As filed with the Securities and Exchange Commission on November 14, 2000
-------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
X Quarterly Report Pursuant to Section 13 or 15(d) of the
-------- Securities Exchange Act of 1934
For the quarterly period ended September 30, 2000
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, 2000 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 September 30, 2000, 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
<PAGE>
WINMILL & CO. INCORPORATED
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2000
INDEX
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
- (Unaudited) September 30, 2000 and December 31, 1999 3
Consolidated Statements of Income (Loss)
- (Unaudited) Three and Nine Months Ended September 30, 2000 4
and September 30, 1999
Consolidated Statements of Changes in Shareholders' Equity 5
- (Unaudited) Nine Months Ended September 30, 2000
and September 30, 1999
Consolidated Statements of Cash Flows
- (Unaudited) Nine Months Ended September 30, 2000 6
and September 30, 1999
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 17
During Third Quarter of the Year Ended December 31, 2000
Management's Representation and Signatures 18
<PAGE>
WINMILL & CO. INCORPORATED
CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, December 31,
2000 1999
------------- ------------
ASSETS
Current Assets:
Cash and cash equivalents $ 1,226,421 $ 2,560,093
Marketable securities (Note 3) 4,016,680 4,600,928
Management, distribution and shareholder
administration fees receivable 51,953 272,800
Interest, dividends and other receivables 114,682 43,429
Prepaid expenses and other assets 391,773 128,962
------------ ------------
Total Current Assets 5,801,509 7,606,212
------------ ------------
Real estate, net 1,316,213 1,325,693
Equipment, furniture and fixtures, net 77,844 102,702
Excess of cost over net book value of
subsidiaries, net 457,360 650,001
Deferred income taxes (Note 10) 114,000 140,000
Other 290,171 265,421
------------ ------------
2,255,588 2,483,817
------------ ------------
Total Assets $ 8,057,097 $ 10,090,029
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accrued income taxes $ 60,720 $ 1,866,600
Accounts payable 186,358 201,926
Accrued professional fees 70,657 75,055
Accrued payroll and other related costs 29,310 72,049
Accrued other expenses -- 25,928
Other current liabilities 9,836 9,836
------------ ------------
Total Current Liabilities 356,881 2,251,394
------------ ------------
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 1,409,186 1,203,303
Notes receivable for common stock issued (603,675) (603,675)
Accumulated other comprehensive income 5,700 350,002
----------- ------------
Total Shareholders' Equity 7,700,216 7,838,635
----------- ------------
Total Liabilities and Shareholders' $ 8,057,097 $ 10,090,029
Equity =========== ============
See accompanying notes to consolidated financial statements.
<PAGE>
WINMILL & CO. INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(Unaudited)
Three Months Ended Nine Months Ended
Sept. 30, Sept. 30,
------------------ -----------------
2000 1999 2000 1999
---- ---- ---- ----
Revenues:
Management, distribution, service $550,478 $716,660 $1,780,777 $2,233,911
and administrative fees
Real estate rental income 64,261 55,391 199,058 152,977
Consulting fee 50,000 50,000 150,000 100,000
Net realized and unrealized gains 127,894 (394,106) 342,984 (338,276)
from investments
Dividends, interest and other 79,156 137,912 273,530 220,042
-------- -------- --------- ----------
871,789 565,857 2,746,349 2,368,654
-------- -------- --------- ----------
Expenses:
General and administrative 503,611 455,172 1,471,112 1,494,693
Marketing 76,886 118,942 260,244 369,027
Expense reimbursements to the 68,286 68,414 223,624 220,056
Funds (Note 11)
Subadvisory fees -- 37,652 -- 120,301
Professional 52,992 31,029 146,969 149,597
Amortization and depreciation 35,425 36,794 109,392 116,424
Write-down of intangible assets 162,500 -- 162,500 --
-------- -------- --------- ----------
899,700 748,003 2,373,841 2,470,098
-------- -------- --------- ----------
Income (loss) from continuing
operations before income taxes (27,911) (182,146) 372,508 (101,444)
Income taxes (Note 10) 38,723 (42,999) 166,625 (7,553)
-------- -------- --------- ----------
Income (loss) from continuing (66,634) (139,147) 205,883 (93,891)
operations -------- -------- --------- ----------
Discontinued Operations:
Income (loss) from discontinued -- -- -- 2,354,642
operations (Note 2) -------- -------- --------- ----------
Net Income (loss) $(66,634) $(139,147) $205,883 $2,260,751
========= ========= ========= ==========
Per share data:
Basic
Income (loss) from continuing $ (.04) $ (.08) $.12 $ (.06)
operations
Income (loss) from discontinued (.00) (.00) (.00) 1.42
operation -------- -------- --------- ---------
Net Income $ (.04) $ (.08) $ .12 $ 1.36
======== ======== ========= =========
Diluted
Income (loss) from continuing $ (.04) $ (.08) $ .12 $ (.06)
operations
Income (loss) from discontinued (.00) (.00) (.00) 1.40
operations -------- -------- --------- ---------
Net Income $ (.04) $ (.08) $ .12 $ 1.34
======== ======== ========= =========
Average shares outstanding:
Basic 1,655,017 1,655,017 1,655,017 1,655,017
========= ========= ========= =========
Diluted 1,655,017 1,655,017 1,659,839 1,684,605
========= ========= ========= =========
See accompanying notes to the consolidated financial statements.
<PAGE>
WINMILL & CO. INCORPORATED
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Nine Months Ended September 30, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
Notes
Additional Receivable Retained
Class A Class B Class A Class B Paid-in- For Common Earnings
Common Common Common Common Capital Stock Issued (Deficit)
------- ------- ------- ------- ---------- ------------ ---------
Nine Months Ended Sept.30, 1999
-------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1999 1,635,017 20,000 $16,351 $200 $6,872,454 $(603,675) $(1,325,338)
Net income -- -- -- -- -- -- 2,260,751
Other comprehensive income
Change in unrealized gains
on marketable securities -- -- -- -- -- -- --
--------- ------- ------- ---- ---------- ---------- ------------
Comprehensive income
Balance, September 30, 1999 1,635,017 20,000 $16,351 $200 $6,872,454 $(603,675) $935,413
========= ====== ======= ==== ========== ========== ========
Nine Months Ended Sept. 30, 2000
--------------------------------
Balance, January 1, 2000 1,635,017 20,000 $16,351 $200
Net income -- -- -- --
Other comprehensive income
Change in unrealized gains
on marketable securities -- -- -- --
--------- ------- -------- ----
Comprehensive income
Balance, September 30, 2000 1,635,017 20,000 $16,351 $200
========= ====== ======= ====
</TABLE>
Accumulated
other Total
Comprehensive Shareholders'
Income Equity
------------- -------------
Nine Months Ended Sept.30, 1999
------------------------------- $(976) $4,959,016
Balance, January 1, 1999
-- 2,260,751
Net income
Other comprehensive income
Change in unrealized gains (13,780) (13,780)
on marketable securities -------- ----------
2,246,971
Comprehensive income ----------
$(14,756) $7,205,987
Balance, September 30, 1999 ========= ==========
Nine Months Ended Sept. 30, 2000
--------------------------------
Balance, January 1, 2000 $350,002 $7,838,635
Net income -- 205,883
Other comprehensive income
Change in unrealized gains
on marketable securities (344,302) (344,302)
--------- ----------
Comprehensive income (138,419)
----------
Balance, September 30, 2000 $ 5,700 $7,700,216
======== ==========
<PAGE>
WINMILL & CO. INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
-----------------------
2000 1999
-------- -------
Cash Flows from Operating Activities:
Net income (loss) $ 205,883 $2,260,751
--------- ----------
Adjustments to reconcile net income to net cash
provided by (used in) Operating Activities:
Depreciation and amortization 109,391 116,424
Write-down of intangible asset 162,500 --
Realized gain from sale of BBSI -- (2,354,642)
Net realized and unrealized gains from (342,984) 338,276
investments
Cash value of life insurance (24,750) (24,750)
Other 3,167 (16,976)
(Increase) decrease in:
Management, distribution and shareholder
administration fees receivable 220,847 87,744
Interest, dividends and other receivables (71,253) (100,030)
Prepaid expenses and other assets (262,811) 292,500
Deferred tax credits 26,000 (115,000)
Other -- 43,763
Increase (decrease) in:
Accrued income taxes (1,805,880) 86,428
Accounts payable (15,568) 13,312
Accrued professional fees (4,398) (284,802)
Accrued payroll and other related costs (42,739) (907,592)
Accrued other expenses (25,928) 37,307
Other -- 17,607
---------- -----------
Total adjustments (2,074,406) (2,770,431)
----------- -----------
Net cash used in Operating Activities (1,868,523) (509,680)
----------- ---------
Cash Flows from Investing Activities:
Proceeds from sale of BBSI (net of
cash in discontinued operations) -- 5,752,254
Proceeds from sales of investments 2,245,520 202,368
Purchases of investments (1,665,757) (1,845,367)
Purchases of equipment -- (13,067)
Capital expenditures (44,912) (49,530)
----------- -----------
Net cash provided by Investing Activities 534,851 4,046,658
----------- ---------
Cash Flows from Financing Activities:
Capitalized lease obligations -- (4,749)
----------- ---------
Net cash provided by (used in) Financing -- (4,749)
Activities ----------- ---------
Net increase (decrease) in cash and cash (1,333,672) 3,532,229
equivalents
Cash and cash equivalents:
At beginning of period 2,560,093 1,403,931
---------- ---------
At end of period $1,226,421 $4,936,160
========== ==========
Supplemental disclosure: The Company paid $1,475,000 and $0 in Federal
income taxes during the nine months ended
September 30, 2000 and 1999.
See accompanying notes to the consolidated financial statements.
<PAGE>
WINMILL & CO. INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000 and 1999
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Winmill & Co. Incorporated ("Company") is a holding company. Its
subsidiaries' business consists of providing investment management and
distribution services for the Midas Funds (six open-end funds) and three
closed-end funds as well as real estate investment and operations.
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
September 30, 2000 and December 31, 1999, the Company and subsidiaries had
invested approximately $847,000 and $2,199,800, 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.
<PAGE>
WINMILL & CO. INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000 and 1999
(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 1999 financial statements have been made
to conform to the 2000 presentation.
REAL ESTATE HELD FOR INVESTMENT AND EQUIPMENT
Real estate is recorded at cost and is depreciated on a straight-line basis
over its estimated useful life. At September 30, 2000 and December 31,
1999, real estate accumulated depreciation amounted to approximately
$215,700 and $166,100, respectively. The Company has signed an agreement in
connection with the sale of this real estate (see Note 5). 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, 2000 and December 31, 1999, equipment, furniture and fixtures
accumulated depreciation amounted to approximately $827,900 and $796,900,
respectively.
EXCESS OF COST OVER NET BOOK VALUE OF SUBSIDIARIES
The excess of cost over net book value of subsidiaries is capitalized and
amortized over fifteen and forty years using the straight-line method. At
September 30, 2000 and December 31, 1999, accumulated amortization amounted
to approximately $581,000 and $550,800, 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. In connection with this review of intangible assets,
$162,500 of excess of cost over net book value of subsidiaries relating to
a certain investment management contract was written off through a charge
to operations during the third quarter of 2000. The impairment was
calculated based upon the difference between fair value and the related
carrying amount of the assets.
COMPREHENSIVE INCOME
The Company discloses comprehensive income in the financial statements.
Total comprehensive income includes net income and unrealized gains and
losses on marketable securities, which is reported as other comprehensive
income in shareholders' equity.
SEGMENT INFORMATION
The Company's operating segments were organized around services provided
and are classified into three groups - investment management, real estate
and discount brokerage. Due to the sale of BBSI, the Company's discount
brokerage business is classified as "income from discontinued operations"
on the financial statements (see Note 2). The Company's remaining business
is in two industry segments.
<PAGE>
WINMILL & CO. INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000 and 1999
(Unaudited)
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:
3 months ended 9 months ended
Sept. 30, Sept. 30,
-------------- --------------
2000 1999 2000 1999
---- ---- ---- ----
Numerator for
basic and diluted earnings
per share:
Net income (loss) $(66,634) $(139,147) $205,883 $2,260,751
=========== ========== -------- ----------
Denominators:
Denominator for basic earnings per
share - weighted-average shares 1,655,017 1,655,017 1,655,017 1,655,017
Effect of dilutive securities:
Employee Stock Options -- -- 4,822 29,588
--------- --------- --------- ---------
Denominator for diluted earnings
per share - adjusted weighted -
average shares and assumed
conversions 1,655,017 1,655,017 1,659,839 1,684,605
=========== ========= ========= =========
2. SALE OF SUBSIDIARY
On December 17, 1998, the Company signed an agreement to sell the
outstanding stock of the discount brokerage business, to a subsidiary of
Royal Bank of Canada for $6 million. The sale closed on March 31, 1999. In
connection with the sale, the rights to the name "Bull & Bear" was
transferred to Royal Bank of Canada. In addition, Royal Bank agreed that it
will cause, for the three-year period following the closing, BBSI to offer
exclusively Dollar Reserves to its customers as the sole money market fund
into which cash balances held by BBSI's customers may be swept on a daily
basis for so long as certain conditions are met, including certain
performance rankings by the Fund, in consideration of a monthly fee equal
to one-twelfth of 0.25% of the aggregate average daily amount of such
balances. At September 30, 2000, the value invested in Dollar Reserves by
BBSI's customers was approximately $30,331,000. Further, the Company has
agreed to provide or to cause its subsidiaries to provide to BBSI for a
period of three years following the closing certain services with respect
to the operation of a securities brokerage business for a monthly
administrative fee of $16,666.67, subject to certain conditions.
Nine Months Ended
September 30, 2000 September 30, 1999
------------------ ------------------
Income (loss) from $ -- $ 15,249
discontinued operations
Gain on sale of -- 2,339,393
discontinued operations
------------------ ------------------
Total income (loss) $ -- $ 2,354,642
from discontinued operations ================== ==================
<PAGE>
3. MARKETABLE SECURITIES
At September 30, 2000, marketable securities consisted of:
Market Value
------------
Securities held by broker/dealer subsidiary - marked to market
Investment companies advised by subsidiaries $ 2,188,839
Equity securities 1,282,972
-----------
Total broker/dealer securities (cost $3,705,584) 3,471,811
-----------
Available-for-sale securities held by other companies
- marked to market
Investment companies advised by subsidiaries 500,000
Equity securities 27,467
Unaffiliated mutual funds 17,402
----------
Total available-for-sale securities (cost $539,169) 544,869
----------
$ 4,016,680
At December 31, 1999, marketable securities consisted of:
Securities held by broker/dealer subsidiary - marked to market
Investment companies advised by subsidiaries $ 2,063,205
Equity securities 435,875
-----------
Total broker/dealer securities (cost $2,861,134) 2,499,080
-----------
Available-for-sale securities held by other companies
- marked to market
Investment companies advised by subsidiaries 2,046,439
Unaffiliated mutual funds 23,622
Equity securities 31,787
----------
Total available-for-sale securities (cost $1,751,846) 2,101,848
-----------
$ 4,600,928
4. LEASE COMMITMENTS
The Company leases office space under a lease which expires December 31,
2001. The rent is approximately $103,000 per annum including electricity.
5. REAL ESTATE OPERATIONS
The Company owns an office building which is 100% leased as of October 31,
2000. Future minimum lease payment receivables under noncancellable leasing
arrangements as of December 31, 1999 are as follows:
Year ending December 31,
------------------------
2000 $ 175,500
2001 189,500
2002 176,100
2003 154,900
2004 159,400
2005 - 2008 611,000
------------
Net minimum future lease receipts $1,466,400
==========
In October 2000, the Company signed an agreement for the sale of its rental
real estate property for $2.25 million, before closing adjustments and
brokerage fees. The closing date is set for December 1, 2000. The Company
anticipates recording a gain on this sale at closing.
<PAGE>
WINMILL & CO. INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000 and 1999
(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, 2000 and December 31, 1999, none of the
Preferred Stock was issued.
7. NET CAPITAL REQUIREMENTS
The Company's broker/dealer subsidiary, Investor Service Center, Inc.
("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 $100,000, when engaged in the
sale of redeemable shares of registered investment companies and trading
for its own account, 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, 2000, the subsidiary had net
capital of approximately $1,088,300; net capital requirement of
approximately $116,300; excess net capital of approximately $972,000; and
the ratio of aggregate indebtedness to net capital were approximately 1.60
to 1.
8. STOCK OPTIONS
In December 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 in February 1996 to make certain
technical changes, in October 1997 to increase the maximum number of
options to 450,000, and in March 1999 to increase 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. New
non-employee directors were granted 10,000 options on September 8, 1998 and
June 13, 2000. In September 1999, 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 ten years except as to
non-employee directors for which the maximum term is 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 follows:
Three Months Ended Sept. 30,
----------------------------
2000 1999
------------------------
Net income (loss) As Reported $(66,634) $(139,147)
Proforma $(88,011) $(218,614)
Earnings per share
Basic As Reported $(.04) $(.08)
Proforma $(.05) $(.13)
Diluted As Reported $(.04) $(.08)
Proforma $(.05) $(.13)
Nine Months Ended Sept. 30,
---------------------------
2000 1999
------------------------
Net income (loss) As Reported $205,883 $2,260,751
Proforma $181,988 $2,018,140
Earnings per share
Basic As Reported $.12 $1.36
Proforma $.11 $1.22
Diluted As Reported $.12 $1.34
Proforma $.11 $1.20
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 2000 and 1999: expected volatility of 46.02%
and 54.31%, risk-free interest rate of 5.95% and 4.55% and expected life of
three years, respectively.
<PAGE>
WINMILL & CO. INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000 and 1999
(Unaudited)
A summary of the status of the Company's stock option plans as of September 30,
2000 and December 31, 1999 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, 1998 119,000 $2.05
Granted 280,000 $2.98
Canceled (160,000) $3.28
--------
Outstanding at December 31, 1999 239,000 $2.32
Canceled (47,000) $2.29
Granted 45,000 $1.98
-------
Outstanding at September 30, 2000 237,000 $2.26
=======
There were 222,000 and 239,000 options exercisable at September 30, 2000
and December 31, 1999 with a weighted-average exercise price of $2.28 and
$2.32, respectively. The weighted-average fair value of options granted was
$.68 and $1.18 for the nine months period ended September 30, 2000 and for
the year ended December 31, 1999, respectively. There were 45,000 options
granted during the nine months ended September 30, 2000.
The following table summarizes information about stock options
outstanding at September 30, 2000:
Options Outstanding
-------------------------------------------------------
Weighted-Average
Range of Number Remaining Weighted-Average
Exercise Prices Outstanding Contractual Life Exercise Price
--------------- ----------- ------------------- ----------------
$1.75 - $2.25 107,000 2.4 years $1.94
$2.375 - $2.6125 130,000 3.8 years $2.52
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 September 30, 2000 and
December 31, 1999 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
salaries of eligible employees and are accrued and funded on a current
basis. Total pension expense for the nine months ended September 30, 2000
and September 30, 1999 was approximately $35,100 and $24,700, respectively.
10. INCOME TAXES
The provision for income taxes for the nine months ended September 30, 2000
and 1999 are as follows:
2000 1999
---- ----
Current
State and local $ 32,625 $ (1,883)
Federal 108,000 (5,650)
-------- ---------
140,625 (7,533)
Deferred 26,000 --
From discontinued operations -- 2,070,000
-------- ---------
$ 166,625 $2,062,467
========= ==========
<PAGE>
WINMILL & CO. INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000 and 1999
(Unaudited)
The difference between the statutory federal tax rate of 34% and the effective
tax rate in the financial statements is primarily attributable to the write-down
of intangible assets for which no income tax benefit is available.
Deferred tax assets are comprised of the following at September 30, 2000
and December 31, 1999:
2000 1999
---- ----
Unrealized loss on investments $94,000 $130,000
Depreciation -- 10,000
Allowance for doubtful accounts 20,000 --
------ --
$114,000 $140,000
======== ========
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. During the nine months
ended September 30, 2000 and 1999, the Funds paid approximately $117,700
and $153,500, respectively, for co-transfer agent record keeping services
to ISC, which paid such amounts to certain brokers for performing such
services. These payments for record keeping services are included in
management, distribution, service and administrative fees on the income
statement.
In connection with investment management services, the Company's investment
managers and distributor waived management and distribution fees and
reimbursed expenses to the Funds in the amount of $223,624 and $220,056 for
the nine months ended September 30, 2000 and 1999, 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, 2000, the
policy had a cash surrender value of approximately $199,800 and is included
in other assets in the balance sheet.
12. FINANCIAL INFORMATION BY BUSINESS SEGMENT
The following details selected financial information by business segment.
Investment Real Estate
Management Operations Total
---------- ----------- -----
September 30, 2000
Revenues $1,930,777 $ 199,058 $2,129,835
Investment income 615,630 884 616,514
Income (loss) from operations 265,188 (59,305) 205,883
Depreciation and amortization 56,642 52,750 109,392
Capital expenditures -- 44,912 44,912
Gross identifiable assets 6,559,822 1,497,275 8,057,097
September 30, 1999
Revenues $2,333,911 $ 152,977 $2,486,888
Investment income (loss) (118,700) 466 (118,234)
Income (loss) from operations (80,619) (13,272) (93,891)
Depreciation and amortization 58,696 57,728 116,424
Capital expenditures 13,067 49,530 62,597
Gross identifiable assets 7,899,675 1,478,766 9,378,441
<PAGE>
WINMILL & CO. INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000 and 1999
(Unaudited)
13. 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, 2000, neither the Company nor any of its subsidiaries
was involved in any litigation that, in the opinion of management, would
have a material adverse impact on the consolidated financial statements.
In July 2994, 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.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
--------------------------------------------------------------------------------
Three Months Ended September 30, 2000 compared to Three Months Ended September
30, 1999
--------------------------------------------------------------------------------
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 11 of the financial statements. On December 17, 1998, the
Company signed an agreement to sell the outstanding stock of Bull & Bear
Securities, Inc ("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 increased $305,932 or 54% reflecting primarily net realized
and unrealized gains of $127,894 from investments versus realized and unrealized
losses of $394,106 for the three months ended September 30, 1999. Management and
distribution fees decreased $166,182 or 23% reflecting lower net assets under
management. Net assets under management were approximately $258 million at
December 31, 1998, $248 million at March 31, 1999, $242 million at June 30,
1999, $249 million at September 30, 1999, $258 million at December 31, 1999,
$222 million at March 31, 2000, $198 million at June 30, 2000 and $189 million
at September 30, 2000. Dividends, interest and other income decreased $58,756
due to lower earnings from the Company's investments.
Total expenses increased $151,697 or 20% reflecting primarily the write
down of intangible assets by $162,500. Marketing expenses decreased $42,056 or
35% due to lower fulfillment expenses and lower payments to other brokers for
distributing the Company's open-end Funds. Effective December 1, 1999, the Midas
Fund's subadvisory agreement was discontinued, resulting in decreased
subadvisory fees of $37,652. Professional fees increased $21,963 or 71%. Net
loss from continuing operations for the period was $66,634 or $.04 per share on
a diluted basis as compared to net loss of $139,147 or $.08 diluted earnings per
share for 1999.
Nine Months Ended September 30, 2000 compared to Nine Months Ended September 30,
1999
--------------------------------------------------------------------------------
Total revenues increased $377,695 or16% reflecting primarily net realized
and unrealized gains of $342,984 from investments versus realized and unrealized
losses of $338,276 for the nine months ended September 30, 1999. Management and
distribution fees decreased $453,134 or 20%. Net assets under management were
approximately $258 million at December 31, 1998, $248 million at March 31, 1999,
$242 million at June 30, 1999, $249 million at September 30, 1999, $258 million
at December 31, 1999, $222 million at March 31, 2000, $198 million at June 30,
2000 and $189 million at September 30, 2000. Dividends, interest and other
income increased $53,488 due to higher earnings from the Company's securities
investments.
Total expenses decreased $96,257 or 4%. Marketing expenses decreased
$108,783 or 29% due to lower fulfillment expenses and lower payments to other
brokers for distributing the Company's open-end Funds. Effective December 1,
1999, the Midas Funds subadvisory agreement was discontinued, resulting in
decreased subadvisory fees of $120,301. Net income from continuing operations
for the period was $205,883 or $.12 per share on a diluted basis as compared to
net loss of $93,891 or $.06 per share on a diluted basis for 1999. Gain from
discontinued operations for 1999 was $2,354,642 or $1.40 per share on a diluted
basis as a result of the sale of the Company's brokerage business. Net income
for the period was $205,883 or $.12 per share on a diluted basis as compared to
net income of $2,260,751 or $1.34 per share on a diluted basis for 1999.
In October 2000, the Company signed an agreement for the sale of its rental
real estate property for $2.25 million, before closing adjustments and brokerage
fees. The closing date is set for December 1, 2000. The Company anticipates
recording a gain on this sale at closing.
<PAGE>
Liquidity and Capital Resources
-------------------------------
The following table reflects the Company's consolidated working capital, total
assets, long term debt and shareholders' equity as of the dates indicated:
September 30, 2000 December 31, 1999
------------------ -----------------
Working Capital $5,444,628 $5,354,818
Total Assets $8,057,097 $10,090,029
Shareholders' Equity $7,700,216 $7,838,635
Total assets and shareholders' equity decreased $2,032,932 and $138,419,
respectively, and working capital increased $89,810 for the nine months ended
September 30, 2000 .
Total assets decreased due to the payment of federal, state, and local
income taxes in the first quarter of 2000 and the write-down of intangible
assets of $162,500. The decrease in shareholders' equity was primarily the
result of the decrease in other comprehensive income of $344,302 (marketable
securities with unrealized gains were sold in 2000 and included in realized
gains on the income statement), and net income of $205,883 which is net of the
write-down of intangible assets of $162,500.
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.
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.
Part II. Other Information
-----------------
Items 4. Submission of Matters to a Vote of Security Holders During Third
-------- -----------------------------------------------------------------
Quarter of the Year Ended - December 31, 2000
---------------------------------------------
At a special meeting of the Class B shareholders held September 12, 2000,
the Bylaws of the Company were amended to decrease to six the number of
directors of the Company.
<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 14, 2000 By:/s/
----------------------------------------
Amy H. Ling
Treasurer, Chief Financial 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 14, 2000 /s/
----------------------------------------
Bassett S. Winmill
Chairman of the Board,
Director
Dated: November 14, 2000 /s/
-------------------------------------------
Robert D. Anderson
Vice Chairman, Director
Dated: November 14, 2000 /s/
-------------------------------------------
Thomas B. Winmill, Esq.
President,
General Counsel, Director
Dated: November 14, 2000 /s/
----------------------------------------
Charles A. Carroll, Director
Dated: November 14, 2000 /s/
----------------------------------------
Edward G. Webb, Jr., Director
Dated: November 14, 2000 /s/
----------------------------------------
Mark C. Winmill, Director
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Shareholders of
Winmill & Co. Incorporated
We have reviewed the accompanying balance sheets and statements of income
(losses) of Winmill & Co. Incorporated and consolidated subsidiaries as of
September 30, 2000 and for the three-month and nine-month periods then
ended. These financial statements are the responsibility of the company's
management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical
procedures to financial data and making inquiries of persons responsible
for financial and accounting matters. It is substantially less in scope
than an audit conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion regarding
the financial statements taken as a whole. Accordingly, we do not express
such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying financial statements for them to be in
conformity with generally accepted accounting principles.
Tait, Weller & Baker
Philadelphia, Pennsylvania
November 8, 2000
