As filed with the Securities and Exchange Commission on August 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 June 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 June 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 June 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 JUNE 30, 2000
INDEX
Page
Number
------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
- (Unaudited) June 30, 2000 and December 31, 1999 3
Consolidated Statements of Income (Loss)
- (Unaudited) Three and Six Months Ended
June 30, 2000 and June 30, 1999 4
Consolidated Statements of Changes in Shareholders' Equity
- (Unaudited) Six Months Ended June 30, 2000 and
June 30, 1999 5
Consolidated Statements of Cash Flows
- (Unaudited) Six Months Ended June 30, 2000 and
June 30, 1999 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 Second Quarter of the Year Ended
December 31, 2000 17
Management's Representation and Signatures 18
2
<PAGE>
WINMILL & CO. INCORPORATED
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
--------------- ---------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 1,568,287 $ 2,560,093
Marketable securities (Note 3) 3,403,031 4,600,928
Management, distribution and shareholder
administration fees receivable 152,060 272,800
Interest, dividends and other receivables 123,950 43,429
Prepaid expenses and other assets 336,771 128,962
--------------- ---------------
Total Current Assets 5,584,099 7,606,212
--------------- ---------------
Real estate, net 1,330,275 1,325,693
Equipment, furniture and fixtures, net 88,602 102,702
Excess of cost over net book value of
subsidiaries, net 629,907 650,001
Deferred income taxes (Note (10) 120,000 140,000
Other 281,921 265,421
--------------- ---------------
2,450,705 2,483,817
--------------- ---------------
Total Assets $ 8,034,804 $ 10,090,029
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accrued income taxes $ 38,923 $ 1,866,600
Accounts payable 153,773 201,926
Accrued professional fees 39,505 75,055
Accrued payroll and other related costs 17,310 72,049
Accrued other expenses 5,000 25,928
Other current liabilities 9,836 9,836
--------------- ---------------
Total Current Liabilities 264,347 2,251,394
--------------- ---------------
Contingencies (Note 13) -- --
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 1,475,820 1,203,303
Notes receivable for common stock issued (603,675) (603,675)
Accumulated other comprehensive income 9,307 350,002
--------------- ---------------
Total Shareholders' Equity 7,770,457 7,838,635
--------------- ---------------
Total Liabilities and Shareholders' Equity $ 8,034,804 $ 10,090,029
=============== ===============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
WINMILL & CO. INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
-------------------------------- -------------------------------
2000 1999 2000 1999
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenues:
Management, distribution, service and administrative fees $ 572,596 $ 812,566 $ 1,230,299 $ 1,517,251
Real estate rental income 65,914 51,455 134,797 97,586
Consulting fee 50,000 50,000 100,000 50,000
Net realized and unrealized gains from investments (55,272) 1,309 215,090 55,830
Dividends, interest and other 87,432 77,346 194,374 82,130
-------------- -------------- -------------- --------------
720,670 992,676 1,874,560 1,802,797
-------------- -------------- -------------- --------------
Expenses:
General and administrative 458,764 499,283 967,501 1,039,521
Marketing 109,624 155,374 183,358 250,085
Expense reimbursements to the Funds (Note 11) 78,549 79,412 155,338 151,642
Subadvisory fees -- 40,513 -- 82,649
Professional fees 62,501 98,685 93,977 118,568
Amortization and depreciation 36,290 36,524 73,967 79,630
-------------- -------------- -------------- --------------
745,728 909,791 1,474,141 1,722,095
-------------- -------------- -------------- --------------
Income (loss) from continuing operations
before income taxes (25,058) 82,885 400,419 80,702
Income taxes (Note 10) 4,448 19,099 127,902 35,446
-------------- -------------- -------------- --------------
Income (loss) from continuing operations (29,506) 63,786 272,517 45,256
-------------- -------------- -------------- --------------
Discontinued Operations:
Income (loss) from discontinued operations (Note 2) -- -- -- 2,354,642
-------------- -------------- -------------- --------------
Net Income $ (29,506) $ 63,786 $ 272,517 $ 2,399,898
============== ============== ============== ==============
Per share data:
Basic
Income (loss) from continuing operations $ (.02) $ .04 $ .16 $ .03
Income (loss) from discontinued operation -- -- -- 1.42
-------------- -------------- -------------- --------------
Net Income $ (.02) $ .04 $ .16 $ 1.45
============== ============== ============== ==============
Diluted
Income (loss) from continuing operations $ (.02) $ .04 $ .16 $ .03
Income (loss) from discontinued operations -- -- -- 1.39
-------------- -------------- -------------- --------------
Net Income $ (.02) $ .04 $ .16 $ 1.42
============== ============== ============== ==============
Average shares outstanding:
Basic 1,655,017 1,655,017 1,655,017 1,655,017
============== ============== ============== ==============
Diluted 1,655,017 1,690,212 1,660,654 1,690,056
============== ============== ============== ==============
</TABLE>
See accompanying notes to the consolidated financial statements.
4
<PAGE>
WINMILL & CO. INCORPORATED
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Six Months Ended June 30, 2000 and 1999
(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>
Six Months Ended June 30, 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, June 30, 1999 1,635,017 20,000 $ 16,351 $ 200 $ 6,872,454
============= ============= ============= ============= =============
Six Months Ended June 30, 2000
Balance, January 1, 2000 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, June 30, 2000 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>
Six Months Ended June 30, 1999
Balance, January 1, 1999 $ (603,675) $ (1,325,338) $ (976) $ 4,959,016
Net income -- 2,399,898 -- 2,399,898
Other comprehensive income
Change in unrealized gains
on marketable securities -- -- 14,983 14,983
------------- ------------- ------------- -------------
Comprehensive income 2,414,881
-------------
Balance, June 30, 1999 $ (603,675) $ 1,074,560 $ 14,007 $ 7,373,897
============= ============= ============= =============
Six Months Ended June 30, 2000
Balance, January 1, 2000 $ (603,675) $ 1,203,303 $ 350,002 $ 7,838,635
Net income -- 272,517 -- 272,517
Other comprehensive income
Change in unrealized gains
on marketable securities -- -- (340,695) (340,695)
------------- ------------- ------------- -------------
Comprehensive income (68,178)
-------------
Balance, June 30, 2000 $ (603,675) $ 1,475,820 $ 9,307 $ 7,770,457
============= ============= ============= =============
</TABLE>
5
<PAGE>
WINMILL & CO. INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
----------------------------------
2000 1999
--------------- ---------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 272,517 $ 2,399,898
--------------- ---------------
Adjustments to reconcile net income to net cash provided by
(used in) Operating Activities:
Depreciation and amortization 73,967 79,630
Realized gain from sale of BBSI -- (2,354,642)
Net realized and unrealized gains from investments (215,090) (55,830)
Cash value of life insurance (16,500) (16,500)
Other 3,983 (3,336)
(Increase) decrease in:
Management, distribution and shareholder administration
fees receivable 120,740 57,683
Interest, dividends and other receivables (80,521) (106,275)
Prepaid expenses and other assets (207,809) 273,624
Deferred tax credits 20,000 8,500
Other -- 43,762
Increase (decrease) in:
Accrued income taxes (1,827,677) 11,928
Accounts payable (48,153) 37,497
Accrued professional fees (35,550) (305,801)
Accrued payroll and other related costs (54,739) (916,417)
Accrued other expenses (20,928) 65,672
--------------- ---------------
Total adjustments (2,288,277) (3,180,505)
--------------- ---------------
Net cash used in Operating Activities (2,015,760) (780,607)
--------------- ---------------
Cash Flows from Investing Activities:
Proceeds from sale of BBSI (net of cash in discontinued
operations) -- 5,752,254
Proceeds from sales of investments 2,152,357 176,863
Purchases of investments (1,084,048) (558,857)
Purchases of equipment -- (13,067)
Capital expenditures (44,355) (25,490)
--------------- ---------------
Net cash provided by Investing Activities 1,023,954 5,331,703
--------------- ---------------
Cash Flows from Financing Activities:
Capitalized lease obligations -- (4,578)
--------------- ---------------
Net cash provided by (used in) Financing Activities -- (4,578)
--------------- ---------------
Net increase (decrease) in cash and cash equivalents (991,806) 4,546,518
Cash and cash equivalents:
At beginning of period 2,560,093 1,403,931
--------------- ---------------
At end of period $ 1,568,287 $ 5,950,449
=============== ===============
</TABLE>
Supplemental disclosure: The Company paid $1,346,000 and $0 in Federal
income taxes during the six months ended June 30,
2000 and 1999.
The Company paid approximately $0 and $20 in
interest during the six months ended June 30, 2000
and June 30, 1999, respectively.
See accompanying notes to the consolidated financial statements.
6
<PAGE>
WINMILL & CO. INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 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 June 30, 2000 and December 31, 1999, the Company and
subsidiaries had invested approximately $1,376,000 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.
7
<PAGE>
WINMILL & CO. INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 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 held for investment is recorded at cost and is
depreciated on a straight-line basis over its estimated useful life.
At June 30, 2000 and December 31, 1999, accumulated depreciation
amounted to approximately $198,900 and $166,100, respectively.
Equipment, furniture and fixtures are recorded at cost and are
depreciated on the straight-line basis over their estimated useful
lives, 3 to 10 years. At June 30, 2000 and December 31, 1999,
accumulated depreciation amounted to approximately $881,200 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 June 30, 2000 and December 31, 1999,
accumulated amortization amounted to approximately $570,900 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.
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 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.
8
<PAGE>
WINMILL & CO. INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 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:
<TABLE>
<CAPTION>
3 months ended June 30 6 months ended June 30
---------------------- ----------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Numerator for
basic and diluted earnings per share:
Net income $ (29,506) $ 63,786 $ 272,517 $ 2,399,898
============= ============= ============= =============
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 -- 35,195 5,637 35,039
------------- ------------- ------------- -------------
Denominator for diluted earnings per share -
adjusted weighted - average shares and
assumed conversions 1,655,017 1,690,212 1,660,654 1,690,056
============= ============= ============= =============
</TABLE>
2. DISCONTINUED OPERATIONS
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 vehicle
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 June 30, 2000, the value invested in Dollar Reserves by
BBSI's customers was approximately $32,164,000. 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.
<TABLE>
<CAPTION>
Six Months Ended
----------------
June 30, 2000 June 30, 1999
--------------- ---------------
<S> <C> <C>
Revenues $ -- $ 748,786
Expenses -- 733,537
--------------- ---------------
Income (loss) from discontinued operations -- 15,249
--------------- ---------------
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
=============== ===============
</TABLE>
9
<PAGE>
WINMILL & CO. INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000 and 1999
(Unaudited)
3. MARKETABLE SECURITIES
At June 30, 2000, marketable securities consisted of:
<TABLE>
<CAPTION>
Market Value
--------------
<S> <C>
Securities held by broker/dealer subsidiary - marked to market
Investment companies advised by subsidiaries $ 2,089,251
Equity securities 1,253,117
--------------
Total broker/dealer securities (cost $3,672,804) 3,342,368
--------------
Available-for-sale securities held by other companies marked to market
Equity securities 27,467
Unaffiliated mutual funds 33,196
--------------
Total available-for-sale securities (cost $51,356) 60,663
--------------
$ 3,403,031
==============
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
Unaffiliated mutual funds 23,622
Investment companies advised by subsidiaries 2,046,439
Equity securities 31,787
--------------
Total available-for-sale securities (cost $1,751,846) 2,101,848
--------------
$ 4,600,928
==============
</TABLE>
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 approximately 90% leased to
various tenants. 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
==========
10
<PAGE>
WINMILL & CO. INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 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 June 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 June 30, 2000,
the subsidiary had net capital of approximately $1,011,800; net capital
requirement of approximately $114,400; excess net capital of approximately
$897,400; and the ratio of aggregate indebtedness to net capital were
approximately 1.70 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:
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net income As Reported $(29,506) $63,786 $272,517 $2,399,898
Proforma $(30,678) $58,806 $270,173 $2,236,754
Earnings per share
Basic As Reported $(.02) $.04 $.16 $1.45
Proforma $(.02) $.04 $.16 $1.35
Diluted As Reported $(.02) $.04 $.16 $1.42
Proforma $(.02) $.03 $.16 $1.32
</TABLE>
11
<PAGE>
WINMILL & CO. INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000 and 1999
(Unaudited)
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted
average assumptions used for grants in 1999: expected volatility of
54.31%, risk-free interest rate of 4.55% and expected life of three years.
A summary of the status of the Company's stock option plans as of June 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 (7,000) $2.21
Granted 10,000 $1.97
--------
Outstanding at June 30, 2000 242,000 $2.32
========
There were 242,000 and 239,000 options exercisable at June 30, 2000 and
December 31, 1999 with a weighted-average exercise price of $2.32 and
$2.32, respectively. The weighted-average fair value of options granted
was $1.18 for the year ended December 31, 1999. There were 10,000 options
granted during the six months ended June 30, 2000.
The following table summarizes information about stock options outstanding
at June 30, 2000:
<TABLE>
<CAPTION>
Options Outstanding
---------------------------------------------------------------
Weighted-Average
Range of Number Remaining Weighted-Average
Exercise Prices Outstanding Contractual Life Exercise Price
--------------- ----------- ------------------- ----------------
<S> <C> <C> <C>
$1.75 - $2.37 145,000 2.6 years $2.14
$2.6125 - $3.00 87,000 3.9 years $2.63
</TABLE>
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 June 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 six months ended June 30, 2000 and
March 31, 1999 were $28,690 and $19,717 respectively.
10. INCOME TAXES
The provision for income taxes for the six months ended June 30, 2000 and
1999 are as follows:
2000 1999
---- ----
Current
State and local $ 27,902 $ 11,468
Federal 80,000 23,978
-------- -------
107,902 35,446
12
<PAGE>
WINMILL & CO. INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000 and 1999
(Unaudited)
Deferred 20,000
From discontinued operations -- 2,070,000
--------- ----------
$ 127,902 $2,105,446
========= ==========
Deferred tax assets are comprised of the following at June 30, 2000 and
December 31, 1999:
2000 1999
---- ----
Unrealized loss on investments $120,000 $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 six
months ended June 30, 2000 and 1999, the Funds paid approximately $83,990
and $103,662, respectively, for co-transfer agent recordkkeeping services
to ISC, which paid such amounts to certain brokers for performing such
services. These payments for recordkkeeping 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 $155,338 and
$151,642 for the six months ended June 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 June 30, 2000,
the policy had a cash surrender value of approximately $191,500 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.
<TABLE>
<CAPTION>
Investment Real Estate
Management Operations Total
---------- ---------- -----
<S> <C> <C> <C>
June 30, 2000
Revenues $ 1,330,299 $ 134,797 $ 1,465,096
Investment income 408,921 543 409,464
Income (loss) from operations 411,397 (10,978) 400,419
Depreciation and amortization 38,467 35,500 73,967
Capital expenditures -- 39,055 39,055
Gross identifiable assets 6,532,665 1,502,139 8,034,804
June 30, 1999
Revenues $ 1,567,251 $ 97,586 $ 1,664,837
Investment income 137,564 396 137,960
Income (loss) from operations 93,016 (12,314) 80,702
Depreciation and amortization 39,413 40,217 79,630
Capital expenditures 13,067 25,490 38,557
Gross identifiable assets 8,026,439 1,450,702 9,477,141
</TABLE>
13
<PAGE>
WINMILL & CO. INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 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 June 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 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 June 30, 2000 compared to Three Months Ended June 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 decreased $272,006 or 27% which was primarily due to a
decrease in management and distribution fees of $239,970 or 30% 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 and $198 million at June 30, 2000. Rental
income increased $14,459. The increase was attributable to higher base rents in
2000. In the second quarter of 2000, the Company earned $50,000 in consulting
fees from BBSI. The Company had net realized and unrealized losses of $55,272 on
the sale of the Company's investments. Dividends, interest and other income
increased $10,086 due to higher earnings from the Company's investments.
Total expenses decreased $164,063 or 18%. General and administrative
expenses decreased $40,519 or 8%. Expense reimbursements to the Funds decreased
$863. Marketing expenses decreased $45,750 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 Fund's subadvisory
agreement was discontinued. Professional fees decreased $36,184 or 37%. Net loss
from continuing operations for the period was $29,506 or $.02 per share on a
diluted basis as compared to net income of $63,786 or $.04 diluted earnings per
share for 1999.
Six Months Ended June 30, 2000 compared to Six Months Ended June 30, 1999
-------------------------------------------------------------------------
Total revenues increased $71,763 or 4%. Management and distribution fees
decreased $286,952 or 19%. 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 and $198 million at June 30, 2000. Rental
income increased $37,211. The increase was attributable to additional rental
income in 2000. In 2000, the Company earned $100,000 in consulting fees from
BBSI. The Company had net realized gains of $215,090 on the sale of the
Company's investments. Dividends, interest and other income increased $112,244
due to higher earnings from the Company's securities investments.
Total expenses decreased $247,954 or 14%. General and administrative
expenses decreased $72,020 or 7%. Expense reimbursements to the Funds increased
$3,696 or 2% due to higher waivers of management fees in certain Funds.
Marketing expenses decreased $66,727 or 27% 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. Professional fees decreased $24,591 or 21%. Net income from
continuing operations for the period was $272,517 or $.16 per share on a diluted
basis as compared to net income of $45,256 or $.03 per share on a diluted basis
for 1999. Net gain from discontinued operations for the first six months of 1999
was $2,354,642, which included income from operations of $15,249 or $1.39 per
share on a diluted basis. Net income for the period was $272,517 or $.16 per
share on a diluted basis for the period as compared to net income of $2,399,898
or $1.42 per share on a diluted basis for 1999.
15
<PAGE>
Liquidity and Capital Resources
-------------------------------
The following table reflects the Company's consolidated working capital, total
assets, long term debt and shareholders' equity as of the dates indicated:
June 30, 2000 December 31, 1999
------------- -----------------
Working Capital $5,319,752 $5,354,818
Total Assets $8,034,804 $10,090,029
Long Term Debt -- --
Shareholders' Equity $7,770,457 $7,838,635
Working capital, total assets and shareholders' equity decreased $35,066,
$2,055,225 and $68,178, respectively for the six months ended June 30, 2000 .
Total assets decreased due to the payment of federal, state, and local
income taxes in the first quarter of 2000. The decrease in working capital and
shareholders' equity was primarily the result of the decrease in other
comprehensive income of $340,695 (marketable securities with unrealized gains
were sold in 2000 and included in realized gains on the income statement) offset
by net income of $272,517.
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
16
<PAGE>
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 Second
--------------------------------------------------------------------------
Quarter of the Year Ended December 31, 2000
-------------------------------------------
At a special meeting of Class B shareholder held June 13, 2000, the Bylaws
of the Company were amended to increase to seven the number of directors of the
Company and Mark C. Winmill was elected as a director of the Company.
17
<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: August 14, 2000 By: /s/ Minja Fleer
-------------------------------------
Minja Fleer
Treasurer, Chief Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Company
and in the capacities and on the date indicated.
Dated: August 14, 2000 /s/ Bassett S. Winmill
------------------------------------
Bassett S. Winmill
Chairman of the Board,
Director
Dated: August 14, 2000 /s/ Robert D. Anderson
------------------------------------
Robert D. Anderson
Vice Chairman, Director
Dated: August 14, 2000 /s/ Thomas B. Winmill
------------------------------------
Thomas B. Winmill, Esq.
President,
General Counsel, Director
Dated: August 14, 2000 /s/ Charles A. Carroll
------------------------------------
Charles A. Carroll, Director
Dated: August 14, 2000 /s/ Edward G. Webb
------------------------------------
Edward G. Webb, Jr., Director
Dated: August 14, 2000 /s/ Mark C. Jones
------------------------------------
Mark C. Jones, Director
Dated: August 14, 2000 Mark C. Winmill
------------------------------------
Mark C. Winmill, Director
18
