<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(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, 1996
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or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________________ to __________________
Commission File Number: 33-89966
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TREMONT ADVISERS, INC.
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(Exact name of small business issuer as specified in its charter)
Delaware 06-1210532
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(State or other jurisdiction or (I.R.S. Employer
incorporation or organization) Identification No)
555 Theodore Fremd Avenue, Rye, New York 10580
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(Address of principal executive offices) (Zip Code)
(914) 921-3400
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(Issuer's telephone number)
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period) that the issuer was required to file such reports, and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
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APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDING DURING THE
PRECEDING FIVE YEARS
Check whether the issuer filed all documents and reports required to be
filed by Section 12, 13, or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
Yes No
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APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of the Registrant's Class A Common Stock, $0.01
par value, as of the close of business on May 9, 1996 was 1,284,718, and the
number of shares outstanding of the Registrant's Class B Common Stock, $0.01 par
value, was 2,559,739 as of the same date.
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INDEX
Tremont Advisers, Inc.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements. (Unaudited) Page
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Condensed Consolidated Balance Sheet - March 31, 1996 1
Condensed Consolidated Statements of Operations -
three months ended March 31, 1996 and 1995 2
Condensed Consolidated Statements of Cash Flows -
three months ended March 31, 1996 and 1995 3
Notes to Condensed Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis or Plan of Operation 6
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 8
Item 6. Exhibits and Reports on Form 8-K 8
SIGNATURE 8
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Tremont Advisers, Inc.
Condensed Consolidated Balance Sheet
March 31
1996
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(Unaudited)
Assets
Current Assets
Cash and cash equivalents $ 290,786
Accounts receivable, less allowance for bad debts of $25,000 972,617
Prepaid expenses and other 17,001
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Total current assets 1,280,404
Investments in limited partnerships 677,033
Other investments 145,900
Fixed assets, net 205,771
Other assets 47,002
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Total assets $2,356,110
==========
Liabilities and shareholders' equity
Current liabilities:
Accounts payable and accrued expenses $ 872,719
Income taxes payable 558
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Total current liabilities 873,277
Redeemable preferred stock:
Series A Preferred Stock, $1 par value, 650,000 shares
authorized, issued and outstanding - none -
Shareholders' equity:
Preferred Stock $1 par value, 350,000 shares
authorized, issued and outstanding - none -
Class A Common Stock, $0.01 par value, 5,000,000 shares
authorized, 1,284,718 shares issued and outstanding 12,847
Class B Common Stock, $0.01 par value, 5,000,000 shares
authorized, 2,559,739 shares issued and outstanding 25,597
Additional paid in capital 3,924,463
Accumulated deficit (2,480,074)
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Total shareholders' equity 1,482,833
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Total liabilities and shareholders' equity $2,356,110
==========
See accompanying notes.
1
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Tremont Advisers, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months Ended
March 31
1996 1995
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Revenues:
Consulting fees $844,918 $585,400
Performance fees 76,047 31,073
Commissions 41,760 -
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Total Revenues 962,725 616,473
Expenses:
Compensation 612,529 559,707
General and administrative 229,025 214,072
Consulting 85,994 31,360
Depreciation and amortization 29,573 17,341
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Total expenses 957,121 822,480
Equity in earnings of limited partnerships 27,226 13,353
Loss from operations of joint venture (9,100) -
Other income, net 2,581 6,355
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Income (loss) before income taxes 26,311 (186,299)
Provision for income taxes - -
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Net income (loss) $ 26,311 $ (186,299)
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Net income (loss) per Common Share $ .01 $ ( .05)
========= ==========
Weighted average Common Shares and
Common Share Equivalents outstanding 3,844,457 3,844,457
========= ==========
See accompanying notes.
2
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Tremont Advisers, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended
March 31
1996 1995
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Operating Activities
Net income (loss) $ 26,311 $(186,299)
Adjustments to reconcile net income (loss)
to cash used by operating activities:
Depreciation and amortization 29,573 17,341
Equity in earnings of limited partnerships (27,226) (13,353)
Loss from operations of joint venture 9,100 -
Changes in operating assets and liabilities:
Accounts receivable (254,377) (219,287)
Accounts payable and accrued expenses 129,399 41,673
Income taxes payable (1,742) -
Other 13,222 9,072
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Net cash used by operating activities (75,740) (350,853)
Investing activities
Purchase of fixed assets (2,695) (4,800)
Investments in limited partnerships (85,928) -
Investment in joint venture - (40,000)
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Net cash used by investing activities (88,623) (44,800)
Net decrease in cash and cash equivalents (164,363) (395,653)
Cash and cash equivalents at beginning of period 455,149 901,062
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Cash and cash equivalents at end of period $ 290,786 $ 505,409
========= =========
See accompanying notes.
3
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Tremont Advisers, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE A - Subsidiaries of the Registrant
The wholly-owned subsidiaries of Tremont Advisers, Inc. (the "Company") are as
follows:
Tremont Partners, Inc. (TPI)
Tremont (Bermuda) Limited (TBL)
Tremont Securities, Inc. (TSI)
NOTE B - Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Item 310(b)
of Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments ( consisting
of normal recurring accruals) necessary for a fair presentation have been
included. Operating results for the three month period ended March 31, 1996 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1996. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1995.
Net Income (Loss) Per Common Share: Per share amounts are based on the weighted
average number of shares of common stock outstanding during the period, plus the
effect of common stock equivalents in the periods where there is a dilutive
effect.
Concentrations of Credit Risk: The Company's accounts receivable are not
concentrated in any specific geographic region, but are concentrated in the
investment industry. At March 31, 1996, the Company had accounts receivable of
$231,244 and $130,322 from Ultima Investments Limited and Wafra Global Fund
Ltd., respectively. Although the Company's exposure to credit risk associated
with nonpayment by customers is affected by conditions within the investment
industry, no other customer exceeded 10% of the Company's net receivables at
March 31, 1996.
NOTE C - Investments in Limited Partnerships
At March 31, 1996, TPI's investment in The Broad Market Fund, L.P. was $500,004
and represented 1.0% of the fund's net assets. Summarized unaudited financial
information is as follows:
March 31, 1996
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Total Assets $49,736,742
Partners' Capital 48,987,658
Quarter ended March 31
1996 1995
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Net investment income $ 561,382 $1,509,903
Net realized gain (loss) on investments 1,412,766 (845,129)
Net income 1,974,148 664,774
4
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NOTE D - Other Investments
At March 31, 1996, TBL's investment in joint venture was $25,900. Summarized
unaudited financial information of the joint venture is as follows:
March 31, 1996
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Total Assets $175,755
Shareholders' Equity 64,856
Quarter ended March 31
1996 1995
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Revenues $ 4,289 $ 137
Expenses 27,633 4,910
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Net loss $(23,344) $(4,773)
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NOTE E - Accounts Payable and Accrued Expenses
Accrued expenses at March 31, 1996 consist of the following:
Professional and consulting fees $670,309
Accounts payable 64,250
Compensation 40,000
Due to limited partnership 24,375
Publications 7,132
Other 66,653
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$872,719
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Included in accrued professional and consulting fees is an amount accrued for
alleged claims against the Company. (See Note F)
NOTE F - Contingencies
In August 1993, a law suit was initiated against the Company, TPI, TBL and Ms.
Manzke, the Chairman of the Board, in the Supreme Court of the State of New
York, County of New York, by Mr. Sass Khazzam, Capulet Management Inc. and Kazco
Mgt., Inc. alleging that there was an agreement whereby the plaintiffs would
recover 20% of the fees generated from the Global Advisors Portfolio, N.V. The
complaint against Ms. Manzke has been dismissed. With regard to the proceedings,
discovery has been completed and the Company intends to defend its position
vigorously. The Company has recorded reserves which it estimates will adequately
cover any such liability to date although the reserves would not be sufficient
to cover the entire claim in the event the plaintiff was to succeed on all
claims asserted in the action. It is management's position that the ultimate
resolution of the aforementioned claim will not have a material effect on the
Company's consolidated financial statements. In the event the plaintiffs should
prevail, the Company would be required to make payments. If the income to the
Company from fees paid by Global Advisors Portfolio, N.V. remains a major
portion of the Company's revenue, such payments could have a material impact on
the Company's financial resources.
5
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Item 2. Management's Discussion and Analysis or Plan of Operation
The Company's revenues are derived from consulting and specialized investment
services provided to institutional and other clients, as well as management fees
from certain funds under management. Consulting fees are generally a function of
the amount of assets under management and the percentage fees charged to
clients. Management fees are based on a percentage of the assets of the managed
fund and are usually paid on a monthly basis. The Company also receives
asset-based fees for investments placed by Tremont (Bermuda) Limited in certain
offshore mutual funds. The Company provides other consulting services generally
on a fixed fee basis, whether as annual retainer fees or single project fees.
The Company's principal operating expenses consist of its costs of personnel and
independent consultants. It is management's intention to adjust the Company's
focus to launching new products and take advantage of its growing world-wide
relationships to expand its operations.
Consulting fees for the three months ended March 31, 1996 increased by $259,518
or approximately 44.3% as compared to the three months ended March 31, 1995. At
the domestic subsidiary, Tremont Partners, Inc., consulting fees increased from
$253,348 for the three months ended March 31, 1995 to approximately $458,366 for
the three months ended March 31, 1996. The increase at this subsidiary is
primarily due to increases in revenues from The Broad Market Fund, L.P.
($90,808), The F.W. Thompson Fund, L.P. ($24,260), Minority Equity Trust
- -Chrysler ($35,956) and The Ultima Fund, L.P. ($22,095). At the foreign
subsidiary, Tremont (Bermuda) Limited, consulting fees increased from $332,052
for the three months ended March 31, 1995 to approximately $386,552 for the
three months ended March 31, 1996. The increase at this subsidiary is primarily
due to increases in revenues from Kingate Global Fund Class B Shares ($58,618)
and WAFRA Global Fund ($10,320). These increases, as well as others, were
partially offset by declines in revenues from Global Advisors Portfolio, N.V.
($54,930) and Global Advisers Portfolio II, N.V. ($3,777). The increases or
decreases in revenue were primarily as a result of increases or decreases in
assets within the respective investment vehicle.
Performance fees for the first quarter of 1996 and 1995, respectively, relate
solely to Global Advisor Portfolio II, N.V. The performance fees are based upon
the underlying investment vehicle outperforming a pre-established benchmark.
Commissions increased by $41,760 during the first quarter of 1996 as a result of
Tremont Securities, Inc. becoming a registered broker dealer on June 28, 1995.
Management expects for the remainder of 1996 that the Company will become less
dependent on a small number of large clients, as the Company is developing
relationships with a variety of additional entities. The Company is also
utilizing these relationships to create diversified ways to package and
distribute Tremont proprietary products. In addition, management expects
performance fee revenue to increase during periods of positive market
conditions, but management cannot predict with any accuracy whether such income
from performance fees will continue in the future due to changing market
conditions and outside factors.
Compensation expense increased for the three months ended March 31, 1996 by
$52,822 or 9.4% as compared to the three months ended March 31, 1995, as a
result of the Company's continued efforts to attract and retain qualified
employees. Such efforts resulted in an increase in the number of employees to 23
at March 31, 1996 from 21 at March 31, 1995. In addition to the increase in the
number of employees, compensation expense also increased due to salary increases
of certain employees that became effective January 1, 1996 and as a result of
increased health care costs due to the increase in the number of employees.
Consulting expenses increased in the first quarter of 1996 as compared to the
first quarter of 1995 primarily as a result of the increase in revenues from the
clients that participate in revenue sharing arrangements. For example, Tremont
Securities, Inc. has an arrangement for securities clearance services with a
clearing broker dealer whereby a certain percentage of the commissions earned
are shared; this agreement became effective in June 1995 when Tremont
Securities, Inc. became a registered broker dealer. Also, Tremont Partners, Inc.
6
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has a revenue sharing arrangements with certain clients whose products were
launched during 1995 subsequent to the closing of the first quarter.
The increase in depreciation and amortization is as a result of fixed asset
purchases during 1995, after the end of the first quarter. These purchases
consisted of computer equipment for the new employees that started during the
year, software purchases, as well as a computer system network for the Bermuda
office.
At March 31, 1996, the Company has made commitments for capital expenditures
totaling $54,500.
Profitability is dependent on the ability of the Company to maintain existing
client relationships, several of which currently account for a significant
portion of the Company's revenues, to increase assets under management for its
clients, and to market its services to new accounts.
Cash used in operations was $75,740 for the three months ended March 31, 1996 as
compared to $350,853 in the comparable period of 1995. The $212,610 increase in
net income for the period was offset by certain increases in working capital
accounts. Accounts receivable balances increased $254,377 over 1995. Such
increase was partially offset by increases in accounts payable and accrued
expenses ($129,399).
The Company believes it has adequate capital resources and working capital to
bring to market those products currently in the developmental stage, and that
the revenue stream from these, as well as from existing products, will be
sufficient to support future growth. The Company has no short term or long term
debt obligations.
In August 1993, a law suit was initiated against the Company, TPI, TBL and Ms.
Manzke, the Chairman of the Board, in the Supreme Court of the State of New
York, County of New York, by Mr. Sass Khazzam, Capulet Management Inc. and Kazco
Mgt., Inc. alleging that there was an agreement whereby the plaintiffs would
recover 20% of the fees generated from the Global Advisors Portfolio, N.V. The
complaint against Ms. Manzke has been dismissed. With regard to the proceedings,
discovery has been completed and the Company intends to defend its position
vigorously. The Company has recorded reserves which it estimates will adequately
cover any such liability to date although the reserves would not be sufficient
to cover the entire claim in the event the plaintiff was to succeed on all
claims asserted in the action. It is management's position that the ultimate
resolution of the aforementioned claim will not have a material effect on the
Company's consolidated financial statements. In the event the plaintiffs should
prevail, the Company would be required to make payments. If the income to the
Company from fees paid by Global Advisors Portfolio, N.V. remains a major
portion of the Company's revenue, such payments could have a material impact on
the Company's financial resources.
7
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
In August 1993, a law suit was initiated against the Company, TPI, TBL and Ms.
Manzke, the Chairman of the Board, in the Supreme Court of the State of New
York, County of New York, by Mr. Sass Khazzam, Capulet Management Inc. and Kazco
Mgt., Inc. alleging that there was an agreement whereby the plaintiffs would
recover 20% of the fees generated from the Global Advisors Portfolio, N.V. The
complaint against Ms. Manzke has been dismissed. With regard to the proceedings,
discovery has been completed and the Company intends to defend its position
vigorously. The Company has recorded reserves which it estimates will adequately
cover any such liability to date although the reserves would not be sufficient
to cover the entire claim in the event the plaintiff was to succeed on all
claims asserted in the action. It is management's position that the ultimate
resolution of the aforementioned claim will not have a material effect on the
Company's consolidated financial statements. In the event the plaintiffs should
prevail, the Company would be required to make payments. If the income to the
Company from fees paid by Global Advisors Portfolio, N.V. remains a major
portion of the Company's revenue, such payments could have a material impact on
the Company's financial resources.
Item 6. Exhibits and Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter ended March 31, 1996.
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Tremont Advisers, Inc.
Date: May 14, 1996 /s/Stephen T. Clayton
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Stephen T. Clayton
Chief Financial Officer
(Duly authorized Officer and
Principal Financial and Accounting
Officer)
8
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<NAME> TREMONT ADVISORS, INC.
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<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 290,786
<SECURITIES> 0
<RECEIVABLES> 997,617
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<CURRENT-ASSETS> 1,280,404
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<COMMON> 38,444
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