
=========== ==========
Per share data:
Primary and fully diluted
Net income (loss) $ (.30) $ .07
======== =======
Average shares outstanding:
Primary and fully diluted 1,417,324 1,569,724
========= =========
See accompanying notes to the consolidated financial statements.
4
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<TABLE>
BULL & BEAR GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
Notes Unrealized
Receivable Retained Gains on Total
Class A Class B Class A Class B Additional for Common Earnings Marketable Sharehol
Common Common Common Common Paid-in-Capital Stock Issued (Deficit) Securities Equity
------ ------ ---- ------ --------------- ------------ -------- -------- --------
Three Months Ended March 31, 1995
<S> <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
Collection of note receivable - - - - - 5,000 5,000
Net income - - - - - 113,764 - 113,764
----------- -------- -------- ------- --------- ------------ ------------ ------- ------
Balance, March 31, 1995 1,503,152 20,000 $15,032 $200 $6,497,796 (300,000) $(2,184,565) $
========= ====== ======= ==== ========== ============= =========== - $4,028,463
Three Months Ended March 31, 1996
Balance, January 1, 1996 1,348,017 20,000 $13,481 $200 $6,232,347 -- $(2,141,953) $66,020 $4,170,095
Net loss -- -- -- -- -- -- (418,274) - (418,274)
Change in unrealized gains on
marketable securities -- -- -- -- -- --
---------- ------- -------- ----- ----------- ----------- ---------- (5,717) (5,717)
Balance, March 31, 1996 1,348,017 20,000 $13,481 $200 $6,232,347 $3,746,104 $(2,560,227) $60,303 3,746,104
========= ====== ======= ==== ========== =========== ========== ======== ======
See accompanying notes to the consolidated financial statements.
</TABLE>
5
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BULL & BEAR GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended March 31,
1996 1995
------------ -------
Cash Flows from Operating Activities:
Net income (loss) $ (418,274) $113,764
----------- --------
Adjustments to reconcile net
income to net cash provided by
Operating Activities:
Depreciation and amortization 36,873 24,499
Increase in cash value of life insurance 7,500 7,500
Other (5,989) (16,092)
(Increase) decrease in:
Management, distribution and service fees
receivable
(57,167) (5,829)
Interest, dividends and other receivables (27,118) (20,701)
Prepaid expenses and other assets 9,118 (38,480)
Other (14,998) (2,198)
Increase (decrease) in:
Accounts payable (322,052) (23,431)
Accrued expenses 123,768 8,345
Other 33,393 -
------------ --------
Total adjustments (216,672) (66,387)
------------ -----------
Net cash provided by (used in)
Operating Activities (634,946) 47,377
------------ -----------
Cash Flows from Investing Activities:
Purchases of investments (10,585) (1,010,661)
Capital expenditures (61,600) (4,469)
------------ ----------
Net cash used in Investing Activities (72,185) (1,015,130)
------------ -----------
Cash Flows from Financing Activities:
Collection of note receivable - 5,000
--------------- ------------
Net cash provided by Financing Activities - 5,000
--------------- ------------
Net decrease in cash and cash equivalent(707,131) (962,753)
Cash and cash equivalents:
At beginning of period 1,467,674 2,316,040
---------- ----------
At end of period $ 760,543 $1,353,287
=========== ==========
Supplemental disclosure: The Company did not pay any
interest or Federal income taxes during the
three months ended March 31, 1996 or 1995.
See accompanying notes to the consolidated financial statements.
6
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BULL & BEAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996 AND 1995
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Bull & Bear Group, Inc. ("Company") is a holding company. Its
subsidiaries' business consists 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 subsidiaries. Substantially all
intercompany accounts and transactions have been eliminated.
ACCOUNTING ESTIMATES
In preparing financial statements in conformity with generally
accepted accounting principles, management makes estimates and
assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements, as well as the
reported amounts of revenues and expenses during the reporting
period.
Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, accounts
receivable, accounts payable, and accrued expenses and other
liabilities approximate fair value because of the short maturity of
these items. Marketable securities are recorded at market value
which represents the fair value of the securities.
CASH AND CASH EQUIVALENTS
Investments in money market funds are considered to be cash
equivalents. At March 31, 1996 and December 31, 1995, the Company
and subsidiaries had invested approximately $637,215 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 customer 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
7
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BULL & BEAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996 AND 1995
(UNAUDITED)
consolidated financial statements.
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 March 31, 1996 and December 31, 1995, accumulated depreciation
amounted to $134,786 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 March 31, 1996 and December 31, 1995, accumulated
depreciation amounted to $695,078 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 March 31, 1996 and December 31, 1995,
accumulated amortization amounted to $557,234 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 months
ended March 31, 1996 and March 31, 1995 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 $84,911. 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
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BULL & BEAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996 AND 1995
(UNAUDITED)
3. MARKETABLE SECURITIES
At March 31, 1996, marketable securities consisted of:
Market Value
Broker/dealer subsidiaries - at market
Affiliated mutual funds $ 65,049
U.S. Treasury Note due 5/15/97 to 7/31/99 707,597
-----------
Total broker/dealer securities (cost-$772,079) 772,646
-----------
Other companies
Available-for-sale securities - at market
Equity securities 191,142
Unaffiliated mutual funds 36,670
Affiliated mutual funds 8,913
U.S. Treasury Notes due 6/30/99 258,548
---------
Total available-for-sale securities (cost-$434,970) 495,273
---------
$1,267,919
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 March 31, 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 subsidiary 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 March 31, 1996, these subsidiaries had net capital of approximately
$550,336 and $327,707; net capital requirements of approximately $250,000
and $25,000; excess net capital of approximately $300,336 and $302,707;
and the ratios of aggregate indebtedness to net capital were approximately
.65 to 1 and 1.11 to 1, respectively.
9
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BULL & BEAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 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 a maximum of 300,000 options to purchase
Class A Common Stock to directors, officers and key employees of the
Company or its subsidiaries. The plan was amended on February 5, 1996.
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:
Three Months Ended March 31,
1996 1995
Net income(loss): As reported $(418,274) $113,764
Proforma $(440,985) $113,764
Earnings per share
Primary and fully diluted: As reported $(.30) $.07
Proforma $(.31) $.07
There were no awards granted during the three months ended March 31, 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: expected volatility of
94.04%, risk-free interest rate of 5.3% and expected life of five years.
10
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BULL & BEAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996 AND 1995
(UNAUDITED)
A summary of the status of the Company's stock option plans as of March
31, 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
Canceled (2,000) $1.875
----------
OUTSTANDING AT MARCH 31, 1996 266,000 $1.89
==========
There were no options exercisable at March 31, 1996 and December 31, 1995.
The weighted-average fair value of options granted were $1.39 for the
three months ended March 31, 1996 and $1.45 for the year ended December
31, 1995
The following table summarizes information about stock options outstanding
at March 31, 1996:
Options Outstanding
Number Weighted-Average
Range of Outstanding Remaining Weighted-Average
Exercise Prices At 3/31/96 Contractual Life Exercise Price
$1.50 - $1.625 25,000 3.9 years $1.54
$1.875 - $2.0625 241,000 4.8 years $1.93
In addition, there were 20,000 non-qualified stock options with an
exercise price of $1.75 outstanding as of March 31, 1996, none of which
were exercisable. During 1995, 6,000 non-qualified stock options with an
exercise price of $1.00 were exercised.
In connection with the action by Maxus plaintiffs described in Note 10,
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
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BULL & BEAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996 AND 1995
(UNAUDITED)
7. INCOME TAXES
The provision for income taxes charged to operations for the three months
ended March 31, 1996 and 1995 was as follows:
1996 1995
---- ----
Current
State and local $4,500 $19,652
Federal -- --
-------- ---------
$4,500 $19,652
====== =======
Deferred tax assets (liabilities) are comprised of the following at March 31,
1996 and December 31, 1995:
1996 1995
---- ----
Unrealized loss (gain) on investments $ (20,700) $ (29,400)
Net operating loss carryforwards 577,400 436,600
-------- --------
Total deferred tax assets 556,700 407,200
Deferred tax asset valuation allowance (556,700) (407,200)
-------- --------
Net deferred tax assets $ - $ -
=========== ===========
The change in the valuation allowance for the three months ended March 31,
1996 was due to the increase in net operating losses at the end of the
period and the decrease 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 three months ended March 31, 1996 and March 31, 1995 were
$12,175 and $9,983, 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.
Service fees represent reimbursement of costs incurred by subsidiaries of the
Company on behalf of the Funds. Such reimbursement amounted to $52,593 and
$116,308 for the three months ended March 31, 1996, and 1995, respectively.
12
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BULL & BEAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996 AND 1995
(UNAUDITED)
In connection with management services, the Company's investment managers, Bull
& Bear Advisers, Inc. and Midas Management Corporation, waived or reimbursed
management fees to the Funds in the amount of $49,107 and $71,629 for the three
months ended March 31, 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 March 31, 1996, the policy had a cash
surrender value of approximately $54,175 and is included in other assets in the
balance sheet.
The Company's discount brokerage subsidiary received brokerage commissions of
approximately $34,148 and $58,556 from the Funds for the three months ended
March 31, 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, 1996 and is cancelable at the option
of the Company on three months' notice. In addition, the Company's discount
broker/dealer 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 244,000 shares, or approximately 18.1%, 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 that defendants
breached fiduciary duties to the Company regarding the adoption and
implementation of the Company's 1990 incentive stock option plan ("ISOP"), the
rejection, in July 1994, of Maxus' proposal for the liquidation of the Company
and the Company's 1986 purchase of an office building. Plaintiffs also allege
that all the individual defendants have received excessive compensation and
other unspecified benefits. 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 (See Note 6), 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 involving the rejection of Maxus'
proposal for liquidation of the Company (Count Three), allegations of excessive
compensation and other unspecified benefits (Count Four), and the Company's 1986
purchase of an office building (Count Five). The court also dismissed Count Six
(alleging that Bassett S. Winmill breached special fiduciary duties) and Count
Seven (alleging the necessity of an accounting) insofar as they relate to Counts
Three, Four and Five. The only claims remaining relate 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
March 31, 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 March 31, 1996 compared to Three Months Ended March 31, 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 8 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 $233,894 or 18% which was primarily due to an
increase in brokerage fees and commissions of $191,005 or 50% because of an
increased level of discount brokerage customer transactions processed, and due
to an increase in management, distribution and service fees of $81,429 or 10%
because of a higher level of net assets under management. 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, $245.9 million at
September 30, 1995, $237.4 million at December 31, 1995 and $317.6 million at
March 31, 1996. Dividends, interest and other income decreased $38,540 due to
lower earnings on the Company's short term investments.
Total expenses increased $781,084 or 67% primarily as a result of an
increase in marketing expenses of $346,046 or 187% 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 $237,169 or
31% because of higher compensation costs relating to the growth in the Company's
businesses. Clearing and brokerage charges increased $22,710 or 15% because of
an increased level of discount brokerage customer transactions processed, as
previously noted. Professional fees increased $162,785 or 424% due to litigation
costs relating to the Maxus lawsuit and an increase in subadvisory fees because
of the growth in assets of the Midas Fund. Net loss for the period was $418,274
or $.30 per share as compared to net income of $113,764 or $.07 per share for
1995.
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:
March 31, 1996 December 31, 1995
-------------- -----------------
Working Capital $2,335,843 $2,792,059
Total Assets $4,374,910 $4,963,792
Long Term Debt -- --
Shareholders' Equity $3,746,104 $4,170,095
Working capital, total assets and shareholders' equity decreased $456,216,
$588,882 and $423,991, respectively for the three months ended March 31, 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.
14
<PAGE>
PART II. OTHER INFORMATION
ITEMS 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS DURING FIRST
QUARTER OF THE YEAR ENDED DECEMBER 31, 1996
At the annual meeting of Class B shareholder held March 5, 1996, the
following matters were unanimously approved: the selection of Tait, Weller &
Baker as the independent accountants of the Company and the election of Robert
D. Anderson, Bassett S. Winmill, Charles A. Carroll, Mark C. Winmill, Edward G.
Webb, Jr. and Thomas B. Winmill as directors of the Company.
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: May 15, 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: May 15, 1996 /s/ Bassett S. Winmill
----------------------
Bassett S. Winmill
Chairman of the Board,
Director
Dated: May 15, 1996 /s/ Robert D. Anderson
----------------------
Robert D. Anderson
Vice Chairman, Director
Dated: May 15, 1996 /s/ Mark C. Winmill
-------------------
Mark C. Winmill
Co-President,
Chief Financial Officer, Director
Dated: May 15, 1996 /s/ Thomas B. Winmill
---------------------
Thomas B. Winmill, Esq.
Co-President,
General Counsel, Director
Dated: May 15, 1996
Charles A. Carroll, Director
Dated: May 15, 1996
Edward G. Webb, Jr., Director
16
<PAGE>
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<PERIOD-TYPE> 3-Mos
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-START> Jan-01-1996
<PERIOD-END> Mar-31-1996
<CASH> 760,543
<SECURITIES> 1,267,919
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