As filed with the Securities and Exchange Commission on November 12, 1999
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(MarkOne)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 For the quarterly period
ended September 30, 1999 or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 For the Transition Period
From _____________ to ____________
For Quarter Ended September 30, 1999 Commission File Number 0-9667
WINMILL & CO. INCORPORATED
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-1897916
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11 Hanover Square, New York, New York 10005
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
212-785-0900
- --------------------------------------------------------------------------------
(Company's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
The number of shares outstanding of each of the registrant's classes of common
stock, as of October 31, 1999, were as follows:
Class A Common Stock non-voting, par value $.01 per share - 1,635,017 shares
Class B Common Stock voting, par value $.01 per share - 20,000 shares
-1-
<PAGE>
WINMILL & CO. INCORPORATED
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1999
INDEX
Page
Number
------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - (Unaudited) September 30,
1999 and December 31, 1998 3
Consolidated Statements of Income (Loss) - (Unaudited)
Three and Nine Months Ended September 30, 1999 and
September 30, 1998 4
Consolidated Statements of Changes in Shareholders'
Equity - (Unaudited) Nine Months Ended September
30, 1999 and September 30, 1998 5
Consolidated Statements of Cash Flows - (Unaudited)
Nine Months Ended September 30, 1999 and September
30, 1998 6
Notes to Consolidated Financial Statements (Unaudited) 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 15
Management's Representation and Signatures 19
-2-
<PAGE>
WINMILL & CO. INCORPORATED
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
---- ----
ASSETS
------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 4,936,160 $ 1,403,931
Marketable securities (Note 3) 1,661,600 353,385
Management, distribution and service fees receivable 169,569 257,313
Interest, dividends and other receivables 138,927 205,786
Prepaid expenses and other assets 114,087 506,950
------------- -------------
Total Current Assets 7,020,343 2,727,365
------------ ------------
Real estate held for investment, net 1,192,235 1,198,173
Furniture and fixtures, net 109,021 209,339
Excess of cost over net book value of
subsidiaries, net 659,672 688,687
Deferred income taxes (Note 10) 140,000 215,400
Other 257,170 276,183
------------- -------------
2,358,098 2,587,782
------------ ------------
Total Assets $ 9,378,441 $ 5,315,147
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current Liabilities:
Income taxes Payable $ 1,966,028 $ 13,668
Accounts payable 21,869 104,934
Accrued professional fees 65,244 143,025
Accrued expenses 66,227 15,252
Current portion of capitalized lease obligation -- 4,749
Accrued payroll and other related costs 25,643 64,667
Other 27,443 9,836
------------ ------------
Total Current Liabilities 2,172,454 356,131
------------ ------------
Shareholders' Equity: (Notes 3, 6, 7 and 8)
Common Stock, $.01 par value
Class A, 10,000,000 shares authorized;
1,635,017 shares issued and outstanding 16,351 16,351
Class B, 20,000 shares authorized;
20,000 shares issued and outstanding 200 200
Additional paid-in capital 6,872,454 6,872,454
Retained earnings (deficit) 935,413 (1,325,338)
Note receivable for common stock issued (603,675) (603,675)
Accumulated other comprehensive income (14,756) (976)
------------ -----------
Total Shareholders' Equity 7,205,987 4,959,016
------------ -----------
Total Liabilities and Shareholders' Equity $ 9,378,441 $ 5,315,147
=========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
-3-
<PAGE>
WINMILL & CO. INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Sept. 30 Nine Months Ended Sept. 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Management, distribution, service, and
administrative fees $ 716,660 $ 842,728 $ 2,233,911 $ 2,788,225
Real estate rental income 55,391 14,860 152,977 19,237
Consulting fee 50,000 -- 100,000 --
Realized and unrealized gains from investments (394,106) (36,024) (338,276) (36,024)
Dividends, interest and other 137,912 32,226 220,042 82,418
----------- ---------- ---------- ----------
565,857 853,790 2,368,654 2,853,856
----------- ---------- ---------- ----------
Expenses:
General and administrative 455,172 578,116 1,494,693 1,558,265
Marketing 118,942 113,100 369,027 405,066
Expense reimbursements to the Funds (Note 11) 68,414 56,612 220,056 106,258
Subadvisory fees 37,652 44,056 120,301 181,873
Professional 31,029 26,887 149,597 141,109
Amortization and depreciation 36,794 31,265 116,424 85,563
------------ ---------- ---------- ----------
748,003 850,036 2,470,098 2,478,134
----------- ---------- ---------- ----------
Income (loss) from continuing operations before
income taxes (182,146) 3,754 (101,444) 375,722
Income taxes (Note 10) (42,999) 18,326 (7,553) 28,226
------------- ---------- ----------- ----------
Income (loss) from continuing operations (139,147) (14,572) (93,891) 347,496
----------- ----------- ----------- ----------
Discontinued Operations:
Income (loss) from discontinued operations
(Note 2) -- (42,793) 2,354,642 (128,375)
-------------- ----------- ---------- -----------
Net Income (loss) $ (139,147) $ (57,365) $ 2,260,751 $ 219,121
========== =========== ========== ===========
Per share data:
Basic
Income (loss) from continuing operations $ (.08) $ (.01) $ (.05) $ .25
Income (loss) from discontinued operations .00 (.03) 1.42 (.09)
--- ---- ---- ----
Net Income (loss) $ (.08) $ (.04) $ 1.37 $ .16
=========== =========== =========== ===========
Diluted
Income (loss) from continuing operations $ (.08) $ (.01) $ (.06) $ .24
Income (loss) from discontinued operations .00 (.03) 1.40 (.09)
--- ---- ---- ----
-------
Net Income (loss) $ (.08) $ (.04) $ 1.34 $ .15
=========== =========== =========== ===========
Average shares outstanding:
Basic 1,655,017 1,370,017 1,655,017 1,370,017
========= ========= ========= =========
Diluted 1,673,977 1,415,805 1,684,605 1,453,331
========= ========= ========= =========
</TABLE>
See accompanying notes to the consolidated financial statements.
-4-
<PAGE>
WINMILL & CO. INCORPORATED
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Nine Months Ended September 30, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
Paid-in- Paid-in-
Class A Class B Capital Capital
Common Common Class A Class B
Shares Shares Common Common
------ ------ ------ ------
Nine Months Ended Sept. 30, 1998
<S> <C> <C> <C> <C>
Balance, January 1, 1998 1,350,017 20,000 $13,501 $200
Net income -- -- -- --
Other comprehensive income
Change in unrealized gains on
marketable securities -- -- -- --
------ -------- ---------- ----------
Comprehensive income -- -- -- --
Contribution to additional paid-in-
capital -- -- -- --
---------- ------- -------- -----
Balance, Sept. 30, 1998 1,350,017 20,000 $ 13,501 $ 200
========= ====== ======= ====
Nine Months Ended Sept. 30, 1999
Balance, January 1, 1999 1,635,017 20,000 $ 16,351 $ 200
Net income -- -- -- --
Other comprehensive income
Change in unrealized gains on
marketable securities -- -- -- --
------------ ------- ---------
Comprehensive income -- -- -- --
Balance, Sept. 30, 1999 1,635,017 20,000 $ 16,351 $ 200
========= ====== ======= ====
</TABLE>
<TABLE>
<CAPTION>
Notes Accumulated
Nine Months Ended Sept. 30, 1998 Additiona Receivable Retained Other Total
Paid-in- For Common Earnings Comprehensive Shareholders'
Capital Stock Issue (Deficit) Income Equity
------- ----------- --------- ------ ------
Balance, January 1, 1998
<S> <C> <C> <C> <C> <C>
$ 6,236,077 -- $(1,836,753) $ 42,086 $ 4,455,111
Net income -- -- 219,121 -- 219,121
Other comprehensive income
Change in unrealized gains on
marketable securities -- -- -- (32,027) (32,027)
---------- ---------- ---------- ---------- ----------
Comprehensive income -- -- 219,121 (32,027) 187,094
Contribution to additional paid-in-
capital 4,102 -- -- -- 4,102
----------- ----------- ------------ --------- -----------
Balance, Sept. 30, 1998 $ 6,240,179 $ -- $(1,617,632) $ 10,059 $ 4,646,307
========== =========== ============ ========= ==========
Nine Months Ended Sept. 30, 1999
Balance, January 1, 1999 $ 6,872,454 $ (603,675) $(1,325,338) $ (976) $ 4,959,016
Net income -- -- 2,260,751 -- 2,260,751
Other comprehensive income
Change in unrealized gains on
marketable securities -- -- -- (13,780) (13,780)
----- ---------------------------- ----------- -----------
Comprehensive income -- -- 2,260,751 (13,780) 2,246,971
Balance, Sept. 30, 1999 $ 6,872,454 $ (603,675) $ 935,413 $ (14,756) $ 7,205,987
========== ========== ============ ========= ==========
</TABLE>
See accompanying notes to the consolidated financial statements.
-5-
<PAGE>
WINMILL & CO. INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1999 1998
---- ----
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 2,260,751 $ 219,121
-------------- ------------
Adjustments to reconcile net income to net cash
provided by (used in) Operating Activities:
Realized gain from sale of discontinued operations (2,354,642) --
Depreciation and amortization 116,424 122,467
Increase in cash value of life insurance (24,750) (24,500)
Deferred income taxes (115,000) --
Change in unrealized gains and realized gains on investments 338,276 16,136
Other (16,976) --
(Increase) decrease in:
Management, distribution and service fees receivable 87,744 17,102
Interest, dividends and other receivables (100,030) 49,557
Prepaid expenses and other assets 292,500 4,858
Other 43,763 (252)
Increase (decrease) in:
Accounts payable 13,312 (84,781)
Accrued professional fees (284,802) 40,754
Accrued other expenses 37,307 (21,746)
Accrued payroll and other related costs (907,592) 20,080
Income taxes payable 86,428 --
Other 17,607 (572)
----------------- -----------------
Total adjustments (2,770,431) 139,103
-------------- ---------------
Net cash provided by (used in) Operating Activities (509,680) 358,224
--------------- ---------------
Cash Flows from Investing Activities:
Proceeds from sale of discontinued operations (net of cash) 5,752,254 --
Proceeds from sales of investments 202,368 424,920
Purchases of investments (1,845,367) (203,412)
Capital expenditures (49,530) (562,249)
Purchases of equipment (13,067) (63,485)
--------------- ---------------
Net cash provided by (used in) Investing Activities 4,046,658 (404,226)
-------------- --------------
Cash Flows from Financing Activities:
Capitalized lease obligations (4,749) (12,754)
Contribution to additional paid-in-capital -- 4,102
------------------ ----------------
Net cash used in Financing Activities (4,749) (8,652)
---------------- ---------------
Net increase (decrease) in cash and cash equivalents 3,532,229 (54,654)
Cash and cash equivalents:
At beginning of period 1,403,931 312,633
------------- -------------
At end of period $ 4,936,160 $ 257,979
============ ============
</TABLE>
Supplemental disclosure: The Company paid $0 and $8,990
in Federal income taxes during the nine
months ended September 30, 1999 and 1998,
respectively.
The Company paid approximately $50 and $700
in interest expense during the nine months
ended September 30, 1999 and 1998,
respectively.
See accompanying notes to the consolidated financial statements.
-6-
<PAGE>
WINMILL & CO. INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999 and 1998
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Winmill & Co. Incorporated (formerly Bull & Bear Group, Inc.)
("Company") is a holding company with six principal subsidiaries: CEF
Advisers, Inc., formerly Bull & Bear Advisers, Inc. ("CEF"), Investor
Service Center, Inc. ("ISC"), Midas Management Corporation ("MMC"),
Rockwood Advisers, Inc. ("RAI"), Performance Properties, Inc.
("Performance Properties") and Hanover Direct Advertising Company,
Inc. ("Hanover"). Its subsidiaries' business consists of providing
investment management and distribution services for the six open-end
funds and three closed-end funds ("Funds"). On June 30, 1999, the Bull
& Bear Funds and the Rockwood Fund changed their names and became part
of the Midas Funds family. On March 31, 1999, the Company sold its
wholly owned subsidiary Bull & Bear Securities, Inc. ("BBSI") to a
subsidiary of Royal Bank of Canada.
BASISOF PRESENTATION
The consolidated financial statements include the accounts of the
Company and all of its subsidiaries. Substantially all intercompany
accounts and transactions have been eliminated.
ACCOUNTING ESTIMATES
In preparing financial statements in conformity with generally
accepted accounting principles, management makes estimates and
assumptions that affect the reported amounts of assets and liabilities
at the date of the financial statements, as well as the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, accounts
receivable, accounts payable, and accrued expenses and other
liabilities approximate fair value because of the short maturity of
these items. Marketable securities are recorded at market value which
represents the fair value of the securities.
CASH AND CASH EQUIVALENTS
Investments in money market funds are considered to be cash
equivalents. At September 30, 1999 and December 31, 1998, the Company
and subsidiaries had invested approximately $4,549,400 and $1,378,700,
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.
BROKERAGE INCOME AND EXPENSES
Brokerage commission and fee income and clearing and brokerage
expenses of the discontinued operations, BBSI 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>
WINMILL & CO. INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999 and 1998
(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 1998 financial statements have been
made to conform to the 1999 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 a period up to 30 years. At September
30, 1999 and December 31, 1998, accumulated depreciation amounted to
$147,900 and $92,400, respectively. Equipment, furniture and fixtures
are recorded at cost and are depreciated on the straight-line basis
over their estimated useful lives, 3 to 10 years. At September 30,
1999 and December 31, 1998, accumulated depreciation amounted to
approximately $786,600 and $908,400, respectively.
EXCESS OF COST OVER NET BOOK VALUE OF SUBSIDIARIES
The excess of cost over net book value of subsidiaries is capitalized
and amortized over fifteen and forty years using the straight-line
method. At September 30, 1999 and December 31, 1998, accumulated
amortization amounted to approximately $541,100 and $662,100,
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.
COMPREHENSIVE INCOME
The Company applies Statement of Financial Accounting Standards No.
130 ("SFAS 130"), "Reporting Comprehensive Income". SFAS 130
establishes the disclosure requirements for reporting comprehensive
income in an entity's financial statements. Total comprehensive income
includes net income and unrealized gains and losses on marketable
securities. Accumulated other comprehensive income, a component of
stockholders' equity, was formerly reported as unrealized gains and
losses on marketable securities.
SEGMENT INFORMATION
Statement of Financial Accounting Standards No. 131 ("SFAS 131")
"Disclosures About Segments of an Enterprise and Related Information"
was applied by the Company. SFAS 131 requires companies to present
segment information using the management approach. The management
approach is based on operating decisions and assessing performance.
The Company's operating segments are organized around services
provided and are classified into two groups - investment management
and discount brokerage. Due to the sale of BBSI, the discount
brokerage business is classified as "income from discontinued
operations" on the financial statements (See Note 2). The Company's
remaining business is in one industry segment.
-8-
<PAGE>
WINMILL & CO. INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999 and 1998
(Unaudited)
COMPUTATION OF AVERAGE AND DILUTED SHARES
The Company applies Statement of Financial Accounting Standards No.
128 "Earnings Per Share". 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:
<TABLE>
<CAPTION>
3 months ended Sept. 30, 9 months ended Sept. 30,
------------------------ -------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Numerator for basic and diluted earnings per share:
Net income ($ 139,147) $ (57,365) $2,260,751 $ 219,121
=========== ========== ========== =========
Denominator:
Denominator for basic earnings per share -
weighted-average shares 1,655,017 1,370,017 1,655,017 1,370,017
Effect of dilutive securities:
Employee Stock Options 18,960 45,788 29,588 83,314
---------- ---------- --------- ---------
Denominator for diluted earnings per share -
adjusted weighted - average shares and
assumed conversions 1,673,977 1,415,805 1,684,605 1,453,331
=========== =========== ========== ===========
</TABLE>
2. DISCONTINUED OPERATIONS
On March 31, 1999, the Company sold its wholly-owned subsidiary, BBSI,
the discount brokerage business, to a subsidiary of Royal Bank of
Canada. The Company received $6,000,000 cash from the sale. At the time
of the sale, BBSI had net equity of $500,000. In connection with the
sale, the rights to the name "Bull & Bear" were transferred to Royal
Bank of Canada, and the Company and certain of its subsidiaries changed
their names. The Company recorded a gain from the sale of $2,354,642,
net of related expenses including professional fees, closing bonuses and
income tax expense. In addition, the Company has entered into an
agreement to provide consulting services to BBSI for an annual fee of
$200,000 for a period of three years following the sale. The results
from BBSI are shown as discontinued operations in the statement of
income with the prior period restated. Income (loss) from operations is
summarized as follows:
Nine Months Ended
Sept. 30, 1999 Sept. 30, 1998
-------------- --------------
Revenues $ 748,786 $1,770,195
Expenses 733,537 1,898,570
----------- -----------
Income (loss) from discontinued operations 15,249 (128,375)
------------ -------------
Gain on sale of discontinued operations:
Proceeds, net of basis 5,500,000 --
Professional fees (222,021) --
Closing bonuses (868,586) --
Income taxes (2,070,000) --
-----------
Total gain on sale $2,339,393 --
Total income (loss) from discontinued
operations $2,354,642 $ (128,375)
=========== ===========
-9-
<PAGE>
WINMILL & CO. INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999 and 1998
(Unaudited)
3. MARKETABLE SECURITIES
<TABLE>
<CAPTION>
At September 30, 1999, marketable securities consisted of:
Market Value
<S> <C>
Securities held by broker/dealer subsidiary - marked to market
Funds managed by the Company $ 1,409,618
Equity securities 2,156
-------------
Total securities held by broker/dealer subsidiary (cost $1,833,355) 1,411,774
------------
Other companies
Available-for-sale securities - marked to market
Equity securities and unaffiliated mutual funds (cost-$264,582) 249,826
------------
$ 1,661,600
At December 31, 1998, marketable securities consisted of:
Securities held by broker/dealer subsidiary - marked to market
Funds managed by the Company (cost $159,882) $ 128,945
-----------
Other companies
Available-for-sale securities - marked to market
Funds managed by the Company 2,268
Equity securities and unaffiliated mutual funds 222,172
Total available-for-sale securities (cost - $225,416) 224,440
------------
$ 353,385
</TABLE>
4. LEASE COMMITMENTS
The Company has a lease for approximately 7,600 square feet of office
space. The rent is approximately $138,000 per annum plus $20,600 per
annum for electricity. Such lease expires on December 31, 1999. On
November 8, 1999, the Company signed a new lease for approximately 3,800
square feet of office space. The terms on the new lease are for 2 years
beginning January 1, 2000. The rent is approximately $92,000 per annum
plus $11,400 per annum for electricity.
5. REAL ESTATE
The Company owns an office building which is approximately 90% leased to
various tenants. Future minimum lease payment receivables under
noncancellable leasing arrangements are as follows:
Three months ended December 31, 1999 $ 42,400
Year ending December 31,
------------------------
2000 189,100
2001 206,600
2002 192,800
2003 161,600
2004 - 2008 797,000
------------
Net minimum future lease receipts $1,589,500
==========
-10-
<PAGE>
WINMILL & CO. INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999 and 1998
(Unaudited)
6 SHAREHOLDERS' EQUITY
The Class A and Class B Common Stock are identical in all respects
except for voting rights, which are vested solely in the Class B Common
Stock. The Company also has 1,000,000 shares of Preferred Stock, $.01
par value, authorized. As of September 30, 1999 and December 31, 1998,
none of the Preferred Stock was issued.
7. NET CAPITAL REQUIREMENTS
The Company's broker/dealer subsidiary, ISC is a member firm of the
National Association of Securities Dealers, Inc. and is registered with
the Securities and Exchange Commission as a broker/dealer. Under the
Uniform Net Capital Rule (Rule 15c3-1 under the Securities Exchange Act
of 1934), such broker/dealer must maintain minimum net capital, as
defined, of not less than $25,000, when engaged solely in the sale of
redeemable shares of registered investment companies, or 6-2/3% of
aggregate indebtedness, whichever is greater; and a ratio of aggregate
indebtedness to net capital, as defined, of not more than 15 to 1. At
September 30, 1999, ISC had net capital of approximately $947,400; net
capital requirement of $25,000; excess net capital of approximately
$922,400; and a ratio of aggregate indebtedness to net capital were .18
to 1.
8. 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, in October 29, 1997 increasing the maximum number of options to
450,000, and in March 1999 increasing the maximum number of options to
600,000. With respect to non-employee directors, only grants of
non-qualified stock options and awards of restricted shares are
available. Two of the non-employee directors were granted 10,000 options
each on December 6, 1995 and 5,000 options each on October 29, 1997. The
new non-employee director was granted 10,000 options on September 8,
1998. In September 1999, the three non-employee directors were granted
10,000 options each. 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 five years.
The Company applied 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 are as follows:
<TABLE>
<CAPTION>
Three Months Ended Sept. 30, Nine Months Ended Sept. 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net income (loss): As reported $(139,147) $(57,365) $2,260,751 $219,121
Proforma $(218,614) $(64,923) $2,018,140 $179,701
Earnings per share
Basic: As reported $(.08) $(.04) $1.37 $.16
Proforma $(.13) $(.05) $1.22 $.13
Diluted: As reported $(.08) $(.04) $1.34 $.15
Proforma $(.13) $(.05) $1.20 $.12
</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 1999: expected volatility of
83.94%, risk-free interest rate of 5.23% and expected life of three
years.
-11-
<PAGE>
WINMILL & CO. INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999 and 1998
(Unaudited)
A summary of the status of the Company's stock option plans as of
September 30, 1999 and December 31, 1998, and changes during the periods
ending on those dates is presented below:
Weighted
Number Average
of Exercise
Stock Options Shares Price
------- -----------
Outstanding at December 31, 1997 412,000 $2.21
Granted 12,000 $1.81
Exercised (285,000) $2.25
Canceled (20,000) $2.64
Outstanding at December 31, 1998 119,000 $2.05
Granted 280,000 $2.98
Canceled (160,000) $3.27
Outstanding at September 30, 1999 239,000 $2.32
--------
In September 1999, the Company canceled 125,000 previously issued stock
options. The exercise prices of the canceled stock options were $3.36 to
$3.69. In September 1999, the Company granted 155,000 stock options with
exercise prices of $2.38 to $2.61.
There were 197,000 and 97,000 options exercisable at September 30, 1999
and December 31, 1998 with a weighted-average exercise price of $2.34
and $1.99, respectively. The weighted-average fair value of options
granted was $1.34 and $0.94 for the nine months ended September 30, 1999
and the year ended December 31, 1998, respectively.
The following table summarizes information about stock options
outstanding at September 30, 1999:
Options Outstanding
Weighted-Average
Range of Number Remaining Weighted-Average
Exercise Prices Outstanding Contractual Life Exercise Price
--------------- ----------- ------------------- --------------------
$1.75 - $1.8125 22,000 2.7 years $1.78
$1.875 - $2.475 130,000 3.7 years $2.22
$2.6125 - $3.00 87,000 4.9 years $2.62
In connection with the exercise of options for 270,000 shares in 1998,
the Company received from certain officers, cash representing par value
per share and the balance with notes with an interest rate of 4.47% per
annum payable December 15, 2003. The balance of the notes at September
30, 1999 and December 31, 1998 was $603,675, which was classified as
"notes receivable for common stock issued."
9. PENSION PLAN
The Company has a 401(k) retirement plan for substantially all of its
qualified employees. Contributions to this are based upon a percentage
of earnings of eligible employees and are accrued and funded on a
current basis. Total pension expense for the nine months ended September
30, 1999 and September 30, 1998 were approximately $24,700 and $37,700,
respectively.
-12-
<PAGE>
WINMILL & CO. INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999 and 1998
(Unaudited)
10. INCOME TAXES
The provision for income taxes for the nine months ended September 30,
1999 and 1998 are as follows:
1999 1998
---- ----
State and local $ (1,883) $ 19,236
Federal (5,650) 8,990
------------- ----------
(7,533) 28,226
From discontinued operations 2,070,000 --
$2,062,467 $ 28,226
=========== ========
Deferred tax assets (liabilities) are comprised of the following at
September 30, 1999 and December 31, 1998:
1999 1998
---- ----
Unrealized loss (gain) on investments $130,000 $ 12,400
Depreciation 10,000 10,000
Accrued expenses -- 40,000
Net operating loss carryforwards -- 153,000
---------- --------
Total deferred tax assets 140,000 215,400
Deferred tax asset valuation allowance -- --
Net deferred tax assets $140,000 $215,400
======== ========
Due to the sale of BBSI, the net operating loss carryforwards will be
fully realized in 1999.
11. RELATED PARTIES
All management and distribution fees are a result of services provided
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 open-end Funds.
Such reimbursement amounted to $0 and $233,344 for the nine months ended
September 30, 1999, and 1998, respectively. During the nine months ended
September 30, 1999 and 1998, the Funds paid approximately $153,500 and
$115,500, respectively, for co-transfer agent services to ISC, which
paid such amounts to certain brokers for performing such services. Such
amounts are included in management, distribution, service and
administrative fees in the consolidated financial statements. Fees for
administrative services provided to the Funds were $109,012 and $96,757
for the nine months ended September 30, 1999 and September 30, 1998,
respectively.
In connection with investment management services, the Company's
investment managers, CEF, MMC and RAI waived or reimbursed management
fees to the Funds in the amount of $220,056 and $168,731 for the nine
months ended September 30, 1999 and 1998, respectively. Certain officers
of the Company also serve as officers and/or directors of the Funds.
Commencing August 1992, the Company obtained a key man life insurance
policy on the life of the Company's Chairman which provides for the
payment of $1,000,000 to the Company upon his death. As of September 30,
1999, the policy had a cash surrender value of approximately $166,800
and is included in other assets in the balance sheet.
BBSI, the Company's former affiliated discount brokerage subsidiary,
received brokerage commissions of approximately $17,100 and $85,000 from
the Funds for the nine months ended September 30, 1999 and 1998,
respectively.
-13-
<PAGE>
WINMILL & CO. INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999 and 1998
(Unaudited)
12. CONTINGENCIES
From time to time, the Company and/or its subsidiaries are threatened or
named as defendants in litigation arising in the normal course of
business. As of September 30, 1999, 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.
-14-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
- -------------
Three Months Ended September 30, 1999 compared to Three Months Ended
September 30, 1998
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, assets under management will decline and
shareholder redemptions may occur, either by transfer out of the open-end equity
Funds and into the money market fund, which has lower management and
distribution fee rates, 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 11 of the financial
statements.
Total revenues increased $70,149 or 8% due to increases in real estate
rental income, consulting fees, dividends, interest, and other. Rental income
increased by $40,531 due to additional tenants in 1999. In the third quarter of
1999, the Company earned $50,000 in consulting fees from BBSI. Dividends,
interest and other income increased $105,686 due to higher earnings from the
Company's investments. In addition, the Company received $25,000 in connection
with the sale of certain name rights. Management, distribution and shareholder
administration fees decreased $126,068 or 15% due to lower net assets under
management. In addition, effective January 1999, the Company discontinued
shareholder administration services to the Funds. Net assets under management
were approximately $274 million at December 31, 1997, $301 million at March 31,
1998, $278 million at June 30, 1998, $261 million at September 30, 1998, $258
million at December 31, 1998, $248 million at March 31, 1999, $242 million at
June 30, 1999, and $249 million at September 30, 1999. The Company had net
realized and unrealized losses of $394,106 from the Company's investments in
Funds managed by the Company and equity securities, primarily $384,317 from the
decline in market value of its 16% interest in Bexil Corporation, the closed end
fund managed by a Company subsidiary that trades on the American Stock Exchange
(symbol BXL).
Total expenses decreased $102,033 or 12%. General and administrative
expenses decreased $122,944 or 21% which was primarily due to lower compensation
costs. Expense reimbursements to the Funds increased $11,802 or 21% due to
higher waivers of management fees in certain Funds. Marketing expenses increased
$5,842 or 5%. Subadvisory fees decreased $6,404 or 15% because of the lower net
assets in the Midas Fund. Professional fees increased $4,142. Net loss from
continuing operations for the period was $139,147 or $.08 per share as compared
to a net loss of $14,572 or $.01 per share for 1998. Income from discontinued
operations for the period was $0 as compared to a net loss from discontinued
operations of $42,793 or $.03 per share for 1998. Net loss for the period was
$139,147 or $.08 per share for the period as compared to a net loss of $57,365
or $.04 per share for 1998.
The following table summarizes the Funds' assets under management on
which the Company earns its fees:
September, 30,1999 December 31,1998
Midas Fund $88,699,000 $87,841,000
Midas Special Equities Fund 31,076,000 36,807,000
Midas Magic 541,000 548,000
Midas U.S. and Overseas Fund 6,233,000 7,340,000
Midas Investors 5,785,000 6,293,000
Dollar Reserves 66,802,000 65,535,000
Global Income Fund 29,205,000 30,100,000
Tuxis Corporation 11,209,000 12,512,000
Bexil Corporation 9,495,000 10,921,000
---------------- ---------------
Total assets under management $ 249,045,000 $ 257,897,000
============= =============
Nine Months Ended September 30, 1999 compared to Nine Months Ended September 30,
1998
- ----
On December 17, 1998, the Company signed an agreement to sell the outstanding
stock of BBSI, the discount brokerage business, to a subsidiary of Royal Bank of
Canada. The transaction, which was approved by the regulatory authorities in
Canada and the United States, closed on March 31, 1999. The Company received $6
million in proceeds from the sale. At the time of the sale, BBSI had net equity
of $500,000. In connection with the sale, the rights to the name "Bull & Bear"
were transferred to Royal Bank of Canada, and the Company and certain of its
subsidiaries changed their
15
<PAGE>
names. The Company recorded a gain from the sale of $2,354,642, net of related
expenses including professional fees, closing bonuses, and income tax expense.
Total revenues decreased $182,950 or 6% which was primarily due to a
decrease in management, distribution and shareholder administration fees of
$554,314 or 20% reflecting lower net assets under management. In addition,
effective January 1999, the Company discontinued shareholder administration
services to the Funds. Net assets under management were approximately $274
million at December 31, 1997, $301 million at March 31, 1998, $278 million at
June 30, 1998, $261 million at September 30, 1998, $258 million at December 31,
1998, $248 million at March 31, 1999, $242 million at June 30, 1999 and $249
million at September 30, 1999. Rental income increased $133,740. The increase
was attributable to additional tenants in 1999 and the commencement of rentals
in May 1998. In 1999, the Company earned $100,000 in consulting fees from BBSI.
Dividends, interest and other income increased $137,624 due to higher earnings
from the Company's securities investments. In addition, the Company received
$25,000 in connection with the sale of certain name rights. The Company had net
realized and unrealized losses of $338,276 from the Company's investments in
Funds managed by the Company and equity securities, primarily $406,973 from the
decline in market value of its 16% interest in Bexil Corporation, the closed end
fund managed by a Company subsidiary that trades on the American Stock Exchange
(symbol BXL).
Total expenses decreased $8,036 or 1%. General and administrative
expenses decreased $63,572 or 4%. Expense reimbursements to the Funds increased
$113,798 or 107% due to higher waivers of management fees in certain Funds.
Marketing expenses decreased $36,039 or 9% due to lower payments to other
brokers for distributing the Company's open-end funds. Subadvisory fees
decreased $61,572 or 34% because of the lower net assets in the Midas Fund.
Professional fees increased $8,488 or 6%. Net loss from continuing operations
for the period was $93,891 or $.06 per share as compared to net income of
$347,496 or $.24 diluted earnings per share for 1998. Net gain from discontinued
operations for the period was $2,354,642, which included income from operations
of $15,249, or $1.40 diluted earnings per share as compared to a net loss from
discontinued operations of $128,375 or $.09 per share for 1998. Net income for
the period was $2,260,751 or $1.34 diluted earnings per share for the period as
compared to net income of $219,121 or $.15 diluted earnings per share for 1998.
Liquidity and Capital Resources
- -------------------------------
The following table reflects the Company's consolidated working capital,
total assets, long term debt and shareholders' equity as of the dates indicated:
September 30, 1999 December 31, 1998
------------------ -----------------
Working Capital $4,847,889 $2,371,234
Total Assets $9,378,441 $5,315,147
Long Term Debt $ -- $ --
Shareholders' Equity $7,205,987 $4,959,016
Working capital, total assets and shareholders' equity increased
$2,476,655, $4,063,294, and $2,246,971, respectively for the nine months ended
September 30, 1999 primarily as a result of the sale of BBSI.
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
investment manager and distributor of investment companies 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.
Year 2000
- ---------
The Year 2000 discussion below contains forward looking statements,
including those concerning the Company's plans and expected completion dates,
cost estimates, assessments of Year 2000 readiness for the Company as well as
for third parties, and the potential risks of any failure on the part of the
Company or third parties to be Year 2000 ready on a timely basis.
Forward-looking statements involve a number of risks and uncertainties that
could cause actual results
-16-
<PAGE>
to differ from those projected.
While the Company continues to evaluate and pursue discussions with its
various vendors with respect to their preparedness for Year 2000 issues, no
assurance can be made that all such parties will be Year 2000 ready. While the
Company cannot fully determine its impact, the inability to complete Year 2000
readiness for its computer systems could result in significant difficulties in
processing and completing fundamental transactions. In such events, the
Company's results of operations, financial position and cash flows could be
materially adversely affected.
Many companies and organizations have computer programs that use only
two digits to identify a year in the date field. These programs were designed
and developed without considering the impact of the upcoming change in the
century. If not corrected, this could cause a system failure or miscalculations
causing disruptions of operations, including, among other things, a temporary
inability to process transactions.
State of Readiness. In addressing the Year 2000 issue, the Company has
substantially completed an inventory of its computer programs and hardware and
assessed its Year 2000 readiness. The Company's computer programs include
third-party purchased programs and third-party custom developed programs. For
programs and hardware which were identified as not being Year 2000 ready, the
Company is in the process of implementing a remedial plan which includes
repairing or replacing the programs or hardware and appropriate testing for Year
2000. In addition, the Company has initiated communications with third parties
to determine the extent to which the Company's interface systems are vulnerable
to those third parties' failure to remediate their own Year 2000 issues.
If such modifications and conversions are not made, or are not timely
completed, or if the systems of the companies on which the Company's interface
system relies are not timely converted, the Year 2000 issue could have a
material impact on the operations of the Company. However, the Company believes
that with modifications to existing software and hardware and conversions to new
software and hardware, the Year 2000 issue will not pose significant operational
problems for its computer systems.
Year 2000 Risks. The Company continues to evaluate the principal risks
associated with its information technology and non-information technology
systems, as well as third party systems if they were not to be Year 2000 ready
on a timely basis. Areas that could be affected include, but are not limited to,
the ability to: accurately track pricing and trading information, obtain and
process customer orders and investor transactions, properly track and record
revenue movements and order and obtain critical supplies.
The Company believes, however, that the risks involved with the
successful completion of its Year 2000 conversion relate primarily to available
resources and third party readiness. The key success factors include the proper
quality and quantity of human capital resources to address the complexity and
costs of the project tasks. The Company believes it has allocated adequate
resources to the Year 2000 project and believes that it is adequately staffed by
employees. The inability to complete Year 2000 readiness for the computer
systems of the Company could result in significant difficulties in processing
and completing critical transactions.
In addition, the Company is taking precautions to ensure its third party
relationships have been adequately addressed. Based on work performed and
information received to date, the Company believes its key suppliers and other
significant third party relationships will be prepared for the Year 2000 in all
material respects within an acceptable time frame (or that acceptable
alternatives will be available); however, management of the Company makes no
assurances that all such parties will be Year 2000 ready within an acceptable
time frame.
In the event that the Company or key third parties are not Year 2000
ready, the Company's results of operations, financial position and cash flows
could be materially adversely affected.
Contingency Plans. The Company and its subsidiaries are in the process
of identifying alternative plans in the event that the Year 2000 project is not
completed on a timely basis or otherwise does not meet anticipated needs. The
Company is also making alternative arrangements in the event that critical
suppliers, customers, utility providers and other significant third parties are
not Year 2000 ready.
Year 2000 Costs. In the opinion of management, the cost of addressing
the Year 2000 issue is not expected to have a material adverse effect on the
Company's financial condition or its results of operations.
-17-
<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, 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 related cash inflows
or outflows in its mutual funds; fluctuations in the financial markets resulting
in appreciation or depreciation of assets under management; 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; the ability of the Company to maintain
investment management fees at current levels; competitive conditions in the
mutual funds industry; the introduction of new mutual funds and investment
products; 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.
-18-
<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.
WINMILL & CO. INCORPORATED
Dated: November 12, 1999 By: /s/ Joseph Leung
---------------------------------------
Joseph Leung
Treasurer, Chief Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Company and in the capacities and on the date indicated.
Dated: November 12, 1999 By: /s/ Basset S. Winmill
---------------------------------------
Bassett S. Winmill
Chairman of the Board,
Director
Dated: November 12, 1999 By: /s/ Robert D. Anderson
---------------------------------------
Robert D. Anderson
Vice Chairman, Director
Dated: November 12, 1999 By: /s/ Thomas B. Winmill
---------------------------------------
Thomas B. Winmill, Esq.
President,
General Counsel, Director
Dated: November 12, 1999 By:
---------------------------------------
Charles A. Carroll, Director
Dated: November 12, 1999 By:
---------------------------------------
Edward G. Webb, Jr., Director
Dated: November 12, 1999 By:
---------------------------------------
Mark C. Jones, Director
-19-
<PAGE>
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<ARTICLE> 5
<CIK> 0000052234
<NAME> Winmill & Co. Incorporated
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-START> Jan-01-1999
<PERIOD-END> Sep-30-1999
<CASH> 4,936,160
<SECURITIES> 1,661,600
<RECEIVABLES> 308,496
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 7,020,343
<PP&E> 1,004,642
<DEPRECIATION> 786,600
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<BONDS> 0
0
0
<COMMON> 16,551
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<TOTAL-LIABILITY-AND-EQUITY> 7,205,987
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<INCOME-CONTINUING> (93,381)
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