As filed with the Securities and Exchange Commission on August 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 June 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 June 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 July 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 JUNE 30, 1997
INDEX
Page
Number
------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
- (Unaudited) June 30, 1997 and December 31, 1996 3
Consolidated Statements of Income (Loss)
- (Unaudited) Three and Six Months Ended June 30, 1997 and
June 30, 1996 4
Consolidated Statements of Changes in Shareholders' Equity
- (Unaudited) Six Months Ended June 30, 1997 and June 30, 1996 5
Consolidated Statements of Cash Flows
- (Unaudited) Six Months Ended June 30, 1997 and June 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
PART II. OTHER INFORMATION
Management's Representation and Signatures 17
2
<PAGE>
BULL & BEAR GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
----------- -----------
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 1,354,710 $ 747,444
Marketable securities (Note 3) 850,437 1,176,547
Management, distribution and service fees receivable 225,117 207,944
Interest, dividends and other receivables 214,776 204,684
Prepaid expenses and other assets 207,964 289,712
----------- -----------
Total Current Assets 2,853,004 2,626,331
----------- -----------
Real estate held for investment, net 513,873 438,187
Furniture and fixtures, net 217,736 237,851
Excess of cost over net book value of
subsidiaries, net (Note 2) 746,717 765,665
Other 226,850 205,076
----------- -----------
1,705,176 1,646,779
----------- -----------
Total Assets $ 4,558,180 $ 4,273,110
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 206,934 $ 134,544
Accrued professional fees 132,610 81,285
Accrued subadvisory fees 32,418 53,012
Accrued payroll and other related costs 38,175 40,388
Current portion of capitalized lease obligation 12,282 12,282
Other 30,996 11,620
----------- -----------
Total Current Liabilities 453,415 333,131
----------- -----------
Capitalized lease obligation (Note 4) 16,013 22,093
Shareholders' Equity: (Notes 3, 5, 6 and 7)
Common Stock, $.01 par value
Class A, 10,000,000 shares authorized;
1,350,017 shares in 1997 and 1996
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) (2,183,236) (2,462,478)
Unrealized gains on marketable securities (Note 1) 22,210 130,586
----------- -----------
Total Shareholders' Equity 4,088,752 3,917,886
----------- -----------
Total Liabilities and Shareholders' Equity $ 4,558,180 $ 4,273,110
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
BULL & BEAR GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Revenues:
Management, distribution and service fees $1,083,096 $ 1,307,685 $2,318,402 $ 2,221,697
Brokerage fees and commissions 563,997 723,800 1,216,523 1,295,719
Realized gains from investments 86,458 0 86,458 0
Dividends, interest and other 32,444 23,273 56,503 63,811
---------- ----------- ---------- -----------
1,765,995 2,054,758 3,677,886 3,581,227
---------- ----------- ---------- -----------
Expenses:
General and administrative 802,276 952,807 1,665,948 1,896,108
Marketing 231,071 642,229 512,183 1,173,404
Expense reimbursements to the Funds (note 10) 194,761 58,773 462,069 107,880
Clearing and brokerage charges 151,454 209,038 303,682 387,648
Professional fees 95,470 119,670 163,398 230,940
Subadvisory fees 93,453 223,717 209,243 313,624
Amortization and depreciation 32,272 38,983 63,827 75,856
---------- ----------- ---------- -----------
1,600,757 2,245,217 3,380,350 4,185,460
---------- ----------- ---------- -----------
Income (loss) before income taxes 165,238 (190,459) 297,536 (604,233)
Income taxes (note 8) 1,651 9,251 18,294 13,751
---------- ----------- ---------- -----------
Net income (loss) $ 163,587 $ (199,710) $ 279,242 $ (617,984)
========== =========== ========== ===========
Per share data:
Primary and fully diluted
Net income (loss) $ .11 $ (.13) $ 19 $ (.42)
========== =========== ========== ===========
Average shares outstanding:
Primary 1,478,844 1,516,520 1,470,308 1,460,665
========== =========== ========== ===========
Fully diluted 1,484,402 1,516,520 1,474,119 1,460,665
========== =========== ========== ===========
</TABLE>
See accompanying notes to the consolidated financial statements.
4
<PAGE>
BULL & BEAR GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Six Months Ended June 30, 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
------ ------ ------ ------ --------------- --------- ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Six Months Ended June 30, 1996
Balance, January 1, 1996 1,348,017 20,000 $13,481 $200 $6,232,347 $(2,141,953) $ 66,020 $ 4,170,095
Proceeds from issuance of Class A
Common Stock, par value $.01 2,000 -- 20 -- 3,730 -- -- 3,750
Net loss -- -- -- -- -- (617,984) -- (617,984)
Change in unrealized gains on
marketable securities -- -- -- -- -- -- 39,013 39,013
--------- ------ ------- ---- ---------- ----------- --------- -----------
Balance, June 30, 1996 1,350,017 20,000 $13,501 $200 $6,236,077 $(2,759,937) $ 105,033 $ 3,594,874
========= ====== ======= ==== ========== =========== ========= ===========
Six Months Ended June 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 -- -- -- -- -- 279,242 -- 279,242
Change in unrealized gains on
marketable securities -- -- -- -- -- -- (108,376) (108,376)
--------- ------ ------- ---- ---------- ----------- --------- -----------
Balance, June 30, 1997 1,350,017 20,000 $13,501 $200 $6,236,077 $(2,183,236) $ 22,210 $ 4,088,752
========= ====== ======= ==== ========== =========== ========= ===========
</TABLE>
See accompanying notes to the consolidated financial statements.
5
<PAGE>
BULL & BEAR GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
1997 1996
----------- -----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) $ 279,242 $ (617,984)
----------- -----------
Adjustments to reconcile net income to net cash provided by
Operating Activities:
Depreciation and amortization 63,827 75,856
Increase in cash value of life insurance (16,000) (15,000)
Realized (gain) on investments (86,458) --
Other (6,839) 4,857
(Increase) decrease in:
Management, distribution and service fees receivable (17,173) (138,965)
Interest, dividends and other receivables (10,092) (11,890)
Prepaid expenses and other assets 81,748 104,730
Other (5,774) --
Increase (decrease) in:
Accounts payable 72,390 (316,940)
Accrued professional fees 51,325 (21,513)
Accrued subadvisory fees (7,970) 207,885
Accrued compensation and benefits (14,837) (32,008)
Other 19,376 19,130
----------- -----------
Total adjustments 123,523 (124,128)
----------- -----------
Net cash provided by (used in) Operating Activities 402,765 (742,112)
----------- -----------
Cash Flows from Investing Activities:
Proceeds from sales of investments 347,129 --
Purchases of investments (36,051) (19,624)
Purchases of equipment (16,349) --
Capital expenditures (84,148) (125,199)
----------- -----------
Net cash provided by (used in) Investing Activities 210,581 (144,823)
----------- -----------
Cash Flows from Financing Activities:
Capitalized lease obligation payments (6,080) --
Proceeds from issuance of Class A Common Stock -- 3,750
Net cash provided by (used in) Financing Activities (6,080) 3,750
----------- -----------
Net increase (decrease) in cash and cash equivalents 607,266 (883,185)
Cash and cash equivalents:
At beginning of period 747,444 1,467,674
----------- -----------
At end of period $ 1,354,710 $ 584,489
=========== ===========
</TABLE>
Supplemental disclosure: The Company did not pay any Federal income taxes during
the six months ended June 30, 1997 and 1996.
The Company paid approximately $600 and $250 in
interest during the six months ended June 30, 1997 and
1996, respectively.
See accompanying notes to the consolidated financial statements.
6
<PAGE>
BULL & BEAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 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 June 30, 1997 and December 31, 1996, the Company and
subsidiaries had invested approximately $1,208,300 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.
7
<PAGE>
BULL & BEAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 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 June 30,
1997 and December 31, 1996, accumulated depreciation amounted to
$35,862 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 June 30, 1997 and
December 31, 1996, accumulated depreciation amounted to $785,764 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 June 30, 1997 and December 31, 1996, accumulated
amortization amounted to $604,096 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 six
months ended June 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.
8
<PAGE>
BULL & BEAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997 and 1996
(Unaudited)
3. MARKETABLE SECURITIES
At June 30, 1997, marketable securities consisted of:
<TABLE>
<CAPTION>
Market Value
------------
<S> <C>
Broker/dealer subsidiaries - at market
U.S. Treasury Notes due 7/31/97 to 6/30/99 (cost-$704,964) 706,565
----------
Other companies
Available-for-sale securities - at market
Equity securities 93,927
Unaffiliated mutual funds 46,584
Affiliated mutual funds 3,361
----------
Total available-for-sale securities (cost-$121,662) 143,872
----------
$ 850,437
==========
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 $21,783 has been
recognized on this property as of June 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
=========
9
<PAGE>
BULL & BEAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 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 June 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 June 30, 1997,
these subsidiaries had net capital of approximately $712,911 and $668,760;
net capital requirements of approximately $250,000 and $25,000; excess net
capital of approximately $462,911 and $643,930; and the ratios of aggregate
indebtedness to net capital were approximately .21 to 1 and .37 to 1,
respectively.
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:
10
<PAGE>
BULL & BEAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net income(loss): As reported $163,587 $(199,710) $279,242 $(617,984)
Proforma $116,861 $(238,100) $187,952 $(680,888)
Earnings per share
Primary and fully diluted: As reported $ .11 $ (.13) $ .19 $ (.42)
Proforma $ .08 $ (.16) $ .13 $ (47)
</TABLE>
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 June 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 June 30, 1997 269,000 $ 2.02
=======
The weighted-average fair value of options granted were $2.16 for the six
months ended June 30, 1997 and $1.42 for the year ended December 31, 1996.
The following table summarizes information about stock options outstanding
at June 30, 1997:
Options Outstanding
-------------------------------------------------------
Number Weighted-Average
Range of Outstanding Remaining Weighted-Average
Exercise Prices At 6/30/97 Contractual Life Exercise Price
----------------- --------------- ----------------- ---------------
$1.50 - $1.625 20,000 2.7 years $1.54
$1.875 - $2.0625 214,000 3.6 years $1.92
$2.75 - $3.00 35,000 4.5 years $2.93
In addition, there were 20,000 non-qualified stock options with an exercise
price of $1.75 outstanding as of June 30, 1997, which were exercisable at
June 30, 1997 and December 31, 1996. The remaining 249,000 options were not
exercisable at June 30, 1997 and December 31, 1996.
11
<PAGE>
BULL & BEAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997 and 1996
(Unaudited)
8. INCOME TAXES
The provision for income taxes charged to operations for the six months
ended June 30, 1997 and 1996 was as follows:
1997 1996
------- -------
Current
State and local $18,294 $13,751
Federal -- --
------- -------
$18,294 $13,751
======= =======
Deferred tax assets (liabilities) are comprised of the following at June 30,
1997 and December 31, 1996:
1997 1996
---- ----
Unrealized loss (gain) on investments $ (8,000) $ (45,800)
Net operating loss carryforwards 403,000 509,500
-------- ---------
Total deferred tax assets 395,000 463,700
Deferred tax asset valuation allowance (395,000) (463,700)
-------- ---------
Net deferred tax assets $ -- $ --
======== =========
The change in the valuation allowance for the six months ended June 30,
1997 was due to the decrease in net operating loss carryforwards 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.
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 six months ended June 30, 1997 and June 30, 1996 were $22,645
and $22,265, 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 $139,405 and $122,780 for the six months ended June 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 $462,069 and
$107,880 for the six months ended June 30, 1997 and 1996, respectively.
12
<PAGE>
Certain officers of the Company also serve as officers and/or directors of the
Funds.
Commencing August 1992, the Company obtained a key man life insurance policy on
the life of the Company's Chairman which provides for the payment of $1,000,000
to the Company upon his death. As of June 30, 1997, the policy had a cash
surrender value of approximately $92,700 and is included in other assets in the
balance sheet.
The Company's discount brokerage subsidiary received brokerage commissions of
approximately $141,409 and $128,931 from the Funds for the six months ended June
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.
From time to time, the Company and/or its subsidiaries are threatened or named
as defendants in litigation arising in the normal course of business. As of June
30, 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 June 30, 1997 compared to Three Months Ended June 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, 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 decreased $288,763 or 14% which was due to a decrease in
management, distribution and shareholder administrative fees and brokerage fees
and commissions. Management, distribution and shareholder administrative fees
decreased $224,589 or 17% because of a lower level of net assets under
management. Net assets under management were approximately $318 million at March
31, 1996, $393 million at June 30, 1996, $359 million at March 31, 1997 and $328
million at June 30, 1997. Brokerage fees and commissions decreased $159,803 or
22% while brokerage customers' equity increased to $225 million or 32% from June
30, 1996 to June 30, 1997. The decrease in brokerage commissions was due to a
decrease 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 $9,171 due to higher earnings on
the Company's investments.
Total expenses decreased $644,460 or 29% primarily as a result of a
decrease in marketing expenses of $411,158 or 64%. General and administrative
expenses decreased $150,531 or 16% because of lower compensation costs. Clearing
and brokerage charges decreased $57,584 or 28% because of a decreased level of
discount brokerage customer transactions processed, as previously noted, and the
effect of a new clearing agreement beginning July 1996. Professional fees
decreased $24,200 or 20% due to lower litigation costs relating to the Maxus
lawsuit. Subadvisory fees decreased $130,264 because of higher expense
reimbursements to the Midas Fund and lower level of net assets under management.
Net income for the period was $163,587 or $.11 per share as compared to a net
loss of $199,710 or $.13 per share for 1996.
Six Months Ended June 30, 1997 compared to Six Months Ended June 30, 1996
Total revenues increased $96,659 or 3% which was primarily due to an
increase in management, distribution and shareholder administrative fees.
Management, distribution and shareholder administrative fees increased $96,705
or 4% because of a higher 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, $401 million at December 31,
1996, $359 million at March 31, 1997 and $328 million at June 30, 1997.
Brokerage commissions decreased $79,196 or 6% while brokerage customers' equity
increased to $225 million or 32% from June 30, 1996 to June 30, 1997. The
decrease in brokerage commissions was due to a decrease 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
decreased $7,308 due to lower earnings on the Company's investments.
Total expenses decreased $805,110 or 19% primarily as a result of a
decrease in marketing expenses of $661,221 or 56%. General and administrative
expenses decreased $230,160 or 12% because of lower compensation costs. Clearing
and brokerage charges decreased $83,966 or 22% because of a decreased level of
discount brokerage customer transactions processed and the effect of a new
clearing agreement beginning July 1996 as previously noted. Professional fees
decreased $67,542 or 29% due to lower litigation costs relating to the Maxus
lawsuit. Subadvisory fees decreased $104,381 because of higher expense
reimbursements to the Midas Fund and lower level of net assets under management.
Net income for the period was $279,242 or $.19 per share as compared to a net
loss of $617,984 or $.42 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:
June 30, 1997 December 31, 1996
------------- -----------------
Working Capital $2,399,589 $2,293,200
Total Assets $4,558,180 $4,273,110
Long Term Debt $ 16,013 $ 22,093
Shareholders' Equity $4,088,752 $3,917,886
Working capital, total assets and shareholders' equity increased $106,389,
$285,070 and $170,866, respectively for the six months ended June 30, 1997
primarily as a result of the net income of $279,242 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
15
<PAGE>
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 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: August 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: August 14, 1997 /s/ Bassett S. Winmill
---------------------------------
Bassett S. Winmill
Chairman of the Board,
Director
Dated: August 14, 1997 /s/ Robert D. Anderson
---------------------------------
Robert D. Anderson
Vice Chairman, Director
Dated: August 14, 1997 /s/ Mark C. Winmill
---------------------------------
Mark C. Winmill
Co-President,
Chief Financial Officer, Director
Dated: August 14, 1997 /s/ Thomas B. Winmill
---------------------------------
Thomas B. Winmill, Esq.
Co-President,
General Counsel, Director
Dated: August 14, 1997
---------------------------------
Charles A. Carroll, Director
Dated: August 14, 1997
---------------------------------
Edward G. Webb, Jr., Director
17
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,354,710
<SECURITIES> 850,437
<RECEIVABLES> 439,893
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