As filed with the Securities and Exchange Commission on MAY 15, 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 MARCH 31, 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 MARCH 31, 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 April 30, 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
1
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BULL & BEAR GROUP, INC.
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1997
INDEX
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
- (Unaudited) March 31, 1997 and December 31, 1996 3
Consolidated Statements of Income (Loss)
- (Unaudited) Three Months Ended March 31, 1997 and March 31, 1996 4
Consolidated Statements of Changes in Shareholders' Equity
- (Unaudited) Three Months Ended March 31, 1997 and March 31, 1996 5
Consolidated Statements of Cash Flows
- (Unaudited) Three Months Ended March 31, 1997 and March 31, 1996 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, 1997 15
Management's Representation and Signatures 16
2
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<TABLE>
BULL & BEAR GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
March 31, December 31,
1997 1996
ASSETS
Current Assets:
<S> <C> <C>
Cash and cash equivalents $ 838,466 $ 747,444
Marketable securities (Note 3) 1,153,633 1,176,547
Management, distribution and shareholder
administration fees receivable 254,065 207,944
Interest, dividends and other receivables 223,933 204,684
Prepaid expenses and other assets 275,314 289,712
----------- -----------
Total Current Assets 2,745,411 2,626,331
---------- -----------
Real estate held for investment, net 453,783 438,187
Furniture and fixtures, net 232,135 237,851
Excess of cost over net book value of
subsidiaries, net (note 2) 756,289 765,665
Other 218,850 205,076
----------- ------------
1,661,057 1,646,779
----------- ------------
Total Assets $4,406,468 $ 4,273,110
========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 183,381 $ 134,544
Accrued professional fees 105,973 81,285
Accrued payroll and other related costs 15,787 53,012
Accrued expenses 49,209 40,388
Current portion of capitalized lease obligation 12,282 12,282
Other current liabilities 11,620 11,620
------------ -----------
Total Current Liabilities 378,252 333,131
---------- -----------
Capitalized lease obligation (Note 4) 17,841 22,093
----------- -----------
Contingencies(Note 11) - -
Shareholders' Equity: (Notes 3, 5, 6 and 7)
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) (2,346,823) (2,462,478)
Unrealized gains on marketable securities 107,420 130,586
------------ ------------
Total Shareholders' Equity 4,010,375 3,917,886
---------- -----------
Total Liabilities and Shareholders' Equity $4,406,468 $ 4,273,110
========== ===========
See accompanying notes to consolidated financial statements.
3
</TABLE>
<PAGE>
<TABLE>
BULL & BEAR GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(UNAUDITED)
Three Months Ended March 31,
1997 1996
Revenues:
<S> <C> <C>
Management, distribution and service fees $ 1,235,306 $ 914,012
Brokerage fees and commissions 652,526 571,919
Dividends, interest and other 24,059 40,538
---------- ----------
1,911,891 1,526,469
Expenses:
General and administrative 863,672 943,301
Marketing 281,112 531,175
Expense reimbursements to the Funds (Note 10) 267,308 49,107
Clearing and brokerage charges 152,228 178,610
Subadvisory fees 115,790 89,907
Professional fees 67,928 111,270
Amortization and depreciation 31,555 36,873
---------- ----------
1,779,593 1,940,243
Income (loss) before income taxes 132,298 (413,774)
Income taxes (note 9) 16,643 4,500
----------- -----------
Net income (loss) $ 115,655 $(418,274)
========== ==========
Per share data:
Primary and fully diluted
Net income (loss) $ .08 $ (.30)
======= =======
Average shares outstanding:
Primary 1,467,624 1,417,324
========= =========
Fully Diluted 1,474,292 1,417,324
========= =========
</TABLE>
See accompanying notes to the consolidated financial statements.
4
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BULL & BEAR GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(UNAUDITED)
<TABLE>
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
------ ------ ------ ------ ---------- ------------- ----------- ---------
Three Months Ended March 31, 1996
<S> <C> <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
Net loss -- -- -- -- -- (418,274) -- (418,274)
Change in unrealized gains on
marketable securities -- -- -- -- -- -- (5,717) (5,71
---------- ------- -------- --------------- ----------- -------- ----------
Balance, March 31, 1996 1,348,017 20,000 $13,481 $200 $6,232,347 (2,560,227) $60,303 $3,746,104
========= ====== ======= ==== ========== =========== ======= ==========
Three Months Ended March 31, 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 -- -- -- -- -- 115,655 -- 115,655
Change in unrealized gains on
marketable securities -- -- -- -- -- -- (23,166) (23,166)
--------- ------ -------- --------------- ------------ --------- ---------
Balance, March 31, 1997 1,350,017 20,000 $13,501 $200 $6,236,077 $(2,346,823) $107,420 $4,010,375
========= ====== ======= === ========== ============ ======== ==========
</TABLE>
5
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BULL & BEAR GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
Three Months Ended March 31,
1997 1996
------------ -------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) $ 115,655 $(418,274)
--------- ----------
Adjustments to reconcile net income (loss) to net cash
provided by Operating Activities:
Depreciation and amortization 31,555 36,873
Other (204) 9,011
(Increase) decrease in:
Management, distribution and service fees receivable (46,121) (57,167)
Interest, dividends and other receivables (19,249) (27,118)
Prepaid expenses and other assets 14,398 9,118
Cash value of life insurance (8,000) (7,500)
Other (5,774) (14,998)
Increase (decrease) in:
Accounts payable 48,837 (322,052)
Accrued professional fees 24,688 -
Accrued payroll and other related costs (37,225) -
Accrued other expenses 8,821 123,768
Other - 33,393
--------------- ------------
Total adjustments 11,726 (216,672)
------------ ------------
Net cash provided by (used in) Operating Activities 127,381 (634,946)
----------- ------------
Cash Flows from Investing Activities:
Purchases of investments - (10,585)
Capital expenditures (32,107) (61,600)
------------ ------------
Net cash used in Investing Activities (32,107) (72,185)
------------ --------
Cash Flows from Financing Activities:
Capitalized lease obligations (4,252) -
-------------- --------------
Net cash used in Financing Activities (4,252) -
-------------- --------------
Net increase (decrease) in cash and cash equivalents 91,022 (707,131)
Cash and cash equivalents:
At beginning of period 747,444 1,467,674
----------- ----------
At end of period $ 838,466 $ 760,543
=========== ===========
</TABLE>
Supplemental disclosure: The Company did not pay any
Federal income taxes during the three months
ended March 31, 1997 or 1996.
The Company paid $309 and $132 in interest
during the three months ended March 31, 1997
and March 31, 1996, respectively.
See accompanying notes to the consolidated financial statements.
6
<PAGE>
BULL & BEAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997 AND 1996
(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, 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 March 31, 1997 and December 31, 1996, the Company
and subsidiaries had invested approximately $651,236 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 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 consolidated financial
statements.
7
<PAGE>
BULL & BEAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997 AND 1996
(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 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 March 31, 1997 and December 31, 1996, accumulated depreciation
amounted to $31,398 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 March 31, 1997 and December 31, 1996, accumulated
depreciation amounted to $765,528 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 March 31, 1997 and December 31, 1996,
accumulated amortization amounted to $594,523 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 months
ended March 31, 1997 and March 31, 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, 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 15 years using the straight-line method.
8
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<TABLE>
BULL & BEAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997 AND 1996
(UNAUDITED)
3. MARKETABLE SECURITIES
<S> <C>
At March 31, 1997, marketable securities consisted of:
Market Value
Broker/dealer securities - at market
U.S. Treasury Notes due 5/15/97 to 6/30/99 (cost $955,764) $ 958,500
-----------
Other companies
Available-for-sale securities - at market
Equity securities 150,917
Unaffiliated mutual funds 38,486
Affiliated mutual funds 5,730
----------
Total available-for-sale securities (cost-$87,713) 195,133
---------
$1,153,633
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
</TABLE>
4. 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 1,000 square feet. The rent is
approximately $22,200 per annum and is cancelable at the option of the
Company on six months' notice.
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 $17,386 has been
recognized on this property as of March 31, 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
=========
9
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BULL & BEAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997 AND 1996
(UNAUDITED)
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 March 31, 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 March 31, 1997,
these subsidiaries had net capital of approximately $668,700 and $643,500;
net capital requirements of approximately $250,000 and $25,000; excess net
capital of approximately $418,700 and $618,500; and the ratios of
aggregate indebtedness to net capital were approximately .23 to 1 and .40
to 1, respectively.
7. 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. 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.
10
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BULL & BEAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997 AND 1996
(UNAUDITED)
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,
1997 1996
Net income(loss): As reported $115,655 $(418,274)
Proforma $ 71,092 $(440,985)
Earnings per share
Primary and fully diluted: As reported $.08 $(.30)
Proforma $.05 $(.31)
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%, risk-free interest rate of 6.59% and 5.3% and
expected life of five years.
A summary of the status of the Company's stock option plans as of March
31, 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
-----------
OUTSTANDING AT MARCH 31, 1997 276,000 $2.03
=========
There were no options exercisable at March 31, 1997 and December 31, 1996.
The weighted-average fair value of options granted were $2.16 for the
three months ended March 31, 1997 and $1.42 for the year ended December
31, 1996
The following table summarizes information about stock options outstanding
at March 31, 1997:
Options Outstanding
Number Weighted-Average
Range of Outstanding Remaining Weighted-Average
Exercise Prices At 3/31/97 Contractual Life Exercise Price
- ----------------- --------------- ----------------- ---------------
$1.50 - $1.625 20,000 3.0 years $1.54
$1.875 - $2.0625 219,000 3.9 years $1.92
$2.75 - $3.00 27,000 4.7 years $2.92
In addition, there were 20,000 non-qualified stock options with an
exercise price of $1.75 outstanding as of March 31, 1997, none of which
were exercisable.
11
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BULL & BEAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997 AND 1996
(UNAUDITED)
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
salaries of eligible employees and are accrued and funded on a current
basis. Total pension expense for the three months ended March 31, 1997 and
March 31, 1996 were $12,655 and $12,175, respectively.
9. INCOME TAXES
The provision for income taxes charged to operations for the three months
ended March 31, 1997 and 1996 was as follows:
1997 1996
---- ----
Current
State and local $16,643 $4,500
Federal -- --
-------- ---------
$16,643 $4,500
======= ======
Deferred tax assets (liabilities) are comprised of the following at March
31, 1997 and December 31, 1996:
1997 1996
---- ----
Unrealized loss (gain) on investments $ (37,000) $ (45,800)
Net operating loss carryforwards 464,000 509,500
-------- --------
Total deferred tax assets 427,000 463,700
Deferred tax asset valuation allowance (427,000) (463,700)
-------- --------
Net deferred tax assets $ - $ -
=========== ===========
The change in the valuation allowance for the three months ended March 31,
1997 was due to the decrease 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, 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.
10. RELATED PARTIES
All management and distribution fees are from providing services to the
Funds. All such services are provided pursuant to 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
administration fees represent reimbursement of costs incurred by
subsidiaries of the Company on behalf of the Funds. Such reimbursement
amounted to $73,459 and $52,593 for the three months ended March 31, 1997,
and 1996, respectively.
In connection with management services, the Company's investment managers,
Bull & Bear Advisers, Inc., Midas Management Corporation and Rockwood
Advisers, Inc. waived or reimbursed management fees to the Funds in the
amount of $267,308 and $49,107 for the three months ended March 31, 1997
and 1996, respectively. Certain officers of the Company also serve as
officers and/or directors of the Funds.
12
<PAGE>
BULL & BEAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997 AND 1996
(UNAUDITED)
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, 1997,
the policy had a cash surrender value of approximately $84,700 and is
included in other assets in the balance sheet.
The Company's discount brokerage subsidiary received brokerage commissions
of approximately $97,167 and $34,148 from the Funds for the three months
ended March 31, 1997 and 1996, respectively.
11. 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.
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, 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.
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, 1997 compared to Three Months Ended March 31, 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, 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 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 increased $385,422 or 25% which was primarily due to an
increase in management, distribution and shareholder administration fees of
$321,294 or 35% because of a higher level of net assets under management, and
due to an increase in brokerage fees and commissions of $80,607 or 14% because
of an increased level of discount brokerage customer transactions processed. Net
assets under management were approximately $237.4 million at December 31, 1995,
$317.6 million at March 31, 1996, $393.2 million at June 30, 1996, $432.1
million at September 30, 1996, $400.9 million at December 31, 1996, and $359
million at March 31, 1997. Discount brokerage customers' equity increased to
$200 million or 27%. Dividends, interest and other income decreased $16,479 due
to lower earnings on the Company's short term investments.
Total expenses decreased $160,650 or 8% primarily as a result of a
decrease in marketing expenses of $250,063 or 47%. General and administrative
expenses decreased $79,629 or 8% primarily because of lower compensation costs.
Expense reimbursements to the Funds increased $218,201 or 444% which is
primarily due to an increase in the expense reimbursement to the Midas Fund.
Clearing and brokerage charges decreased $26,382 or 15% due to the savings from
a new clearing agreement signed in July of 1996. Subadvisory fees increased
$25,883 because of the growth in assets of the Midas Fund. Professional fees
decreased $43,342 or 39% due to lower litigation costs relating to the Maxus
lawsuit. Net income for the period was $115,655 or $.08 per share as compared to
a net loss of $418,274 or $.30 per share for 1996.
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, 1997 December 31, 1996
-------------- -----------------
Working Capital $2,367,159 $2,293,200
Total Assets $4,406,468 $4,273,110
Long Term Debt $17,841 $22,093
Shareholders' Equity $4,010,375 $3,917,886
Working capital, total assets and shareholders' equity increased $73,959,
$133,358 and $92,489, respectively for the three months ended March 31, 1997
primarily as a result of the net income 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, 1997
At the annual meeting of Class B shareholder held March 4, 1997, 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, 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: May 15, 1997 /s/ Bassett S. Winmill
----------------------
Bassett S. Winmill
Chairman of the Board,
Director
Dated: May 15, 1997 /s/ Robert D. Anderson
----------------------
Robert D. Anderson
Vice Chairman, Director
Dated: May 15, 1997 /s/ Mark C. Winmill
-------------------
Mark C. Winmill
Co-President,
Chief Financial Officer, Director
Dated: May 15, 1997 /s/ Thomas B. Winmill
---------------------
Thomas B. Winmill, Esq.
Co-President,
General Counsel, Director
Dated: May 15, 1997 /s/
Charles A. Carroll, Director
Dated: May 15, 1997 /s/
Edward G. Webb, Jr., Director
16
<PAGE>
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<S> <C>
<PERIOD-TYPE> 3-Mos
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jan-01-1997
<PERIOD-END> Mar-31-1997
<CASH> 836,466
<SECURITIES> 1,153,633
<RECEIVABLES> 477,998
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,745,411
<PP&E> 1,482,844
<DEPRECIATION> 796,926
<TOTAL-ASSETS> 4,406,468
<CURRENT-LIABILITIES> 378,252
<BONDS> 0
0
0
<COMMON> 13,701
<OTHER-SE> 3,996,674
<TOTAL-LIABILITY-AND-EQUITY> 4,406,468
<SALES> 0
<TOTAL-REVENUES> 1,911,891
<CGS> 0
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<INCOME-PRETAX> 132,298
<INCOME-TAX> 16,643
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<NET-INCOME> 115,655
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