Item 1. Business - ------- --------
Winmill & Co. Incorporated, a Delaware corporation (the "Company"), is a holding company with five principal subsidiaries: CEF Advisers, Inc., ("CEF"), Investor Service Center, Inc. ("ISC"), Midas Management Corporation ("MMC"), Performance Properties, Inc. ("Performance Properties") and Hanover Direct Advertising Company, Inc. ("Hanover Direct").
On March 31, 1999, the Company sold the outstanding stock of Bull & Bear Securities, Inc. ("BBSI"), to a wholly-owned subsidiary of Royal Bank of Canada. In connection with the sale, the rights to the name "Bull & Bear" were transferred to Royal Bank of Canada, and the Company and certain of its subsidiaries agreed to change their names. In connection with the BBSI Sale, Royal Bank has agreed that it will cause, for the three-year period following the closing, BBSI to offer exclusively Dollar Reserves to its customers as the sole money market fund into which cash balances held by BBSI's customers may be swept on a daily basis for so long as certain conditions are met, including certain performance rankings by the Fund, in consideration of a monthly fee equal to one-twelfth of 0.25% of the aggregate average daily amount of such balances. Further, the Company has agreed to provide, or to cause its subsidiaries to provide, to BBSI for a period of three years following the closing, certain services with respect to the operation of a securities brokerage business for a monthly consulting fee of $16,666.67, subject to certain conditions.
MMC and CEF act as investment managers to open-end and closed-end management investment companies (the "Funds") registered under the Investment Company Act of 1940 (the "Act"). The open-end Funds are: Dollar Reserves, Inc., Midas Fund, Inc.; Midas Investors Ltd.; Midas Magic, Inc., Midas Special Equities Fund, Inc. and Midas U.S. and Overseas Ltd. The closed-end funds are: Bexil Corporation, Global Income Fund, Inc. and Tuxis Corporation.
ISC was organized in 1985 and is registered with the SEC as a broker/dealer and is a member of the NASD. ISC acts as the principal distributor for the open-end Funds and may engage in proprietary trading.
Performance Properties was organized in 1994 to purchase and renovate suburban office buildings.
Hanover Direct was organized in 1988 and acts as an advertising agency, which places advertising for ISC on behalf of the Funds. The commission revenue generated by Hanover Direct from ISC, if any, represents a recapture of sums paid for advertising and, rather than additional income, represents a reduction in advertising expense of ISC. Hanover Direct has not performed any work for unaffiliated clients.
See Note 12 to the financial statements for financial information by business segment.
The Company has granted the Funds and its subsidiaries a non-exclusive license to use certain service marks owned by the Company, under certain terms and conditions on a royalty free basis. Such license may be withdrawn from a Fund in the event the investment manager of the Fund is not a subsidiary of the Company or in other cases, at the discretion of the Company.
Investment Management and Distribution Business - -----------------------------------------------
The Company is engaged, through its subsidiaries, in the business of managing investment companies registered under the Act. The Funds and their respective net assets as of December 31, 2000 were approximately as follows:
Bexil Corporation $ 9,789,000 Dollar Reserves, Inc. 58,502,000 Global Income Fund, Inc. 29,783,000 Midas Fund, Inc. 34,820,000 Midas Investors Ltd. 3,324,000 Midas Magic, Inc. 1,030,000 Midas Special Equities Fund, Inc. 29,036,000 Midas U.S. and Overseas Ltd. 3,943,000 Tuxis Corporation 11,239,000 --------------- Total Net Assets $ 181,466,000 ===============
The fund management industry along with the entire financial services sector of the economy has been rapidly changing to meet the increasing needs of investors. Competition for management of financial resources has increased as banks, insurance companies and broker/dealers have introduced products and services traditionally offered by independent fund management companies. There are also many fund management groups with substantially more resources than the Company. While the Company's business is not seasonal, it is affected by the financial markets, which in turn, are dependent upon current and future economic conditions.
Drastic material declines in the securities markets can have a significant effect on the Company's business. Volatile stock markets may affect management and distribution fees earned by the Company's subsidiaries. If the market value of securities owned by the Funds declines, assets under management will decline and shareholder redemptions may occur, either by transfer out of the equity Funds and into the money market Fund, Dollar Reserves, which has lower management and distribution fee rates than the equity Funds, or by redemptions out of the Funds entirely. Lower asset levels in the Funds may also cause or increase reimbursements to the Funds pursuant to the expense limitations described below.
In general, investment management services are rendered to the Funds pursuant to written contractual agreements. Such agreements relate to the general management of the affairs of each Fund, in addition to supervising the acquisition and sale of each Fund's portfolio investments. As provided in the agreements, CEF and MMC may receive management fees ranging from 0.4% to 1.0% per annum of the Funds' average daily net assets. The Act requires that such contractual agreements be initially approved by the Funds' Board of Directors, including a majority of all of the directors who are not "interested persons" (as defined in the Act), and by the vote of a majority of the outstanding shares of the Fund (as defined in the Act). Agreements, if approved, may be for a term of up to two years, and thereafter their continuance must be approved at least annually by a majority of the directors of the Fund, including a majority of those directors of the Fund who are not "interested persons", or by such a vote of "disinterested" directors and the vote of a majority of the outstanding shares of the Fund. In addition, all such agreements are subject to termination on 60 days' notice by majority vote of the Board of Directors or the shareholders and are subject to automatic termination in the event of assignment. Depending on the assets of the Fund involved and other factors, the termination of any of the agreements for investment management services between any of the Funds, CEF, and MMC may have a serious adverse impact upon the Company.
Pursuant to contracts with these Funds, CEF and MMC are entitled to management fees, which are received monthly and are based on annual percentages of the average daily or average weekly net assets of the Funds. Under the contracts, CEF and MMC are required to reimburse the Funds for certain expenses to the extent that such expenses exceed limitations prescribed by any state in which shares of the Funds are qualified for sale, although currently the Funds are not subject to any such limits. In addition, from time to time CEF and MMC may waive or reimburse management fees to increase a Fund's performance.
Each of the open-end Funds has adopted a plan of distribution pursuant to Rule 12b-1 under the Act (the "Plan"). Pursuant to the Plans, ISC may receive as compensation amounts ranging from one-quarter of one percent to one percent per annum of the Funds' average daily net assets for distribution and service activities. The service fee portion is intended to cover services provided to shareholders in the Funds and the maintenance of shareholder accounts. The distribution fee portion is to cover all other activities and expenses primarily intended to result in the sale of the Funds' shares.
The Act requires that a plan of distribution be initially approved by the Fund's Board of Directors, including a majority of the directors who are not "interested persons" and who have no financial interest in the Plan, and by the vote of a majority of the outstanding shares of the Fund. If approved, a plan of distribution may be for a term of one year, and thereafter it must be approved at least annually by the entire Board of Directors and by a majority of the "disinterested" directors. In addition, all plans of distribution are subject to termination at any time by majority vote of the disinterested directors or shareholders.
CEF and MMC are registered with the SEC as investment advisers under the Investment Advisers Act of 1940. ISC is registered with the SEC as a broker/dealer under the Securities Exchange Act of 1934 and is a member of the NASD. The Funds are registered with the SEC under the Act. The activities of CEF and MMC and of the Funds are subject to regulation under Federal and state securities laws. The provisions of these laws, including those relating to the contractual arrangements between the Funds and their investment manager, are primarily designed to protect the shareholders of the Funds and not the shareholders of the Company.
Forward-Looking Information - ---------------------------
Information or statements provided by or on behalf of the Company from time to time, including those within this Form 10-KSB Annual Report, may contain certain "forward-looking information", including information relating to anticipated growth in revenues or earnings per share, anticipated changes in the amount and composition of assets under management, anticipated expense levels, and expectations regarding financial market conditions. The Company cautions readers that any forward-looking information provided by or on behalf of the Company is not a guarantee of future performance and that actual results may differ materially from those in forward-looking information as a result of various factors, including but not limited to those discussed below. Further, such forward-looking statements speak only as of the date on which such statements are made, and the Company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events.
The Company's future revenues may fluctuate due to factors such as: the total value and composition of assets under management and related cash inflows or outflows in mutual funds; fluctuations in the financial markets resulting in appreciation or depreciation of assets under management; the relative investment performance of the Company's sponsored investment products as compared to competing products and market indices; the expense ratios and fees of the Company's sponsored products and services; investor sentiment and investor confidence in mutual funds; the ability of the Company to maintain investment management fees at current levels; competitive conditions in the mutual funds industry; the introduction of new mutual funds and investment products; the ability of the Company to contract with the Funds for payment for services offered to the Funds and Fund shareholders; the continuation of trends in the retirement plan marketplace favoring defined contribution plans and participant-directed investments; and the amount and timing of income from the Company's trading portfolio.
The Company's future operating results are also dependent upon the level of operating expenses, which are subject to fluctuation for the following or other reasons: changes in the level of advertising expenses in response to market conditions or other factors; variations in the level of compensation expense incurred by the Company, including performance-based compensation based on the Company's financial results, as well as changes in response to the size of the total employee population, competitive factors, or other reasons; expenses and capital costs, including depreciation, amortization and other non-cash charges, incurred by the Company to maintain its administrative and service infrastructure; and unanticipated costs that may be incurred by the Company from time to time to protect investor accounts and client goodwill.
The Company's revenues are substantially dependent on revenues from the Funds, which could be adversely affected if the independent directors of one or more of the Funds determined to terminate or renegotiate the terms of one or more investment management agreements.
The Company's business is also subject to substantial governmental regulation, and changes in legal, regulatory, accounting, tax, and compliance requirements may have a substantial effect on the Company's business and results of operations, including but not limited to effects on the level of costs incurred by the Company and effects on investor interest in mutual funds in general or in particular classes of mutual funds.
Item 2.
Item 2. Properties - ------- ----------
The principal office of the Company is located at 11 Hanover Square, New York, New York 10005. The approximate area of the office is 3,800 square feet. The rent is approximately $92,000 per annum plus $11,400 per annum for electricity. The lease expires on December 31, 2001 and is cancelable at the option of the Company on three months' notice.
Performance Properties purchased land and a two story office building located in Red Bank, New Jersey in 1994. The building consisted of approximately 13,000 square feet. The building was purchased for cash, had no mortgage. The office building was sold on December 1, 2000 for $2,250,000.
Item 3.
Item 3. Legal Proceedings - ------- -----------------
From time to time, the Company and/or its subsidiaries are threatened or named as defendants in litigation arising in the normal course of business. As of December 31, 2000, neither the Company nor any of its subsidiaries was involved in any other litigation that, in the opinion of management, would have a material adverse impact on the consolidated financial statements.
PART II
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders During Fourth - ------- Quarter of the Year Ended December 31, 2000 ----------------------------
NONE
Item 5.
Item 5. Market for the Company's Common Equity and Related Stockholder - ------- -------------------------------------------------------------- Matters -------
The Company's Class A Common Stock trades on the Nasdaq SmallCap Market tier of the Nasdaq Stock Market under the symbol WNMLA. The Company's Class B Common Stock has no public trading market. There are approximately 241 holders of record of Class A Common Stock and 1 holder of Class B Common Stock as of December 31, 2000. In addition, there are an indeterminate number of beneficial owners of Class A Common Stock that are held in "street name". No dividends have been paid on either class of Common Stock in the past five years and the Company does not expect to pay any such dividends in the foreseeable future. The high and low sales prices of the Class A Common Stock during each quarterly period over the last two years were as follows:
2000 1999 ----------------- ----------------- High Low High Low First Quarter $2-7/32 $1-15/16 $15-1/4 $2-5/8 Second Quarter $2-1/16 $1-5/8 $4-1/16 $2-5/8 Third Quarter $2-3/32 $1-13/16 $2-3/4 $2 Fourth Quarter $1-15/16 $1 $2-5/16 $1-7/8
Item 6.
Item 6. Selected Financial Data - ------- ----------------------- The selected financial data for the five years ended December 31, 2000 is presented on the following pages.
THIS PAGE INTENTIONALLY LEFT BLANK
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and - ------- --------------------------------------------------------------- Results of Operations ---------------------
2000 Compared to 1999 - ---------------------
Total revenues for the year increased $862,885 or 26% reflecting primarily the gain realized on the sale of real estate of $901,046. Management and distribution fees decreased $398,745 or 21% and $171,352 or 18%, respectively. The decrease in management and distribution fees was due to an overall decrease in the net asset levels of the Funds. Net assets under management were approximately $244 million at December 31, 1999, $222 million at March 31, 2000, $198 million at June 30, 2000, $189 million at September 30, 2000 and $181 million at December 31, 2000.
Rental income increased $34,670 or 16%. On December 1, 2000, the Company sold its real estate held for investment realizing a gain on the sale of $901,046. In 2000, the Company earned $200,000 in consulting fees from BBSI in connection with the sale of BBSI in 1999. Dividends, interest and other income increased $57,219 or 17% due to higher earnings from the Company's investments. The Company had net realized and unrealized gains of $139,154 from the Company's marketable securities which included certain investments in Funds managed by the Company.
Total expenses decreased $41,527 or 1%. General and administrative expenses decreased $43,027 or 2%. Marketing expenses decreased $141,413 or 30% due to lower fulfillment expenses and lower payments to other brokers for distributing the Company's open-end Funds. Expense reimbursements to the Funds decreased $41,281 or 13% due to lower waivers of management and distribution fees in certain Funds. Effective December 1, 1999, the Midas Fund's subadvisory agreement was discontinued, resulting in decreased subadvisory fees of $147,157. Professional fees increased $33,298 or 21%. Depreciation and amortization decreased $26,947 or 18%. In 2000, the Company determined that the carrying value of one of its intangible assets exceeded its net realizable value and recorded a non-recurring charge of $325,000 to operations.
Net income from continuing operations for the year was $508,314 or $.31 per share on a diluted basis as compared to net income from continuing operations of $48,776 or $.03 per share on a diluted basis for 1999.
Net income for the year was $508,314 or $.31 per share on a diluted basis as compared to net income of $2,528,641 or $1.51 per share on a diluted basis in 1999 which included a net gain from discontinued operations of $2,479,865 or $1.48 per share on a diluted basis.
1999 Compared to 1998 - ---------------------
On December 17, 1998, the Company signed an agreement to sell the outstanding stock of BBSI, the discount brokerage business, to a subsidiary of Royal Bank of Canada. The transaction, which was approved by the regulatory authorities in Canada and the United States, closed on March 31, 1999. The Company received $6 million in proceeds from the sale. At the time of the sale, BBSI had net equity of $500,000. In connection with the sale, the rights to the name "Bull & Bear" were transferred to Royal Bank of Canada, and the Company and certain of its subsidiaries changed their names. The Company recorded a gain from the sale of $2,479,865, net of related expenses including professional fees, closing bonuses, and income tax expense.
Total revenues from continuing operations for the year decreased $419,432 or 11%. Management and distribution fees decreased $298,721 or 14% and $114,688 or 14%, respectively. The decrease in management and distribution fees was due to an overall decrease in the net asset levels of the Funds. Shareholder administration fees decreased $314,111 or 100% because the Company discontinued providing shareholder administration services to the Funds effective January 1999. Net assets under management were approximately $258 million at December 31, 1998, $248 million at March 31, 1999, $242 million at June 30, 1999, $249 million at September 30, 1999 and $244 million at December 31, 1999.
Rental income increased $172,393 or 393%. The increase was attributable to additional tenants in 1999 and the commencement of rentals in May 1998. In 1999, the Company earned $150,000 in consulting fees from BBSI in connection with the sale. Dividends, interest and other income increased $270,939 or 459% due to higher earnings from the Company's investments which increased as a result of the proceeds from the sale of BBSI. The Company had net realized and unrealized losses of $250,893 from the Company's marketable securities which included certain investments in Funds managed by the Company. The losses included $413,369 from the decline in market value of the Company's 20% interest in Bexil Corporation, the closed end fund managed by the Company.
Total expenses increased $62,825 or 2%. General and administrative expenses increased $45,709 or 2%. Marketing expenses decreased $65,204 or 12% due to lower payments to other brokers for distributing the Company's open-end funds. Expense reimbursements to the Funds increased $148,440 or 82% due to higher waivers of management and distribution fees in certain Funds. Subadvisory fees decreased $83,797 or 36% because net assets were lower in Midas Fund and the subadvisory agreement with Lion Resources was terminated in November 1999. Professional fees decreased $17,839 or 10%. Depreciation and amortization expense increased $35,516 or 30% due to higher depreciation expense from the rental property.
Net income from continuing operations for the period was $48,776 or $.03 per share on a diluted basis as compared to net income of $651,829 or $.45 per share on a diluted basis for 1998. Net gain from discontinued operations for the period was $2,479,865, which included income from operations of $15,249, or $1.48 per share on a diluted basis as compared to a net loss from discontinued operations of $140,414 or $.10 per share on a diluted basis for 1998.
Net income for the period was $2,528,641 or $1.51 per share on a diluted basis for the period as compared to net income of $511,415 or $.35 per share on a diluted basis for 1998.
Liquidity and Capital Resources - -------------------------------
The following table reflects the Company's consolidated working capital, total assets, long-term debt and shareholders' equity as of the dates indicated.
December 31, ------------------------------------------- 2000 1999 1998 ---- ---- ----
Working Capital $ 7,132,886 $ 5,354,818 $ 2,371,234 Total Assets $ 8,377,222 $10,090,029 $ 5,315,147 Shareholders' Equity $ 7,961,746 $ 7,838,635 $ 4,959,016
For the year ended 2000, working capital and shareholders' equity increased $1,778,068 and $123,111, respectively. Total assets decreased $1,712,807.
Total assets decreased primarily due to the payment of federal, state and local income taxes in the first quarter of 2000 and the write-down of intangible assets of $325,000. Working capital increased due to the sale of real estate held for investment in the fourth quarter of 2000. The increase in shareholders' equity was primarily the result of the net income for 2000 of $508,314 offset by the decrease in unrealized capital gains on marketable securities of $385,203.
For the year ended 1999, working capital, total assets and shareholders' equity increased $2,983,584, $4,774,882 and $2,879,619, respectively.
Working capital and total assets increased primarily due to the income from the sale of BBSI. The increase in shareholders' equity was primarily the result of the net income for 2000 of $691,666 and the decrease in unrealized capital gains on marketable securities of $(350,375).
Management knows of no contingencies that are reasonably likely to result in a material decrease in the Company's liquidity or that are likely to adversely affect the Company's capital resources. This includes the restrictions placed on the transfer of funds to the Company ISC as a result of its regulatory net capital requirements. At December 31, 2000, the amount subject to these restrictions was $262,989 or 3.1% of total assets.
Effects of Inflation and Changing Prices - ----------------------------------------
Since the Company derives revenue from investment management and distribution services from the Funds, it is not possible for it to discuss or predict with accuracy the impact of inflation and changing prices on its revenues from continuing operations.
Item 8.
Item 8. Financial Statements and Supplementary Data - ------- -------------------------------------------
Financial Statements required by Regulation S-X and Supplementary Financial Information required by Regulation S-K are presented herein.
FINANCIAL STATEMENTS AND SUPPORTING SCHEDULES --------------------------------------------- ----------------- Page ----
Report of Independent Certified Public Accountants 12
Consolidated Balance Sheets, December 31, 2000 and 1999 13
Consolidated Statements of Income, Years ended December 31, 2000, 1999 and 1998 14
Consolidated Statements of Changes in Shareholders' Equity, Years ended December 31, 2000, 1999 and 1998 15
Consolidated Statements of Cash Flows, Years ended December 31, 2000, 1999 and 1998 16
Notes to Consolidated Financial Statements 18
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS --------------------------------------------------
The Board of Directors and Shareholders of Winmill & Co. Incorporated
We have audited the accompanying consolidated balance sheets of Winmill & Co. Incorporated and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of income, changes in shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2000. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Winmill & Co. Incorporated and subsidiaries at December 31, 2000 and 1999, and the consolidated results of their operations and their consolidated cash flows for each of the three years in the period ended December 31, 2000, in conformity with generally accepted accounting principles.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania February 9, 2001
WINMILL & CO. INCORPORATED CONSOLIDATED BALANCE SHEETS December 31,
2000 1999 ---- ---- ASSETS Current Assets: Cash and cash equivalents $ 3,086,087 $ 2,560,093 Marketable securities (Note 2) 3,926,175 4,600,928 Management, distribution and other fees receivable 161,774 272,800 Interest, dividends and other receivables 183,816 43,429 Prepaid expenses and other current assets 190,510 128,962 ------------ -------------- Total Current Assets 7,548,362 7,606,212 ------------ --------------
Real estate, net - 1,325,693 Equipment, furniture and fixtures, net 50,624 102,702 Excess of cost over net book value of subsidiaries, net 286,315 650,001 Deferred income taxes (Note 9) 138,000 140,000 Other assets 353,921 265,421 ------------ -------------- 828,860 2,483,817 ------------ -------------- Total Assets $ 8,377,222 $ 10,090,029 ============ ==============
LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable $ 38,649 $ 201,926 Accrued professional fees 66,563 75,055 Accrued payroll and other related costs 69,428 72,049 Accrued income taxes 231,000 1,866,600 Accrued other expenses - 25,928 Other current liabilities 9,836 9,836 ------------ -------------- Total Current Liabilities 415,476 2,251,394 ------------ --------------
Contingencies (Note 13) - -
Shareholders' Equity (Notes 3, 5, 6, and 7) Common Stock, $.01 par value Class A, 10,000,000 shares authorized; 1,635,017 shares issued and outstanding 16,351 16,351 Class B, 20,000 shares authorized; 20,000 shares issued and outstanding 200 200 Additional paid-in capital 6,872,454 6,872,454 Retained earnings 1,711,617 1,203,303 Notes receivable for common stock issued (603,675) (603,675) Accumulated other comprehensive income (35,201) 350,002 ------------ -------------- Total Shareholders' Equity 7,961,746 7,838,635 ------------ -------------- Total Liabilities and Shareholders' Equity $ 8,377,222 $ 10,090,029 ============ ==============
See accompanying notes to consolidated financial statements.
See accompanying notes to consolidated financial statements.
See accompanying notes to consolidated financial statements.
SUPPLEMENTAL DISCLOSURE: The Company paid $1,475,000, $0 and $9,346 in Federal income taxes in 2000, 1999 and 1998, respectively. The Company paid $864 and $916 in interest in 1999 and 1998, respectively.
See accompanying notes to consolidated financial statements.
WINMILL & CO. INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS Winmill & Co., Incorporated ("Company") is a holding company. Its subsidiaries' business consists of providing investment management and distribution services for the Midas Funds (six open-end funds) and three closed-end funds, proprietary securities trading, and real estate investment and operation.
BASIS OF PRESENTATION The consolidated financial statements include the accounts of the Company and all of its subsidiaries. Substantially all intercompany accounts and transactions have been eliminated.
ACCOUNTING ESTIMATES In preparing financial statements in conformity with generally accepted accounting principles, management makes estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses and other liabilities approximate fair value because of the short maturity of these items. Marketable securities are recorded at market value which represents the fair value of the securities.
CASH AND CASH EQUIVALENTS Investments in money market funds are considered to be cash equivalents. At December 31, 2000 and 1999, the Company and subsidiaries had invested approximately $2,871,800 and $2,199,800, respectively, in an affiliated money market fund.
MARKETABLE SECURITIES The Company and its non-broker/dealer subsidiaries' marketable securities are considered to be "available-for-sale" and recorded at market value, with the unrealized gain or loss included in stockholders' equity as "accumulated other comprehensive income". Marketable securities for the broker/dealer subsidiary is valued at market with unrealized gains and losses included in earnings.
INCOME TAXES The Company and its wholly-owned subsidiaries file consolidated income tax returns. The Company's method of accounting for income taxes conforms to Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes." This method requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting basis and the tax basis of assets and liabilities.
WINMILL & CO. INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2000, 1999 and 1998
REAL ESTATE HELD FOR INVESTMENT AND EQUIPMENT Real estate held for investment was recorded at cost and was depreciated on the straight-line basis over its estimated useful life. At December 31, 1999, accumulated depreciation on real estate held for investment amounted to approximately $166,100. The real estate held for investment was sold on December 1, 2000 at a gain of $901,046. Equipment, furniture and fixtures are recorded at cost and are depreciated on the straight-line basis over their estimated useful lives, 3 to 10 years. At December 31, 2000 and 1999, accumulated depreciation on equipment, furniture and fixtures amounted to approximately $813,000 and $796,900, respectively.
EXCESS OF COST OVER NET BOOK VALUE OF SUBSIDIARIES The excess of cost over net book value of subsidiaries is capitalized and amortized over fifteen and forty years using the straight-line method. At December 31, 2000 and 1999, accumulated amortization amounted to approximately $589,500 and $550,800, respectively. Periodically, the Company reviews its intangible assets for events or changes in circumstances that may indicate that the value of its intangible assets is not recoverable (See Note 10).
COMPREHENSIVE INCOME The Company discloses comprehensive income in the financial statements. Total comprehensive income includes net income and unrealized gains and losses on marketable securities, which is reported as other comprehensive income in stockholders' equity.
SEGMENT INFORMATION The Company's operating segments were organized around services provided and classified into three groups - investment management, real estate operations and discount brokerage. Due to the sale of the discount brokerage business in 1999, the discount brokerage business is classified as "income from discontinued operations" on the financial statements (See Note 2). The Company's remaining business is in two industry segments.
EARNINGS PER SHARE Basic earnings per share is computed using the weighted average number of shares outstanding. Diluted earnings per share is computed using the weighted average number of shares outstanding adjusted for the incremental shares attributed to outstanding options to purchase common stock.
WINMILL & CO. INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2000, 1999 and 1998
2. DISCONTINUED OPERATIONS
On December 17, 1998, the Company signed an agreement to sell the outstanding stock of the discount brokerage business, to a subsidiary of Royal Bank of Canada for $6 million. The sale closed on March 31, 1999. In connection with the sale, the rights to the name "Bull & Bear" was transferred to Royal Bank of Canada. In addition, Royal Bank has agreed that it will cause, for the three-year period following the closing, BBSI to offer exclusively Dollar Reserves to its customers as the sole money market fund into which cash balances held by BBSI's customers may be swept on a daily basis for so long as certain conditions are met, including certain performance rankings by the Fund, in consideration of a monthly fee equal to one-twelfth of 0.25% of the aggregate average daily amount of such balances. At December 31, 2000, the value invested in Dollar Reserves by BBSI's customers was approximately $30 million. Further, the Company has agreed to provide or to cause its subsidiaries to provide to BBSI for a period of three years following the closing certain services with respect to the operation of a securities brokerage business for a monthly consulting fee of $16,666.67, subject to certain conditions.
WINMILL & CO. INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2000, 1999 and 1998
Accordingly, results from the discount brokerage segment are shown as discontinued operations. Summarized financial information for the discontinued operations was as follows:
1999 1998 ---- ----
Revenues $ 748,786* $ 2,379,506 Expenses 733,537* 2,614,920 -------- ----------- Income (loss) before income taxes 15,249 (235,414) Income taxes - 95,000 ------- ------------ Income (loss) 15,249 (140,414) ------- ------------ Gain on sale of discontinued operations: Proceeds, net of basis 5,500,000 - Professional fees (222,021) - Closing bonuses (868,586) - ------------ ------------ Gain on sale before income taxes 4,409,393 - Income taxes (1,944,777) - ------------ ------------ Gain on sale 2,464,616 - ------------- ------------ Income (loss) from discontinued operations $ 2,479,865 $ (140,414) ============= ============
* Represents revenues and expenses for the 3 months ended March 31, 1999.
3. MARKETABLE SECURITIES
At December 31, marketable securities consisted of: 2000 1999 ---- ---- Broker/dealer securities - at market Affiliated funds $ 2,155,070 $ 2,063,205 Equity securities 1,286,900 435,875 ------------ ------------ Total broker/dealer securities (cost - $3,733,304 for 2000 and $2,861,234 for 1999) 3,441,970 2,499,080 ------------ ------------ Other companies Available-for-sale securities - at market Unaffiliated mutual funds 3,404 23,622 Affiliated mutual funds 446,361 2,046,439 Equity securities 34,440 31,787 ------------ ------------ Total available-for-sale securities (cost - $543,406 for 2000 and $1,751,846 for 1999) 484,205 2,101,848 ------------ ------------ $ 3,926,175 $ 4,600,928 ============ ============
WINMILL & CO. INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2000, 1999 and 1998
At December 31, 2000 and 1999, the Company had $(35,201) and $350,002, respectively, net of deferred income taxes, of unrealized gains (losses) on "available-for-sale securities" which is reported as a separate component of consolidated shareholders' equity.
4. LEASE COMMITMENTS
The Company leases office space under a lease which expires December 31, 2001 and is cancelable at the option of the Company on three month's notice. The rent is approximately $103,000 per annum including electricity.
5. SHAREHOLDERS' EQUITY
The Class A and Class B Common Stock are identical in all respects except for voting rights, which are vested solely in the Class B Common Stock. The Company also has 1,000,000 shares of Preferred Stock, $.01 par value, authorized. As of December 31, 2000, 1999 and 1998, none of the Preferred Stock was issued.
6. NET CAPITAL REQUIREMENTS
The Company's broker/dealer subsidiary is a member firm of the National Association of Securities Dealers, Inc. and is registered with the Securities and Exchange Commission as a broker/dealer. Under the Uniform Net Capital Rule (Rule 15c3-1 under the Securities Exchange Act of 1934), a broker/dealer must maintain minimum net capital, as defined, of not less than (a) $250,000 or, when engaged solely in the sale of redeemable shares of registered investment companies, $100,000, or (b) 6-2/3% of aggregate indebtedness, whichever is greater; and a ratio of aggregate indebtedness to net capital, as defined, of not more than 15 to 1. At December 31, 2000, the subsidiary had net capital of approximately $790,200; net capital requirements of $262,989; excess net capital of approximately $527,200; and the ratios of aggregate indebtedness to net capital was approximately 4.99 to 1.
7. STOCK OPTIONS
On December 6, 1995, the Company adopted a Long-Term Incentive Plan which provides for the granting of a maximum of 300,000 options to purchase Class A Common Stock to directors, officers and key employees of the Company or its subsidiaries. The plan was amended on February 5, 1996, on October 29, 1997 increasing the maximum number of options to 450,000, and in March 1999 increasing the maximum number of options to 600,000. With respect to non-employee directors, only grants of non-qualified stock options and awards of restricted shares are available. The three non-employee directors were granted 15,000 options each on December 12, 2000 and all previously issued options were cancelled. The option price per share may not be less than the fair value of such shares on the date the option is granted, and the maximum term of an option may not exceed ten years except as to non-employee directors for which the maximum term is five years.
WINMILL & CO. INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2000, 1999 and 1998
The Company applied APB Opinion 25 and related interpretations in accounting for its stock option plans. Accordingly, no compensation cost has been recognized for its stock option plans. Pro forma compensation cost for the Company's plans is required by Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation (SFAS 123)" and has been determined based on the fair value at the grant dates for awards under these plans consistent with the method of SFAS 123. For purposes of pro forma disclosure, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's pro forma information follows:
Years Ended December 31, 2000 1999 1998 ---- ---- ----
Net income As Reported $502,572 $2,528,641 $511,415 Pro forma $463,593 $2,285,639 $465,641 Earnings per share Basic As Reported $.30 $1.53 $.37 Pro forma $.28 $1.38 $.33
Diluted As Reported $.30 $1.51 $.35 Pro forma $.28 $1.36 $.32
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions used for grants in 2000, 1999 and 1998, respectively: expected volatility of 46.33%, 83.09% and 73.95%, risk-free interest rate of 4.40%, 5.78% and 5.11% and expected life of three years for each year.
A summary of the status of the Company's stock option plans as of December 31, 2000, 1999 and 1998, and changes during the years ending on those dates is presented below:
Weighted Number Average Of Exercise Stock Options Shares Price
Outstanding at December 31, 1997 412,000 $2.21 Granted 12,000 $1.81 Exercised (285,000) $2.25 Canceled (20,000) $2.64 ---------- Outstanding at December 31, 1998 119,000 $2.05 Granted 280,000 $2.98 Canceled (160,000) $3.28 ---------- Outstanding at December 31, 1999 239,000 $2.32 Granted 261,000 $1.65 Canceled (274,000) $2.26 ---------- 226,000 $1.61 ==========
WINMILL & CO. INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2000, 1999 and 1998
There were 182,000, 239,000 and 97,000 options exercisable at December 31, 2000, 1999 and 1998 with a weighted-average exercise price of $1.64, $2.32, and $1.99, respectively. The weighted-average fair value of options granted was $.54, $1.18 and $.94 for the years ended December 31, 2000, 1999 and 1998, respectively.
In December 2000, the Company canceled 192,000 previously issued stock options. The exercise prices of the canceled stock options were $1.875 to $2.6125. In December 2000, the Company granted 216,000 stock options with exercise prices of $1.50 to $1.65.
In September 1999, the Company canceled 125,000 previously issued stock options. The exercise prices of the canceled stock options were $3.36 to $3.69. In September 1999,the Company granted 155,000 stock options with exercise prices of $2.38 to $2.61.
The following table summarizes information about stock options outstanding at December 31, 2000:
Options Outstanding ---------------------------------------------------- Weighted-Average Range of Number Remaining Weighted-Average Exercise Prices Outstanding Contractual Life Exercise Price --------------- ----------- ---------------- ----------------
$1.50 - $1.65 216,000 4.9 years $1.58 $2.00 - $2.375 10,000 3.7 years $2.375
In connection with the exercise of the options, the Company received from certain officers notes with an interest rate of 4.47% per annum payable December 15, 2003. The balance of the notes at December 31, 2000 was $603,675, which was classified as "notes receivable for common stock issued."
8. PENSION PLAN
The Company has a 401(k) retirement plan for substantially all of its qualified employees. Contributions to this are based upon a percentage of earnings of eligible employees and are accrued and funded on a current basis. Total pension expense for the years ended December 31, 2000, 1999 and 1998 was approximately $45,100, $31,600 and $44,700, respectively.
WINMILL & CO. INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2000, 1999 and 1998
9. INCOME TAXES
The provision for income taxes charged to operations was as follows:
2000 1999 1998 ---- ---- ---- Continuing Operations Current Federal $ 352,000 $ (25,500) $ (111,054) State and local 105,126 (11,648) 28,510 ---------- ------------ ------------ 457,126 (37,148) (82,544) Deferred 26,000 75,400 - ---------- ------------ ------------ 483,126 38,252 (82,544) Discontinued Operations - 1,944,777 (95,000) ---------- ------------ ------------ $ 483,126 $ 1,983,029 $ (177,544) ========== ============ ============
Deferred tax assets are comprised of the following at December 31, 2000, 1999 and 1998:
2000 1999 1998 ---- ---- ----
Unrealized depreciation on investments $ 138,000 $ 140,000 $ 12,400 Accrued expenses - - 40,000 Depreciation - - 10,000 Net operating loss carryforwards - - 153,000 ---------- ---------- ---------- Net deferred tax assets $ 138,000 $ 140,000 $ 215,400 ========== ========== ==========
A reconciliation of the federal statutory income tax rate to the Company's effective tax rate is as follows:
2000 1999 1998 ---- ---- ----
Statutory rate 34.0% 34.0% 34.0% Increase in effective tax rate resulting from: State income taxes, net of federal benefit 7.0 9.1 5.6 Write-down of non-deductible intangible assets 11.1 - - Operating loss carryforwards - (3.1) (92.8) Other assets (3.4) 4.0 - ----- ---- ----- 48.7% 44.0% (53.2)% ===== ==== =====
In 1998, the negative effective tax rate resulted from the reversal of the valuation allowance account established in prior years.
WINMILL & CO. INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2000, 1999 and 1998
10. NON-RECURRING ITEM
In 2000, the Company determined that the carrying value of one of its intangible assets exceeded its net realizable value. This occurred because of a decline in net assets under management. As a result, the Company recorded a non-recurring charge to operations of $325,000.
11. RELATED PARTIES
All management and distribution fees are a result of services provided to the Funds. All such services are provided pursuant to agreements that set forth the fees to be charged for these services. These agreements are subject to annual review and approval by each Fund's Board of Directors and a majority of the Fund's non-interested directors. Shareholder administration fees represented reimbursement of costs incurred by subsidiaries of the Company on behalf of the open-end Funds. Such reimbursement amounted to approximately $314,100 for the year ended December 31, 1998. The Company outsourced its shareholder administration in 1999. During the years ended December 31, 2000, 1999 and 1998, the Funds paid approximately $147,000, $210,000 and $182,000, respectively, for recordkeeping services to ISC, which paid such amounts to certain brokers for performing such services. These reimbursements for recordkeeping services were recorded in management, distribution, service and administrative fees.
In connection with investment management services, the Company's investment managers and distributor waived management and distribution fees from the Funds in the amount of approximately $287,600, $328,800, and $180,400 for the years ended December 31, 2000, 1999 and 1998, respectively.
Certain officers of the Company also serve as officers and/or directors of the Funds.
Commencing August 1992, the Company has a key man life insurance policy on the life of the Company's Chairman which provides for the payment of $1,000,000 to the Company upon his death. As of December 31, 2000, the policy had a cash surrender value of approximately $263,500 and is included in other assets in the balance sheet.
WINMILL & CO. INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) December 31, 2000, 1999 and 1998
12. FINANCIAL INFORMATION BY BUSINESS SEGMENT
The following details selected financial information by business segment.
Investment Real Estate Management Operations Total Revenues $2,485,540 $ 250,941 $2,736,481 Gain on sale of real estate - 901,046 901,046 Investment income 525,121 1,157 526,278 Income from operations 157,800 833,640 991,440 Depreciation and amortization 62,506 64,249 126,755 Non-recurring item 325,000 - 325,000 Capital expenditures 5,301 53,951 59,252 Gross identifiable assets 6,345,189 2,133,033 8,478,222
Revenues 3,005,636 216,272 3,221,908 Investment income 78,165 847 79,012 Income (loss) from operations 109,733 (22,705) 87,028 Depreciation and amortization 78,316 75,386 153,702 Capital expenditures 7,617 201,237 208,854 Gross identifiable assets 8,620,008 1,470,021 10,090,029
13. CONTINGENCIES
From time to time, the Company and/or its subsidiaries are threatened or named as defendants in litigation arising in the normal course of business. As of December 31, 2000, neither the Company nor any of its subsidiaries was involved in any other litigation that, in the opinion of management, would have a material adverse impact on the consolidated financial statements.
In July 1994, the Company entered into a Death Benefit Agreement ("Agreement") with the Company's Chairman. Following his death, the Agreement provides for annual payments, equal to 80% of his average annual salary for the three year period prior to his death subject to certain adjustments, to his wife until her death. The Company's obligations under the Agreement are not secured and will terminate if he leaves the Company's employ under certain conditions.
Selected Quarterly Financial Data (Unaudited)
The following sets forth the selected quarterly financial information for the years ended December 31, 2000 and 1999. The information presented has been restated to reflect BBSI as discontinued operations (See Note 2) to the consolidated financial statements.
Item 9.
Item 9. Changes in and Disagreements With Accountants on Accounting and - ------- --------------------------------------------------------------- Financial Disclosure --------------------
There were no changes in or disagreements with the Company's accountants on accounting and financial disclosure matters during the two years ended December 31, 2000.
PART III
Item 10.
Item 10. Directors and Executive Officers
The following list contains the names, ages, positions and lengths of service of all directors and executive officers of the Company.
Name Position Years of Service Age Director Officer
Bassett S. Winmill Chairman of the Board 24 24 71
Robert D. Anderson Vice Chairman of the Board 24 24 71
Thomas B. Winmill, Esq. President, 12 13 41 General Counsel, Director
Edward G. Webb, Jr. Director 15* 12** 61
Charles A. Carroll Director 9 - 70
Mark C. Winmill Director 11*** 13**** 43
William Vohrer Treasurer, - - 50 Chief Accounting Officer
Monica Pelaez, Esquire Vice President, Secretary, Associate - 1 29 General Counsel
* 1985 to 1990 and 1992 to present.
** 1979 to 1990
*** 1989 to 1999 and 2000 to present.
**** 1987 to 1999
Set forth below is a description of the business experience of the directors and executive officers of the Company during the past five years.
BASSETT S. WINMILL - Chairman of the Board of Directors. He is also Chairman of certain investment companies managed by Company subsidiaries. He is a member of the New York Society of Security Analysts, the Association for Investment Management and Research, and the International Society of Financial Analysts. He is the father of Thomas B. Winmill and Mark C. Winmill.
ROBERT D. ANDERSON - Vice Chairman of the Board of Directors. He is also Vice Chairman of certain investment companies managed by Company subsidiaries and of the subsidiaries of the Company.
THOMAS B. WINMILL, ESQ. - President, General Counsel and Director. He is also President of the investment companies managed by Company subsidiaries and of certain other subsidiaries of the Company. He is a member of the New York State Bar. He is a son of Bassett S. Winmill and brother of Mark C. Winmill.
EDWARD G. WEBB, JR. - Director. He has been President of Webb Associates, Ltd. since 1996. From 1990 to 1996, he was Investment Director for Home Insurance Company, an affiliate of Trygg - House A1. Prior to that, he served as a Senior Vice President and Director of the Company.
CHARLES A. CARROLL - Director. From 1989 to the present, he has been affiliated with Kalin Associates, Inc., a member firm of the New York Stock Exchange.
MARK C. WINMILL - Chairman, Thanksgiving Foundation. He was Co-President, Co-CEO, CFO and Director of Bull & Bear Group, Inc. from June 1990 - March 1999 and an Officer and Director of its various Funds and subsidiaries from June 1987 - - March 1999. He was President, CEO, CFO and Director of Bull & Bear Securities, Inc., a nationwide discount broker, from June 1987 until March 1999 when the Company was sold to The Royal Bank of Canada. He was Chief Operating Officer of Bull & Bear Securities, Inc., a wholly-owned subsidiary of The Royal Bank of Canada, from April 1999 - February 2000. He is a son of Bassett S. Winmill and a brother of Thomas B. Winmill.
WILLIAM G. VOHRER - Chief Financial Officer, Treasurer and Chief Accounting Officer. He joined the company in February 2001. From 1999 to 2001, he consulted on accounting matters. From 1994 to 1999 he was Chief Financial Officer and Financial Operations Principal for Nafinsa Securities, Inc., a Mexican Securities broker/dealer. Prior to this, from 1978 to 1994 held Chief Financial Officer/Controller positions within the International banking community.
MONICA PELAEZ, ESQ. - Vice President, Secretary and Chief Compliance Officer. She is also Vice President, Secretary and Chief Compliance Officer of the other investment companies in the Investment Company Complex, and the Investment Manager and certain of its affiliates. Previously, she was Special Assistant Corporation Counsel to New York City Administration for Children's Services from 1998 to 2000 and an attorney with Debevoise & Plimpton from 1997 to 1998. She earned her Juris Doctor from St. John's University School of Law in 1997. She is a member of the New York State Bar. She was born November 5, 1971.
Each director is elected by the vote or written consent of the holder of a majority of the Class B Common Stock and holds office until the next meeting of the Class B common stockholder and until his successor is elected and qualified, or until his earlier death, resignation or removal.
Based solely on the information from Forms 3, 4, and 5 furnished to it, the Company believes that the directors, officers, and owners of more than 10 percent of the Class A Common Stock of the Company have filed on a timely basis reports required by Section 16(a) of the Securities Exchange Act of 1934 during the most recent fiscal year or prior fiscal years.
Item 11.
Item 11. Executive Compensation
The following information and tables set forth the information required under the Securities and Exchange Commission's executive compensation rules.
Summary Compensation Table The following table sets forth, for the three years ended December 31, 2000, the compensation paid to the chief executive officers and the other executive officers whose total annual salary and bonus exceeded $100,000 in 2000.
* Information omitted as perquisites do not exceed the lesser of $50,000 or 10% of the total annual salary and bonus for the year for the named executive officers.
** Includes options granted to reprice previously issued stock options which were then cancelled.
(a) Represents term life insurance (b) Represents Company's matching contributions to 401(k) Plan.
Option Grants Table The following table sets forth, for the year ended December 31, 2000, information regarding the options granted for each of the executive officers named in the Summary Compensation Table.
All of the above options are exercisable as of December 31, 2000. * Stock options cancelled in connection with repricing of stock options granted 12/12/00.
Aggregated Option Exercises and Fiscal Year-End Option Value Table The following table sets forth, for the year ended December 31, 2000, information regarding the outstanding options for each of the executive officers named in the Summary Compensation Table.
Number of Securities Value of Underlying Unexercised Number of Unexercised In-The-Money Shares Options at Options at Acquired Dollar 12-31-00 (#) 12-31-00 (#) On Value Exercisable/ Exercisable/ Name Exercise Realized Unexercisable Unexercisable - ---- ---------- -------- ------------- -------------
Bassett S. Winmill 0 $0 55,000 / 0 $0 / $0 Thomas B. Winmill 0 $0 55,000 / 0 $0 / $0 Robert D. Anderson 0 $0 25,000 / 0 $0 / $0
Option Repricings - -----------------
On December 12, 2000, the Board of Directors reviewed the stock options previously issued to employees of the Company under the Plan which had an exercise price higher than the market price of the Common Stock. The Board concluded that in light of the disparity between the exercise price of such options and the then current market price of the Common Stock, the options no longer provided the desired incentive to option holders. The Board of Directors unanimously approved the grant of replacement stock options for those previously issued and additionally the grant of options under the Plan to non-employee directors.
The following table sets forth, for the year ended December 31, 2000, information regarding the repricing on options for each of the executive officers named in the Summary Compensation Table.
Long-Term Incentive Plan Awards Table - -------------------------------------
There were no long-term incentive plan awards made during the year ended December 31, 2000 to the executive officers named in the Summary Compensation Table.
Compensation of Directors - -------------------------
Edward G. Webb, Jr., Charles A. Carroll, Mark C. Jones and Mark C. Winmill were the only individuals who received compensation for their service as directors of the Company in 2000. They were each paid $500 per quarter as a retainer and $2,000 per quarterly meeting attended plus expenses. For the year ended December 31, 2000, Mr. Webb and Mr. Carroll were each paid $10,000 for attending four regular meetings, Mr. Jones was paid $2,500 for attending one regular meetings and Mr. Winmill was paid $7,500 for attending three regular meetings. Mr. Jones resigned as a director on August 31, 2000. Mr. Webb, Mr. Carroll and Mr. Winmill each received an option to purchase 15,000 shares of Class A Common Stock at an exercise price of $1.50 per share in December 2000. Mr. Winmill also received an option to purchase 10,000 shares of Class A Common Stock at an exercise price of $1.97 per share in June 2000, which was subsequently canceled in December 2000.
Employment Contracts - --------------------
The Company has no employment or termination contracts with any of its employees except to the extent of the agreement described in Note 12 to the financial statements.
1995 Long-Term Incentive Plan - -----------------------------
On December 6, 1995, the Board of Directors of the Company ("Board") and the Class B voting common stockholder adopted the Bull & Bear Group, Inc. 1995 Long-Term Incentive Plan ("Plan"), under which options and stock-based awards (collectively, "Awards") may be made to directors, officers and employees of the Company or its subsidiaries. The Plan was amended by the Board and the Class B voting common stockholder on February 5, 1996, October 29, 1997 and in March 1999. The amended Plan is described below.
The purpose of the Plan is to assist the Company and its subsidiaries in attracting and retaining highly competent officers and directors and otherwise on behalf of the Company. The Plan also acts as an incentive in motivating selected officers and key employees to achieve long-term objectives of the Company, which will inure to the benefit of all stockholders of the Company. Any proceeds raised by the Company under the Plan will be used for working capital purposes.
General Provisions - ------------------
Duration of the Plan; Share Authorization. The Plan will terminate on December 6, 2005, unless terminated earlier by the Board.
Six hundred thousand (600,000) shares of the Company's Class A Common Stock ("Shares") are available for Awards under the Plan. The Shares to be offered under the Plan are authorized and unissued Shares, or issued Shares that have been reacquired by the Company and held in its treasury. Holders of Shares do not have voting rights except as specifically provided by the Delaware General Corporation Law.
Shares covered by any unexercised portions of terminated options, Shares forfeited by Participants, and Shares subject to any Awards that are otherwise surrendered by a Participant without receiving any payment or other benefit with respect thereto may again be subject to new Awards under the Plan. In the event the purchase price of an option or tax withholding relating to an Award is paid in whole or in part through the delivery of Shares, the number of Shares issuable in connection with the exercise of the option may not again be available for the grant of Awards under the Plan.
Plan Administration. The Plan is administered by the Board or Compensation Committee ("Committee") of the Board. The Committee is composed of at least two directors of the Company, each of whom is a "Non-Employee Director" as defined in Rule 16b-3 promulgated by the SEC ("Rule 16b-3") under Section 16 of the Securities Exchange Act of 1934, as amended ("Exchange Act"). When the Committee is administering the Plan, the Committee will determine the officers and other key employees who will be eligible for and granted Awards, determine the amount and type of Awards, establish and modify administrative rules relating to the Plan, impose such conditions and restrictions on Awards as it determines appropriate and take such other action as may be necessary or advisable for the proper administration of the Plan. The Committee may, with respect to Participants who are not subject to Section 16 of the Exchange Act, delegate such of its powers and authority under the Plan as it deems appropriate to certain officers or employees of the Company.
Plan Participants. Any employee of the Company or its subsidiaries, whether or not a director of the Company, may be selected by the Committee to receive an Award under the Plan. Non-Employee Directors shall receive such Awards (other than Incentive Stock Options) as the Board in its discretion may designate.
Awards Available Under the Plan - -------------------------------
Awards to employees under the Plan may take the form of stock options or Restricted Share Awards. Awards under the Plan may be granted alone or in combination with other Awards. The consideration for issuance of Awards under the Plan is the continued services of the employees and non-employee directors to the Company and its subsidiaries.
Stock Options Granted to Employees. Stock options ("Incentive Stock Options") meeting the requirements of Section 422 of the Internal Revenue Code of 1986, as amended from time to time, or any successor thereto ("Code"), and stock options that do not meet such requirements ("Non-Qualified Stock Options") are both available for grant to employees under the Plan.
The term of each option will be determined by the Board or Committee, but no option will be exercisable more than ten years after the date of grant. If, however, an Incentive Stock Option is granted to a Participant who, at the time of grant of the option, owns (or is deemed to own under Section 424(d) of the Code) more than 10% (a "Ten Percent Shareholder") of the Company's Class B common stock, par value $0.01 per share ("Company Voting Securities"), the option is not exercisable more than five years after the date of grant. Options may also be subject to restrictions on exercise, such as exercise in periodic installments, performance targets and waiting periods, as determined by the Board or Committee.
The exercise price of each option is determined by the Board or Committee; however, the per share exercise price of an option must be at least equal to 100% of the Fair Market Value (as defined below) of a Share on the date of grant of such option. If, however, an Incentive Stock Option is granted to a Ten Percent Shareholder, the per share exercise price of the option must be at least equal to 110% of the Fair Market Value of a Share on the date of grant of such option. Fair Market Value of a Share means, as of any given date, the most recently reported sale price of a Share on such date as of the time when Fair Market Value is being determined on the principal national securities exchange on which the Shares are then traded or, if the Shares are not then traded on a national securities exchange, the most recently reported sale price of the Shares on such date as of the time when Fair Market Value is being determined on Nasdaq; provided, however, that, if there were no sales reported as of such date, Fair Market Value is the last sale price previously reported. In the event the Shares are not admitted to trade on a securities exchange or quoted on Nasdaq, the Fair Market Value of a Share as of any given date is as determined in good faith by the Board or Committee. Notwithstanding the foregoing, the Fair Market Value of a Share will never be less than par value per share.
Subject to whatever installment exercise and waiting period provisions the Board or Committee may impose, options may be exercised in whole or in part at any time prior to expiration of the option by giving written notice of exercise to the Company specifying the number of Shares to be purchased. Such notice must be accompanied by payment in full of the purchase price in such form as the Board or Committee may accept (including payment in accordance with a cashless exercise program under which, if so instructed by the Participant, Shares may be issued directly to the Participant's broker or dealer upon receipt of the purchase price in cash from the broker or dealer). If and to the extent determined by the Board or Committee in its discretion at or after grant, payment in full or in part may also be made in the form of Shares duly owned by the Participant (and for which the Participant has good title, free and clear of any liens and encumbrances) or by reduction in the number of Shares issuable upon such exercise based, in each case, on the Fair Market Value of the Shares on the date the option is exercised. In the case of an Incentive Stock Option, however, the right to make payment of the purchase price in the form of Shares may be authorized only at the time of grant.
Stock options granted under the Plan are not transferable except by will or the laws of descent and distribution and may be exercised, during the Participant's lifetime, only by the Participant.
Unless the Board or Committee provides for a shorter period of time, upon a Participant's termination of employment other than by reason of death or disability, the Participant may, within three months from the date of such termination of employment, exercise all or any part of his or her options as were exercisable at the date of termination of employment but only if (x) the Participant resigns or retires and the Board or Committee consents to such resignation or retirement and (y) such termination of employment is not for cause. In no event, however, may any option be exercised after the time when it would otherwise expire. If such termination of employment is for cause or the Board or Committee does not so consent, the right of such Participant to exercise such options will terminate at the date of termination of employment.
Further, unless the Board or Committee provides for a shorter period of time, upon a Participant's becoming disabled (such date being the "Disability Date"), the Participant may, within one year after the Disability Date, exercise all or a part of his or her options that were exercisable upon such Disability Date. In no event, however, may any option be exercised after the time when it would otherwise expire.
Further, unless the Board or Committee provides for a shorter period of time, in the event of the death of a Participant while employed by the Company or prior to the expiration of the option as provided for in the event of disability, to the extent all or any part of the option was exercisable as of the date of death of the Participant, the right of the Participant's beneficiary to exercise the option will expire upon the expiration of one year from the date of the Participant's death (but in no event more than one year from the Participant's Disability Date) or on the stated termination date of the option, whichever is earlier. In the event of the Participant's death, the Board or Committee may, in its sole discretion, accelerate the right to exercise all or any part of an Option that would not otherwise be exercisable.
To the extent all or any part of an option was not exercisable as of the date of a Participant's termination of employment, such right will expire at the date of such termination of employment. Notwithstanding the foregoing, the Board or Committee, in its sole discretion and under such terms as it deems appropriate, may permit a Participant who will continue to render significant services to the Company after his or her termination of employment to continue to accrue service with respect to the right to exercise his or her options during the period in which the individual continues to render such services.
Restricted Shares. The Board or Committee may award restricted Shares ("Restricted Shares") to a Participant. Such a grant gives a Participant the right to receive Shares subject to a risk of forfeiture based upon certain conditions. The forfeiture restrictions on the Restricted Shares may be based upon performance standards, length of service or other criteria as the Board or Committee may determine. Until all restrictions are satisfied, lapsed or waived, the Company will maintain control over the Restricted Shares but the Participant will be entitled to receive dividends on the Restricted Shares; provided, however, that any Shares distributed as a dividend or otherwise with respect to any Restricted Shares as to which the restrictions have not yet lapsed will be subject to the same restrictions as such Restricted Shares. When all restrictions have been satisfied and/or waived or have lapsed, the Company will deliver to the Participant or, in the case of the Participant's death, his or her beneficiary, stock certificates for the appropriate number of Shares, free of all restrictions (except those imposed by law). None of the Restricted Shares may be assigned or transferred (other than by will or the laws of descent and distribution), pledged or sold prior to lapse or release of the applicable restrictions.
All of a Participant's Restricted Shares and rights thereto are forfeited to the Company unless the Participant continues in the service of the Company or any parent or subsidiary of the Company as an employee until the expiration of the forfeiture period, and all other applicable restrictions of the Restricted Shares. Notwithstanding the foregoing, the Board or Committee may, in its sole discretion, waive the forfeiture period and any other applicable restrictions on a Participant's Restricted Share Award, provided that the Participant must at that time have completed at least one year of employment after the date of grant.
Awards Granted to Non-Employee Directors. Non-Employee Directors are eligible only to receive Non-Qualified Stock Options and Awards of Restricted Shares. All such grants may be made only by the Board. The terms and conditions applicable to grants of such Awards to Non-Employee Directors (except where specifically stated herein to the contrary) are the same as those applicable to grants of Non-Qualified Options and Restricted Shares to employees, except that references to (a) the Committee shall be deemed to refer to the Board (b) employees shall be deemed to refer to Non-Employee Directors and (c) termination of employment shall be deemed to refer to termination of service.
Termination and Amendment - -------------------------
The Board may amend or terminate the Plan at any time it is deemed necessary or appropriate; provided, however, that no amendment may be made, without the affirmative approval of the holder of Company Voting Securities, that would require stockholder approval under Rule 16b-3, the Code or other applicable law unless the Board determines that compliance with Rule 16b-3 and/or the Code is no longer desired.
Except as provided by the Board or Committee, in its sole discretion, at the time of an Award or pursuant to certain antidilution provisions (as discussed below), no Award granted under the Plan to a Participant may be modified (unless such modification does not materially decrease the value of the Award) after the date of grant except by express written agreement between the Company and the Participant, provided that any such change (a) may not be inconsistent with the terms of the Plan, and (b) must be approved by the Board or Committee.
The Board has the right and the power to terminate the Plan at any time. No Award may be granted under the Plan after the termination of the Plan, but the termination of the Plan will not have any other effect and any Award outstanding at the time of the termination of the Plan may be exercised after termination of the Plan at any time prior to the expiration date of such Award to the same extent such Award would have been exercisable had the Plan not terminated.
Antidilution Provisions - -----------------------
Recapitalization. The number and kind of shares subject to outstanding Awards, the purchase price or exercise price of such Awards, and the number and kind of shares available for Awards subsequently granted under the Plan will be appropriately adjusted to reflect any stock dividend, stock split, combination or exchange of shares, merger, consolidation or other change in capitalization with a similar substantive effect upon the Plan or the Awards granted under the Plan. The Board or Committee has the power and sole discretion to determine the nature and amount of the adjustment to be made in each case. However, in no event will any adjustment be made in accordance with the Plan's antidilution provisions to any previous grant of Restricted Shares if an adjustment has been or will be made to the Shares awarded to a Participant in such person's capacity as a stockholder.
Sale or Reorganization. After any reorganization, merger or consolidation in which the Company is the surviving entity, each Participant will, at no additional cost, be entitled upon the exercise of an Award outstanding prior to such event, and in connection with the payout after such event of any Award outstanding at the time of such event, to receive (subject to any required action by stockholders), in lieu of the number of Shares receivable or exercisable pursuant to such option, the number and class of shares of stock or other securities to which such Participant would have been entitled pursuant to the terms of the reorganization, merger or consolidation if, at the time of such reorganization, merger or consolidation, such Participant had been the holder of record of a number of Shares equal to the number of Shares receivable or exercisable pursuant to such Award. Comparable rights will accrue to each Participant in the event of successive reorganizations, mergers or consolidations of the character described above.
Options to Purchase Stock of Acquired Companies. After any reorganization, merger or consolidation in which the Company is a surviving entity, the Board or Committee may grant substituted options under the provisions of the Plan, pursuant to Section 424 of the Code, replacing old options granted under a plan of another party to the reorganization, merger or consolidation whose stock subject to the old options may no longer be issued following such merger or consolidation. The foregoing adjustments and manner of application of the foregoing provisions will be determined by the Board or Committee in its sole discretion. Any such adjustments may provide for the elimination of any fractional Shares that might otherwise become subject to any options.
Loans - -----
The Company is entitled, if the Board or Committee in its sole discretion deems it necessary or desirable, to lend money to a Participant for purposes of (a) exercising his or her rights under an Award hereunder or (b) paying any income tax liability related to an Award; provided, however, that Non-Employee Directors are not eligible to receive such loans and provided, further, that the portion of the per share exercise price of an option equal to the par value per Share may not be paid by means of a promissory note. Such a loan must be evidenced by a recourse promissory note payable to the order of the Company executed by the Participant and containing such other terms and conditions as the Board or Committee may deem desirable. The interest rate on such loans must be sufficient to avoid imputed interest under the Code.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management. - -------- ---------------------------------------------------------------
(a) Bassett S. Winmill, Chairman of the Board of Directors, owns all of the issued and outstanding shares of the Company's Class B Common Stock, which represents 100% of the Company's voting securities.
(b) The following table sets forth, as of December 31, 2000, information relating to beneficial ownership by individual directors of the Company, executive officers named in the Summary Compensation Table and by directors and executive officers of the Company as a group, of the currently issued and outstanding Class A Common Stock of the Company.
Amount and Nature of Percent Name of Beneficial Owner Beneficial Ownership (5) of Class ------------------------ ------------------------ -------- Bassett S. Winmill 331,104 (1) 19.6% Thomas B. Winmill 177,520 (2) 10.5% Robert D. Anderson 94,414 (3) 5.7% Edward G. Webb, Jr. 18,664 (4) 1.1% Charles A. Carroll 30,000 (4) 1.8% Mark C. Winmill 106,800 (4) 6.5%
All directors and executive officers as a group (6 persons) 758,502 41.8%
(1) Includes options exercisable to purchase 55,000 shares at December 31, 2000.
(2) Includes 10,000 shares held by Thomas B. Winmill's sons, of which he disclaims beneficial ownership and options exercisable to purchase 55,000 shares.
(3) Includes options exercisable to purchase 25,000 shares.
(4) Includes options exercisable to purchase 15,000 shares.
(5) The nature of the beneficial ownership for all the Class A Common Stock is investment power.
Item 13.
Item 13. Certain Relationships and Related Transactions - -------- ----------------------------------------------
The following sets forth the reportable items regarding indebtedness of management in excess of $60,000. In connection with the exercise of stock options and related tax expense, the Company received notes with an interest rate of 4.47% per annum payable on December 15, 2003.
Largest Amount Amount Of Outstanding At Name and Relationship Indebtedness December 31, 2000 - --------------------- ------------ ----------------- Bassett S. Winmill, Chairman $302,293 $302,293 Thomas B. Winmill, President $210,220 $210,220 Mark C. Winmill, Director $214,215 $214,215
PART IV
Item 14.
Item 14. Exhibits, Consolidated Financial Statements and Schedules, and Reports - -------- ----------------------------------------------------------------------- on Form 8-K -----------
(a) (1) Financial Statements See Item 8 for a list of the financial statements filed as part of this report.
(2) Financial Statement Schedules by Regulation S-X are not required under the related instructions or are inapplicable, and therefore have been omitted.
(3) Exhibits (2) Not applicable
(3) Certificate of Incorporation as amended October 24, 1989 as filed as an exhibit to Form 10-K for the year ended December 31, 1992 and incorporated herein by reference; Certificate of Incorporation as amended April 1, 1999 as filed as an exhibit to Form 10-K/A for the year ended December 31, 1998 and incorporated herein by reference; By-Laws amended as of October 1, 1993 as filed as an exhibit to Form 10-K for the year ended December 31, 1993 and incorporated herein by reference, and By-Laws amended as of April 1, 1999 as filed as an exhibit to Form 10-K/A for the year ended December 31, 1998 and incorporated herein by reference.
(4) Instruments defining the rights of security holders, including indentures (see Article Four of Certificate of Incorporation).
(9) Not applicable.
(10) Material Contracts (a) Investment Management Agreements, Distribution Agreements, Plans of Distribution ("12b-1 Plans") and Shareholder Administration Agreements between subsidiaries of the Company and the Funds and Non-Exclusive License Agreements between the Company and the Funds:
(1) Filed as exhibits to Form 10-K for the year ended December 31, 1993 and incorporated herein by reference.
(2) Filed as exhibits to Form 10-K for the year ended December 31, 1994 and incorporated herein by reference.
(3) Filed as exhibits to Form 10-K for the year ended December 31, 1995 and incorporated herein by reference.
(4) Filed as exhibits to Form 10-K for the year ended December 31, 1996 and incorporated herein by reference.
(5) Filed as exhibits to Form 10-K for the year ended December 31, 1997 and incorporated herein by reference.
(6) Filed as exhibits to Form 10-K for the year ended December 31, 1999 and incorporated herein by reference..
(b) Bull & Bear Group, Inc. 1995 Long-Term Incentive Plan, as adopted December 6, 1995 and amended February 6, 1996, filed as exhibit to Form 10-K for the year ended December 31, 1995 and incorporated herein by reference.
(c) Section 422A Incentive Stock Option Plan, as adopted December 5, 1990, filed as exhibit to Form 10-K for the year ended December 31, 1990 and incorporated herein by reference.
(d) Investment Management Transfer Agreements between the investment management subsidiaries of the Company and filed as exhibit to Form 10-K for the year ended December 31, 1992 and incorporated herein by reference.
(e) Bull & Bear Investment Plan, filed as an exhibit to Form 10-K for the year ended December 31, 1993 and incorporated herein by reference.
(f) Death Benefit Agreement dated July 22, 1994 and filed as exhibit to Form 10-K for the year ended December 31, 1994 and incorporated herein by reference.
(g) Bull & Bear Group, Inc. Incentive Stock Option Agreement for Employees- Bassett S. Winmill filed as an exhibit to Form 10-K for the year ended December 31, 1995 and incorporated herein by reference.
(h) Bull & Bear Group, Inc. Incentive Stock Option Agreement for Employees- Robert D. Anderson filed as an exhibit to Form 10-K for the year ended December 31, 1995 and incorporated herein by reference.
(i) Bull & Bear Group, Inc. Incentive Stock Option Agreement for Employees- Mark C. Winmill filed as an exhibit to Form 10-K for the year ended December 31, 1995 and incorporated herein by reference.
(j) Bull & Bear Group, Inc. Incentive Stock Option Agreement for Employees- Thomas B. Winmill filed as an exhibit to Form 10-K for the year ended December 31, 1995 and incorporated herein by reference.
(k) Bull & Bear Group, Inc. Incentive Stock Option Agreement for Employees- Steven A. Landis filed as an exhibit to Form 10-K for the year ended December 31, 1995 and incorporated herein by reference.
(l) Bull & Bear Group, Inc. Stock Option Agreement - Edward G. Webb, Jr. filed as an exhibit to Form 10-K for the year ended December 31, 1995 and incorporated herein by reference.
(m) Bull & Bear Group, Inc. Stock Option Agreement - Charles A. Carroll filed as an exhibit to Form 10-K for the year ended December 31, 1995 and incorporated herein by reference.
(n) Bull & Bear Group, Inc. 1995 Long-Term Incentive Plan, (as Amended and Restated as of October 29, 1997), filed as exhibit to Form 10-K for the year ended December 31, 1997 and incorporated herein by reference.
(o) Option Certificate for Bassett S. Winmill filed as an exhibit to Form 10-K for the year ended December 31, 1997 and incorporated herein by reference.
(p) Option Certificate for Edward G. Webb, Jr. filed as an exhibit to Form 10-K for the year ended December 31, 1997 and incorporated herein by reference.
(q) Option Certificate for Charles A. Carroll filed as an exhibit to Form 10-K for the year ended December 31, 1997 and incorporated herein by reference.
(r) Option Certificate for Thomas B. Winmill filed as an exhibit to Form 10-K for the year ended December 31, 1997 and incorporated herein by reference.
(s) Option Certificate for Robert D. Anderson filed as an exhibit to Form 10-K for the year ended December 31, 1997 and incorporated herein by reference.
(t) Purchase Agreement, dated as of December 17, 1998, by and among Bull & Bear Group, Inc., Bull & Bear Securities, Inc. and RBC Holdings (USA) Inc., with all exhibits thereto filed as an exhibit to Form 8-K on December 18, 1998 and incorporated herein by reference.
(11) Statement Regarding Computation of Per Share Earnings (12) Not applicable. (13) Not applicable. (16) Not applicable. (18) Not applicable. (21) Wholly-Owned Subsidiaries of the Company (23) Not applicable. (24) Not applicable. (27) Not applicable. (28) Not applicable. (99) Not applicable.
(b) Reports on Form 8-K. No reports on Form 8-K were filed during the last quarter of the period covered by this report.
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
WINMILL & CO. INCORPORATED Formerly BULL & BEAR GROUP, INC.
March 30, 2001 By: /s/ William Vohrer ----------------------------------- William Vohrer Chief Financial Officer, Treasurer, Chief Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Company and in the capacities and on the dates indicated.
March 30, 2001 By: /s/ Bassett S. Winmill ------------------------------------ Bassett S. Winmill, Chairman of the Board, Director
March 30, 2001 By: /s/ Robert D. Anderson ------------------------------------ Robert D. Anderson, Vice Chairman, Director
March 30, 2001 By: /s/ Thomas B. Winmill ------------------------------------ Thomas B. Winmill, Esq. President, General Counsel, Director
March 30, 2001 By: /s/ Edward G. Webb, Jr. ------------------------------------ Edward G. Webb, Jr. Director
March 30, 2001 By: /s/ Charles A. Carroll ------------------------------------ Charles A. Carroll, Director
March 30, 2001 By: /s/ Mark C. Winmill ------------------------------------ Mark C. Winmill, Director
INDEX TO EXHIBITS
(3) Exhibits
(11) Statement Regarding Computation of Per Share Earnings
(21) Wholly-Owned Subsidiaries of the Company
Exhibit 11 - Statement Regarding Computation of Per Share Earnings
2000 1999 1998 ------------------- ------------------- ------------------- Basic Diluted Basic Diluted Basic Diluted --------- --------- --------- --------- --------- --------- Weighted average common shares 1,655,017 1,655,017 1,655,017 1,655,017 1,391,940 1,391,940 outstanding Weighted average common shares issuable upon exercise of stock options under the treasury stock method - 4,822 - 25,740 - 61,532
Weighted average common shares issuable upon exercise of warrants under the treasury stock method - - - - - -
Weighted average common shares and common share equivalents utilized for earnings per share computation 1,655,017 1,659,839 1,655,017 1,680,757 1,391,940 1,453,472
Exhibit 21 - Wholly-Owned Subsidiaries of the Company
CEF Advisers, Inc., a Delaware corporation
Hanover Direct Advertising Company, Inc., a Delaware corporation
Investor Service Center, Inc., a Delaware corporation
Midas Management Corporation, a Delaware corporation
Performance Properties, Inc., a Delaware corporation