As filed with the Securities and Exchange Commission on MAY 15, 1998
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, 1998
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, 1998 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, 1998, 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, 1998
INDEX
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
- (Unaudited) March 31, 1998 and December 31, 1997 3
Consolidated Statements of Income (Loss)
- (Unaudited) Three Months Ended March 31, 1998 and March 31, 1997 4
Consolidated Statements of Changes in Shareholders' Equity
- (Unaudited) Three Months Ended March 31, 1998 and March 31, 1997 5
Consolidated Statements of Cash Flows
- (Unaudited) Three Months Ended March 31, 1998 and March 31, 1997 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, 1998 15
Management's Representation and Signatures 16
2
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BULL & BEAR GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
March 31, December 31,
1998 1997
ASSETS
Current Assets:
Cash and cash equivalents $ 247,239 $ 312,633
Marketable securities (Note 2) 1,971,932 1,846,028
Management, distribution and shareholder
administration fees receivable 251,530 268,984
Interest, dividends and other receivables 138,889 187,954
Prepaid expenses and other assets 334,099 411,821
----------- -----------
Total Current Assets 2,943,689 3,027,420
---------- -----------
Real estate held for investment, net 810,736 632,682
Furniture and fixtures, net 222,128 196,416
Excess of cost over net book value of
subsidiaries, net (note 1) 717,700 727,373
Other 251,435 243,183
----------- ------------
2,001,999 1,799,654
----------- ------------
Total Assets $4,945,688 $ 4,827,074
========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 166,635 $ 160,849
Accrued professional fees 87,978 93,335
Accrued payroll and other related costs -- 41,042
Accrued other expenses 39,697 45,225
Current portion of capitalized lease obligation 13,644 13,644
Other current liabilities 10,408 10,408
------------ -----------
Total Current Liabilities 318,362 364,503
---------- -----------
Capitalized lease obligation (Note 3) 3,839 7,460
---------- ----------
Contingencies(Note 10) -- --
Shareholders' Equity: (Notes 2, 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 6,240,179 6,236,077
Retained earnings (deficit) (1,701,574) (1,836,753)
Unrealized gains on marketable securities 71,181 42,086
----------- -------------
Total Shareholders' Equity 4,623,487 4,455,111
---------- -----------
Total Liabilities and Shareholders' Equity $4,945,688 $ 4,827,074
========== ===========
See accompanying notes to consolidated financial statements.
3
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BULL & BEAR GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(UNAUDITED)
Three Months Ended March 31,
1998 1997
Revenues:
Management, distribution and service fees $ 877,608 $ 1,235,306
Brokerage fees and commissions 567,288 652,526
Dividends, interest and other 34,244 24,059
---------- ----------
1,479,140 1,911,891
Expenses:
General and administrative 773,304 863,672
Marketing 258,543 281,112
Expense reimbursements to the Funds (Note 9) 22,273 267,308
Clearing and brokerage charges 140,390 152,228
Subadvisory fees 81,471 115,790
Professional fees 26,881 67,928
Amortization and depreciation 36,299 31,555
---------- ----------
1,339,161 1,779,593
Income (loss) before income taxes 139,979 132,298
Income taxes (note 8) 4,800 16,643
----------- -----------
Net income (loss) $ 135,179 $ 115,655
========= =========
Per share data:
Basic $ .10 $ .08
======= =====
Diluted $ .09 $ .08
======= =====
Average shares outstanding:
Basic 1,370,017 1,370,017
========= =========
Diluted 1,478,514 1,467,624
========= =========
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, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Unrealized
Additional Retained Gains on Total
Class A Class B Class A Class B Paid-in- Earnings Marketable Shareholders'
Common Common Common Common Capital (Deficit) Securities Equity
------ ------ ------ ------ --------- --------- ----------- ---------
Three Months Ended March 31, 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
========= ====== ======= ==== ========== ============ ========= ==========
Three Months Ended March 31, 1998
Balance, January 1, 1998 1,350,017 20,000 $13,501 $200 $6,236,077 $(1,836,753) $42,086 $4,455,111
Net income -- -- -- -- -- 135,179 -- 135,179
Contribution to additional
paid-in-capital -- -- -- -- 4,102 -- -- 4,102
Change in unrealized gains on
marketable securities -- -- -- -- -- -- 29,095 29,095
---------- ------- -------- ----- ------------ ------------ --------- ---------
Balance, March 31, 1998 1,350,017 20,000 $13,501 $200 $6,240,179 $(1,701,574) $71,181 $4,623,487
========= ====== ======= ==== ========== ============ ========= ==========
</TABLE>
5
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BULL & BEAR GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended March 31,
1998 1997
--------- --------
Cash Flows from Operating Activities:
Net income $ 135,179 $ 115,655
--------- ---------
Adjustments to reconcile net income to net
cash provided by Operating Activities:
Depreciation and amortization 36,299 31,555
Other 5,369 (204)
(Increase) decrease in:
Management, distribution and service fees receivable 17,454 (46,121)
Interest, dividends and other receivables 49,065 (19,249)
Prepaid expenses and other assets 77,722 14,398
Cash value of life insurance (8,250) (8,000)
Other -- (5,774)
Increase (decrease) in:
Accounts payable 5,786 48,837
Accrued professional fees (5,357) 24,688
Accrued payroll and other related costs (41,042) (37,225)
Accrued other expenses (5,528) 8,821
---------- ---------
Total adjustments 131,518 11,726
---------- ---------
Net cash provided by Operating Activities 266,697 127,381
---------- ----------
Cash Flows from Investing Activities:
Proceeds from sale of investments 70,801 --
Purchases of investments (172,979) --
Purchases of equipment (45,946) --
Capital expenditures (184,448) (32,107)
----------- ----------
Net cash used in Investing Activities (332,572) (32,107)
---------- ----------
Cash Flows from Financing Activities:
Contribution to additional paid-in-capital 4,102 --
Capitalized lease obligations (3,621) (4,252)
Net cash used in Financing Activities 481 (4,252)
----------- -----------
Net increase (decrease) in cash
and cash equivalents (65,394) 91,022
Cash and cash equivalents:
At beginning of period 312,633 747,444
----------- ----------
At end of period $ 247,239 $ 838,466
=========== ==========
Supplemental disclosure: The Company did not pay any
Federal income taxes during the three months
ended March 31, 1998 or 1997.
The Company paid approximately $300 and $300
in interest during the three months ended
March 31, 1998 and March 31, 1997,
respectively.
See accompanying notes to the consolidated financial statements.
6
<PAGE>
BULL & BEAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
(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, 1998 and December 31, 1997, the Company
and subsidiaries had invested approximately $145,000 and $260,300,
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, 1998 AND 1997
(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 1997 financial statements have been
made to conform to the 1998 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, 1998 and December 31, 1997, accumulated depreciation
amounted to approximately $58,000 and $51,600, 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, 1998 and December 31, 1997,
accumulated depreciation amounted to approximately $839,100 and
$818,900, 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, 1998 and December 31, 1997,
accumulated amortization amounted to approximately $633,100 and
$623,400, 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
The Company applies Statement of Financial Accounting Standards No. 128
"Earnings Per Share". The earnings per share for 1997 have been
restated to conform to the provisions of this statement. Basic earnings
per share is computed using the weighted average number of shares
outstanding. Diluted earnings per share is computed using the weighted
average number of shares outstanding adjusted for the incremental
shares attributed to outstanding options to purchase common stock. The
following table sets forth the computation of basic and diluted
earnings per share:
MARCH 31,
1998 1997
---- ----
Numerator for basic and diluted earnings per share:
Net income $ 135,179 $ 115,655
=========== =========
Denominator:
Denominator for basic earnings per share -
weighted-average shares 1,370,017 1,370,017
Effect of dilutive securities:
Employee Stock Options 108,497 97,607
---------- ---------
Denominator for diluted earnings per share -
adjusted weighted - average shares and
assumed conversions 1,478,514 1,467,624
=========== =========
8
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BULL & BEAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
(UNAUDITED)
2. MARKETABLE SECURITIES
At March 31, 1998, marketable
securities consisted of:
Market Value
Broker/dealer securities - at market
U.S. Treasury Notes due 6/30/99 to 9/30/00 (cost $1,338,373) $1,193,670
Affiliated mutual funds 150,000
------------
1,343,670
Other companies
Available-for-sale securities - at market
U.S. Treasury Notes due 9/30/00 354,465
Equity securities 228,336
Unaffiliated mutual funds 42,205
Affiliated mutual funds 3,256
-------------
Total available-for-sale securities (cost-$557,081) 628,262
------------
$1,971,932
At December 31, 1997, marketable securities consisted of:
Broker/dealer securities - at market
U.S. Treasury Notes due 6/30/99 to
9/30/00 (cost $1,260,380) $ 1,265,943
-----------
Other companies
Available-for-sale securities - at market
U.S. Treasury Notes due 9/30/00 353,720
Equity securities 186,884
Unaffiliated mutual funds 36,324
Affiliated mutual funds 3,157
----------
Total available-for-sale securities (cost-$537,999) 580,085
---------
$1,846,028
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 March 31, 1998. Depreciation expense of $32,830 has been
recognized on this property as of March 31, 1998. 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,
1998 14,188
1999 7,586
-----------
Total minimum lease payments 21,774
Less: amount representing interest and executory costs 670
------------
Present value of minimum lease payments $ 21,104
========
9
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BULL & BEAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
(UNAUDITED)
4. SHAREHOLDERS' EQUITY
The Class A and Class B Common Stock are identical in all respects except
for voting rights, which are vested solely in the Class B Common Stock.
The Company also has 1,000,000 shares of Preferred Stock, $.01 par value,
authorized. As of March 31, 1998 and December 31, 1997, none of the
Preferred Stock was issued.
5. NET CAPITAL REQUIREMENTS
The Company's broker/dealer subsidiaries are member firms of the National
Association of Securities Dealers, Inc. and are registered with the
Securities and Exchange Commission as broker/dealers. Under the Uniform
Net Capital Rule (Rule 15c3-1 under the Securities Exchange Act of 1934),
a broker/dealer must maintain minimum net capital, as defined, of not less
than (a) $250,000 or, when engaged solely in the sale of redeemable shares
of registered investment companies, $25,000, or (b) 6-2/3% of aggregate
indebtedness, whichever is greater; and a ratio of aggregate indebtedness
to net capital, as defined, of not more than 15 to 1. At March 31, 1998,
these subsidiaries had net capital of approximately $499,500 and $625,100;
net capital requirements of approximately $250,000 and $25,000; excess net
capital of approximately $249,500 and $600,100; and the ratios of
aggregate indebtedness to net capital were approximately .57 to 1 and .24
to 1, respectively.
6. STOCK OPTIONS
On December 6, 1995, the Company adopted a Long-Term Incentive Plan which
provides for the granting of a maximum of 300,000 options to purchase
Class A Common Stock to directors, officers and key employees of the
Company or its subsidiaries. The plan was amended on February 5, 1996 and
October 29, 1997 increasing the maximum number of options to 450,000. With
respect to non-employee directors, only grants of non-qualified stock
options and awards of restricted shares are available The current two
non-employee directors were granted 10,000 options each on December 6,
1995 and 5,000 options each on October 29, 1997. 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 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, 1998 AND 1997
(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. Proforma compensation cost
for the Company's plans is required by Financial Accounting Standards
No.123 "Accounting for Stock-Based Compensation (SFAS 123) and has been
determined based on the fair value at the grant dates for awards under
these plans consistent with the method of SFAS 123. For purposes of
proforma disclosure, the estimated fair value of the options is amortized
to expense over the options' vesting period. The Company's proforma
information follows:
THREE MONTHS ENDED MARCH 31,
1998 1997
---- ----
Net income: As reported $135,179 $115,655
Proforma $111,711 $ 71,092
Earnings per share
Basic: As reported $.10 $.08
Proforma $.08 $.05
Diluted: As reported $.09 $.08
Proforma $.08 $.05
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: expected volatility of
92.83%, risk-free interest rate of 5.85% and expected life of three years.
A summary of the status of the Company's stock option plans as of March
31, 1998 and December 31, 1997, 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, 1996 249,000 $2.00
Granted 167,000 $2.53
Canceled (34,000) $1.97
-----------
OUTSTANDING AT DECEMBER 31, 1997 382,000 $2.23
===========
Canceled (9,000) $2.69
----------
OUTSTANDING AT MARCH 31, 1998 373,000 $2.22
=========
There were 332,000 and 146,000 options exercisable at March 31, 1998 and
December 31, 1997. The weighted-average fair value of options granted was
$1.41 for the year ended December 31, 1997.
The following table summarizes information about stock options outstanding
at March 31, 1998:
Options Outstanding
Number Weighted-Average
Range of Outstanding Remaining Weighted-Average
Exercise Prices At 3/31/98 Contractual Life Exercise Price
- ---------------- --------------- ----------------- ---------------
$1.50 - $1.875 57,000 2.6 years $1.79
$2.0625 - $2.475 290,000 3.7 years $2.25
$2.75 - $3.00 26,000 3.7 years $2.90
In addition, there were 30,000 non-qualified stock options with a range of
exercise prices of $1.75 - $2.25 outstanding and exerciseable as of March
31, 1998.
11
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BULL & BEAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
(UNAUDITED)
7. 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, 1998 and
March 31, 1997 were $14, 240 and $12,655, respectively.
8. INCOME TAXES
The provision for income taxes charged to operations for the three months
ended March 31, 1998 and 1997 was as follows:
1998 1997
---- ----
Current
State and local $ 4,800 $16,643
Federal -- --
-------- ---------
$ 4,800 $16,643
======= =======
Deferred tax assets (liabilities) are comprised of the following at March
31, 1998 and December 31, 1997:
1998 1997
---- ----
Unrealized loss (gain) on investments $ (24,000) $ (16,200)
Net operating loss carryforwards 228,000 277,100
-------- --------
Total deferred tax assets 204,000 260,900
Deferred tax asset valuation allowance (204,000) (260,900)
-------- --------
Net deferred tax assets $ - $ -
=========== ===========
The change in the valuation allowance for the three months ended March 31,
1998 was due to the net income for the period and the increase in the
unrealized gain on investments.
The provision for income taxes differs from the amount of income taxes
determined by applying the applicable U.S. statutory Federal tax rates to
pre-tax income as a result of utilization of net operating loss
carryforwards.
At December 31, 1997, the Company had net operating loss carryforwards for
Federal income tax purposes of approximately $815,000, of which $298,600,
$187,800, $62,700 and $265,900 expire in 2004, 2005, 2006 and 2011,
respectively.
9. 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 $ 72,950 and $73,459 for the three months ended March 31,
1998, and 1997, 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 $22,273 and $267,308 for the three months ended March 31, 1998
and 1997, 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, 1998 AND 1997
(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, 1998,
the policy had a cash surrender value of approximately $117,300 and is
included in other assets in the balance sheet.
The Company's discount brokerage subsidiary received brokerage commissions
of approximately $45,076 and $97,167 from the Funds for the three months
ended March 31, 1998 and 1997, respectively.
10. 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.
Although a group called Karpus Investment Management ("KIM") previously
failed to elect its slate of nominees in opposition to management at the
1997 annual meeting of stockholders of Bull & Bear U.S. Government
Securities Fund, Inc. ("BBG"), a closed-end fund managed by BBAI, another
BBG annual meeting is scheduled for 1998. In addition, on February 19,
1998, BBG filed a lawsuit against KIM in the United States District Court
for the Southern District of New York, 98 Civ. 1190, and KIM filed a
lawsuit against BBG in the Circuit Court for Baltimore City, Maryland,
Case No. 9805005. The outcome of these matters and their effect on the
Company or BBAI's management agreement with BBG cannot be predicted with
certainty.
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, 1998, 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 equal to 80% of his average annual
salary for the three year period prior to his death subject to certain
adjustments to his wife until her death.
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, 1998 compared to Three Months Ended March 31, 1997
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 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 9 of the financial statements. In addition, volatile stock
markets could have a significant effect on the brokerage commissions earned by
BBSI by affecting the number of transactions processed.
Total revenues decreased $432,751 or 23% which was primarily due to a
decrease in management, distribution and shareholder administration fees of
$357,698 or 29% because of a lower level of net assets under management, and to
a decrease in brokerage fees and commissions. Net assets under management were
approximately $400.9 million at December 31, 1996, $359 million at March 31,
1997, $328 million at June 30, 1997, $353 million at September 30, 1997, $274
million at December 31, 1997, and $301 million at March 31, 1998. While the
volume of discount brokerage customers transactions for the quarter was 12%
higher than a year ago, brokerage fees and commissions decreased by $85,238 or
13% due to a rapid increase in lower-priced Internet trading activity, which
accounted for 30% and 0% of the volume of discount brokerage customer
transactions for the three months ended March 31, 1998 and 1997, respectively.
Discount brokerage customers' equity increased to $273 million or 30%.
Dividends, interest and other income increased $10,185 due to higher earnings on
the Company's short term investments.
Total expenses decreased $440,432 or 25% as a result of a decrease in the
expense reimbursements, professional fees, and general and administrative
expenses. Marketing expenses decreased $22,569 or 8%. General and administrative
expenses decreased $90,368 or 10% because of lower compensation costs. Expense
reimbursements to the Funds decreased $245,035 or 92% which is primarily due to
the expiration of the contractual expense reimbursement on August 29, 1997 for
the Midas Fund. Clearing and brokerage charges decreased $11,838 or 8%.
Subadvisory fees decreased $34,319 or 30% because of the lower net assets in the
Midas Fund. Professional fees decreased $41,047 or 60% due to lower litigation
costs relating to the Maxus lawsuit. Net income for the period was $135,179 or
$.09 diluted earnings per share as compared to net income of $115,655 or $.08
diluted earnings per share for 1997.
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, 1998 December 31, 1997
-------------- -----------------
Working Capital $2,625,327 $2,662,917
Total Assets $4,945,688 $4,827,074
Long Term Debt $3,839 $7,460
Shareholders' Equity $4,623,487 $4,455,111
Working capital decreased $37,590 due to capital expenditures to develop
rental property. Total assets and shareholders' equity increased $118,614 and
$168,376, respectively for the three months ended March 31, 1998 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 investment companies and discount brokerage services, 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>
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 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.
PART II. OTHER INFORMATION
ITEMS 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS DURING FIRST
QUARTER OF THE YEAR ENDED DECEMBER 31, 1998
At the annual meeting of Class B shareholder held March 3, 1998, 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, 1998 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, 1998 /s/ Bassett S. Winmill
----------------------
Bassett S. Winmill
Chairman of the Board,
Director
Dated: May 15, 1998 /s/ Robert D. Anderson
----------------------
Robert D. Anderson
Vice Chairman, Director
Dated: May 15, 1998 /s/ Mark C. Winmill
-------------------
Mark C. Winmill
Co-President,
Chief Financial Officer, Director
Dated: May 15, 1998 /s/ Thomas B. Winmill
---------------------
Thomas B. Winmill, Esq.
Co-President,
General Counsel, Director
Dated: May 15, 1998 /s/
----------------------------
Charles A. Carroll, Director
Dated: May 15, 1998 /s/
-----------------------------
Edward G. Webb, Jr., Director
16
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<PERIOD-START> Jan-01-1998
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