As filed with the Securities and Exchange Commission on May 27, 1999
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q/A
(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, 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 March 31, 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 April 30, 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 MARCH 31, 1999
INDEX
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
- (Unaudited) March 31, 1999 and December 31, 1998 3
Consolidated Statements of Income (Loss)
- (Unaudited) Three Months Ended March 31, 1999 and March 31, 1998 4
Consolidated Statements of Changes in Shareholders' Equity
- (Unaudited) Three Months Ended March 31, 1999 and March 31, 1998 5
Consolidated Statements of Cash Flows
- (Unaudited) Three Months Ended March 31, 1999 and March 31, 1998 6
Notes to Consolidated Financial Statements (Unaudited) 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 15
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders During
First Quarter of the Year Ended December 31, 1999 18
Management's Representation and Signatures 19
2
<PAGE>
<TABLE>
<CAPTION>
WINMILL & CO. INCORPORATED
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, December 31,
1999 1998
ASSETS
Current Assets:
<S> <C> <C>
Cash and cash equivalents $ 7,114,234 $ 1,403,931
Marketable securities (Note 3) 377,558 353,385
Management, distribution and shareholder
administration fees receivable 212,752 257,313
Interest, dividends and other receivables 163,309 205,786
Prepaid expenses and other assets 157,058 506,950
------------- -------------
Total Current Assets 8,024,911 2,727,365
------------ ------------
Real estate held for investment, net 1,184,724 1,198,173
Furniture and fixtures, net 129,952 209,339
Excess of cost over net book value of
subsidiaries, net (Note 1) 679,015 688,687
Deferred income taxes (Note (9) 25,000 215,400
Other 240,671 276,183
------------- ------------
2,259,362 2,587,782
------------ -----------
Total Assets $10,284,273 $ 5,315,147
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
<S> <C> <C>
Income taxes payable $ 1,890,628 13,668
Accounts payable 96,626 $ 104,934
Accrued professional fees 95,745 143,025
Accrued payroll and other related costs 876,580 64,667
Accrued other expenses 31,626 15,252
Current portion of capitalized lease obligation (Note 4) 2,927 4,749
Other current liabilities 9,836 9,836
------------- ------------
Total Current Liabilities 3,003,968 356,131
Contingencies (Note 11) ------------- ------------
Shareholders' Equity: (Notes 3, 5, 6 and 7)
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) 1,010,773 (1,325,338)
Notes receivable for common stock issued (603,675) (603,675)
Accumulated other comprehensive income (15,798) (976)
-------------- ---------------
Total Shareholders' Equity 7,280,305 4,959,016
------------ -----------
Total Liabilities and Shareholders' Equity $10,284,273 $ 5,315,147
=========== ===========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
WINMILL & CO. INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(Unaudited)
Three Months Ended March 31,
1999 1998
Revenues:
<S> <C> <C>
Management, distribution and shareholder
administration fees $ 669,371 $ 877,608
Realized gains from investments 54,521 --
Dividends, interest and other 50,914 24,081
---------- ----------
774,806 901,689
--------- ---------
Expenses:
General and administrative 504,924 434,834
Marketing 94,711 105,205
Expense reimbursements to the Funds (Note 10) 72,430 22,273
Subadvisory fees 42,136 81,471
Professional fees 19,683 20,856
Amortization and depreciation 43,106 25,721
---------- ----------
776,990 690,360
--------- --------
Income (loss) from continuing operations before
income taxes (2,184) 211,329
Income taxes (Note 9) 16,347 4,800
---------- ----------
Income (loss) from continuing operations (18,531) 206,529
=========== =========
Discontinued Operations:
Income (loss) from discontinued operations (net of
$2,070,000 in income taxes)(Note 2) 2,354,642 (71,350)
----------- -----------
Net Income $2,336,111 $ 135,179
========== =========
Per share data:
Basic
Income (loss) from continuing operations $ (.01) $ .15
Income (loss) from discontinued operations 1.42 (.05)
------- -------
Net Income $ 1.41 $ .10
====== ======
Diluted
Income (loss) from continuing operations $ (.01) $ .14
Income (loss) from discontinued operations 1.39 (.05)
------- --------
Net Income $ 1.38 $ .09
====== ======
Average shares outstanding:
Basic 1,655,017 1,370,017
========= =========
Diluted 1,694,453 1,478,514
========= =========
<FN>
See accompanying notes to the consolidated financial statements.
</FN>
</TABLE>
4
<PAGE>
WINMILL & CO. INCORPORATED
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Three Months Ended March 31, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
Additional
Class A Class B Class A Class B Paid-in-
Common Common Common Common Capital
--------- ------ ------- ---- ----------
<S> <C> <C> <C> <C> <C>
Three Months Ended March 31, 1998
Balance, January 1, 1998 1,350,017 20,000 $13,501 $200 $6,236,077
Net income -- -- -- -- --
Other comprehensive income
Change in unrealized gains on
marketable securities -- -- -- -- --
Comprehensive income (loss)
Contribution to additional paid-in-
capital -- -- -- -- 4,102
--------- ------ ------- ---- ----------
Balance, March 31, 1998 1,350,017 20,000 $13,501 $200 $6,240,179
========= ====== ======= ==== ==========
Three Months Ended March 31, 1999
Balance, January 1, 1999 1,635,017 20,000 $16,351 $200 $6,872,454
Net income -- -- -- -- --
Other comprehensive income
Change in unrealized gains on
marketable securities -- -- -- -- --
--------- ------ ------- ---- ----------
Comprehensive income
Balance, March 31, 1999 1,635,017 20,000 $16,351 $200 $6,872,454
========= ====== ======= ==== ==========
<CAPTION>
Notes Accumulated
Receivable Retained other Total
For Common Earnings Comprehensive Shareholders'
Stock Issued (Deficit) Income Equity
------------ ----------- ------------- -------------
<S> <C> <C> <C> <C>
Three Months Ended March 31, 1998
Balance, January 1, 1998 -- $(1,836,753) $ 42,086 $4,455,111
Net income -- 135,179 -- 135,179
Other comprehensive income
Change in unrealized gains on
marketable securities -- -- 29,095 29,095
-------- ----------
Comprehensive income (loss) 164,274
----------
Contribution to additional paid-in-
capital -- -- -- 4,102
--------- ----------- -------- ----------
Balance, March 31, 1998 $ -- $(1,701,574) $ 71,181 $4,623,487
========= =========== ======== ==========
Three Months Ended March 31, 1999
Balance, January 1, 1999 $(603,675) $(1,325,338) $ (976) $4,959,016
Net income -- 2,336,111 -- 2,336,111
Other comprehensive income
Change in unrealized gains on
marketable securities -- -- (14,822) (14,822)
--------- ----------- -------- ----------
Comprehensive income 2,321,289
----------
Balance, March 31, 1999 $(603,675) $ 1,010,773 $(15,798) $7,280,305
========= =========== ======== ==========
</TABLE>
<PAGE>
WINMILL & CO. INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
-----------------------------
1999 1998
----------- -----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 2,336,111 $ 135,179
----------- -----------
Adjustments to reconcile net income to net cash provided by
(used in) Operating Activities:
Depreciation and amortization 43,106 36,299
Realized gain from sale of BBSI (2,354,642) --
Realized gains from investments (54,521) --
Other (4,908) 5,369
(Increase) decrease in:
Management, distribution and shareholder administration
fees receivable 44,561 17,454
Interest, dividends and other receivables (124,412) 49,065
Prepaid expenses and other assets 249,529 77,722
Cash value of life insurance (8,250) (8,250)
Other 43,762 --
Increase (decrease) in:
Income taxes payable (2,640) --
Accounts payable 88,069 5,786
Accrued professional fees (254,301) (5,357)
Accrued payroll and other related costs (56,673) (41,042)
Accrued other expenses 16,374 (5,528)
----------- -----------
Total adjustments (2,374,946) 131,518
----------- -----------
Net cash provided by (used in) Operating Activities (38,835) 266,697
----------- -----------
Cash Flows from Investing Activities:
Proceeds from sale of BBSI (net of cash in discontinued
operations) 5,752,254 --
Proceeds from sales of investments 87,422 70,801
Purchases of investments (65,791) (172,979)
Purchases of equipment (13,067) (45,946)
Capital expenditures (9,858) (184,448)
----------- -----------
Net cash provided by (used in) Investing Activities 5,750,960 (332,572)
----------- -----------
Cash Flows from Financing Activities:
Contribution to additional paid-in-capital -- 4,102
Capitalized lease obligations (1,822) (3,621)
Net cash provided by (used in) Financing Activities (1,822) 481
----------- -----------
Net increase (decrease) in cash and cash equivalents 5,710,303 (65,394)
Cash and cash equivalents:
At beginning of period 1,403,931 312,633
----------- -----------
At end of period $ 7,114,234 $ 247,239
=========== ===========
<FN>
Supplemental disclosure: The Company did not pay any Federal income taxes during
the three months ended March 31, 1999 or 1998.
The Company paid approximately $20 and $300 in interest
during the three months ended March 31, 1999 and March
31, 1998, respectively.
See accompanying notes to the consolidated financial statements.
</FN>
</TABLE>
6
<PAGE>
WINMILL & CO. INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 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 March 31, 1999, the Company sold its wholly owned
subsidiary Bull & Bear Securities, Inc. ("BBSI") to a subsidiary
of Royal Bank of Canada.
BASIS OF 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 March 31, 1999 and December 31, 1998, the
Company and subsidiaries had invested approximately $6,742,500
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 are
marked to market, with the unrealized gain or loss included in
stockholders' equity. Marketable securities for the
broker/dealer subsidiary are marked to market with unrealized
gains and losses included in earnings.
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
In the normal course of business, BBSI's customer activities
involve the execution and settlement of customer transactions.
These activities may expose BBSI to risk of loss in the event
the customer is unable to fulfill its contracted obligations, in
which case BBSI 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.
7
<PAGE>
WINMILL & CO. INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1999 and 1998
(Unaudited)
BROKERAGE INCOME AND EXPENSES
BBSI's brokerage commission and fee income and clearing and
brokerage expenses are recorded on a settlement date basis. The
difference between recording such income and expenses on a
settlement date basis as opposed to trade date, as required by
generally accepted accounting principles, is not material to the
consolidated financial statements.
INCOME TAXES
The Company and its wholly-owned subsidiaries file consolidated
income tax returns. The Company's method of 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 its estimated useful
life. At March 31, 1999 and December 31, 1998, accumulated
depreciation amounted to approximately $115,700 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 March 31, 1999 and
December 31, 1998, accumulated depreciation amounted to
approximately $765,700 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 March 31, 1999 and December 31, 1998,
accumulated amortization amounted to approximately $521,800 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
March 31, 1999 and 1998
(Unaudited)
EARNINGS PER SHARE
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>
March 31,
---------------------------
1999 1998
---- ----
<S> <C> <C>
Numerator for basic and diluted earnings per share:
Net income $ 4,190,711 $ 135,179
=========== ============
Denominator:
Denominator for basic earnings per share -
weighted-average shares 1,655,017 1,370,017
Effect of dilutive securities:
Employee Stock Options 39,436 108,497
------------- ------------
Denominator for diluted earnings per share -
adjusted weighted - average shares and
assumed conversions 1,694,453 1,478,514
=========== ===========
</TABLE>
2. DISCONTINUED OPERATIONS
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 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. 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:
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------
March 31, 1999 March 31, 1998
-------------- --------------
<S> <C> <C>
Revenues $ 748,786 $ 577,451
Expenses 733,537 648,801
----------- ------------
Income (loss) from discontinued operations 15,249 (71,350)
------------ ------------
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 $ (71,350)
=========== ===========
</TABLE>
9
<PAGE>
WINMILL & CO. INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1999 and 1998
(Unaudited)
3. MARKETABLE SECURITIES
At March 31, 1999, marketable securities consisted of:
<TABLE>
<CAPTION>
Market Value
------------
<S> <C>
Securities held by broker/dealer subsidiary - marked to market
Affiliated mutual funds (cost $159,882) $ 131,128
-----------
Other companies
Available-for-sale securities - marked to market
Equity securities 216,736
Unaffiliated mutual funds 27,586
Affiliated mutual funds 2,108
-------------
Total available-for-sale securities (cost-$262,228) 246,430
------------
$ 377,558
At December 31, 1998, marketable securities consisted of:
Securities held by broker/dealer subsidiary - marked to market
Affiliated mutual funds (cost $159,882) $ 128,945
-----------
Other companies
Available-for-sale securities - marked to market
Unaffiliated mutual funds 38,820
Affiliated mutual funds 2,268
Equity securities 183,352
------------
Total available-for-sale securities (cost - $225,416) 224,440
------------
$ 353,385
============
</TABLE>
4. LEASE COMMITMENTS
AS LESSEE
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. The lease expires December 31, 1999 and is cancelable at
the option of the Company on three months' notice.
The Company leases office equipment under capital leases expiring in 1999.
The related property is included in furniture and equipment at a cost of
$22,729 at March 31, 1999. Depreciation expense of approximately $21,000
has been recognized on this property as of March 31, 1999. 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,
1999 2,947
-----------
Total minimum lease payments 2,947
Less: amount representing interest and executory costs 20
------------
Present value of minimum lease payments $ 2,927
=========
10
<PAGE>
WINMILL & CO. INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1999 and 1998
(Unaudited)
AS LESSOR
The Company owns an office building which is leased to various tenants.
Future minimum lease payment receivables under noncancellable leasing
arrangements as of December 31, 1998 are as follows:
Year ending December 31,
1999 $ 152,300
2000 172,400
2001 189,800
2002 176,000
2003 154,600
2004 - 2008 797,000
----------
Net minimum future lease receipts $1,642,100
==========
5. SHAREHOLDERS' EQUITY
The Class A and Class B Common Stock are identical in all respects except
for voting rights, which are vested solely in the Class B Common Stock. The
Company also has 1,000,000 shares of Preferred Stock, $.01 par value,
authorized. As of March 31, 1999 and December 31, 1998, none of the
Preferred Stock was issued.
6. 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), a
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 March 31, 1999, the subsidiary had
net capital of approximately $609,400; net capital requirement of
approximately $25,000; excess net capital of approximately $584,400; and
the ratio of aggregate indebtedness to net capital were approximately .16
to 1.
7. STOCK OPTIONS
On December 6, 1995, the Company adopted a Long-Term Incentive Plan which
provides for the granting of a maximum of 300,000 options to purchase Class
A Common Stock to directors, officers and key employees of the Company or
its subsidiaries. The plan was amended on February 5, 1996 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. 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. 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 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 five 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.
11
<PAGE>
WINMILL & CO. INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1999 and 1998
(Unaudited)
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 follows:
Three Months Ended March 31,
----------------------------
1999 1998
---- ----
Net income As Reported $2,336,111 $135,179
Proforma $2,179,092 $111,711
Earnings per share
Basic As Reported $1.41 $.10
Proforma $1.32 $.08
Diluted As Reported $1.38 $.09
Proforma $1.29 $.08
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 and 1998, respectively: expected
volatility of 54.31% and 73.95%, risk-free interest rate of 4.55% and 5.11%
and expected life of three years.
A summary of the status of the Company's stock option plans as of March 31,
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 125,000 $ 3.47
Canceled (3,000) $ 2.25
-------
Outstanding at March 31, 1999 241,000 $ 2.84
=======
There were 209,000 and 97,000 options exercisable at March 31, 1999 and
December 31, 1998 with a weighted-average exercise price of $2.87 and
$1.99, respectively. The weighted-average fair value of options granted was
$1.35 and $0.94 for the three months ended March 31, 1999 and the year
ended December 31, 1998, respectively.
The following table summarizes information about stock options
outstanding at March 31, 1999:
Options Outstanding
----------------------------------
Weighted-Average
Range of Number Remaining Weighted-Average
Exercise Prices Outstanding Contractual Life Exercise Price
--------------- ----------- ---------------- -------------------
$1.50 - $1.8125 35,000 2.3 years $1.68
$1.875 - $2.475 61,000 2.4 years $1.99
$2.75 - $3.00 20,000 2.6 years $2.88
$3.36 - $3.70 125,000 5.0 years $3.47
12
<PAGE>
WINMILL & CO. INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1999 and 1998
(Unaudited)
In connection with the exercise of the options, the Company received from
certain officers notes with an interest rate of 4.47% per annum payable
December 15, 2003. The balance of the notes at March 31, 1999 and December
31, 1998 was $603,675, which was classified as "notes receivable for common
stock issued."
8. PENSION PLAN
The Company has a 401(k) retirement plan for substantially all of its
qualified employees. Contributions to this are based upon a percentage of
salaries of eligible employees and are accrued and funded on a current
basis. Total pension expense for the three months ended March 31, 1999 and
March 31, 1998 were $8,862 and $8,796, respectively.
9. INCOME TAXES
The provision for income taxes for the three months ended March 31, 1999
and 1998 are as follows:
1999 1998
---------- ----------
Current
State and local $ 866,347 $ 4,800
Federal 1,220,000 --
---------- ----------
$2,086,347 $ 4,800
========== ==========
Deferred tax assets (liabilities) are comprised of the following at March
31, 1999 and December 31, 1998:
1999 1998
-------- --------
Unrealized loss (gain) on investments $ 15,000 $ 12,400
Depreciation 10,000 10,000
Accrued expenses -- 40,000
Net operating loss carryforwards -- 153,000
-------- --------
Total deferred tax assets 25,000 215,400
Deferred tax asset valuation allowance -- --
-------- --------
Net deferred tax assets $ 25,000 $215,400
======== ========
Due to the sale of BBSI, the net operating loss carryforwards will be
fully realized in 1999.
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.
10. 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 $ 72,950 for the quarter ended March 31,
1999, and 1998, respectively. During the quarter ended March 31, 1999 and
1998, the Funds paid approximately $51,441 and $36,000, respectively, for
co-transfer agent services to ISC, which paid such amounts to certain
brokers for performing such services. These reimbursements were recorded as
a reduction to marketing expenses.
13
<PAGE>
WINMILL & CO. INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1999 and 1998
(Unaudited)
In connection with management services, the Company's investment managers,
CEF, MMC, and RAI waived or reimbursed management fees to the Funds in the
amount of $72,430 and $22,273 for the quarter ended March 31, 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 March 31, 1999, the
policy had a cash surrender value of approximately $150,300 and is included
in other assets in the balance sheet.
The Company's discount brokerage subsidiary received brokerage commissions
of approximately $17,129 and $45,076 from the Funds for the three months
ended March 31, 1999 and 1998, respectively.
11. CONTINGENCIES
A group called Karpus Investment Management ("KIM") at the 1997 annual
meeting of Bull & Bear U.S. Government Securities Fund, Inc. ("BBG") sought
to elect its slate of nominees in opposition to management and at the 1998
annual meeting of BBG made a counter-solicitation on all management
proposals and a solicitation to terminate the investment management
agreement. On February 19, 1998, KIM filed a lawsuit against BBG in the
Circuit Court for Baltimore City, Maryland, Case No. 9805005, which was
dismissed with prejudice on October 1, 1998. 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. On December 22, 1998, KIM
filed a lawsuit against BBG in the United States District Court for the
District of Maryland Court, 98-CV-4161 and BBG has made counterclaims. KIM
has submitted a proposal to BBG for inclusion in proxy material at the next
meeting of shareholders to terminate the investment management contract of
CEF with BBG. On May 25, 1999, BBG and KIM announced that they had entered
into a settlement of all litigation in the United States District Court for
the Southern District of New York and in the United States District Court
for the District of Maryland. The settlement is subject to the approval of
the Board of Directors of BBG. In connection with the settlement, KIM has
agreed to sell its 12.7% stake in BBG of 96,550 shares to ISC. ISC will pay
$12 7/8 per share. The outcome of these matters and their effect on the
Company or CEF's management agreement with BBG cannot be predicted with
certainty. BBG's net assets at March 31, 1999 amounted to approximately
$10.4 million.
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, 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 March 31, 1999 compared to Three Months Ended March 31, 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, 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 net asset levels in the Funds may also
cause or increase reimbursements to the Funds pursuant to expense limitations as
described in Note 10 of the financial statements. 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 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 $126,883 or 14% which was primarily due to a
decrease in management, distribution and shareholder administration fees of
$208,237 or 24% because of a lower level of 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, and $248 million at March 31, 1999. The Company had
realized gains of $54,521 on the sale of the Company's investments. Dividends,
interest and other income increased $26,833 due to rental income from the
Company's investment in real estate. The Company began leasing space to its
tenants in May 1998.
Total expenses increased $86,630 or 13% as a result of an increase in
general and administrative expenses and expense reimbursements to the Funds.
General and administrative expenses increased $70,090 or 16% because of higher
rent expense and writeoff of barter credits. Expense reimbursements to the Funds
increased $50,157 or 225% due to higher waivers of management fees in certain
Funds. Marketing expenses decreased $10,494 or 9%. Subadvisory fees decreased
$39,335 or 48% because of the lower net assets in the Midas Fund. Professional
fees decreased $1,173 or 6%. Net loss from continuing operations for the period
was $18,531 or $.01 per share as compared to net income of $206,529 or $.14
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
$1.39 diluted earnings per share as compared to a net loss from discontinued
operations of $71,350 or $.05 per share for 1998. Net income for the period was
$2,336,111 or $1.38 diluted earnings per share for the period as compared to net
income of $135,179 or $.09 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:
March 31, 1999 December 31, 1998
-------------- -----------------
Working Capital $5,020,943 $2,371,234
Total Assets $10,284,273 $5,315,147
Long Term Debt -- --
Shareholders' Equity $7,280,305 $4,959,016
Working capital, total assets and shareholders' equity increased
$2,649,709, $4,969,126 and $2,321,289, respectively for the three months ended
March 31, 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.
15
<PAGE>
Effects of Inflation and Changing Prices
Since the Company derives most of its revenues from acting as the
manager and distributor of investment companies, 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 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.
16
<PAGE>
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.
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.
17
<PAGE>
Part II. Other Information
Items 4. Submission of Matters to a Vote of Security Holders During First
Quarter of the Year Ended December 31, 1999
At the annual meeting of Class B shareholder held March 2, 1999, the
following matters were unanimously approved: the selection of Tait, Weller &
Baker as the independent accountants of the Company; the election of Robert D.
Anderson, Bassett S. Winmill, Charles A. Carroll, Mark C. Jones, Mark C.
Winmill, Edward G. Webb, Jr. and Thomas B. Winmill as directors of the Company;
the amendment of the Company's Certificate of Incorporation to change the
Company's name to Winmill & Co. Incorporated; and, the ratification of the
actions of the Board of Directors of the Company in adopting the amendment to
the Bull & Bear Group, Inc. 1995 Long-Term Incentive Plan (as amended and
restated as of October 29, 1997).
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: May 27, 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: May 27, 1999 /s/ Bassett S. Winmill
----------------------------------
Bassett S. Winmill
Chairman of the Board,
Director
Dated: May 27, 1999 /s/ Robert D. Anderson
----------------------------------
Robert D. Anderson
Vice Chairman, Director
Dated: May 27, 1999 /s/ Thomas B. Winmill
----------------------------------
Thomas B. Winmill, Esq.
Co-President,
General Counsel, Director
Dated: May 27, 1999
----------------------------------
Charles A. Carroll, Director
Dated: May 27, 1999 /s/Edward G. Webb, Jr.
Edward G. Webb, Jr., Director
Dated: May 27, 1999
----------------------------------
Mark C. Jones, Director
19
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<NAME> Winmill & Co. Incorporated
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<PERIOD-END> MAR-31-1999
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<SECURITIES> 377,558
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