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, 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 (I.R.S. Employer
or incorporation or organization) 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 10, 2000 was 1,595,118, and the
number of shares outstanding of the Registrant's Class B Common Stock, $0.01 par
value, was 4,020,661 as of the same date.
<PAGE>
INDEX
Tremont Advisers, Inc.
PART I - FINANCIAL INFORMATION Page
Item 1. Financial Statements. (Unaudited)
Condensed Consolidated Balance Sheets - March 31, 2000 (unaudited)
and December 31, 1999 (audited) 1
Condensed Consolidated Statements of Income -
three months ended March 31, 2000 and 1999 2
Condensed Consolidated Statement of Shareholders' Equity -
three months ended March 31, 2000 3
Condensed Consolidated Statements of Cash Flows -
three months ended March 31, 2000 and 1999 4
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis 13
Part II - Other Information
Item 1. Legal Proceedings 16
Item 6. Exhibits and Reports on Form 8-K 16
Signature 16
Exhibit 27 - Financial Data Schedule 17
<PAGE>
Part 1 - Financial Information
Item 1. Financial Statements.
Tremont Advisers, Inc.
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
-------------- -----------------
(Unaudited) (Audited)
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 2,830,400 $ 2,879,300
Accounts receivable, net 3,960,200 3,682,700
Dividend receivable -- 31,000
Prepaid expenses and other assets 317,200 263,800
------------ ------------
Total current assets 7,107,800 6,856,800
Investments (cost $3,292,400 and $3,092,400) 4,586,800 4,243,500
Investments in joint ventures (cost $483,000 and $408,600) 2,246,500 2,231,700
Fixed assets, net 879,700 774,500
Goodwill, net 1,945,300 1,999,800
Other assets 30,300 30,300
------------ ------------
Total assets $ 16,796,400 $ 16,136,600
============ ============
Liabilities and shareholders' equity
Current liabilities
Accounts payable $ 381,300 $ 563,800
Accrued expenses 2,205,600 2,492,800
Deferred revenue 1,267,900 1,363,500
Income taxes payable 222,300 191,700
Deferred income taxes payable 38,300 32,600
------------ ------------
Total current liabilities 4,115,400 4,644,400
Deferred income taxes payable 1,099,400 836,800
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, 1,595,118 shares issued and outstanding 16,000 16,000
Class B Common Stock, $0.01 par value, 10,000,000 shares
authorized, 4,020,349 shares issued and outstanding 40,200 40,200
Additional paid in capital 7,901,800 7,901,800
Retained earnings 3,623,300 2,698,200
Cumulative foreign currency translation adjustment 300 (800)
------------ ------------
Total shareholders' quity 11,581,600 10,655,400
------------ ------------
Total liabilities and shareholders' equity $ 16,796,400 $ 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)
Three Months Ended
March 31
2000 1999
----------- -----------
Revenues
Consulting fees $ 4,299,900 $ 3,083,800
Database information sales 388,400 143,300
Commissions 84,900 100,400
Performance fees 82,000 50,300
----------- -----------
Total revenues 4,855,200 3,377,800
Expenses
Compensation 1,874,900 1,262,900
General and administrative 960,800 808,500
Consulting 529,200 373,000
Depreciation 85,300 51,200
Amortization of intangibles 54,500 110,900
----------- -----------
Total expenses 3,504,700 2,606,500
Equity earnings of investments 236,300 101,900
Loss from joint ventures (59,600) (8,100)
Other income, net 3,800 10,600
----------- -----------
Income before income taxes 1,531,000 875,700
Provision for income taxes 605,900 290,100
----------- -----------
Net income $ 925,100 $ 585,600
=========== ===========
Net income per common share-basic* $ 0.16 $ 0.11
=========== ===========
Net income per common share - assuming dilution* $ 0.16 $ 0.10
=========== ===========
See accompanying notes.
* March 31, 1999 per share data was adjusted for the five for four stock
split paid on August 16, 1999.
2
<PAGE>
<TABLE>
<CAPTION>
Tremont Advisers, Inc.
Condensed Consolidated Statement of Shareholders' Equity
(Unaudited)
Common Stock Additional Total
Par Value Paid In Retained Shareholders'
Class A Class B Capital Earnings Equity
-------------------------------------------------------------------------------
<S> <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 925,100 925,100
Foreign Currency Translation 1,100
-------------------------------------------------------------------------------
Comprehensive Income 926,200
-------------------------------------------------------------------------------
Balance at March 31, 2000 $ 16,000 $ 40,200 $ 7,901,800 $ 3,623,300 $11,581,600
===============================================================================
</TABLE>
See accompanying notes.
3
<PAGE>
Tremont Advisers, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended
March 31
2000 1999
----------- -----------
Operating Activities
Net income $ 925,100 $ 585,600
Adjustments to reconcile net income
to cash provided by operating activities:
Depreciation 85,300 51,200
Amortization of intangibles 54,500 110,900
Equity earnings of investments (236,300) (101,900)
Losses from joint ventures 59,600 8,100
Deferred income taxes payable 268,300 62,700
Foreign currency translation adjustment 1,100 (1,300)
Changes in operating assets and liabilities:
Accounts receivable (277,500) (243,100)
Dividend receivable 31,000 --
Other assets -- 162,900
Prepaid expenses and other (53,400) 10,000
Accounts payable (182,500) (98,900)
Accrued expenses (287,200) (277,100)
Deferred revenue (95,600) 300
Income taxes payable 30,600 205,700
----------- -----------
Net cash provided by operating activities 323,000 475,100
Investing activities
Purchase of fixed assets (190,500) (60,100)
Withdrawal from investments 193,000 --
Purchase of investments (300,000) (688,800)
Cash acquired from acquisition of TASS -- 102,000
Investments in joint ventures (74,400) --
----------- -----------
Net cash used by investing activities (371,900) (646,900)
Financing activities
Proceeds from issuance of Class B Common Stock -- 357,200
Exercise of Class B Common Stock options -- 75,000
Tax benefit from exercise of stock options -- 19,300
----------- -----------
Net cash provided by financing activities -- 451,500
Net increase (decrease) in cash and cash equivalents (48,900) 279,700
Cash and cash equivalents at beginning of period 2,879,300 1,893,800
----------- -----------
Cash and cash equivalents at end of period $ 2,830,400 $ 2,173,500
=========== ===========
See accompanying notes.
4
<PAGE>
Tremont Advisers, Inc.
Condensed Consolidated Statements of Cash Flows (con't)
(Unaudited)
Supplemental disclosures of cash flow information:
Three Months Ended
March 31
2000 1999
---------- ----------
Financing activities
Noncash 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 acquistion costs -- 241,800
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 three months ended March 31, 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 it's majority owned subsidiaries. All
inter-company transactions and accounts have been eliminated in consolidation.
Intangibles - 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. Other intangible
assets, including customer contracts, which are included in prepaid expenses and
other assets, are amortized over their economic lives, generally one year.
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 prior year per share and share outstanding
data have been restated to reflect the impact of the five for four stock split
paid on August 16, 1999.
Minority Interest - The Company presently 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.
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
6
<PAGE>
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 current year's presentation.
NOTE C - Investments
The following table sets forth financial information of the Company's
investments in certain proprietary limited partnerships at March 31, 2000.
<TABLE>
<CAPTION>
American Masters American Masters American Masters Tremont
Broad Market Broad Market Market Neutral Masters
Fund, L.P. Prime Fund, L.P. Fund, L.P. Fund
------------------------------------------------------------------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Total assets $ 315,621,800 $ 370,784,800 $ 12,002,200 $ 580,400
Total liabilities 2,126,000 114,287,100 28,600 --
Net investment income/(loss) $ 972,100 $ (982,400) $ (30,800) $ --
Realized and unrealized gain 14,340,200 16,629,000 446,300 24,100
------------------------------------------------------------------------
Net income $ 15,312,300 $ 15,646,600 $ 415,500 $ 24,100
========================================================================
General partner TPI TPI TFI TIMI
GP investment in partnership--at market value $ 1,006,400 $ 592,200 $ 721,000 $ 580,400
GP investment in partnership--at cost 423,600 467,900 605,000 500,100
Proportionate share of earnings (1) 50,400 37,800 26,100 24,100
Proportionate share of fund's net assets 0.32% 0.23% 6.02% 100.00%
</TABLE>
(1) Proportionate share of earnings is included in equity earnings of
investments in the condensed consolidated financial statements.
Meridian Horizon Fund, L.P. - Meridian Horizon Fund, L.P. is a 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
March 31, 2000 and December 31, 1999, total assets of the fund were $481 million
and $372 million, respectively. In addition, net investment losses for the three
months ended March 31, 2000 and 1999 were $1.7 million and $.9 million,
respectively, and realized and unrealized gains were $40.4 million and $12.4
million, respectively, resulting in net income of $38.7 million and $11.5
million, respectively. At March 31, 2000 and December 31, 1999, TPI had an
investment of $538,100 (cost - $250,000) and $501,500 (cost-$250,000),
respectively, representing .12% and .14%, respectively, of Meridian's net
assets. For the three months ended March 31, 2000 and 1999, TPI's proportionate
share of Meridian's income is $36,600 and $20,100, respectively.
Tremont Broad Market Fund, LDC - Tremont Broad Market Fund, LDC ("TBMF") is a
Cayman Island limited duration corporation organized for the purpose of
achieving capital growth through hedged investments. At March 31, 2000 and
December 31, 1999, TBL's investment in TBMF was $998,500 (cost - $900,000) and
$640,900 (cost - $600,000), respectively. TBL's
7
<PAGE>
proportionate share of operating income is $57,600 and none, respectively. TBL
serves as the investment adviser, administrator and registrar and transfer agent
of TBMF.
NOTE D -Investments in Joint Ventures
At March 31, 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 $504,900
(cost - nil) and $394,900 (cost - nil), respectively. In addition, for the three
months ended March 31, 2000 and 1999, TBL's proportionate share of operating
income was $110,000 and none, respectively TMRM provides product development,
marketing and administrative services to TIIL. On April 11, 2000, TMRM declared
and paid a dividend of $111,600.
At March 31, 2000 and December 31, 1999, TBL's investment in FITX Group Limited
("FITX") was $1,680,400 (cost - $420,700) and $1,775,600 (cost - $346,300),
respectively. For the three months ended March 31, 2000 and, 1999, TBL's
proportionate share of losses were $169,600 and none 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 three months ended March 31, 2000.
NOTE E - Accrued Expenses
Accrued expenses consist of the following:
March 31, 2000 December 31, 1999
-------------- -----------------
(Unaudited) (Audited)
Consulting fees $1,228,600 $1,027,200
Compensation 514,900 507,000
Professional fees 94,200 262,500
Short-term notes payable 113,600 368,400
Employee benefits payable 162,800 138,800
Other 91,500 188,900
========== ==========
$2,205,600 $2,492,800
========== ===========
NOTE F - Stock Options
A summary of the Company's stock option activity for three months ended March
31, 2000 is as follows:
Outstanding-beginning of period: 782,872
Granted --
Exercised --
Lapsed -------
Outstanding-end of period 782,872
=======
Exercisable at end of period 540,127
=======
8
<PAGE>
NOTE G - 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 March 31,
2000 and December 31, 1999 are as follows:
<TABLE>
<CAPTION>
March 31 2000 December 31 1999
------------- ----------------
<S> <C> <C>
Deferred tax liabilities:
Tax over book depreciation $ 20,000 $ 16,600
Unrealized appreciation in limited partnerships 42,400 36,700
Undistributed earnings of foreign subsidiary 1,105,600 829,000
----------- -----------
Total deferred tax liabilities 1,168,000 882,300
Deferred tax assets:
Net operating loss carryforward of foreign subsidiaries 330,200 248,800
Bad debt reserves 4,100 4,100
Organization costs 400 800
Deferred revenue of foreign affiliate 25,800 8,000
Valuation allowance (330,200) (248,800)
----------- -----------
Total deferred tax assets 30,300 12,900
----------- -----------
Net deferred tax liability $ 1,137,700 $ 869,400
=========== ===========
</TABLE>
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 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>
Three months ended
March 31
2000 1999
------------------------------------------------------
Amount Percent Amount Percent
------------------------------------------------------
<S> <C> <C> <C> <C>
Statutory federal income tax rate $520,500 34.0 $297,800 34.0
State taxes, net of federal benefit 52,900 3.5 28,000 3.2
Permanently reinvested foreign income -- -- (68,000) (7.8)
Other 32,500 2.1 32,300 3.7
------------------------------------------------------
$605,900 39.6 $290,100 33.1
======================================================
</TABLE>
During the three months ended March 31, 2000, the Company made federal income
tax payments and state income, minimum and capital tax payments of $240,000 and
$67,000, respectively. No federal or state income tax payments were made for the
three months ended March 31, 1999.
Deferred income taxes were not provided on certain undistributed foreign
earnings (cumulatively $1,170,000 at March 31, 2000) of TBL because such
undistributed earnings are expected to be
9
<PAGE>
reinvested indefinitely overseas. If these amounts were not considered
permanently reinvested, additional deferred taxes of approximately $397,800
would have been provided.
At March 31, 2000 and 1999, the Company had no net operating loss carryforwards
for U.S. federal tax purposes. At March 31, 2000, TIMI, the Canadian subsidiary,
and TASS, the U.K. subsidiary, have generated cumulative net operating losses of
approximately $276,000 and $664,000, 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.
NOTE H - Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
Three months ended March 31
2000 1999
---------- ----------
<S> <C> <C>
Numerator:
Net Income - numerator for basic and dilutive earnings per share $ 925,100 $ 585,600
(income available to stockholders)
Denominator:
Denominator for basic earnings per share - weighted average shares 5,615,467 5,357,208
Effect of dilutive securities:
Employee stock options 329,969 277,542
---------- ----------
Denominator for diluted earnings per share - adjusted weighted-average
shares and assumed conversions 5,945,436 5,634,750
========== ==========
Basic earnings per share $ 0.16 $ 0.11
========== ==========
Diluted earnings per share $ 0.16 $ 0.10
========== ==========
</TABLE>
NOTE I - 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.
10
<PAGE>
NOTE J - Segment and Geographic Data
The Company is a holding company having three core areas of business: consulting
services, information and research, and investment products. The Company's
clients are investment funds, investment managers, institutional investors and
high-net-worth individuals to whom the Company's subsidiaries provide advice
concerning the organization and management of their investment portfolio and
programs. The Company also provides specialized investment services, sponsors
and manages its own proprietary single-manager and multi-manager investment
funds, as well as providing consulting services to investment management firms
and individual investment advisers. The Company derives a significant portion of
its revenues from proprietary asset-based fees and consulting services
agreements with single-manager and multi-manager investment funds or their
sponsors and advisers.
The following table provides a summary of the types of fees earned with respect
to each of the Company's core areas of business:
Three months ended
March 31
2000 1999
-------------------------
(Unaudited)
Revenues
Proprietary investment funds
Asset-based fees $2,622,400 $1,761,300
Consulting services
Asset-based fees 1,206,200 944,300
Performance-based fees 82,000 50,300
Annual retainer and special project fees 344,800 319,200
Administration fees 126,500 59,000
Commissions 84,900 100,400
---------- ----------
1,844,400 1,473,200
Database sales 388,400 143,300
---------- ----------
Total revenues $4,855,200 $3,377,800
========== ==========
The following table provides a summary of the types of fees earned by geographic
location:
Revenues (a)
March 31
2000 1999
-------------------------------
(Unaudited)
United States $2,881,900 $2,123,900
Bermuda 1,598,200 1,110,600
Canada -- --
United Kingdom 375,100 143,300
---------- ----------
Total Revenues $4,855,200 $3,377,800
========== ==========
(a) Revenues are attributed to countries based on the location of the subsidiary
performing the services.
11
<PAGE>
Long-lived assets are substantially located in the United States and the United
Kingdom.
For the three months ended March 31, 2000 and 1999, certain proprietary
investment funds accounted for approximately 46.4% and 48.1%, respectively, of
the Company's consolidated revenues, as follows:
Three months ended
March 31
2000 1999
------------------------
(Unaudited)
American Masters Broad Market Fund, L.P. 14.2% 14.2%
American Masters Broad Market Prime Fund, L.P. 17.8% 17.9%
Kingate Global Fund Class B Shares 14.4% 16.0%
12
<PAGE>
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
("TBL") in certain offshore mutual funds and Tremont Securities, Inc. ("TSI")
for assets placed in certain domestic limited partnerships. The Company provides
other consulting services generally on a fixed fee basis, whether as annual
retainer fees or single project fees. 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 to focus the Company on launching new
products and taking advantage of its growing world-wide relationships in order
to expand its operations.
Consulting fees earned for the three months ended March 31, 2000 increased by
$1,216,100, or 39.4%, from $3,083,800 for the three months ended March 31, 1999
to $4,299,900 for the three months ended March 31, 2000. At the Company's
principal domestic subsidiary, Tremont Partners, Inc. ("TPI"), consulting fees
increased from $1,993,400 for the three months ended March 31, 1999 to
approximately $2,685,000 for the three months ended March 31, 2000. This
increase was primarily due to increases in revenues from increased assets under
management in the Company's proprietary products, American Masters Broad Market
Prime Fund, L.P. ($259,200 increase) and American Masters Broad Market Fund,
L.P. ($211,700 increase). In addition, consulting fees increased due to
increases in fees from non-proprietary investment funds, such as the Meridian
Horizon Fund, L.P. ($107,800 increase). At TBL, consulting fees increased from
$1,059,000 for the three months ended March 31, 1999 to approximately $1,510,300
for the three months ended March 31, 2000. This increase was primarily due to an
increase in revenues as a result of increased assets under management from the
Company's proprietary products, Tremont Broad Market, LDC ($234,000 increase)
and Kingate Global Fund Class B Shares ($156,600 increase), as well as increases
in assets within investment vehicles of other clients.
The placement agent fees received by TSI, the Company's wholly owned
broker-dealer subsidiary, increased from $27,500 for the three months ended
March 31, 1999 to $33,700 for the three months ended March 31, 2000. Consulting
fees earned by Tremont Futures, Inc. increased from $2,600 for the first three
months ended March 31, 1999 to $22,500 for the three months ended March 31, 2000
primarily as a result of increased assets under management by American Masters
Market Neutral Fund, L.P. The remaining increase in consulting fees relates to
fees earned at conferences ($48,400) given to promote the TASS+ database.
Performance fees for the three months ended March 31, 2000 increased by $31,700,
or 63.0%, as compared to the three months ended March 31, 1999 primarily as a
result of underlying investment vehicles outperforming pre-established
benchmarks.
Database information sales increased by $245,100 or 171.0% as a result of the
Company acquiring TASS in March, 1999. Its operations have been included in the
statements of income from the date of acquisition (ie. one month in 1999 versus
three months in 2000).
13
<PAGE>
Commissions decreased by $15,500, or 15.4%, for the three months ended March 31,
2000 as compared to the three months ended March 31, 1999. These decreases
resulted primarily from decreased trading activities at TSI.
Management expects that during the remainder of 2000 the Company will continue
to develop 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, 2000 by
$612,000, or 48.5%, as compared to the three months ended March 31, 1999, as a
result of the Company's acquisition of TASS, as well as its continued efforts to
attract and retain qualified employees. These efforts, as well as the
acquisition of TASS, resulted in an increase in the number of employees from 51
at March 31, 1999 to 62 at March 31, 2000. Compensation expense also increased
due to salary increases for certain employees that became effective January 1,
2000 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 for the three months ended
March 31, 2000 increased by $152,300 or 18.8%, as compared to the three months
ended March 31, 1999. The increase in general and administrative expenses was
primarily related to the Company's continued expansion to service its growth and
the inclusion of TASS for the three months ended March 31, 2000 versus one month
for the period ended March 31, 1999.
Consulting expenses increased $156,200 or 41.9% for the three months ended March
31, 2000 as compared to the three months ended March 31, 1999 primarily as a
result of the increase in revenues from the clients that participate in revenue
sharing arrangements. For example, TPI and TBL have revenue sharing arrangements
with other parties relating to certain clients.
Equity earnings of investments increased $134,400, or 131.9%, for the three
months ended March 31, 2000 as compared to the three months ended March 31,
1999. This increase was a result of increased performance as well as an increase
in the amount invested by the Company. 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.
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 $323,000 for the three months ended March 31,
2000 as compared to cash provided by operations of $475,100 for the three months
ended March 31, 1999. This decrease was primarily a result of the changes in
amortization of intangibles, accounts payable, other assets, income taxes
payable, and equity earnings of investments partially offset by the increase in
net income and losses from joint ventures. Cash provided by financing activities
decreased due to issuance of Common Stock in the three months ended March 31,
1999 that did not recur in 2000. These changes in cash flow were offset by a
decrease in investing activities as well as a return of capital from Gamtree,
L.P.
14
<PAGE>
At March 31, 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 March 31, 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 has no material short term or
long term debt obligations.
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.
In prior years, the Company discussed the nature of its plans to become Year
2000 ready. In late 1999, the Company completed its remediation and testing of
systems. As a result of those planning and implementation efforts, the Company
experienced no significant disruptions in mission critical information
technology and non-information technology systems and believes those systems
successfully responded to the Year 2000 date change. The Company is not aware of
any material problems resulting from Year 2000 issues, either with its products,
its internal systems, or the products and services of third parties. During
2000, the Company expects to remediate certain non-critical systems at an
estimated cost of $235,000 that will be funded through operating cash flows. Of
the total remaining project costs, approximately $224,000 is attributable to the
purchase of new software and operating equipment, which will be capitalized. The
remaining $11,000 relates to other remediation efforts and will be charged to
expense as incurred. The Company will continue to monitor its mission critical
computer applications and those of its suppliers and vendors throughout the year
2000 to ensure that any latent Year 2000 matters that may arise are addressed
promptly.
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.
15
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Payroll Express. In 1991, the Company engaged KPM, Inc. d/b/a/ Payroll Express
("Payroll Express") to perform certain data processing services, including
preparing Forms 941 and filing them with Internal Revenue Service ("IRS") and
paying payroll and other taxes on behalf of the Company. The Company terminated
its relationship with Payroll Express upon being informed by the Chapter 11
Trustee for Payroll Express that the Company had suffered a potential loss as a
result of a fraudulent scheme undertaken by Payroll Express and its principal,
David S. Kast, It appears that Payroll Express failed to make certain payments
to the IRS on the Company's behalf and falsely and fraudulently misrepresented
to the Company the dollar amount of taxes actually paid to the IRS. It also
appears that a substantial portion of these funds (approximately $400,000) was
wrongfully appropriated by Payroll Express and Kast. This theft has created an
additional federal tax liability for the Company in the amount of $307,500 for
the years 1995 and 1996. These sums do not include interest or penalties since
the Company has been informed by the IRS that, based upon its initial review of
this matter, interest and penalties may not be assessed.
The Company has been reimbursed by its insurance carrier for a substantial
portion of the above federal tax liability. The Company is also cooperating with
the authorities in its ongoing criminal investigation of Payroll Express and
Kast and has filed a Proof of Claim in the Payroll Express bankruptcy
proceeding.
Vasu. 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. 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 6. Exhibits and Reports on Form 8-K
The Company filed a report on Form 8-K dated February 1, 2000 reporting that the
Company's Class B Common Stock was listed on the Nasdaq Small Cap Market under
the ticker symbol TMAV. Previously, the Class B Shares were quoted on the OTC
Bulletin under the ticker symbol TMAVB.
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 12, 2000 /s/ Stephen T. Clayton
----------------------------------
Stephen T. Clayton
Chief Financial Officer
(Duly authorized Officer and
Principal Financial and Accounting
Officer)
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF MARCH 31, 2000 AND FOR THE
QUARTER THEN ENDED. THIS INFORMATION IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH CONDENSED FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-2000
<CASH> 2,830,400
<SECURITIES> 0
<RECEIVABLES> 3,995,200
<ALLOWANCES> (35,000)
<INVENTORY> 0
<CURRENT-ASSETS> 7,107,800
<PP&E> 1,571,900
<DEPRECIATION> (692,200)
<TOTAL-ASSETS> 16,796,400
<CURRENT-LIABILITIES> 4,115,400
<BONDS> 0
0
0
<COMMON> 56,200
<OTHER-SE> 11,525,400
<TOTAL-LIABILITY-AND-EQUITY> 16,796,400
<SALES> 0
<TOTAL-REVENUES> 4,855,200
<CGS> 0
<TOTAL-COSTS> 3,504,700
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,531,000
<INCOME-TAX> 605,900
<INCOME-CONTINUING> 925,100
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 925,100
<EPS-BASIC> 0.16
<EPS-DILUTED> 0.16
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