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, 1998
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
TREMONT ADVISERS, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 06-1210532
(State or other jurisdiction
or incorporation or organization) (I.R.S. Employer Identification No)
555 Theodore Fremd Avenue, Rye, New York 10580
(Address of principal executive offices) (Zip Code)
(914) 925-1140
(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
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
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 8, 1998 was 1,284,718, and the
number of shares outstanding of the Registrant's Class B Common Stock, $0.01 par
value, was 2,802,104 as of the same date.
<PAGE>
INDEX
Tremont Advisers, Inc.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements. (Unaudited) Page
Condensed Consolidated Balance Sheets - March 31, 1998 (unaudited)
and December 31, 1997 (audited) 1
Condensed Consolidated Statements of Income -
three months ended March 31, 1998 and 1997 2
Condensed Consolidated Statements of Cash Flows -
three months ended March 31, 1998 and 1997 3
Notes to Condensed Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis 7
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K 10
Signature 10
Exhibit 27 - Financial Data Schedule 11
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Tremont Advisers, Inc.
Condensed Consolidated Balance Sheets
<TABLE>
<S> <C> <C>
March 31 December 31
1998 1997
(Unaudited) (Audited)
Assets
Current Assets
Cash and cash equivalents $ 782,134 $ 820,801
Accounts receivable, less allowances for bad debts of
$35,000 and $25,000, respectively 2,131,281 2,011,445
Receivable from officer 115,000 200,000
Prepaid expenses and other 113,955 123,103
Total current assets 3,142,370 3,155,349
Investments in limited partnerships (cost $808,467 and $803,467) 1,304,081 1,221,487
Investments in joint venture (cost $457,667 and $371,667) 158,481 99,345
Other investments (cost $86,000 and $86,000) 71,807 75,420
Fixed assets, net 380,296 401,153
Other assets 28,958 28,958
Total assets $ 5,085,993 $ 4,981,712
Liabilities and shareholders' equity
Current liabilities
Accounts payable $ 65,919 $ 50,490
Accrued expenses 758,998 1,112,734
Income taxes payable 174,888 1,143
Deferred income taxes payable 171,500 171,500
Total current liabilities 1,171,305 1,335,867
Deferred income taxes payable 160,600 160,600
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 12,847
Class B Common Stock, $0.01 par value, 5,000,000 shares
authorized, 2,802,104 shares issued and outstanding 28,021 28,021
Additional paid in capital 4,725,293 4,725,293
Accumulated deficit (1,012,073) (1,280,916)
Total shareholders' equity 3,754,088 3,485,245
Total liabilities and shareholders' equity $ 5,085,993 $ 4,981,712
</TABLE>
See accompanying notes.
Note: The Condensed Consolidated Balance Sheet at December 31, 1997 has
been derived from the audited financial statements as of that date.
<PAGE>
Tremont Advisers, Inc.
Condensed Consolidated Statements of Income
(Unaudited)
Three Months Ended
March 31
1998 1997
Revenues
Consulting fees $ 2,000,760 $ 1,108,462
Performance fees 35,882 101,554
Commissions 120,442 38,661
Total revenues 2,157,084 1,248,677
Expenses
Compensation 857,248 720,384
General and administrative 546,527 258,133
Consulting 316,049 137,793
Depreciation 40,491 26,681
Total expenses 1,760,315 1,142,991
Equity earnings of limited partnerships, net 77,594 38,104
Loss from operations of joint ventures, net (26,864) (26,861)
Other income, net 8,167 6,619
Income before income taxes 455,666 123,548
Provision for income taxes 186,823 17,750
Net income $ 268,843 $ 105,798
Net income per Common Share $ .07 $ .03
Net income per Common Share -
assuming dilution $ .06 $ .03
See accompanying notes.
<PAGE>
Tremont Advisers, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended
March 31
1998 1997
Operating Activities
Net income $ 268,843 $ 105,798
Adjustments to reconcile net income
to cash provided (used) by operating activities:
Depreciation 40,491 26,681
Equity earnings of limited partnerships (77,594) (38,104)
Loss from operations of joint ventures 26,864 26,861
Loss from other investments, net 3,613 ---
Changes in operating assets and liabilities:
Accounts receivable, net (119,836) 308,342
Receivable from officer 85,000 ---
Accounts payable 15,429 (12,799)
Accrued expenses (353,736) (516,780)
Income taxes, net 173,745 15,905
Other 9,148 16,422
Net cash provided (used) by operating activities 71,967 (67,674)
Investing activities
Purchase of fixed assets (19,634) (30,616)
Investments in limited partnerships (5,000) (135,000)
Investments in joint ventures (86,000) ---
Net cash used by investing activities (110,634) (165,616)
Net decrease in cash and cash equivalents (38,667) (233,290)
Cash and cash equivalents at beginning of period 820,801 551,710
Cash and cash equivalents at end of period $ 782,134 $ 318,420
See accompanying notes.
<PAGE>
Tremont Advisers, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE A - Basis of Presentation
The accompanying unaudited condensed 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, 1998 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1998. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's Annual
Report on Form 10-KSB for the fiscal year ended December 31, 1997.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from such estimates.
Net Income Per Common Share: Basic earnings per share is based on the
weighted average number of shares of common stock outstanding during the period.
Diluted earnings per share is based on the weighted average number of shares of
common stock outstanding during the period adjusted for the effects of dilutive
securities.
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, 1998, the Company had accounts receivable of
$285,998 and $246,375 from Starvest Funds, Ltd. and The Broad Market Fund, L.P.
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, 1998.
Income Taxes: The provision for income taxes includes federal and state
taxes currently payable and those deferred because of temporary differences
between the financial statement and the tax basis of assets and liabilities. A
valuation allowance is recorded, based on available evidence when it is more
likely than not that some portion or all of the deferred tax assets will not be
realized.
NOTE B - Investments in Limited Partnerships
At March 31, 1998 and December 31, 1997, Tremont Partners, Inc.'s ("TPI")
investment in The Broad Market Fund, L.P. was $723,714 and $688,592 representing
.46% and .51%, respectively, of the fund's net assets. Summarized financial
information of The Broad Market Fund, L.P. is as follows:
March 31, 1998 December 31, 1997
(Unaudited) (Audited)
Total assets $159,564,828 $162,511,390
Total liabilities 1,304,924 28,567,596
<PAGE>
NOTE B - Investments in Limited Partnerships (continued)
Three months ended
March 31, 1998 March 31, 1997
Net investment income $ 981,236 $ 295,630
Net realized and unrealized gain
on investments 6,268,587 4,351,753
Net income $7,249,823 $4,647,383
At March 31, 1998, TPI's investments in Meridian Horizon Fund, L.P.,
GamTree, L.P and The F.W. Thompson Fund, L.P. were $335,471, $188,734 , and
$56,162, respectively. At December 31, 1997, TPI's investment in Meridian
Horizon Fund, L.P., Gamtree, L.P. and The F.W. Thompson Fund, L.P. was $299,483,
$186,717, and $46,695 respectively. At March 31, 1998 TPI did not have an
investment in The Broad Market Prime Fund, L.P.; however, as General Partner,
TPI has a commitment to fund up to 1% of the limited partnership losses if and
when such losses occur. For the three months ended March 31, 1998, TPI did not
have any equity in earnings of limited partnerships for this limited
partnership. The aggregated summarized financial information of these entities
is as follows:
March 31, 1998 December 31, 1997
(Unaudited) (Audited)
Total assets $330,543,517 $249,504,158
Total liabilities 56,104,431 60,805,159
Three months ended
March 31 March 31
1998 1997
Net investment loss $ (750,408) $ (306,313)
Net realized and unrealized gain
on investments 18,833,770 1,305,848
Net income $18,083,362 $ 999,535
NOTE C - Accrued Expenses
Accrued expenses consist of the following:
March 31, 1998 December 31, 1997
(Unaudited) (Audited)
Professional and consulting fees $ 415,759 $ 741,105
Compensation 182,000 200,000
Note payable 75,810 87,840
Employee benefit plan 46,566 46,566
Other 38,863 37,223
$ 758,998 $ 1,112,734
<PAGE>
NOTE D - Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<S> <C> <C>
Three Months Ended March 31
1998 1997
Numerator:
Net Income - numerator for basic and dilutive earnings
per share (income available to shareholders) $ 268,843 $ 105,798
Denominator:
Denominator for basic earnings per share - weighted-
average shares 4,086,822 3,884,457
Effect of dilutive securities:
Employee stock options 207,193 97,966
Denominator for diluted earnings per share - adjusted
weighted-average shares and assumed conversions 4,294,015 3,982,423
Basic earnings per share $ 0.07 $ 0.03
Diluted earnings per share $ 0.06 $ 0.03
<PAGE>
</TABLE>
Item 2. Management's Discussion and Analysis
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 or quarterly 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 continue
the Company's focus on launching new products and to taking advantage of its
growing world-wide relationships to expand its operations.
Consulting fees for the three months ended March 31, 1998 increased by $892,298,
or approximately 80.5%, as compared to the three months ended March 31, 1997. At
the Company's principal domestic subsidiary, Tremont Partners, Inc., consulting
fees increased from $687,388 for the three months ended March 31, 1997 to
approximately $1,375,873 for the three months ended March 31, 1998. This
increase was primarily due to increases in revenues from the following related
entities: The Broad Market Prime Fund, L.P. ($287,296), Meridian Horizon Fund,
L.P. ($131,964), and The Broad Market Fund, L.P. ($114,203). Consulting fees
also increased domestically as a result of TSI realizing consulting fees from
the sale of limited partnership interests. These fees amounted to $8,189 for the
three months ended March 31, 1998 and did not occur during the three months
ended March 31, 1997. At Tremont (Bermuda) Limited, the Company's foreign
subsidiary, consulting fees increased from $421,121 for the three months ended
March 31, 1997 to approximately $616,698 for the three months ended March 31,
1998. This increase was primarily due to an increase in revenues from Kingate
Global Fund Class B Shares ($93,972), increases in assets within the respective
investment vehicles and from new clients.
Performance fees for the three months ended March 31, 1998 decreased by $65,672,
or 64.67%, as compared to the three months ended March 31, 1997 because fewer
investment vehicles outperformed pre-established benchmarks.
Commissions increased by $81,781, or 211.53%, for the three months ended
March 31, 1998 compared to the three months ended March 31, 1997. These
increases resulted primarily from increased trading activities of TSI's clients.
Management expects that during the remainder of 1998 the Company will
become less dependent on a small number of large clients, as the Company is
developing relationships with additional entities. The Company is also utilizing
these relationships to create diversified ways to package and distribute its
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, 1998 by
$136,864, or 19%, as compared to the three months ended March 31, 1997, as a
result of the Company's continued efforts to attract and retain qualified
employees. These efforts resulted in an increase in the number of employees from
28 at March 31, 1997 to 31 at March 31, 1998. 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, 1998 and as a result of
increased health care costs due to the increase in the number of employees.
General and administrative expenses consist primarily of rent,
telecommunications, travel and entertainment, professional fees and other
related expenses. General and administrative expenses were $546,527 and $258,133
for the three months ended March 31, 1998 and March 31, 1997, respectively. The
increase in general and administrative expenses was primarily due to costs
<PAGE>
related to the Company's continued expansion to service its growth, including
moving to a larger office facility in September, 1997. It is also due to an
increase in professional fees and other related costs of launching new business
ventures which are currently in the start-up phase.
Consulting expenses increased $178,256 or 129.37% for the three months
ended March 31, 1998 as compared to the three months ended March 31, 1997
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. Also,
Tremont Partners, Inc. and Tremont (Bermuda) Limited have revenue sharing
arrangements with other parties relating to certain clients.
Depreciation increased $13,810 or 51.76% for the three months ended March
31, 1998 compared to the three months ended March 31, 1997. The increase
resulted from purchases of fixed assets after March 31, 1997. These purchases
include computer upgrades, new software and the expansion of the computer
network as well as furniture and fixtures for the Company's new executive
offices. The Company made capital expenditures of $19,634 during the three
months ended March 31, 1998.
Equity earnings of limited partnerships increased $39,490, or 103.64% ,for
the three months ended March 31, 1998 as compared to the three months ended
March 31, 1997. This increase was a result of increased performance as well as a
greater asset base.
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 provided by operations was $71,967 for the three months ended March
31, 1998 as compared to cash used in operations of $67,674 for the three months
ended March 31 1997. Cash provided by operating activities was primarily a
result of profitable operations, a decrease in a receivable from an officer and
increased taxes payable partially offset by increases in accounts receivable and
decreases in accrued expenses. These positive changes in cash flow, as well as
others, were offset by investing activities of $110,634.
At March 31, 1998, the Company owned options to purchase 8,000 shares of a
non-publicly registered investment adviser specializing in 401(k) investment
allocation advice over the Internet. The options were granted at $10 per share
and have vested or will vest 25% on January 1, 1996; 25% in equal installments
at the end of each month between January 1, 1997 and December 31, 1997; and 50%
in equal installments at the end of each month between January 1, 1998 and
December 31, 1998. The options have a five year term and were valued at zero by
the Company at March 31, 1998.
At March 31, 1998, the Company owns 30,000 shares of common stock of a
non-public financial services company formed in 1996. The shares were received
by the Company as a result of an employee's participation as a board member of
such company. At March 31, 1998, the shares of common stock were valued at zero.
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 material short term or
long term debt obligations
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to determine the applicable year. Any computer programs
that have time sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000. This could result in a system failure or
miscalculation causing significant disruptions of operations, including, among
other things, a temporary inability to process transactions or engage in similar
normal business activities. Based on a recent assessment, the Company determined
its computer systems are currently enabled for year 2000 entries. The cost of
such assessment was immaterial to the Company. However, the Company could be
<PAGE>
adversely affected if the computer systems used by the Company's service
providers do not properly process and calculate date-related information and
data from and after January 1, 2000. The Company is currently in communication
with these other companies to determine if there is reasonable cause for
concern.
Certain statements in this Management's Discussion and Analysis constitute
"forward looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward looking statements involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance, or achievements of the Company to be materially different
from any future results, performance, or achievements expressed or implied by
such forward looking statements. These forward looking statements were based on
various factors and were derived utilizing numerous important assumptions and
other factors that could cause actual results to differ materially from those in
the forward looking statements, including, but not limited to: uncertainty as to
the Company's future profitability and the Company's ability to develop and
implement operational and financial systems to manage rapidly growing
operations, competition in the Company's existing and potential future lines of
business, and other factors. Other factors and assumptions not identified above
were also involved in the derivation of these forward looking statements, and
the failure of such other assumptions to be realized, as well as other factors,
may also cause actual results to differ materially from those projected. The
Company assumes no obligation to update these forward looking statements to
reflect actual results, changes in assumptions or changes in other factors
affecting such forward looking statements.
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter ended March 31, 1998.
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 13, 1998 /s/ Stephen T. Clayton
Stephen T. Clayton
Chief Financial Officer
(Duly authorized Officer and
Principal Financial and Accounting
Officer)
<PAGE>
EXHIBIT 27
FINANCIAL DATA SCHEDULE
TREMONT ADVISERS, INC.
MARCH 31, 1998
THIS SCHEDULE CONTAINS UNAUDITED SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONDENSED FINANCIAL STATEMENTS AS OF MARCH 31, 1998 AND FOR THE QUARTER
THEN ENDED. THIS INFORMATION IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
CONDENSED FINANCIAL STATEMENTS.
Cash and cash equivalents $ 782,134
Marketable securities ---
Accounts Receivable 2,166,281
Allowances for doubtful accounts (35,000)
Inventory ---
Total current assets 3,142,370
Property, plant and equipment 779,936
Accumulated depreciation (399,640)
Total assets 5,085,993
Current liabilities 1,171,305
Bonds ---
Preferred stock-mandatory redemption ---
Preferred stock-no mandatory redemption ---
Common stock 40,868
Other shareholders' equity 3,741,241
Total liabilities and shareholders' equity 5,085,993
Sales ---
Total revenues 2,157,084
Cost of goods sold ---
Total expenses 1,760,315
Other expenses ---
Loss provision ---
Interest expense ---
Income before taxes 455,666
Provision for income tax 186,823
Income from continuing operations 268,843
Income from discontinuing operations ---
Extraordinary items ---
Changes in accounting principles ---
Net Income 268,843
Earnings per share-basic .07
Earnings per share-assuming dilution .06
