As filed with the Securities and Exchange Commission on NOVEMBER 14, 1997
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, 1997
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, 1997 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, 1997, 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
<PAGE>
BULL & BEAR GROUP, INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1997
INDEX
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
- (Unaudited) September 30, 1997
and December 31, 1996 3
Consolidated Statements of Income (Loss)
- (Unaudited) Three and Nine Months Ended
September 30, 1997 and September 30, 1996
Consolidated Statements of Changes in Shareholders' Equity
- (Unaudited) Nine Months Ended September 30, 1997
and September 30, 1996 5
Consolidated Statements of Cash Flows
- (Unaudited) Nine Months Ended September 30, 1997
and September 30, 1996 6
Notes to Consolidated Financial Statements (Unaudited) 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 14
Management's Representation and Signatures 17
2
<PAGE>
BULL & BEAR GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
September 30, December 31,
1997 1996
------------- ------------
ASSETS
Current Assets:
Cash and cash equivalents $ 1,397,785 $ 747,444
Marketable securities (Note 4) 736,528 1,176,547
Management, distribution and
service fees receivable 280,403 207,944
Interest, dividends and other receivables 219,239 204,684
Prepaid expenses and other assets 332,386 289,712
----------- -----------
Total Current Assets 2,966,341 2,626,331
----------- -----------
Real estate held for investment, net 588,381 438,187
Furniture and fixtures, net 208,185 237,851
Excess of cost over net book value of
subsidiaries, net 737,045 765,665
Other 234,933 205,076
----------- -----------
1,768,544 1,646,779
----------- -----------
Total Assets $4,734,885 $ 4,273,110
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 150,366 $ 134,544
Accrued professional fees 104,906 81,285
Accrued subadvisory fees 35,708 40,388
Current portion of capitalized
lease obligation 12,282 12,282
Accrued payroll and other 60,618 53,012
Other 34,883 11,620
----------- -----------
Total Current Liabilities 398,763 333,131
----------- -----------
Capitalized lease obligation 12,460 22,093
----------- -----------
Shareholders' Equity: (Notes 4, 5, and 6)
Common Stock, $.01 par value
Class A, 10,000,000 shares authorized;
1,350,017 shares issued and outstanding 13,501 13,501
Class B, 20,000 shares authorized;
20,000 shares issued and outstanding 200 200
Additional paid-in capital 6,236,077 6,236,077
Retained earnings (deficit) (1,967,492) (2,462,478)
Unrealized gains on marketable
securities (Notes 1 and 4) 41,376 130,586
---------- ----------
Total Shareholders' Equity 4,323,662 3,917,886
---------- ----------
Total Liabilities and Shareholders' Equity $4,734,885 $ 4,273,110
========== ===========
See accompanying notes to consolidated financial statements.
3
<PAGE>
BULL & BEAR GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
---- ---- ---- ----
Revenues:
<S> <C> <C> <C> <C>
Management, distribution and service fees $1,053,299 $1,320,836 $3,371,701 $3,542,533
Brokerage fees and commissions 594,629 486,422 1,811,152 1,782,141
Realized gains from investments 0 70,228 86,458 70,228
Dividends, interest and other 36,204 27,383 92,707 91,194
---------- ---------- ------------ -----------
1,684,132 1,904,869 5,362,018 5,486,096
--------- --------- ---------- ---------
Expenses:
General and administrative 782,487 824,909 2,448,435 2,706,117
Marketing 220,937 344,092 733,120 1,517,496
Clearing and brokerage charges 159,345 153,371 463,027 541,019
Expense reimbursements to the Funds (note 10) 132,427 127,516 594,496 250,296
Subadvisory fees 88,254 213,938 297,497 527,562
Amortization and depreciation 36,164 31,173 99,991 107,029
Professional fees 33,974 55,406 197,372 286,346
---------- --------- ------------ -----------
1,453,588 1,750,405 4,833,938 5,935,865
--------- --------- ---------- ----------
Income (loss) before income taxes 230,544 154,464 528,080 (449,769)
Income taxes (note 8) 14,800 19,791 33,094 33,542
----------- ----------- ----------- -----------
Net income (loss) $ 215,744 $ 134,673 $ 494,986 $(483,311)
========= ========= ========= ==========
Per share data:
Primary and fully diluted
Net income (loss) $.15 $.09 $.34 $(.33)
==== ==== ===== ======
Average shares outstanding:
Primary 1,452,019 1,490,096 1,464,172 1,467,177
========= ========= ========= =========
Fully diluted 1,454,245 1,492,916 1,467,730 1,467,177
========= ========= ========= =========
</TABLE>
See accompanying notes to the consolidated financial statements.
4
<PAGE>
BULL & BEAR GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Unrealized
Retained Gains on Total
Class A Class B Class A Class B Additional Earnings Marketable Shareholders'
Common Common Common Common Paid-in-Capital (Deficit) Securities Equity
------ ------ ------ ------ --------------- ----------- ---------- ----------
Nine Months Ended
September 30, 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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 -- -- -- -- -- (483,311) -- (483,311)
Change in unrealized
gains on marketable
securities -- -- -- -- -- -- (52,619) (52,619)
---------- ------- ------- ----- ------------ ------------ ---------- ------------
Balance, September 30, 1996 $1,350,017 $20,000 $13,501 $200 $6,236,077 $(2,625,264) $13,401 $3,637,915
========== ======= ======= ==== ========== ============ ======== ==========
Nine Months Ended
September 30, 1997
Balance, January 1, 1997 1,350,017 20,000 13,501 200 6,236,077 (2,462,478) 130,586 3,917,886
Net income -- -- -- -- -- 494,986 -- 494,986
Change in unrealized
gains on marketable
securities -- -- -- -- -- -- (89,210) (89,210)
---------- ------- -------- ----- ----------- ------------ -------- ----------
Balance, September 30, 1997 $1,350,017 $20,000 $13,501 $200 $6,236,077 $(1,967,492) $ 41,376 $4,323,662
========== ======= ======= ==== ========== ============ ======== ==========
</TABLE>
See accompanying notes to the consolidated financial statements.
5
<PAGE>
BULL & BEAR GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended September 30,
1997 1996
----------- -----------
Cash Flows from Operating Activities:
Net income (loss) $ 494,986 $ (483,311)
--------- -------------
Adjustments to reconcile net income to
net cash provided by (used in) Operating
Activities:
Depreciation and amortization 99,991 107,029
Increase in cash value of life insurance (24,083) (22,500)
Gain on sale of investments (86,458) (70,228)
Other (11,775) -
(Increase) decrease in:
Management, distribution and service
fees receivable (72,459) (146,842)
Interest, dividends and other receivables (14,555) 20,342
Prepaid expenses and other assets (42,674) 119,862
Other (5,774) (4,638)
Increase (decrease) in:
Accounts payable 15,822 (458,637)
Accrued professional fees 23,621 14,915
Accrued subadvisory fees (4,680) 198,890
Obligations on capital leases (9,633) 37,834
Accrued payroll and other costs 7,606 -
Cash overdraft - 43,497
Other 23,263 (33,767)
----------- ----------
Total adjustments (101,788) (194,243)
----------- ----------
Net cash provided by (used in)
Operating Activities 393,198 (677,554)
----------- ----------
Cash Flows from Investing Activities:
Proceeds from sales of investments 547,129 185,763
Purchases of investments (98,040) (9,256)
Capital expenditures (168,785) (208,385)
Purchases of equipment (23,161) -
Sale of real estate - 43,762
Acquisition of intangible assets - (77,234)
----------- ----------
Net cash provided by (used in)
Investing Activities 257,143 (65,350)
----------- ---------
Cash Flows from Financing Activities:
Proceeds from issuance of Class A Common Stock - 3,750
----------- ---------
Net cash provided by Financing Activities - 3,750
----------- ---------
Net increase (decrease) in cash
and cash equivalents 650,341 (739,154)
Cash and cash equivalents:
At beginning of period 747,444 1,467,674
------------ ----------
At end of period $ 1,397,785 $ 728,520
=========== ==========
Supplemental disclosure: The Company did not pay any interest or
Federal income taxes during the nine months ended
September 30, 1997 or 1996.
The Company paid approximately $900 and $375 in
interest expense during the nine months ended
September 30, 1997 and 1996.
See accompanying notes to the consolidated financial statements.
6
<PAGE>
BULL & BEAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND 1996
(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 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 September 30, 1997 and December 31, 1996, the
Company and subsidiaries had invested approximately $1,312,771 and
$657,500, respectively, in an affiliated money market fund.
MARKETABLE SECURITIES
The Company and its non-broker/dealer subsidiaries' marketable
securities 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.
INCOME TAXES
The Company and its wholly-owned subsidiaries file consolidated
income tax returns. The Company's method of
7
<PAGE>
BULL & BEAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
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 1996 financial statements have been
made to conform to the 1997 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, 1997 and December 31, 1996, accumulated
depreciation amounted to $45,991 and $27,400, respectively.
Equipment, furniture and fixtures are recorded at cost and are
depreciated on the straight-line basis over their estimated useful
lives, 3 to 10 years. At September 30, 1997 and December 31, 1996,
accumulated depreciation amounted to $802,126 and $749,300,
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, 1997 and December 31, 1996,
accumulated amortization amounted to $613,767 and $585,100,
respectively. Periodically, the Company reviews its intangible
assets for events or changes in circumstances that may indicate that
the carrying amounts of the assets are not recoverable.
EARNINGS PER SHARE
Primary and fully diluted earnings per share for the three and nine
months ended September 30, 1997 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, 1996, the Company acquired the
management of Rockwood Fund for approximately $31,300. 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.
3. LEASE COMMITMENTS
The Company has a lease for approximately 11,400 square feet of office
space. The rent is approximately $144,000 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 broker/dealer has a branch office in Boca Raton,
Florida consisting of approximately 2,000 square feet. The rent is
approximately $55,000 per annum and expires on August 30, 1999.
The Company leases office equipment under capital leases expiring in 1999.
The related property is included in furniture and equipment at a cost of
$45,457 at December 31, 1996. Depreciation expense of $26,180 has been
recognized on this property as of September 30, 1997. Future annual
minimum lease payments under the capital leases together with the present
value of the net minimum lease payments are as follows:
Year Ending December 31,
1997 13,201
1998 15,173
1999 7,586
----------
Total minimum lease payments 35,960
Less amount representing interest and executory costs 1,585
----------
Present value of minimum lease payments $ 34,375
==========
8
<PAGE>
BULL & BEAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
4. MARKETABLE SECURITIES
At September 30, 1997, marketable securities
consisted of:
Market Value
------------
Broker/dealer subsidiaries - at market
U.S. Treasury Note due 6/30/99 507,968
-----------
Total broker/dealer securities (cost-$504,343) 507,968
-----------
Other companies
Available-for-sale securities - at market
Equity securities 175,238
Unaffiliated mutual funds 48,275
Affiliated mutual funds 5,047
-----------
Total available-for-sale securities (cost-$187,184) 228,560
-----------
$ 736,528
==========
At December 31, 1996, marketable securities
consisted of:
Broker/dealer securities - at market
U.S. Treasury Notes due 5/15/97 to
6/30/99 (cost $956,925) $ 961,000
-----------
Other companies
Available-for-sale securities - at market
Equity securities 170,634
Unaffiliated mutual funds 37,251
Affiliated mutual funds 7,662
----------
Total available-for-sale securities (cost-$84,961) 215,547
----------
$1,176,547
==========
5. 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, 1997 and December 31, 1996, none of the
Preferred Stock was issued.
6. 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,
1997, these subsidiaries had net capital of approximately $658,000 and
$590,000; net capital requirements of approximately $250,000 and $25,000;
excess net capital of approximately $408,000 and $565,000; and the ratios
of aggregate indebtedness to net capital were approximately .29 to 1 and
.47 to 1, respectively.
9
<PAGE>
BULL & BEAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
7. 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:
Three Months Ended September 30, Nine Months Ended September 30,
1997 1996 1997 1996
---- ---- ---- ----
Net income(loss): As reported $215,744 $134,673 $494,986 $(483,311)
Proforma $168,505 $95,346 $356,458 $(585,542)
Earnings per share
Primary and
fully diluted: As reported $.15 $.09 $.34 $(.33)
Proforma $.12 $.06 $.24 $(.40)
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 1997 and 1996: expected volatility
of 86.80% and 94.04%, riskfree interest rate of 6.59% and 5.3% and
expected life of five years.
10
<PAGE>
BULL & BEAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
A summary of the status of the Company's stock option plans as of
September 30, 1997 and December 31, 1996, 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, 1995 49,000 $1.76
Granted 229,000 $1.95
Exercised (2,000) $1.88
Canceled (27,000) $1.91
-----------
OUTSTANDING AT DECEMBER 31, 1996 249,000 $1.92
===========
Granted 27,000 $3.00
Canceled (7,000) $2.20
-----------
OUTSTANDING AT SEPTEMBER 30, 1997 269,000 $2.02
==========
The weighted-average fair value of options granted were $2.16 for the nine
months ended September 30, 1997 and $1.42 for the year ended December 31,
1996.
The following table summarizes information about stock options outstanding
at September 30, 1997:
Options Outstanding
Number Weighted-Average
Range of Outstanding Remaining Weighted-Average
Exercise Prices At 9/30/97 Contractual Life Exercise Price
- --------------- ----------- ---------------- ----------------
$1.50 - $1.625 20,000 2.4 years $1.54
$1.875 - $2.0625 214,000 3.4 years $1.92
$2.75 - $3.00 35,000 4.2 years $2.93
In addition, there were 20,000 non-qualified stock options with an
exercise price of $1.75 outstanding as of September 30, 1997, which were
exercisable at September 30, 1997 and December 31, 1996. The remaining
249,000 options were not exercisable at September 30, 1997 and December
31, 1996.
8. INCOME TAXES
The provision for income taxes charged to operations for the nine
months ended September 30, 1997 and 1996 was as follows:
1997 1996
---- ----
Current
State and local $33,094 $33,542
Federal - --
----------- ---------
$33,094 $33,542
======= =======
Deferred tax assets (liabilities) are comprised of the following at
September 30, 1997 and December 31, 1996:
1997 1996
---- ----
Unrealized loss (gain) on investments $(14,000) $(45,800)
Net operating loss carryforwards 332,000 509,500
--------- ---------
Total deferred tax assets 318,000 463,700
Deferred tax asset valuation allowance (318,000) (463,700)
--------- ---------
Net deferred tax assets $ - $ -
========= =========
11
<PAGE>
BULL & BEAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
The change in the valuation allowance for the nine months ended September
30, 1997 was due to the net income 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, 1996, the Company had net operating loss carryforwards for
Federal income tax purposes of approximately $1,498,600, of which
$1,033,100, $187,800, $62,700 and $215,000 expire in 2004, 2005, 2006 and
2011, respectively.
9. 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, 1997
and September 30, 1996 were $34,810 and $31,600, respectively.
10. 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 $212,103 and $193,066 for the
nine months ended September 30, 1997, and 1996, respectively.
In connection with management services, the Company's investment managers
waived or reimbursed management fees to the Funds in the amount of
$594,496 and $250,296 for the nine months ended September 30, 1997 and
1996, respectively.
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,
1997, the policy had a cash surrender value of approximately $100,758 and
is included in other assets in the balance sheet.
The Company's discount brokerage subsidiary received brokerage commissions
of approximately $174,297 and $157,757 from the Funds for the nine months
ended September 30, 1997 and 1996, respectively.
11. COMMITMENTS AND CONTINGENCIES
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 collectively own or control 144,000 shares, or approximately
10.7% 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. On April
11, 1996, the district court dismissed as a matter of law all claims
brought by the plaintiffs except those relating to the voiding of 1993
exercises, the exercise of certain 1990 stock options and plaintiffs'
request for attorneys' fees from the Company. Defendants thereafter filed
answers denying liability. The Company believes that the lawsuit is
without merit and intends to continue defending the remaining claims
vigorously.
12
<PAGE>
BULL & BEAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
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, 1997, 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.
Although a group called Karpus Investment Management is proposing a slate
of nominees in opposition to management at the upcoming annual meeting of
stockholders of Bull & Bear U.S. Government Securities Fund, Inc., a
closed-end fund managed by a Company subsidiary, such meeting is scheduled
for November 20, 1997 and the outcome cannot be predicted with certainty.
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, 1997 compared to Three Months Ended September
30, 1996
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, total fund assets under management may
decline by depreciation or by shareholder redemptions, either by transfer out of
the equity Funds and into the money market Fund, which has 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
10 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 decreased $220,737 or 12% which was due to a decrease in
management, distribution and shareholder administrative fees. Management,
distribution and shareholder administrative fees decreased $267,537 or 20%
because of a lower level of net assets under management. Net assets under
management were approximately $393 million at June 30, 1996, $432.1 million at
September 30, 1996, $328 million at June 30, 1997 and $353 million at September
30, 1997. Brokerage fees and commissions increased $108,207 or 22% while
brokerage customers' equity increased to $251 million or 41% from September 30,
1996 to September 30, 1997. The increase in brokerage commissions was due to an
increase in customer transaction activity. Dividends, interest and other income
increased $8,821 due to higher earnings on the Company's investments.
Total expenses decreased $296,817 or 17% as a result of a decrease in
marketing expenses and subadvisory fees. Marketing expenses decreased $123,155
or 36%. Subadvisory fees decreased $125,684 or 59% because of a lower level of
net assets in the Midas Fund. General and administrative expenses decreased
$42,422 or 5%. Clearing and brokerage charges increased $5,974 or 4% because of
an increased level of discount brokerage customer transactions processed, as
previously noted. Professional fees decreased $21,432 or 39% due to lower
litigation costs relating to the Maxus lawsuit. Net income for the period was
$215,744 or $.15 per share as compared to net income of $134,673 or $.09 per
share for 1996.
Nine Months Ended September 30, 1997 compared to Nine Months Ended September 30,
1996
Total revenues decreased $124,078 or 2% which was primarily due to a
decrease in management, distribution and shareholder administrative fees.
Management, distribution and shareholder administrative fees decreased $170,832
or 5% because of a lower level of net assets under management. Net assets under
management were approximately $237 million at December 31, 1995, $318 million at
March 31, 1996, $393 million at June 30, 1996, $432.1 million at September 30,
1996, $401 million at December 31, 1996, $359 million at March 31, 1997, $328
million at June 30, 1997 and $353 million at September 30, 1997. Brokerage
commissions increased $29,011 or 2% while brokerage customers' equity increased
to $251 million or 41% from September 30, 1996 to September 30, 1997. The
increase in brokerage commissions was due to an increase in customer transaction
activity. In 1997, the Company had $86,458 in realized gains from the sale of
investments in certain equity positions. Dividends, interest and other income
increased $1,513 due to higher earnings on the Company's investments.
Total expenses decreased $1,101,927 or 19% primarily as a result of a
decrease in marketing expenses of $784,376 or 52%. General and administrative
expenses decreased $257,682 or 10% because of lower compensation costs. Clearing
and brokerage charges decreased $77,992 or 14% due to savings generated by a new
clearing agreement commencing July, 1996. Professional fees decreased $88,974 or
31% due to lower litigation costs relating to the Maxus lawsuit. Subadvisory
fees decreased $230,065 or 44% because of higher expense reimbursements and
lower net assets of Midas Fund. Net income for the period was $494,986 or $.34
per share as compared to a net loss of $483,311 or $.33 per share for 1996.
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, 1997 December 31, 1996
------------------ -----------------
Working Capital $2,567,578 $2,293,200
Total Assets $4,734,885 $4,273,110
Long Term Debt $ 12,460 $ 22,093
Shareholders' Equity $4,323,662 $3,917,886
Working capital, total assets and shareholders' equity increased $274,378,
$461,775 and $405,776, respectively for the nine months ended September 30, 1997
primarily as a result of the net income of $494,986 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.
Forward Looking Information
Information or statements provided by or on behalf of the Company from
time to time, including those within this Form 10-Q Quarterly Report, may
contain certain "forward-looking information", including information relating to
anticipated growth in revenues or earnings per share, anticipated changes in the
amount and composition of assets under management and discount brokerage
customers' equity and trading, anticipated expense levels, and expectations
regarding financial market conditions. The Company cautions readers that any
forward-looking information provided by or on behalf of the Company is not a
guarantee of future performance and that actual results may differ materially
from those in forward-looking information as a result of various factors,
including but not limited to those discussed below. Further, such
forward-looking statements speak only as of the date on which such statements
are made, and the Company undertakes no obligation to update any forward-looking
statement to reflect events or circumstances after the date on which such
statement is made or to reflect the occurrence of unanticipated events.
The Company's future revenues may fluctuate due to factors such as: the
total value and composition of assets under management and discount brokerage
customers' equity and trading, and related cash inflows or outflows in mutual
funds and discount brokerage firms; fluctuations in the financial markets
resulting in appreciation or depreciation of assets under management and
discount brokerage customers' equity and trading; the relative investment
performance of the Company's sponsored investment products as compared to
competing products and market indices; the expense ratios and fees of the
Company's sponsored products and services; investor sentiment and investor
confidence in mutual funds and discount brokerage firms; the ability of the
Company to maintain investment management fees and brokerage commissions at
current levels; competitive conditions in the mutual funds and discount
brokerage industries; the introduction of new mutual funds and investment
products and new discount brokerage services; the ability of the Company to
contract with the Funds for payment for administrative services offered to the
Funds and Fund shareholders; the continuation of trends in the retirement plan
marketplace favoring defined contribution plans and participant-directed
investments; and the amount and timing of income from the Company's investment
portfolio.
The Company's future operating results are also dependent upon the level
of operating expenses, which are subject to fluctuation for the following or
other reasons: changes in the level of advertising expenses in response to
market conditions or other factors; variations in the level of compensation
expense incurred by the Company, including performance-based compensation based
on the Company's financial results, as well as changes in response to the size
of the total employee population, competitive factors, or other reasons;
expenses and capital costs, including depreciation, amortization and other
non-cash charges, incurred by the Company to maintain its administrative and
service infrastructure; and unanticipated costs that may be incurred by the
Company from time to
15
<PAGE>
time to protect investor accounts and client goodwill.
The Company's revenues are substantially dependent on revenues from the
Funds, which could be adversely affected if the independent directors of one or
more of the Funds determined to terminate or renegotiate the terms of one or
more investment management agreements.
The Company's business is also subject to substantial governmental
regulation, and changes in legal, regulatory, accounting, tax, and compliance
requirements may have a substantial effect on the Company's business and results
of operations, including but not limited to effects on the level of costs
incurred by the Company and effects on investor interest in mutual funds in
general or in particular classes of mutual funds.
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, 1997 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, 1997 /s/ Bassett S. Winmill
----------------------
Bassett S. Winmill
Chairman of the Board,
Director
Dated: November 14, 1997 /s/ Robert D. Anderson
----------------------
Robert D. Anderson
Vice Chairman, Director
Dated: November 14, 1997 /s/ Mark C. Winmill
-------------------
Mark C. Winmill
Co-President, Chief
Financial Officer, Director
Dated: November 14, 1997 /s/ Thomas B. Winmill
---------------------
Thomas B. Winmill, Esq.
Co-President, General
Counsel, Director
Dated: November 14, 1997 ----------------------------
Charles A. Carroll, Director
Dated: November 14, 1997 -----------------------------
Edward G. Webb, Jr., Director
17
<PAGE>
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<PERIOD-TYPE> 9-Mos
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jan-01-1997
<PERIOD-END> Sep-30-1997
<CASH> 1,397,785
<SECURITIES> 736,528
<RECEIVABLES> 499,642
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<INVENTORY> 0
<CURRENT-ASSETS> 2,966,341
<PP&E> 1,644,683
<DEPRECIATION> 848,117
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<COMMON> 13,701
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<TOTAL-LIABILITY-AND-EQUITY> 4,323,662
<SALES> 0
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