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: 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 ____________________
Commission File Number: 0-27077
TREMONT ADVISERS, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 06-1210532
(State or other jurisdiction or (I.R.S. Employer Identification No)
incorporation or organization)
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 October 27, 2000 was 1,739,418, and
the number of shares outstanding of the Registrant's Class B Common Stock, $0.01
par value, was 5,030,208 as of the same date. Shares outstanding have been
restated to reflect the impact of a five-for-four stock split paid on August 8,
2000 to shareholders of record on July 31, 2000.
<PAGE>
INDEX
Tremont Advisers, Inc.
PART I - FINANCIAL INFORMATION Page
Item 1. Financial Statements. (Unaudited)
Condensed Consolidated Balance Sheets -
September 30, 2000 (unaudited) and December 31, 1999 (audited) 1
Condensed Consolidated Statements of Income -
nine and three months ended September 30, 2000 and 1999 2
Condensed Consolidated Statement of Shareholders' Equity -
nine months ended September 30, 2000 3
Condensed Consolidated Statements of Cash Flows -
nine months ended September 30, 2000 and 1999 4
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis 14
Part II - Other Information
Item 1. Legal Proceedings 21
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 6. Exhibits and Reports on Form 8-K 21
Signature 22
Exhibit 27 - Financial Data Schedule 23
<PAGE>
Tremont Advisers, Inc.
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30, 2000 December 31, 1999
------------------ -----------------
(Unaudited) (Audited)
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 4,656,100 $ 2,879,300
Accounts receivable, net 3,252,200 3,682,700
Dividend receivable -- 31,000
Prepaid expenses and other assets 261,900 263,800
------------------ -----------------
Total current assets 8,170,200 6,856,800
Investments (cost $4,650,900 and $3,092,400) 6,157,700 4,243,500
Investments in joint ventures (cost $507,200 and $413,400) 1,630,600 2,231,700
Fixed assets, net 993,500 774,500
Goodwill, net 1,836,300 1,999,800
Other assets 110,100 30,300
------------------ -----------------
Total assets $ 18,898,400 $ 16,136,600
================== =================
Liabilities and shareholders' equity
Current liabilities
Accounts payable $ 405,400 $ 563,800
Accrued expenses 2,407,500 2,492,800
Deferred revenue 1,241,600 1,363,500
Income taxes payable 124,500 191,700
Deferred income taxes payable -- 32,600
------------------ -----------------
Total current liabilities 4,179,000 4,644,400
Deferred income taxes payable 1,455,700 836,800
Long term revolving note payable 1,975,000 --
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, 1,989,418 and 1,993,855 shares issued and outstanding
including 250,000 shares held in treasury at September 30, 2000 20,000 16,000
Class B Common Stock, $0.01 par value, 10,000,000 shares
authorized, 5,030,208 and 5,025,381 shares issued and outstanding 50,300 40,200
Additional paid in capital 7,888,600 7,901,800
Retained earnings 5,612,800 2,698,200
Cumulative foreign currency translation
adjustment 17,000 (800)
Class A Common Stock held in treasury, at cost (2,300,000) --
------------------ -----------------
Total shareholders' equity 11,288,700 10,655,400
------------------ -----------------
Total liabilities and shareholders' equity $ 18,898,400 $ 16,136,600
================== =================
</TABLE>
See accompanying notes.
Note: The Condensed Consolidated Balance Sheet at December 31, 1999 has been
derived from the audited financial statements as of that date.
1
<PAGE>
Tremont Advisers, Inc.
Condensed Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended Three months ended
September 30 September 30
2000 1999 2000 1999
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues
Proprietary products $ 8,599,700 $ 5,773,900 $ 3,104,400 $ 2,109,200
Consulting 5,699,100 4,188,800 2,072,800 1,434,900
Database information 1,145,400 977,800 384,600 398,700
Commissions 232,500 296,400 69,500 49,300
Performance fees 104,400 190,800 6,300 60,000
------------------------------------------------------------------
Total revenues 15,781,100 11,427,700 5,637,600 4,052,100
Expenses
Compensation 5,733,500 4,576,500 1,974,100 1,830,800
General and administrative 3,205,200 2,746,000 1,111,800 1,039,200
Consulting 1,683,700 1,160,800 604,000 374,900
Depreciation 291,700 191,800 110,800 77,700
Amortization of intangibles 163,500 609,800 54,500 202,600
------------------------------------------------------------------
Total expenses 11,077,600 9,284,900 3,855,200 3,525,200
Equity earnings of investments 557,200 364,800 175,100 119,900
Earnings (loss) from operations of joint ventures (547,300) 326,800 (318,300) 347,100
Other income, net 32,400 48,600 (1,900) 27,200
------------------------------------------------------------------
Income before income taxes 4,745,800 2,883,000 1,637,300 1,021,100
Provision for income taxes 1,831,200 1,044,300 633,800 388,900
------------------------------------------------------------------
Net income $2,914,600 $1,838,700 $ 1,003,500 $ 632,200
==================================================================
Net income per common share-basic $ 0.42 $ 0.27 $ 0.15 $ 0.09
==================================================================
Net income per common share - assuming dilution $ 0.39 $ 0.25 $ 0.14 $ 0.08
==================================================================
</TABLE>
See accompanying notes.
2
<PAGE>
Tremont Advisers, Inc.
Condensed Consolidated Statement of Shareholders' Equity
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Additional Total
Par Value Paid In Retained Treasury Shareholders'
Class A Class B Capital Earnings Stock Equity
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1999 $ 16,000 $ 40,200 $ 7,901,800 $ 2,698,200 $ -- $ 10,655,400
Comprehensive Income:
Net Income -- -- -- 2,914,600 -- 2,914,600
Foreign Currency Translation 17,800
-----------------------------------------------------------------------------------------
Comprehensive Income 2,932,400
Issuance of Class B Common Stock-
Exercise of Employee Options -- -- 1,900 -- -- 1,900
(390 shares post split)
Conversion of Class A to Class B
Common Stock (4,437 shares post-split) -- -- -- -- -- --
5-for-4 Stock Split
(398,024 shares of Class A Common
Stock and 1,005,822 shares
of Class B Common
Stock) 4,000 10,100 (14,100) -- -- --
Cash-in-lieu of fractional shares -- -- (1,000) -- -- (1,000)
Purchase of Class A Common Stock
for Treasury (250,000 shares
post-split) -- -- -- -- (2,300,000) (2,300,000)
-----------------------------------------------------------------------------------------
Balance at September 30, 2000 $ 20,000 $ 50,300 $ 7,888,600 $ 5,612,800 $ (2,300,000) $ 11,288,700
=========================================================================================
</TABLE>
See accompanying notes.
3
<PAGE>
Tremont Advisers, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended
September 30
2000 1999
----------- -----------
<S> <C> <C>
Operating Activities
Net income $ 2,914,600 $ 1,838,700
Adjustments to reconcile net income to cash provided by operating activities
Depreciation 291,700 191,800
Amortization of intangibles 163,500 609,800
Equity earnings of investments (557,200) (327,600)
Losses from joint ventures 547,300 40,200
Deferred income taxes payable 586,300 365,100
Tax benefit from exercise of stock options -- 27,350
Foreign currency translation adjustment 17,800 22,900
Changes in operating assets and liabilities:
Accounts receivable, net 430,500 (646,800)
Dividend receivable 31,000 --
Accounts payable (158,400) (51,100)
Accrued expenses (85,300) 13,700
Deferred revenue (121,900) (33,500)
Income taxes payable (67,200) 139,800
Other assets (79,800) 162,700
Prepaid expenses and other 1,900 234,800
----------- -----------
Net cash provided by operating activities 3,914,800 2,587,850
Investing activities
Purchase of fixed assets (510,700) (413,600)
Cash paid for investments (3,050,000) (918,000)
Withdrawal from investments 1,693,000 --
Cash acquired from acquisition of TASS -- 102,000
Investments in joint venture (98,600) (939,000)
Distributions received from joint venture 152,400 --
----------- -----------
Net cash used by investing activities (1,813,900) (2,168,600)
Financing activities
Proceeds from issuance of Class B Common Stock -- 357,200
Exercise of Class B Common Stock options 1,900 93,750
Cash-in-lieu of fractional shares (1,000) (600)
Borrowing from revolving note payable 1,975,000 --
Purchase of Class A Common Stock held in treasury (2,300,000) --
----------- -----------
Net cash (used) provided by financing activities (324,100) 450,350
Net increase in cash and cash equivalents 1,776,800 869,600
Cash and cash equivalents at beginning of period 2,879,300 1,893,800
----------- -----------
Cash and cash equivalents at end of period $ 4,656,100 $ 2,763,400
=========== ===========
</TABLE>
See accompanying notes.
4
<PAGE>
Tremont Advisers, Inc.
Condensed Consolidated Statements of Cash Flows (cont'd)
(Unaudited)
Supplemental disclosures of cash flow information:
<TABLE>
<CAPTION>
Nine months ended
September 30
2000 1999
---------------------------
<S> <C> <C>
Financing activities
Non cash transactions related to the
issuance of Class B Common Stock in
the TASS acquisition $ -- $ 1,428,600
Investing activities
Liabilities assumed in the TASS acquisition
Deferred revenue -- 793,600
Accounts payable -- 39,200
Accrued expenses -- 411,500
Short-term debt -- 236,800
Assets acquired in the TASS acquisition
Fixed assets, net -- 81,100
Accounts receivable -- 184,500
Prepaid and other -- 47,000
Customer contracts -- 555,500
Goodwill -- 2,181,400
Accrued acquisition costs -- 241,800
Gain on receipt of stock of unconsolidated affiliate -- (402,100)
Expense charge relating to distribution of stock of unconsolidated affiliate -- 402,100
</TABLE>
See accompanying notes.
5
<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 nine and three months ended September 30,
2000 are not necessarily indicative of the results that may be expected for the
year ending December 31, 2000. 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,
1999.
NOTE B - Summary of Significant Accounting Policies
Use of Estimates - 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.
Principles of Consolidation - The condensed consolidated financial statements
include the accounts of the Company and its majority owned subsidiaries. All
inter-company transactions and accounts have been eliminated in consolidation.
Accounting for Derivative Instruments and Hedging Activity - In June 1998, the
Financial Accounting Standards Board issued Statement No. 133, Accounting for
Derivative Instruments and Hedging Activities, as amended, which is required to
be adopted in years beginning after June 15, 2000. Because of the Company's
minimal use of derivatives, management does not anticipate that the adoption of
the new statement will have a significant effect on earnings or the financial
position of the Company.
Goodwill - Goodwill represents the excess of purchase price and related costs
over the value assigned to the net tangible assets of the business acquired.
Goodwill is amortized on a straight-line basis over ten years.
Earnings per Share - Basic earnings per share is computed based on the weighted
average number of common shares outstanding. Diluted earnings per share reflects
the increase in the weighted average number of common shares outstanding that
would result from the assumed exercise of outstanding stock options, calculated
using the treasury stock method. All per share and shares outstanding data have
been restated to reflect the impact of the five-for-four stock split paid on
August 8, 2000.
Minority Interest - The Company owns 65% of Tremont Investment Management Inc.
("TIMI"). For financial reporting purposes, the assets, liabilities and losses
of TIMI have been included in the Company's condensed consolidated financial
statements.
6
<PAGE>
Concentrations of Credit Risk - The Company's accounts receivable are not
concentrated in any specific geographic region, but are concentrated in the
investment industry. The Company's exposure to credit risk associated with
nonpayment by customers is affected by conditions within the investment
industry.
Income Taxes - The provision for income taxes includes federal and state taxes
currently payable, after reduction for undistributed earnings of foreign
subsidiaries considered permanently reinvested, 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.
Reclassifications - Certain prior year balances have been reclassified to
conform with the current period presentation.
NOTE C - Investments
The following table sets forth financial information of the Company's
investments in certain domestic proprietary products at September 30, 2000
(Unaudited).
<TABLE>
<CAPTION>
American Masters American Masters American Masters American Masters
Broad Market Broad Market Opportunity Market Neutral
Fund, L.P. Prime Fund, L.P. Fund, L.P. Fund, L.P.
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total assets $333,791,600 $460,541,900 $ 7,148,100 $ 18,227,300
Total liabilities 863,500 148,430,000 8,800 339,600
Net investment income/(loss) $ 7,032,400 $ 1,237,800 $ (10,000) $ (114,000)
Realized and unrealized gain 25,868,700 31,925,300 299,300 1,513,400
----------------------------------------------------------------------
Net income $ 32,901,100 $ 33,163,100 $ 289,300 $ 1,399,400
======================================================================
General Partner TPI TPI TPI TFI
GP investment in partnership--at market value $ 553,300 $ 122,700 $ 2,053,500 $ 266,600
GP investment in partnership--at cost -- -- 2,000,000 105,000
Proportionate share of earnings * 97,400 68,300 53,500 71,800
Proportionate share of fund's net assets 0.16% 0.03% 28.76% 1.49%
</TABLE>
*Proportionate share of earnings is included in equity in earnings of
investments in the condensed consolidated statements of income for the nine
months ended September 30, 2000.
American Masters Broad Market Fund, L.P. - American Masters Broad Market Fund,
L.P. is a Delaware limited partnership organized for the purpose of achieving
capital growth through hedged investments.
American Masters Broad Market Prime Fund, L.P. - American Masters Broad Market
Prime Fund, L.P. is a Delaware limited partnership organized for the purpose of
achieving capital growth through a leveraged investment strategy. The Company
has a commitment to fund up to 1% of the limited partnership's losses if, and
when, such losses occur.
7
<PAGE>
American Masters Opportunity Fund, L.P. - American Masters Opportunity Fund,
L.P. is a Delaware limited partnership that was organized for the purpose of
achieving long-term capital growth, generating positive returns irrespective of
stock market volatility, and preservation of capital utilizing a multi-manager,
multi-strategy approach. For the period ended September 30, 2000, TPI invested
$2,000,000 in the fund, which was launched June 1, 2000.
American Masters Market Neutral Fund, L.P. - American Masters Market Neutral
Fund, L.P. is a Delaware limited partnership organized for the purpose of
achieving long-term capital appreciation irrespective of stock market volatility
utilizing a multi-manager approach to investing.
The following table sets forth summary financial information for certain
offshore proprietary products for which the Company is a sponsor or co-sponsor
at September 30, 2000 (Unaudited):
<TABLE>
<CAPTION>
Tremont American Masters Fund The
Broad Market Fund "AG Absolute Return Series" Tremont
LDC Limited Masters Fund
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Total assets $111,730,000 $ 43,974,000 $ 604,000
Total liabilities 29,221,100 1,274,000 --
Sponsor TBL TBL TIMI
Investment at market value 1,834,900 70,200 604,000
Investment at cost 1,650,000 60,000 500,100
Proportionate share of earnings * 144,000 8,900 47,600
Proportionate share of fund's net assets 1.64% 0.16% 100%
</TABLE>
*Proportionate share of earnings is included in equity in earnings of
investments in the condensed consolidated statements of income for the nine
months ended September 30, 2000.
Tremont Broad Market Fund, LDC - Tremont Broad Market Fund, LDC is a Cayman
Island limited duration corporation organized for the purpose of achieving
capital growth through hedged investments.
American Masters Fund "AG Absolute Return Series" Limited - American Masters
Fund "AG Absolute Return Series" Limited is an open-end investment company
organized as an exempted company under the laws of the Cayman Islands.
The Tremont Masters Fund - The Tremont Masters Fund is a Canadian investment
trust established under the laws of the Province of Ontario. The fund seeks to
achieve an attractive adjusted return that has a low correlation to traditional
fixed income and equity markets by utilizing a multi-manager approach to
investing.
Meridian Horizon Fund, L.P. - Meridian Horizon Fund, L.P. ("Meridian") is an
unaffiliated Delaware limited partnership that was organized for the purpose of
achieving a high total return and preservation of capital utilizing a
multi-manager approach to investing. At September 30, 2000, TPI had an
investment of $566,700 (cost - $250,000), representing approximately 0.1% of
Meridian's net assets. For the nine months ended September 30, 2000, TPI's
proportionate share of Meridian's income is $65,100.
8
<PAGE>
NOTE D - Investments in Joint Ventures
Tremont MRM Services Limited - At September 30, 2000 and December 31, 1999,
TBL's investment in Tremont MRM Services Limited ("TMRM"), an international risk
management company incorporated under the laws of Bermuda, in which TBL has a
38.75% interest, was $422,100 (cost - nil) and $394,900 (cost - $4,800),
respectively. In addition, for the nine and three months ended September 30,
2000, TBL's proportionate share of net income was $179,500 and $29,900,
respectively.
FITX Group Limited - At September 30, 2000 and December 31, 1999, TBL's
approximate 24.7% interest in FITX Group Limited ("FITX") was $1,147,300 (cost -
$444,900) and $1,775,600 (cost - $346,300), respectively. For the nine and three
months ended September 30, 2000, TBL's proportionate share of losses were
$726,800 and $348,200, respectively. In addition, FITX has agreed to pay TBL
on-going annual royalties for net revenues earned in connection with the on-line
usage of the TASS+ database. These royalties were not significant for the nine
months ended September 30, 2000.
NOTE E - Accrued Expenses
Accrued expenses consist of the following:
September 30, 2000 December 31, 1999
-----------------------------------------
(Unaudited) (Audited)
Consulting fees $ 861,900 $1,027,200
Compensation 1,078,500 507,000
Professional fees 185,500 262,500
Short-term notes payable 77,600 368,400
Employee benefits payable 96,000 138,800
Other 108,000 188,900
-----------------------------------------
$2,407,500 $2,492,800
=========================================
NOTE F - Long Term Revolving Note Payable
On July 25, 2000, the Company executed a two-year Revolving Credit Promissory
Note, due on July 31, 2002 (the "Revolver") in an amount not to exceed $2.5
million. On July 26, 2000, the Company borrowed $1,975,000 from the Revolver to
fund a portion of the purchase of 200,000 (250,000 post split) shares of its
Class A Common Stock pursuant to a tender offer (see Note G). The balance of the
Revolver will be used for working capital needs arising from time to time.
Borrowings under the Revolver bear interest, at the Company's option, at the
bank's prime rate or the London Interbank Offered Rate plus a margin of 2%
(9.72% at September 30, 2000). The Revolver is secured by a pledge of the
management fees payable by certain proprietary products to TPI and TPI's limited
partnership interest in the American Masters Opportunity Fund, L.P. The Company
is in compliance with all debt covenants and has paid interest of $21,300 during
the nine months ended September 30, 2000. On October 24, 2000, the Company
repaid $600,000 of its note payable, reducing the balance to $1,375,000.
NOTE G - Shareholders' Equity
On July 28, 2000, the Company purchased 200,000 shares (250,000 post split) of
its Class A Common Stock at a price of $11.50 per share ($9.20 per share post
split), pursuant to a tender offer, which expired on July 20, 2000.
9
<PAGE>
On August 8, 2000, the Company executed a five-for-four stock split (with no
change in par value) of Class A and Class B Common Stock. All per share and
shares outstanding data have been restated to reflect the impact of the stock
split.
NOTE H - Stock Options
A summary of the Company's stock option activity for the nine months ended
September 30, 2000 is as follows:
Outstanding-beginning of period: 978,590
Granted --
Exercised (390)
Lapsed --
Outstanding-end of period 978,200
Exercisable at end of period 835,455
On September 13, 2000, the Board of Directors of the Company adopted, subject to
shareholder approval, an increase in the number of shares of Class B Common
Stock available under the Company's 1998 Stock Plan by 300,000 shares of Class B
Common Stock, to an aggregate of 612,500 shares. The share increase was approved
by written consent of a majority of stockholders on October 20, 2000.
NOTE I - Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and deferred tax assets as of September
30, 2000 and December 31, 1999 are as follows:
<TABLE>
<CAPTION>
September 30, 2000 December 31, 1999
----------------------------------------
(Unaudited) (Audited)
<S> <C> <C>
Deferred tax liabilities:
Tax over book depreciation $ 7,600 $ 16,600
Unrealized appreciation in investments 53,100 36,700
Undistributed earnings of foreign subsidiaries 1,435,300 829,000
----------------------------------------
Total deferred tax liabilities 1,496,000 882,300
Deferred tax assets:
Net operating loss carryforward of foreign subsidiaries 349,600 248,800
Bad debt reserves 4,100 4,100
Organization costs -- 800
Deferred revenue 36,200 8,000
Valuation allowance (349,600) (248,800)
----------------------------------------
Total deferred tax assets 40,300 12,900
----------------------------------------
Net deferred tax liability $ 1,455,700 $ 869,400
========================================
</TABLE>
10
<PAGE>
The income tax provision gives effect to permanent differences between financial
and taxable income, resulting in a higher effective tax rate than the statutory
income tax rate. The unaudited reconciliation of income tax attributable to
income before income taxes computed at the U.S. federal statutory tax rates to
income tax expense is:
<TABLE>
<CAPTION>
Nine months ended
September 30
2000 1999
---------------------------------------------------------
Amount Percent Amount Percent
---------------------------------------------------------
<S> <C> <C> <C> <C>
Statutory federal income tax rate $ 1,613,500 34.0% $ 980,200 34.0%
State taxes, net of federal benefit 146,900 3.1% 114,300 4.0%
Permanently reinvested foreign income -- 0.0% (204,000) (7.1)%
Change in valuation allowance 100,800 2.1% 215,500 7.5%
Other (30,000) (0.6)% (61,700) (2.1)%
---------------------------------------------------------
$ 1,831,200 38.6% $ 1,044,300 36.3%
=========================================================
<CAPTION>
Three months ended
September 30
2000 1999
---------------------------------------------------------
Amount Percent Amount Percent
---------------------------------------------------------
<S> <C> <C> <C> <C>
Statutory federal income tax rate $ 556,700 34.0% $ 347,200 34.0%
State taxes, net of federal benefit 54,000 3.3% 45,900 4.5%
Permanently reinvested foreign income -- 0.0% (68,000) (6.7)%
Change in valuation allowance 19,200 1.2% 84,200 8.2%
Other 3,900 0.2% (20,400) (2.1)%
---------------------------------------------------------
$ 633,800 38.7% $ 388,900 37.9%
=========================================================
</TABLE>
During the nine months ended September 30, 2000, the Company made federal income
tax payments and state income, minimum and capital tax payments of $1,080,000
and $232,000, respectively. Federal and state payments of $310,000 and $60,000,
respectively, were made for the three months ended September 30, 2000.
Deferred income taxes were not provided on certain undistributed foreign
earnings (cumulatively $1,170,000 at September 30, 2000) of TBL because such
undistributed earnings are expected to be reinvested indefinitely overseas. If
these amounts were not considered permanently reinvested, additional deferred
taxes of approximately $397,800 would have been provided.
At September 30, 2000 and 1999, the Company had no net operating loss
carryforwards for U.S. federal tax purposes. At September 30, 2000, TIMI, the
Canadian subsidiary, and TASS, the U.K. subsidiary, have generated cumulative
net operating losses for tax purposes of approximately $344,000 and $628,000,
respectively, against which a full valuation allowance has been recorded. The
net operating loss carry forward period for TIMI is seven years and there is no
limitation on the carry forward loss period for TASS.
11
<PAGE>
NOTE J - Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
Nine months ended Three months ended
September 30 September 30
2000 1999 2000 1999
----------------------------------------------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Numerator:
Net Income - numerator for basic and dilutive earnings $2,914,600 $1,838,700 $1,003,500 $ 632,200
per share (income available to shareholders)
Denominator:
Denominator for basic earnings per share - 6,960,167 6,901,663 6,842,996 7,007,600
weighted average shares
Effect of dilutive securities:
Employee stock options 477,930 403,419 553,102 445,163
---------- ---------- ---------- ----------
Denominator for diluted earnings per share -
adjusted weighted-average shares and
assumed conversions 7,438,097 7,305,082 7,396,098 7,452,764
========== ========== ========== ==========
Basic earnings per share $ 0.42 $ 0.27 $ 0.15 $ 0.09
========== ========== ========== ==========
Diluted earnings per share $ 0.39 $ 0.25 $ 0.14 $ 0.08
========== ========== ========== ==========
</TABLE>
NOTE K - Contingencies
The Company is being sued by a former employee for alleged breach of contract
and defamation. The Company believes that the suit is without merit; however,
should the plaintiff prevail, the Company believes that it is likely that the
damages will not be material to the Company's consolidated financial condition
or results of operations.
NOTE L - Segment and Geographic Data
The Company is a holding company with three core areas of business: proprietary
products, consulting and information. The Company's clients are investment
funds, investment managers, institutional investors and high-net-worth
individuals. The proprietary products offered by the Company consist of several
single and multi-manager investment funds for which the Company earns a
management fee based upon the net assets of each respective fund. Fees are
typically paid on a monthly or quarterly basis. The proprietary products are
generally offered under the American Masters brand.
Consulting consists of activities such as advising clients concerning the
organization and management of their investment portfolio or program. The
Company also provides specialized investment services to investment management
firms and individual investment advisers. Consulting fees are generally based
upon the amount of assets in the underlying client investment vehicles.
With the purchase of TASS Investment Research Limited ("TASS") on March 11,
1999, the Company also has revenues from the sale of electronic database
information. 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 take advantage of its
growing worldwide relationships to expand its operations.
12
<PAGE>
The following table provides a summary of the types of fees earned with respect
to each of the Company's core areas of business:
<TABLE>
<CAPTION>
Nine months ended Three months ended
September 30 September 30
2000 1999 2000 1999
-----------------------------------------------------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues
Proprietary products
Asset-based fees $ 8,599,700 $ 5,773,900 $ 3,104,400 $ 2,109,200
Consulting services
Asset-based fees 4,349,400 2,934,300 1,555,300 1,055,000
Performance fees 104,400 190,800 6,300 60,000
Annual retainer and special project fees 1,035,700 980,700 397,600 287,500
Administration fees 302,600 273,800 113,600 92,400
Commissions 232,500 296,400 69,500 49,300
Royalties 11,400 -- 6,300 --
-----------------------------------------------------------------
6,036,000 4,676,000 2,148,600 1,544,200
Database information 1,145,400 977,800 384,600 398,700
-----------------------------------------------------------------
Total Revenues $15,781,100 $11,427,700 $ 5,637,600 $ 4,052,100
=================================================================
</TABLE>
The following table provides a summary of the types of fees earned by geographic
location:
<TABLE>
<CAPTION>
Revenues (a) Revenues (a)
Nine months ended Three months ended
September 30 September 30
2000 1999 2000 1999
-----------------------------------------------------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
United States $ 9,053,400 $ 6,946,000 $ 3,149,100 $ 2,449,800
Bermuda 5,454,800 3,434,900 2,033,700 1,203,600
United Kingdom 1,272,900 1,046,800 454,800 398,700
-----------------------------------------------------------------
Consolidated Total $15,781,100 $11,427,700 $ 5,637,600 $ 4,052,100
=================================================================
</TABLE>
(a) Revenues are attributed to countries based on the location of the subsidiary
performing the services.
Long-lived assets are substantially located in the United States and the United
Kingdom.
13
<PAGE>
Certain proprietary investment funds accounted for significant percentages of
the Company's consolidated revenues, as follows:
<TABLE>
<CAPTION>
Nine months ended Three months ended
September 30 September 30
2000 1999 2000 1999
-----------------------------------------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
American Masters Broad Market Fund, L.P. 13.6% 13.6% 13.2% 13.7%
American Masters Broad Market Prime Fund, L.P. 19.4% 17.4% 19.1% 18.1%
Kingate Global Fund Class B Shares 14.4% 15.4% 14.2% 15.3%
</TABLE>
Item 2. Management's Discussion and Analysis
Overview
The Company is a holding company with three core areas of business: proprietary
products, consulting and information. The Company's clients are investment
funds, investment managers, institutional investors and high-net-worth
individuals. The proprietary products offered by the Company consists of several
single and multi-manager investment funds for which the Company earns a
management fee based upon the net assets of each respective fund. Fees are
typically paid on a monthly or quarterly basis. The proprietary products are
generally offered under the American Masters brand.
Consulting consists of activities such as advising clients concerning the
organization and management of their investment portfolio or program. The
Company also provides specialized investment services to investment management
firms and individual investment advisers. Consulting fees are generally based
upon the amount of assets in the underlying client investment vehicles.
With the purchase of TASS on March 11, 1999, the Company also has revenues from
the sale of electronic database information. 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 take advantage of its growing worldwide relationships to expand its
operations.
The following table presents the percentage of consolidated revenue attributable
to each of the aforementioned core areas of business at September 30, 2000 as
compared to September 30, 1999:
<TABLE>
<CAPTION>
Nine months ended
September 30
2000 1999
----------------------------------------------------------------
% of Total % of Total
Product Name Revenues Revenues Revenues Revenues
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Proprietary products $ 8,599,700 54.5 $ 5,773,900 50.5
Consulting 5,699,100 36.1 4,188,800 36.7
Database information 1,145,400 7.3 977,800 8.6
Other (a) 336,900 2.1 487,200 4.2
----------------------------------------------------------------
Total revenues $15,781,100 100.0 $11,427,700 100.0
================================================================
</TABLE>
(a) Consists of commissions and performance fees.
14
<PAGE>
Results of Operations
Three months ended September 30, 2000 as compared to the three months ended
September 30, 1999
Proprietary product fees increased 47.2% from $2,109,200 for the three months
ended September 30, 1999 to $3,104,400 for the three months ended September 30,
2000. This increase is primarily due to growth of the net assets of certain
proprietary investment funds resulting from additional investor capital
contributions and positive investment performance. The following table presents
the proprietary product fees responsible for 96.3% of this increase:
<TABLE>
<CAPTION>
Three months ended
September 30
Product Name 2000 1999 Change($) Change(%)
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
American Masters Broad Market Prime Fund, L.P. $1,078,500 $ 731,300 $ 347,200 47.5
Kingate Global Fund Class B Shares 799,800 620,800 179,000 28.8
American Masters Broad Market Fund, L.P. 742,700 556,100 186,600 33.6
Tremont Broad Market Fund, LDC 396,700 151,300 245,400 162.2
</TABLE>
During the three months ended September 30, 2000, proprietary products for which
the Company is the sole sponsor or general partner attracted additional net
investments of capital as follows:
American Masters Broad Market Prime Fund, L.P. $20,302,000
American Masters Broad Market Fund, L.P. 1,700,000
Tremont Broad Market Fund, LDC 10,820,000
Consulting fees increased 44.4% from $1,434,900 for the three months ended
September 30, 1999 to $2,072,800 for the three months ended September 30, 2000.
This increase is primarily due to growth of the net asset base of the underlying
investment vehicles for which the Company consults. A majority of the Company's
consulting fees are earned based upon the underlying net asset value of the
applicable investment vehicle. Such growth is a result of additional investor
capital contributions and positive investment performance. Approximately 20.6%
of this growth is attributable to one unaffiliated client that attracted an
additional $79.4 million of investor capital during the three months ended
September 30, 2000. In addition, approximately 39.5% of this growth is
attributable to two new consulting arrangements with unaffiliated offshore
investment managers. These three clients combined represent approximately 29.2%
of total consulting revenues for the three months ended September 30, 2000.
Management expects that during the remainder of 2000 the Company will continue
to develop new consulting relationships with additional entities. The Company
also intends to utilize these relationships to create diversified ways to
package and distribute its proprietary products. In addition, management expects
all proprietary and consulting asset-based fees (including performance fees) to
increase during periods of positive market conditions, but management cannot
predict with any accuracy whether income from such fees will continue in the
future due to changing market conditions and other outside factors.
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 effectively market its products and services.
15
<PAGE>
Database information decreased 3.6% from $398,700 for the three months ended
September 30, 1999 to $384,600 for the three months ended September 30, 1999.
This decrease is due primarily to the ongoing development of a new version of
the TASS+ database for which a new release is expected during the fourth quarter
of fiscal 2000. In the meantime, sales of the existing database have slowed as
the Company is focusing its resources toward completion of the final product.
Database information sales for the three months ended September 30, 2000 also
includes approximately $61,800 arising from the recognition of deferred revenue
recorded as a result of the Company's granting of a license agreement to FITX
Group Limited ("FITX") during December 1999. The net revenue deferred of
$741,000 is being recognized as database sales over a three-year period
(approximately $20,600 per month).
Compensation expense increased 7.8% from $1,830,800 for the three months ended
September 30, 1999 to $1,974,100 for the three months ended September 30, 2000.
This increase resulted primarily from the Company's continued efforts to attract
and retain qualified employees. The number of employees increased from 64 at
June 30, 2000 to 71 at September 30, 2000. In addition, compensation expense
increased as a result of salary increases for certain employees, increased
employee benefit costs and increased bonus accruals associated with the increase
in the number of employees.
General and administrative expenses increased 6.9% from $1,039,200 for the three
months ended September 30, 1999 to $1,111,800 for the three months ended
September 30, 2000. The increase is due primarily to the Company's continued
expansion in order to service its continued growth. General and administrative
expenses consist primarily of rent, telecommunications, travel and
entertainment, professional fees and other related expenses.
Consulting expenses increased 61.1% from $374,900 for the three months ended
September 30, 1999 to $604,000 for the three months ended September 30, 2000.
This increase is primarily due to increased revenues from certain client
arrangements under which the Company shares a portion of its earned revenues
with other advisers or consultants. In addition, the Company entered into
certain new client arrangements under which the portion of revenue shared is
slightly higher than other such arrangements.
Depreciation increased 42.6% from $77,700 for the three months ended September
30, 1999 to $110,800 for the three months ended September 30, 2000 primarily as
a result of fixed asset purchases after September 1999. These purchases
consisted of computer equipment for new employees, software updates to the
Company's information database, and hardware upgrades for the Company's
worldwide computer network system.
Amortization of intangibles decreased 73.1% from $202,600 for the three months
ended September 30, 1999 to $54,500 for the three months ended September 30,
2000. This decrease is primarily due to the completion of the amortization of
customer contracts recorded as a result of the TASS acquisition in March 1999.
Such contracts were amortized over a twelve-month period.
Equity earnings of investments increased 46.0% from $119,900 for the three
months ended September 30, 1999 to $175,100 for the three months ended September
30, 2000. This increase is primarily due to investments of additional Company
capital into its proprietary products, as well as overall positive investment
performance. A substantial portion of the increase is due to the following:
16
<PAGE>
<TABLE>
<CAPTION>
Three months ended
September 30
Product Name 2000 1999 Change ($) Change (%)
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
American Masters Opportunity Fund, L.P. $41,900 $ -- $41,900 *
Meridian Horizon Fund, L.P. 28,300 12,600 15,700 124.6
Tremont Broad Market Fund, LDC 47,200 11,900 35,300 296.6
</TABLE>
* Commenced operations June 1, 2000
The Company invested an additional $1,500,000 in its newest proprietary product,
American Masters Opportunity Fund, L.P. during the three months ended September
30, 2000. Management expects equity earnings to continue to increase during
periods of positive market conditions, but management cannot predict with any
accuracy whether such earnings will continue in the future due to changing
market conditions and other outside factors.
Joint venture operations resulted in losses for the three months ended September
30, 2000 of $318,300, as compared to income for the three months ended September
30, 1999 of $347,100. This change is primarily due to the planned losses
incurred by FITX Group Limited, of which the Company owns approximately 24.7% as
of September 30, 2000. The Company's proportionate share of FITX's losses for
the three months ended September 30, 2000 is approximately $348,200. The Company
began equity accounting for its investment in FITX during October of 1999.
Management expects that FITX will continue to operate at a loss, as planned, as
the company continues to operate as a development stage company.
Nine months ended September 30, 2000 as compared to the nine months ended
September 30, 1999
Proprietary product fees increased 48.9% from $5,773,900 for the nine months
ended September 30, 1999 to $8,599,700 for the nine months ended September 30,
2000. This increase is primarily due to growth of the net assets of certain
proprietary investment funds resulting from additional investor capital
contributions and positive investment performance. The following table presents
the proprietary product fees responsible for 96.0% of this increase:
<TABLE>
<CAPTION>
Nine months ended
September 30
Product Name 2000 1999 Change ($) Change(%)
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
American Masters Broad Market Prime Fund, L.P. $2,901,700 $2,014,700 $887,000 44.0
Kingate Global Fund Class B Shares 2,264,300 1,758,800 505,500 28.7
American Masters Broad Market Fund, L.P. 2,152,100 1,558,500 593,600 38.1
Tremont Broad Market Fund, LDC 1,030,600 301,600 729,000 241.7
</TABLE>
During the nine months ended September 30, 2000, proprietary products for which
the Company is the sole sponsor or general partner attracted additional net
investments of capital as follows:
American Masters Broad Market Prime Fund, L.P. $56,400,000
American Masters Broad Market Fund, L.P. 10,800,000
Tremont Broad Market Fund, LDC 35,000,000
17
<PAGE>
Consulting fees increased 36.1% from $4,188,800 for the nine months ended
September 30, 1999 to $5,699,100 for the nine months ended September 30, 2000.
This increase is primarily due to growth of the net asset base of the underlying
investment vehicles for which the Company consults. A majority of the Company's
consulting fees are earned based upon the underlying net asset value of the
applicable investment vehicle. Such growth is a result of additional investor
capital contributions and positive investment performance. Approximately 22.1%
of this growth is attributable to one unaffiliated client that attracted an
additional $174 million of investor capital during the nine months ended
September 30, 2000. In addition, approximately 39.9% of this growth is
attributable to two new consulting arrangements with unaffiliated offshore
investment managers. These two contracts combined represent approximately 10.7%
of total consulting revenues for the nine months ended September 30, 2000.
Management expects that during the remainder of 2000 the Company will continue
to develop new consulting relationships with additional entities. The Company
also intends to utilize these relationships to create diversified ways to
package and distribute its proprietary products. In addition, management expects
all proprietary and consulting asset-based fees (including performance fees) to
increase during periods of positive market conditions, but management cannot
predict with any accuracy whether income from such fees will continue in the
future due to changing market conditions and other outside factors.
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 effectively market its products and services.
Database information increased 17.1% from $977,800 for the nine months ended
September 30, 1999 to $1,145,400 for the nine months ended September 30, 1999.
All database information sales are executed by TASS, the Company's wholly owned
subsidiary in London that was purchased effective March 11, 1999. Operating
results for the nine months ended September 30, 2000 represent nine months of
database sales activity as compared to the nine months ended September 30, 1999,
which only includes seven months of such activity.
Compensation expense increased 25.3% from $4,576,500 for the nine months ended
September 30, 1999 to $5,733,500 for the nine months ended September 30, 2000.
This increase resulted primarily from the Company's acquisition of TASS (nine
months of activity during 2000 as compared to seven months of activity during
1999), as well as its continued efforts to attract and retain qualified
employees. The number of employees increased from 51 at September 30, 1999 to 71
at September 30, 2000. In addition, compensation expense increased as a result
of salary increases for certain employees, increased employee benefit costs and
increased bonus accruals associated with the increase in the number of employees
as well as the continued profitability of the Company.
General and administrative expenses increased 16.7% from $2,746,000 for the nine
months ended September 30, 1999 to $3,205,200 for the nine months ended
September 30, 2000. The increase is due primarily to TASS operations being
included for nine months during the nine months ended September 30, 2000 versus
seven months for the nine months ended September 30, 1999. In addition, the
Company continues to expand in order to service its continued growth. General
and administrative expenses consist primarily of rent, telecommunications,
travel and entertainment, professional fees and other related expenses.
Consulting expenses increased 45.0% from $1,160,800 for the nine months ended
September 30, 1999 to $1,683,700 for the nine months ended September 30, 2000.
This increase is primarily due to increased revenues from certain client
arrangements under which the Company shares a portion of its earned
18
<PAGE>
revenues with other advisers or consultants. In addition, the Company entered
into certain new client arrangements under which the portion of revenue shared
is slightly higher than other such arrangements.
Depreciation increased 52.0% from $191,800 for the nine months ended September
30, 1999 to $291,700 for the nine months ended September 30, 2000 primarily as a
result of fixed asset purchases after September 1999. These purchases consisted
of computer equipment for new employees, software updates to the Company's
information database, and hardware upgrades for the Company's worldwide computer
network system.
Amortization of intangibles decreased 73.2% from $609,800 for the nine months
ended September 30, 1999 to $163,500 for the nine months ended September 30,
2000. This decrease is primarily due to the completion of the amortization of
customer contracts recorded as a result of the TASS acquisition in March 1999.
Such contracts were amortized over a twelve-month period.
Equity earnings of investments increased 52.7% from $364,800 for the nine months
ended September 30, 1999 to $557,200 for the nine months ended September 30,
2000. This increase is primarily due to investments of additional Company
capital into its proprietary products, as well as overall positive investment
performance. A substantial portion of the increase is due to the following:
<TABLE>
<CAPTION>
Nine months ended
September 30
Product Name 2000 1999 Change ($) Change (%)
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
American Masters Opportunity Fund, L.P. $53,500 $ -- $53,500 *
American Master Market Neutral Fund, L.P. 71,800 41,588 30,200 72.5
Tremont Broad Market Fund, LDC 144,000 17,900 126,100 704.5
</TABLE>
* Commenced operations June 1, 2000
During the nine months ended September 30, 2000, the Company invested $2,000,000
in its newest proprietary product, American Masters Opportunity Fund, L.P.,
which commenced operations on June 1, 2000. The Company also invested an
additional $1,050,000 in Tremont Broad Market Fund, LDC during the nine months
ended September 30, 2000.
Joint venture operations resulted in losses for the nine months ended September
30, 2000 of $547,300, as compared to income for the nine months ended September
30, 1999 of $326,800. This change is primarily due to the planned losses
incurred by FITX Group Limited, of which the Company owns approximately 24.7% as
of September 30, 2000. The Company's proportionate share of FITX's losses for
the nine months ended September 30, 2000 is approximately $726,800. The Company
began equity accounting for its investment in FITX during October of 1999.
Management expects that FITX will continue to operate at a loss, as planned, as
the company continues to operate as a development stage company.
Liquidity and Capital Resources
Cash provided by operations increased $1,326,950, or 51.3%, from $2,587,850 for
the nine months ended September 30, 1999 to $3,914,800 for the nine months ended
September 30, 2000. This increase is primarily due to increased net income,
collections of accounts receivable, and an increase in deferred income taxes
payable. Cash used in investing activities decreased as a result of decreased
net investing activities offset by a return of capital from Gamtree, L.P. and
Tremont MRM Services Limited. Cash
19
<PAGE>
provided by financing activities decreased due to the purchase of Class A Common
Stock during July 2000, offset by the $1,975,000 borrowed from the Company's
revolving note payable.
On July 28, 2000, the Company purchased 200,000 (250,000 post-split) shares of
its Class A Common Stock at a price of $11.50 per share ($9.20 per share post
split), pursuant to a tender offer which expired on July 20, 2000.
On July 25, 2000, the Company executed a two-year Revolving Credit Promissory
Note, due on July 31, 2002 (the "Revolver") in an amount not to exceed $2.5
million. On July 26, 2000, the Company borrowed $1,975,000 from the Revolver to
fund a portion of the purchase of the 200,000 shares of Class A Common Stock
pursuant to the Tender Offer. The balance of the Revolver may be used for
working capital needs arising from time to time. Borrowings under the Revolver
will bear interest, at the Company's option, at the bank's prime rate or the
London Interbank Offered Rate plus a margin of 2%. The Revolver is secured by a
pledge of the management fees payable by certain proprietary products to TPI and
TPI's limited partnership interest in the American Masters Opportunity Fund,
L.P. which is currently valued at $1.8 million. The Company is in compliance
with all debt covenants and has paid interest of $21,300 as of September 30,
2000.
On October 24, 2000, the Company repaid $600,000 of its note payable, reducing
the outstanding balance to $1,375,000.
At September 30, 2000 the Company owned 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 September 30, 2000, 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 is being sued by a former employee for alleged breach of contract
and defamation. The Company believes that the suit is without merit; however,
should the plaintiff prevail, the Company believes that it is likely that the
damages will not be material to the Company's consolidated financial condition
or results of operations.
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
20
<PAGE>
obligation to update these forward looking statements to reflect actual results,
changes in assumptions or changes in other factors affecting such forward
looking statements.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company has been sued by a former employee for alleged breach of contract
and defamation. In a decision dated September 21, 1999, the Connecticut District
Court held that the claim for defamation must be arbitrated under NASD rules.
The Plaintiff has not commenced arbitration proceedings. By Notice of Motion
dated October 18, 1999, the Company moved to dismiss the complaint in its
entirety. The Company believes that the suit is without merit; however, should
the plaintiff prevail, the Company believes that it is likely that the damages
will not be material to the Company's consolidated financial condition or
results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
On October 20, 2000, a majority of the shareholders granted their written
consent in accordance with Delaware law to a proposed amendment to the Company's
1998 Stock Plan, initiated by the Company's Board of Directors, which increased
the number of shares of Class B Common Stock available under such plan by
300,000 shares, to an aggregate of 612,500 shares.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
The following exhibits are included herein:
Exhibit 27 - Financial Data Schedule
b) Reports on Form 8-K
The Company filed a report on Form 8-K dated August 14, 2000 describing Tremont
Advisers, Inc. (the "Company") entering into an employment agreement (the
"Agreement") with Barry Colvin, pursuant to which he will serve as the Chief
Operating Officer of the Company. Mr. Colvin replaces Robert Schulman in this
capacity. Mr. Schulman will continue to serve as the Company's President and
Co-Chief Executive Officer.
21
<PAGE>
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: November 9, 2000 /s/ Stephen T. Clayton
-------------------------------------------
Stephen T. Clayton
Chief Financial and Administrative Officer
(Duly authorized Officer and
Principal Financial and Accounting Officer)
22
<PAGE>
Schedule 3.11
Title Problems
1. Onondaga Project - All of the chain of title documents are not in the
Company's possession; however, the Company's subsidiaries and/or their
predecessors in interest have conducted the project at the landfill since the
date of the Landfill Lease, April 25, 1984.
2. Manchester Project - All of the chain of title documents are not in the
Company's possession; however, the Company's subsidiaries and/or their
predecessors in interest have conducted the project at the landfill since the
date of the Landfill Lease, May 8, 1984.
3. Oyster Bay Project - The town never consented to the assignment to Biomass
Energy Partners I, A Connecticut Limited Partnership; however, it is well aware
of the project's existence.
