UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark One)
x Quarterly Report Pursuant to Section 13 or 15(d) of the
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Securities Exchange Act of 1934
For the quarterly period ended August June 30, 2005
or
Transition Report Pursuant to Section 13 or 15(d) of the
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Securities Exchange Act of 1934
For the Transition Period From to
Commission File Number 001-12233
BEXIL CORPORATION
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(Exact name of registrant as specified in its charter)
Maryland 13-3907058
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11 Hanover Square, New York, New York 10005
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(Address of principal executive offices) (Zip Code)
212-785-0400
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(Company's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
------ ------
The registrant had outstanding 879,591 shares of common stock, par value
$.01 per share, as of July 31, 2005.
INDEX
Page
PART I. FINANCIAL INFORMATION Number
----------------------------- ------
Item 1. Financial Statements
Condensed Balance Sheet (Unaudited) - June 30, 2005 3
Condensed Statements of Income (Unaudited)
-Three Months Ended June 30, 2005 and June 30, 2004 (as restated)
-Six Months Ended June 30, 2005 and June 30, 2004 (as restated) 4
Condensed Statements of Cash Flows (Unaudited)
-Six Months Ended June 30,2005 and June 30, 2004 5
Notes to Condensed Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation 12
Item 3. Controls and Procedures 16
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
During The Period Covered by This Report 17
Item 5. Other Information 17
Item 6. Exhibits 18
CERTIFICATION SIGNATURES 19
-2-
BEXIL CORPORATION
CONDENSED BALANCE SHEET
June 30, 2005
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 5,733,270
Receivables, prepaid assets and other 80,620
-----------
Total current assets 5,813,890
-----------
Fifty percent interest in unconsolidated affiliate (Note 8) 9,603,949
Other investments (Note 3) 326,605
Deferred income taxes (Note 6) 281,888
-----------
10,212,442
Total assets $ 16,026,332
============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 335,087
---------
Total current liabilities 335,087
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Commitments and contingencies (Note 9) -
Shareholders' equity: (Note 4)
Common Stock, $0.01 par value
10,000,000 shares authorized
879,591 shares issued and outstanding 8,796
Additional paid-in capital 12,642,163
Retained earnings 3,040,286
----------
Total shareholders' equity 15,691,245
----------
Total liabilities and shareholders' equity $ 16,026,332
============
See accompanying notes to the condensed financial statements.
-3-
BEXIL CORPORATION
CONDENSED STATEMENTS OF INCOME
Three Months Ended Six Months Ended
June 30, June 30,
(As restated, (As restated,
see Note 10) see Note 10)
2005 2004 2005 2004
---- ---- ---- ----
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Revenues:
Consulting fees $ 37,500 $ 24,999 $ 75,000 $ 49,998
Other 21,402 11,764 47,123 52,206
-------- -------- ------- ------
58,902 36,763 122,123 102,204
Expenses:
General and Administrative 177,266 179,252 332,773 382,743
Communications 4,877 12,192 8,281 16,977
Professional fees 156,238 64,167 172,738 82,965
-------- ------- -------- ------
338,381 255,611 513,792 482,685
-------- -------- -------- -------
Loss before income taxes and equity in earnings of
York Insurance Services Group, Inc. (279,479) (218,848) (391,669) (380,481)
Income tax benefit (Note 6) (43,362) (47,929) (31,620) (65,173)
Equity in earnings of York Insurance Services Group, Inc. 586,043 456,348 1,180,462 975,853
-------- -------- ---------- -------
Net income $ 349,926 $ 285,429 $ 820,413 $ 660,545
========= ========= ========= =========
Per share net income:
Basic $ 0.40 $ 0.32 $ 0.93 $ 0.75
Diluted $ 0.40 $ 0.32 $ 0.93 $ 0.75
Average shares outstanding:
Basic 879,591 879,591 879,591 879,591
Diluted 879,591 879,591 879,591 880,249
See accompanying notes to the condensed financial statements.
-4-
BEXIL CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
Six Months Ended
June 30,
2005 2004
---- ----
(Unaudited) (Unaudited)
Cash flows from operating activites:
Net income $ 820,413 $ 660,545
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Equity in earnings of York Insurance Services Group, Inc. (1,180,462) (975,853)
Dividend received from York Insurance Services Group, Inc. 2,500,000 -
Increase in deferred income taxes (63,895) (83,173)
Net realized gain on maturity of investment - (10,100)
Increase in prepaid expenses and other assets (35,500) (21,454)
Increase (decrease) in accounts payable and accrued expenses 91,403 (148,010)
------- ---------
Net cash provided by (used in) operating activities 2,131,959 (578,045)
---------- ---------
Cash flows from investing activites:
Maturity of investments - 2,300,000
Purchase of investments - (667)
---------- ----------
Net cash provided by investing activities - 2,299,333
---------- ----------
Net increase in cash and cash equivalents 2,131,959 1,721,288
Cash and cash equivalents:
Beginning of period 3,601,311 199,601
---------- -------
End of period $ 5,733,270 $ 1,920,889
=========== ===========
Supplemental disclosure:
The Company paid no federal income taxes for the six months ended June 30, 2005
and 2004.
See accompanying notes to the condensed financial statements.
-5-
BEXIL CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
June 30, 2005
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business and Organization
Bexil Corporation (the "Company"), a Maryland corporation, is a holding company.
We have 11 employees. The Company's primary holding is a 50% interest in
privately held York Insurance Services Group, Inc. ("York"). Our 50% interest in
York is accounted for using the equity method, therefore York's financial
results are not consolidated with our own.
The Company was incorporated in August 1996 under the laws of the State of
Maryland as Bull & Bear U.S. Government Securities Fund, Inc., a non-diversified
closed-end management investment company registered under the Investment Company
Act of 1940 (the "1940 Act"). In October 1996, the Company's predecessor, a
series of shares of Bull & Bear Funds II, Inc., an open-end management
investment company, transferred its net assets to the Company in exchange for
shares of the Company. The Company changed its name to Bexil Corporation in
August 1999. In 2002, the Company filed an application with the Securities and
Exchange Commission (the "SEC") to terminate its registration as an investment
company registered under the 1940 Act.
On January 6, 2004, the Company's application with the SEC to terminate its
registration as an investment company was granted. As a result, the Company is
subject to the reporting and other requirements of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), and is no longer subject to regulation
under the 1940 Act. The Company's shares are listed on the American Stock
Exchange.
The information furnished in this report reflects all adjustments which are, in
the opinion of management, necessary to a fair statement of the results of the
period.
York Insurance Services Group, Inc. - Business
York is a privately owned insurance services business process sourcing ("BPO")
companies in the United States. Since the 1930's, York through predecessor
companies, has served as both an independent adjustment company and third party
administrator ("TPA") providing claims data and risk related services to
insurance companies, self insureds, and intermediaries throughout the United
States. More recently York has established business units in the program
management, licensed private investigation, recovery, environmental consulting,
retail logistics and large/complex loss adjusting markets.
Basis of Presentation
The Company's 50% interest in York is accounted using the equity method and
therefore York's financial results are not consolidated with our own. As fully
described in Note 2 to the condensed financial statements, effective January 1,
2004, the Company changed its method of accounting for its 50% interest in York
from the fair value method to the equity method.
Cash and Cash Equivalents
Investments in money market funds and short-term investments and other
marketable securities maturing in 90 days or less are considered to be cash
equivalents. At June 30, 2005, the Company held approximately $5,620,000 in a
money market fund.
-6-
Investment in Unconsolidated Affiliate
Our 50% interest in our unconsolidated affiliate, York, is accounted for using
the equity method. Therefore York's financial results are not consolidated with
our own. See Note 2 to the condensed financial statements for a description of
the transitional adjustment that occurred during the first quarter of 2004.
Investments
The Company has a material investment in the common stock of a non-public entity
with no readily available market price, and accordingly this security is carried
at the lower of cost or estimated net realizable value.
Income Taxes
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.
Reporting Segment
The Company's operations are organized around insurance services and classified
into one group - insurance services. The chief operating decision maker reviews
and considers the consolidated reports of York as the key decision making
information.
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
potentially dilutive securities including outstanding exercisable options to
purchase common stock. The following table sets forth the computation of basic
and diluted earnings per share:
Three Months Ended Six Months Ended
June 30, June 30,
2005 2004 2005 2004
---- ---- ---- ----
Numerator for basic and diluted earnings per share:
Net income $ 349,926 $ 285,429 $ 820,413 $ 660,545
========= ========= ========= =========
Denominator for basic earnings per share:
Weighted-average shares 879,591 879,571 879,591 879,571
Effect of dilutive securities:
Employee stock options - - - 678
--------- --------- -------- ---------
Denominator for diluted earnings per share:
Adjusted weighted-average shares and assumed conversion 879,591 879,571 879,591 880,249
======== ======== ======== ========
For the three months ended June 30, 2005, and 2004, there were 143,000 and
124,500 employee stock options omitted from earnings per share because they were
anti-dilutive. For the six months ended June 30, 2005 and 2004 there were
143,000 and 9,262 employee stock options omitted from earnings per share because
they were anti-dilutive.
-7-
Management's Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Estimates are primarily used in the determination of
equity method goodwill, investment impairment and expenses allocation. Actual
results may differ from those estimates.
Recent Accounting Pronouncements
On December 16, 2004, the Financial Accounting Standards Board ("FASB") issued
Statement No. 123 (Revised 2004), "Share-Based Payment" ("SFAS 123R"). This
statement requires all entities to recognize compensation expense in an amount
equal to the fair value of share-based payments (e.g., stock options and
restricted stock) granted to employees. The Company as a public entity that
files as small business issuer will be required to apply SFAS 123R in the first
interim or annual reporting period of the first year that begins after December
15, 2005. We are currently in the process of assessing the impact that the
adoption of this standard will have on our financial statements.
2. CHANGE IN ACCOUNTING PRINCIPLE
Effective with a Securities and Exchange Commission order on January 6, 2004,
the Company ceased to be an investment company pursuant to Section 8(f) of the
1940 Act. As a registered investment company, the Company recorded its net
assets at fair value (or market value). Effective upon de-registration, the
Company commenced reporting its assets and liabilities on a historical cost
basis. Although de-registration occurred on January 6, 2004, for convenience the
Company effected the change as of January 1, 2004 because management deemed
there to be no material change in either the fair value or historical cost of
its net assets in the three business day period from January 1 to January 6,
2004.
As a consequence of the de-registration, the Company changed its method of
accounting for its 50 percent interest in York from the fair value method to the
equity method. In addition, the Company changed its basis of accounting for its
other investment from fair value to cost. For all other assets and liabilities,
fair value approximated cost at the time of de-registration and no additional
transition adjustment was required.
The cumulative transitional adjustment made to additional paid-in capital is as
follows:
Opening retained earnings January 1, 2004 $ 5,702,060
Effect for the change in accounting as follows:
York investment
Equity at January 1, 2004 6,402,936
Goodwill at January 1, 2004 1,500,000
Fair value at December 31, 2003 (15,695,280)
-----------
Net accounting change (7,792,344)
Deferred tax charge related to fair value accounting 5,712,876
Deferred tax charge related to equity method accounting for York (441,265)
Other investments 23,605
-----------
Total cumulative transitional adjustment $ 3,204,932
===========
-8-
3. OTHER INVESTMENTS
As of June 30, 2005, other investments consisted of the following:
Market
Cost Value
--------------- ----------------
Common stock of non-public entity $ 325,000 *
Other 1,605 $ 1,590
--------------- ----------------
Total other investments $ 326,605
===============
* No readily determinable market value. A valuation committee meets on a
quarterly basis to determine if there is any asset impairment, by reviewing the
most readily available information about the entity and private stock
transactions, if any. Based upon this analysis, management has determined that
there was no impairment at June 30, 2005.
4. STOCK OPTIONS
On March 25, 2004, the Company's shareholders approved the adoption of a
Long-Term Incentive Plan, which provides for the granting of a maximum of
175,918 options to purchase common stock to directors, officers and key
employees of the Company or its affiliates. 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 5 years. The vesting period is
three years of service.
The Company applies APB Opinion No. 25, "Accounting for Stock Issued to
Employees" and related interpretations in accounting for its stock option plan.
Accordingly, no compensation cost has been recognized for its stock option plan.
Disclosure of pro forma compensation cost for the Company's plan is required by
Statement of 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 the plan 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 following table presents the Company's pro forma net income for the three
and six month periods ended June 30, 2005 and 2004, respectively, assuming the
Company had used the fair value method (SFAS 123) to recognize compensation
expense with respect to options:
Three Months Ended Six Months Ended
June 30, June 30,
2005 2004 2005 2004
--------------------------- ---------------------------
Net income - as reported $ 349,926 $ 285,429 $ 820,413 $ 660,545
Less total employee stock option expense determined
under fair value method, net of related tax effects (20,749) (35,877) (53,500) (457,647)
--------------------------- ---------------------------
Pro forma net income $ 329,177 $ 249,552 $ 766,913 $ 202,898
=========================== ===========================
Earnings per share - Basic:
As reported $ 0.40 $ 0.32 $ 0.93 $ 0.75
Pro forma $ 0.37 $ 0.28 $ 0.87 $ 0.23
Earnings per share - Diluted:
As reported $ 0.40 $ 0.32 $ 0.93 $ 0.75
Pro forma $ 0.37 $ 0.28 $ 0.87 $ 0.23
-9-
The fair value of each option grant is estimated as of the date of grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions used for grants in 2004; average volatility of 48%; risk-free
interest rate of 2.7% and expected life of 3 years; and, no dividends.
5. 401(k) PLAN
The Company participates in a 401(k) retirement plan for substantially all of
its qualified employees. The plan is sponsored by affiliate Winmill & Co.
Incorporated (refer to Note 7 for Related Party disclosures). Contributions to
this plan are based upon a percentage of salaries of eligible employees and are
accrued and funded on a current basis. Total plan expense for the three months
ended June 30, 2005 and 2004 was $5,476 and $2,013, respectively. Total plan
expense for the six months ended June 30, 2005 and 2004 was $10,952 and $10,000,
respectively.
6. INCOME TAXES
The income tax expense/(benefit) for the six months ended June 30, 2005 and 2004
is as follows:
Six Months Ended June 30,
2005 2004
---- ----
Current
Federal $ - $ -
State and local 32,275 18,000
------- ------
Deferred
Net operating loss (160,693) (171,000)
Equity in earnings of York 96,798 87,827
------- --------
$ (31,620) $ (65,173)
========== ==========
Deferred taxes are comprised of the following as of June 30, 2005:
Net operating and capital loss carry forwards $ 823,412
Equity in earnings of York (541,524)
----------
$ 281,888
==========
As of June 30, 2005, the Company had net operating loss carryforwards of
approximately $2,000,000 that expire between 2022 and 2024.
The provision for income taxes differs from the federal statutory income tax
rate as a result of the dividends received exclusion (80%) on the equity in
earnings of the unconsolidated affiliate.
7. RELATED PARTIES
Certain officers of the Company also serve as officers and/or directors of
Winmill & Co. Incorporated, Tuxis Corporation, and their affiliates
(collectively, the "Affiliates"). The Company shares office space and various
administrative and other support functions with the Affiliates and pays an
allocated cost based on an estimated assessment of use and other factors. The
Company is expected to reimburse the Affiliates for these costs. At June 30,
2005 the Company had a payable to Affiliates for these costs of $48,000. For the
three months ended June 30, 2005 and 2004 the
-10-
Company reimbursed the Affiliates $24,000 and $24,000, respectively. For the six
months ended June 30, 2005 and 2004 the Company reimbursed the Affiliates
$48,000 and $48,000, respectively.
The Company has a consulting agreement with York and earned fees of $37,500 and
$24,999 for the three months ended June 30, 2005 and 2004, respectively.
Consulting fees of $75,000 and $49,998 were earned for the six months ended June
30, 2005 and 2004, respectively.
8.INVESTMENT IN UNCONSOLIDATED AFFILIATE
Summarized condensed financial information for York is as follows:
Six Months Ended June 30,
York Insurance Services Group, Inc. 2005 2004
---- ----
Revenues $ 34,139,589 $ 28,380,576
Expenses $ 30,002,810 $ 25,309,800
Net income $ 2,360,926 $ 1,951,706
Working capital $ 11,512,969 $ 10,409,373
Total assets $ 27,359,677 $ 24,780,031
Total liabilities $ 11,151,779 $ 10,022,447
Shareholder's equity $ 16,207,898 $ 14,757,584
York is a 50% owned unconsolidated affiliate accounted for by the equity method.
At June 30, 2005, the Company's cost of its 50% interest in York exceeds the
underlying equity in net assets as follows:
Equity in net assets of York $ 8,103,949
Goodwill 1,500,000
-----------
Fifty percent interest in York $ 9,603,949
===========
The aggregate equity method interest in York of $9,603,949 at June 30, 2005 is
reviewed by the Company for impairment in accordance with APB Opinion No.18,
"The Equity Method of Accounting for Investments in Common Stock".
9.CONTINGENCIES
At June 30, 2005, there were no contingent obligations or events occurring in
the normal course of business that would have a material adverse impact on the
Company's financial statements.
10.PRESENTATION OF RESTATED STATEMENTS OF INCOME
The statements of income for the three months and six months ended June 30, 2004
have been restated to correct the presentation of equity in earnings of York.
The restatement presents the equity in earnings of York after the income tax
benefit on the statement of income. As originally reported the equity in
earnings of York was presented as a component of revenues. The correction was
deemed necessary in order to conform to the income statement presentation of
equity in earnings of an equity method investee required by SEC Regulation S-X,
Rule 5-03(b)(13). For the three months and six months ended June 30, 2004, the
equity in earnings of York was $456,348 and $975,853, respectively. The
correction had no effect on net income or earnings per share.
-11-
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following analysis gives effect to the restatement as discussed in Note 10
to the accompanying condensed financial statements.
Bexil Corporation, a Maryland corporation (the "Company"), is a holding company.
We have 11 employees.
The Company was incorporated under the laws of the State of Maryland as Bull &
Bear U.S. Government Securities Fund, Inc., a non-diversified closed-end
management investment company registered under 1940 Act. From 1986 through
September 1996, the predecessor operated as a diversified series of shares of
Bull & Bear Funds II, Inc., an open-end management investment company organized
in 1974. In October 1996, the Company's predecessor transferred its net assets
to the Company in exchange for shares of the Company. The Company changed its
name to Bexil Corporation on August 26, 1999. Prior to January 6, 2004, the
Company (including its predecessors) was regulated under the 1940 Act. In 2002,
the Company filed an application with the SEC to terminate its registration as
an investment company registered under the 1940 Act.
On January 6, 2004 the Company's application with the SEC to terminate its
registration as an investment company was granted. As a result, the Company is
subject to the reporting and other requirements of the Exchange Act and is no
longer subject to regulation under the 1940 Act. Bexil is a publicly held
company listed on the American Stock Exchange.
Bexil's primary holding is comprised of its 50% interest in privately held York
Insurance Services Group, Inc. ("York"). York is a privately owned insurance
services business process outsourcing ("BPO") companies in the United States.
Since the 1930's, York, through predecessor companies, has served as both an
independent adjustment company and third party administrator ("TPA") providing
comprehensive claims, data, and risk related services to insurance companies,
self-insureds, and intermediaries throughout the United States. More recently
York has established business units in the program management, licensed private
investigation, recovery, environmental consulting, retail logistics and
large/complex loss adjusting markets.
Our 50% interest in York is accounted for using the equity method and,
therefore, York's financial results are not consolidated with our own.
York Industry Profile and Risks
The insurance services industry in which York competes is fragmented and
includes captive and independent service providers. Captives are typically owned
and operated by insurance carriers and brokers. Independent competitors include
a few large, small group of mid-sized, and many small companies. York is one of
the largest independent companies within the mid-sized group. York seeks to
position itself as a nimble, nationwide provider of a broad array of insurance
services. York's objective is to offer its customers the flexibility of the
smaller providers combined with the infrastructure and service offerings of
larger competitors.
-12-
York competes in the domestic and international markets for claims
administration, claims adjusting, and related services, which are highly
competitive. A large number of companies compete in varying ways in various
segments of the market. Competitors include those insurance companies that have
their own claims handling capabilities, insurance brokers offering adjusting and
related services to supplement brokerage services, as well as national, regional
and small adjusting companies.
Although there are a large number of property and casualty insurers, the major
insurers, which account for a substantial portion of the market, typically
maintain a staff of adjusters on their payrolls. Generally, insurers use this
staff to adjust automobile and smaller property claims; however many insurers
also have internal adjusting staffs which handle claims that are larger or more
complicated. Nonetheless, to varying degrees, property and casualty insurers
"outsource" claims adjusting, whether entirely, on a multi-policy "program"
basis or, a policy-by-policy basis or on an adjustment-by-adjustment basis.
Insurers have numerous reasons for out-sourcing claims handling. Some insurers
have elected to reduce overhead by eliminating internal claims adjusting
capability in whole or in part. Others have specialized requirements for
specialized adjusting services. Additionally, certain claims may require
adjusting services outside the geographic area that an insurer's staff can
handle conveniently. Insurers' relationships with insureds or managing general
agents, and those parties' relationships with claims administrators, may also
result in an insurer out-sourcing claims. York makes its services available to
those insurers wishing to out-source claims handling.
Insurance markets tend to be cyclical in nature. As markets "harden", premiums,
deductibles and "self-insured retention" amounts tend to increase, while
coverage terms tend to become more restrictive. As markets "soften", the
opposite tends to occur. Different business opportunities arise in all phases of
these cycles. For example, the higher deductibles and self-insured retention
amounts seen during a "hard" market may lead insureds to take a greater degree
of control over the claims handling process. This presents an opportunity for
York to provide service to "self-insured" parties. On the other hand, a "soft"
market will tend to cause insurers to seek to cut costs. One way insurers try to
do this is by reducing the overhead of their in-house claims departments. This
presents an opportunity to York to handle "out-sourced" claims.
The insurance industry is heavily regulated and has recently been the focus of
intense scrutiny. Business practices of brokers, agents, insurance carriers and
reinsurers have all been under review including many customers and parties that
refer business to York. It is uncertain what impact these recent regulatory
initiatives will have on the insurance industry and ultimately on York's
business. To the extent that these regulatory initiatives lead to changes in the
industry, both risks to its current business and opportunities for new business
may be created.
York obtains business from numerous sources, including insurers, insurance
brokers, managing general agents ("MGA's"), captives, government agencies,
public entities, private self-insured companies, consultants, and trade
associations. Many of York's sources of revenue often involve multi-party
relationships. For example, an important source of business for York is
industry-specific programs. These programs often involve a large group of
policyholders, a trade association, a managing general agent, in conjunction
with an insurance carrier, each of whom exercise influence over how the program
is managed and who is selected to manage the claims. Despite these multi-party
relationships, York frequently contracts with the insurer. One such
-13-
insurer represented approximately 24% and 19% of York's revenue for the six
months ended June 30, 2005 and 2004, respectively, most of which was derived
from TPA services provided on industry-specific program business which also
involved relationships with MGA's and trade associations which are an integral
part of the buying decision. York services less than 5% of their total claims
business. York has also generated revenues with multiple affiliates of this
insurer, representing in the aggregate an additional amount of less than 10% of
York's 2005-2004 revenues.
York manages claims for residual market property and auto plans in over 20
states. The selection of York as TPA on these programs is influenced by each
individual state plan, the servicing carrier which manages each plan, the state
departments of insurance which oversee each plan, and the representatives of
insurance companies who serve on the Boards of each plan. York sometimes
contracts directly with the residual market plan, and sometimes with the
servicing carrier, including some of the affiliated insurers referred to above.
In every instance York is approved as claims TPA by the residual market plan in
each state and acts as agents of the plan. In the aggregate, residual market
plans represented approximately 30% of York's revenue for each of the six month
periods ended June 30, 2005 and 2004. Each of these state residual market plans
is a separate customer relationship and as such, the customer concentration
disclosure above does not reflect any business derived from residual market
plans.
Liquidity and Capital Resources
At June 30, 2005, the Company had positive working capital of $5,478,803, total
assets of $16,026,332, no long-term debt, and shareholders' equity of
$15,691,245. Total assets and shareholders' equity increased due to an increase
in equity in the earnings of York. There was an overall net increase in cash and
cash equivalents of $2,131,959 at June 30, 2005. The increase was attributable
to a $2,500,000 dividend received from York net of cash used in operating
activities.
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 materially
adversely affect the Company's capital resources.
Forward Looking Information
Certain written and oral statements made or incorporated by reference from time
to time by the Company in this report, other reports, filings with the
Securities and Exchange Commission, press releases, conferences, or otherwise,
contain "forward looking information" and are "forward looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements include, without limitation, any statement that may
predict, forecast, indicate or imply future results, performance or
achievements. Forward-looking statements may be identified, without limitation,
by the use of such words as "anticipates", "estimates", "expects", "intends",
"plans", "predicts", "projects", "believes", or words or phrases of similar
meaning. Forward-looking statements include risks and uncertainties which could
cause actual results or outcomes to differ materially from those expressed in
the forward-looking statements. In addition to other factors and matters
discussed elsewhere herein, some of the important facts that could cause actual
results to differ materially from those discussed in the forward-looking
statements include the following: changes in general economic conditions in
York's major geographic markets; occurrences of weather-related, natural and
man-made disasters, changes in overall employment levels and associated injury
rates in the United States; changes in the degree to which
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property and casualty insurance carriers outsource their claims handling
functions; decisions by major insurance carriers and underwriters and brokers to
expand their activities as third party administrators and adjusters, which would
directly compete with York's business; the ability to identify new revenue
sources not directly tied to the insurance underwriting cycle; the growth of
alternative risk programs and the use of independent third party administrators
such as York, as opposed to administrators affiliated with brokers or insurance
carriers; ability to develop or acquire information technology resources to
support and grow York's business; the ability to recruit, train and retain
qualified personnel; the renewal of existing major contracts with clients and
York's ability to obtain such renewals and new contracts on satisfactory
financial terms and the creditworthiness of its major clients; changes in
accounting principles or application of such principles to York's business; and
any other factors referenced or incorporated by reference in this report and any
other publicly filed report. The risks included above are not exhaustive.
Other sections of this report may include reference to the additional factors
which could adversely impact the Company's and York's business and financial
performance. Moreover, the Company and York operate in a very competitive and
rapidly changing environment. New risk factors emerge from time to time, and it
is not possible for management to predict all such risk factors, nor can it
assess the impact of known risk factors on the Company and York's business or
the extent to which any factor or combination of factors may cause actual
results to differ materially from those contained in any forward-looking
statement. The Company undertakes no obligation to revise or publicly release
the results of any revisions to forward-looking statements or to identify any
new risk factors which may arise. Given these risks and uncertainties, investors
should not place undue reliance on forward-looking statements as a prediction of
actual future results.
Investors should also be aware that while the Company does, from time to time,
communicate with securities analysts, it is against the Company's policy to
disclose to them any material, non-public information. Accordingly, investors
should not assume that the Company agrees with any statement or report issued by
any analyst irrespective of the content of the statement or report. Furthermore,
the Company has a policy against issuing or confirming financial forecasts or
projections issued by others. Thus, to the extent that the reports issued by
securities analysts contain any projections, forecasts, or opinions, such
reports are not the responsibility of the Company.
Three Months Ended June 30, 2005 Compared to Three Months Ended June 30, 2004
For the three months ended June 30, 2005 compared to the three months ended June
30, 2004, total revenue of $58,902 increased $22,139 or 60.2% from $36,763, due
to an increase in consulting fees of $12,500 and an increase in other revenue of
$9,638 which was due primarily an increase in dividends earned from money market
fund balances. Equity in earnings of York of $586,043 increased $129,695 or
28.4% due to York's increased earnings. York's revenue in the same comparable
period increased 25.7%.
Total expenses of $338,381 increased $82,770 or 32.4% compared to the same
period in 2004. Professional fees increased $92,071 or 143.5% primarily due to
an increase in audit fees. General and administrative expense and communications
expense decreased $9,301.
Net income for the three months ended June 30, 2005 was $349,926 or $0.40 per
share on a diluted basis as compared to net income of $285,429 or $0.32 per
share on a diluted basis for the three months ended June 30, 2004.
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Six Months Ended June 30, 2005 Compared to Six Months Ended June 30, 2004
For the six months ended June 30, 2005 compared to the six months ended June 30,
2004, total revenue of $122,123 increased $19,919 or 19.5% from $102,204, due to
an increase in consulting fees of $25,002 partially offset by a decrease in
other revenue of $5,083. Equity in earnings of York of $1,180,462 increased
$204,609 or 21.0% due to York's increased earnings. York's revenue in the same
comparable period increased 20.3%.
Total expenses of $513,792 increased $31,107 or 6.4% compared to the same period
in 2004. Professional fees increased $89,773 or 108.2% primarily due to an
increase in audit fees. General and administrative expenses decreased $49,970 or
13.1% due to lower compensation costs and directors fees of approximately
$37,000 and $11,000, respectively. Communications expense decreased $8,696.
Net income for the six months ended June 30, 2005 was $820,413 or $0.93 per
share on a diluted basis as compared to net income of $660,545 or $0.75 per
share on a diluted basis for the six months ended June 30, 2004.
Recent Accounting Pronouncements
On December 16, 2004, the FASB issued SFAS 123R. This statement requires all
entities to recognize compensation expense in an amount equal to the fair value
of share-based payments (e.g., stock options and restricted stock) granted to
employees. The Company as a public entity that files as small business issuer
will be required to apply SFAS 123R in the first interim or annual reporting
period of the first year that begins after December 15, 2005. We are currently
in the process of assessing the impact that the adoption of this standard will
have on our financial statements.
Item 3. Controls and Procedures
Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to
ensure that information required to be disclosed in the Company's reports filed
under the Securities Exchange Act of 1934 is recorded, processed, summarized and
reported within the time periods specified in the SEC's rules and forms, and
that such information is accumulated and communicated to the Company's
management, including its President and Chief Executive Officer and Principal
Financial Officer, or persons performing similar functions, as appropriate, to
allow timely decisions regarding required disclosure. Management necessarily
applied its judgment in assessing the costs and benefits of such controls and
procedures which, by their nature, can provide only reasonable assurance
regarding management's control objectives. The Company has carried out an
evaluation, under the supervision and with the participation of the Company's
management, including the Company's President and Chief Executive Officer along
with the Company's Principal Financial Officer, of the effectiveness of the
design and operation of the Company's disclosure controls and procedures
pursuant to Exchange Act Rule 13a-15(b). Based on that evaluation, management,
including the Company's President and Chief Executive Officer along with the
Company's Principal Financial Officer, concluded that the Company's disclosure
controls
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and procedures were not effective as of June 30, 2005, because of certain
control deficiencies outlined below.
On June 15, 2005, the Company inadvertently filed the 2004 Annual Report on Form
10-KSB before all pending edits and reviews were completed. Because the edits
and review procedures had not been completed, the Company's Chief Financial
Officer determined that the Company's financial statements for the fiscal years
ended December 31, 2004 and 2003 as filed should not be relied upon. On June 20,
2005, an amended 2004 Report was filed to correct certain errors which resulted
from the inadvertent filing of the 2004 Report on June 15, 2005. The
circumstances surrounding the inadvertent filing and a description of the edits
which had not been completed are described in the Company's Current Report on
Form 8-K dated June 15, 2005, and filed with the SEC on the same date. Moreover,
the Form 10-QSB for the quarter ended March 31, 2005 due on May 16, 2005 was not
filed until July 11, 2005, such delay being attributable to the time necessary
to make an accounting presentation of the Company's conversion from an
investment company to an operating company.
In connection with the preparation of the 2004 Annual Report on Form 10KSB/A,
management determined that deficiencies within its disclosure controls and
procedures including internal control over financial reporting existed that
related to the following (1) the Company's internal controls over SEC filings
were not adequate and required further strengthening, and (2) the controls over
the application of APB No. 20 as disclosed in Note 2 to the 2004 annual report
on Form 10KSB/A did not operate effectively. In addition, the controls over the
application of APB 18 regarding the classification of income from equity
affiliates as disclosed in Note 10 in this Form 10QSB did not operate
effectively.
Changes in Internal Control Over Financial Reporting
The Company has adopted the following administrative procedural control to help
preclude repetition of the error that occurred on June 15, 2005, with respect to
the inadvertent SEC filing. As such, no SEC filings by the Company shall be
transmitted until the staff person EDGARizing the document has obtained the
signed and dated authorization from either the Chief Executive Officer or the
Chief Financial Officer of the Company, or their delegatee.
There has been no change during the Company's fiscal quarter ended June 30,
2005, other than noted in the previous paragraph, in the Company's internal
control over financial reporting that has materially affected, or is reasonably
likely to materially affect, the Company's internal control over financial
reporting.
Part II. Other Information
Items 4. Submission of Matters to a Vote of Security Holders During the Period
Covered by This Report
None
Item 5. Other Information
The Company's principal financial officer and principal accounting officer
resigned from that position effective July 11, 2005. The Company appointed a new
principal financial officer and
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principal accounting officer, Thomas O'Malley, effective July 11, 2005. Mr.
O'Malley also is Chief Financial Officer, Chief Accounting Officer, and Vice
President of Tuxis Corporation and Winmill & Co. Incorporated and its affiliates
("Winco"), and the investment companies managed by Winco. Previously, Mr.
O'Malley served as Assistant Controller of Reich & Tang Asset Management, LLC,
Reich & Tang Services, Inc., and Reich & Tang Distributors, Inc. He is a
certified public accountant. There is no employment agreement between the
Company and Mr. O'Malley.
Item 6. Exhibits and Reports on Form 8-K
The Company filed the following Current Reports on Form 8-K during the three
months ended June 30, 2005.
1. Current Report on Form 8-K dated April 13, 2005 containing the
disclosure of the change in the Company's certifying accountant and the
press release announcing the change in the Company's certifying
accountant, late filing of the Company's annual report for the year
ended December 31, 2004 and the preliminary estimated operating results
for the fourth quarter and full year ended December 31, 2004.
2. Current Report on Form 8-K dated April 20, 2005 containing the press
release announcing the receipt of a notice of failure to satisfy a
continued listing standard from the American Stock Exchange.
3. Current Report on Form 8-K dated April 13, 2005 containing the
corrected disclosure of the change in the Company's certifying
accountant and the press release announcing the change in the Company's
certifying accountant, late filing of the Company's annual report for
the year ended December 31, 2004 and the preliminary estimated
operating results for the fourth quarter and full year ended December
31, 2004.
4. Current Report on Form 8-K dated May 24, 2005 containing the press
release announcing the late filing of the first quarter 2005 Form
10-QSB and preliminary estimated operating results for the first
quarter ended March 31, 2005.
5. Current Report on Form 8-K dated June 15, 2005 disclosing non-reliance
on previous issued financial statements pursuant to item 4.02 caused by
inadvertently filing the Company's annual report on Form 10-KSB for the
year ended December 31, 2004.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
BEXIL CORPORATION
Dated: August 15, 2005 By : /s/ Thomas O'Malley
-------------------
Thomas O'Malley
Chief Financial Officer,
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.
August 15, 2005 By:/s/ Thomas B. Winmill
----------------------------------------------------------
Bassett S. Winmill, Chairman of the Board, Director
Thomas B. Winmill on behalf of Bassett S. Winmill
by Power of Attorney signed 12/11/01
August 15, 2005 By:/s/ Thomas B. Winmill
----------------------------------------------------------
Thomas B. Winmill, Esq., President
Chief Executive Office, General Counsel, Director
August 15, 2005 By:/s/Thomas B. Winmill
----------------------------------------------------------
Charles A. Carroll, Director
Thomas B. Winmill on behalf of Charles A. Carroll
by Power of Attorney signed 12/11/01
August 15, 2005 By:/s/ Thomas B. Winmill
----------------------------------------------------------
Edward G, Webb, Jr., Director
Thomas B. Winmill on behalf of Edward G, Webb, Jr.
by Power of Attorney signed 12/11/01
August 15, 2005 By:/s/ Thomas B. Winmill
----------------------------------------------------------
Douglas Wu, Director
Thomas B. Winmill on behalf of Douglas Wu
by Power of Attorney signed 12/11/01
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Certification - Exchange Act Rules 13a-14 and 15d-14
I, Thomas B. Winmill, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Bexil Corporation
("registrant");
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the periods covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) [ omitted in accordance with SEC Release Nos. 33-8238 and 34-47986 ]
c) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
d) Disclosed in this report any change in the registrants internal control over
financial reporting that occurred during the registrants most recent fiscal
quarter that has materially affected, or is reasonably likely to materially
affect, the small business issuers' internal control over financial reporting;
and
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of registrant's board of directors
(or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
-20-
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control over
financial reporting.
Date: August 15,2005
/s/ Thomas B. Winmill
-----------------------
Chief Executive Officer
Certification - Exchange Act Rules 13a-14 and 15d-14
I, Thomas O'Malley, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Bexil Corporation
("registrant");
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the periods covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) [ omitted in accordance with SEC Release Nos. 33-8238 and 34-47986 ]
c) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
d) Disclosed in this report any change in the registrants internal control over
financial reporting that occurred during the registrants most recent fiscal
quarter that has materially affected, or is reasonably likely to materially
affect, the small business issuers' internal control over financial reporting;
and
-21-
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of registrant's board of directors
(or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control over
financial reporting.
Date: August 15, 2005
/s/ Thomas O'Malley
-----------------------
Chief Financial Officer
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CEO CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Bexil Corporation on Form 10-QSB for
the period ended June 30, 2005 as filed with the Securities and Exchange
Commission on the date hereof (the "Report"), I, Thomas B. Winmill, Chief
Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley act of 2002, that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material
respects, the financial condition and result of operations of the Company.
/s/ Thomas B. Winmill
Thomas B. Winmill
Chief Executive Officer
August 15, 2005
-23-
CFO CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Bexil Corporation on Form 10-QSB for
the period ended June 30, 2005 as filed with the Securities and Exchange
Commission on the date hereof (the "Report"), I, Thomas O'Malley, Chief
Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley act of 2002, that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material
respects, the financial condition and result of operations of the Company.
/s/Thomas O'Malley
Thomas O'Malley
Chief Financial Officer
August 15, 2005
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