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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[X] Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended December 31, 1998
OR
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ________ to _________
Commission file number 333-66859
INTREPID CAPITAL CORPORATION
(Exact name of Registrant as specified in its Charter)
DELAWARE 63-1197797
(State of Incorporation) (I.R.S. Employer Identification No.)
50 NORTH LAURA STREET, SUITE 3550, JACKSONVILLE, FLORIDA 32202
(Address of principal executive offices) (Zip Code)
(904) 350-9999
(Registrant's telephone number)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Check whether the issuer: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [X]
The issuer's revenues for the fiscal year ended December 31, 1998 were
$2,759,571.
As of March 31, 1999, there were 2,215,525 shares of Common Stock
outstanding. The aggregate market value of the voting Common Stock held by
non-affiliates of the Registrant as of March 31, 1999, as based on the average
closing bid and ask prices, was approximately $1,656,330.
Transitional Small Business Disclosure Format (check one): Yes [ ]
No [X]
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PART I
Certain statements contained in this Annual Report on Form 10-KSB are
"forward-looking statements," within the meaning of the Private Securities
Litigation Reform Act of 1995, and are thus prospective in nature. Such
forward-looking statements reflect management's beliefs and assumptions and are
based on information currently available to management. The forward-looking
statements involve known and unknown risks, uncertainties and other factors
that may cause actual results, performance or achievements of Intrepid Capital
Corporation to differ materially from those expressed or implied in such
statements. There can be no assurance that such factors or other factors will
not affect the accuracy of such forward-looking statements
ITEM 1. DESCRIPTION OF BUSINESS
General
Intrepid Capital Corporation ("ICAP") was formed in April 1998 to
merge (hereinafter referred to as the "Mergers"), through its wholly owned
subsidiaries, with Intrepid Capital Management, Inc., a Florida corporation
("ICM"), Capital Research Corporation, a Florida corporation ("CRC"), and
Enviroq Corporation, a Delaware corporation ("Enviroq"). ICAP was formed as a
wholly owned subsidiary of Enviroq. At the effective time of the Mergers, ICM,
CRC and Enviroq each became wholly owned subsidiaries of ICAP, and the
shareholders of ICM and CRC and the stockholders of ICAP received cash and
shares of the common stock, par value $.01, of ICAP (the "ICAP Common Stock")
in exchange for their shares of ICM, CRC and Enviroq. Prior to the Mergers,
Enviroq was subject to the periodic reporting requirements of Section 13 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). Immediately
following the Mergers, Enviroq suspended its duty to file periodic reports
under Section 13 of the Exchange Act, and ICAP commenced reporting thereunder.
In the future, ICAP intends to acquire and operate firms that provide
investment advisory services, brokerage services, specialized investment
banking services and other financial services. ICAP intends to continue to
expand through the growth of its present affiliates and through the acquisition
of additional firms in the future. Currently, the principal business of ICAP is
the operation of its wholly owned subsidiaries, ICM, CRC and Enviroq.
ICM
ICM is an investment management company and a registered investment
advisor under the Investment Advisers Act of 1940, as amended (the "Investment
Advisers Act"), operating with clients in several states primarily in the
southeast United States. ICM's investment strategy is to capitalize on growth
opportunities for investment management services in the institutional,
for-profit corporate, non-profit corporate and private client markets. ICM is
responsible for developing and implementing its own investment philosophy,
business plans and management fees. ICM seeks to grow by expanding the
capabilities of its investment management services, increasing and focusing its
marketing efforts and selectively expanding its distribution channels. ICM's
principal offices are located at 50 North Laura Street, Suite 3550,
Jacksonville, Florida 32202. As of December 31, 1998, ICM had $101 million of
assets under management for its clients.
The assets of all of ICM's clients have generally been growing, with
the most rapid growth achieved by domestic equities. For fiscal year ended
December 31, 1998, no single client of ICM provided more than 15% of ICM's
revenues.
ICM manages assets across a diverse range of investment styles, asset
classes and client types, with significant participation in both the debt and
equity markets. For the fiscal year ended December 31, 1998,
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investments in debt represented 45% of ICM's funds invested and investments in
equity securities represented 55% of ICM's funds invested.
Factors Affecting Institutional Investment Managers.
Revenues in the institutional investment management industry are
determined primarily by fees based on assets under management. Therefore, the
principal determinant of growth in the industry is the growth of institutional
assets under management. In management's judgment, the major factors which
influence changes in institutional assets under management are: (a) changes in
the market value of securities; (b) net cash flow into or out of existing
accounts; (c) gains of new or losses of existing accounts by specific firms or
segments of the industry; and (d) the introduction of new products by the
industry or by particular firms.
In general, assets under management in the institutional segments of
the industry have increased steadily, primarily due to increased rates of
return, client retention, client acquisition, asset removals and asset
additions.
CRC
CRC is a registered broker-dealer and a member of the NASD and SIPC.
CRC operates a general securities business primarily to registered advisors,
including ICM, on a fully disclosed basis through National Financial Services
Corporation ("NFSC"). CRC's operations, in conjunction with NFSC, include the
execution of orders, processing of transactions, receipt, identification and
delivery of funds and securities, custody of customer securities, internal
financial controls and compliance with regulatory and legal requirements. CRC's
principal offices are located at 50 North Laura Street, Suite 3550,
Jacksonville, Florida 32202 with branch offices located in Atlanta and Augusta,
Georgia.
CRC's operations, in conjunction with NFSC, include the execution of
orders, processing of transactions, receipt, identification and delivery of
funds and securities, custody of customer securities, internal financial
controls and compliance with regulatory and legal requirements.
CRC is organized to meet the needs of its investment adviser clients
and their clients. CRC typically does not recommend particular securities to
clients. Recommendations to clients are determined by individual investment
adviser clients based upon their own research and analysis and subject to
applicable NASD customer suitability standards. Most of CRC's personnel perform
fundamental (as opposed to technical) analysis. CRC's supervisory personnel
review trading activity to ensure compliance with applicable standards of
conduct.
Factors Affecting Broker-Dealers
Before 1975, all stock exchanges required brokers to charge fixed
minimum commissions for trades of listed stocks. Under pressure from Congress,
the Department of Justice and the Securities and Exchange Commission (the
"Commission"), these policies were changed, which allowed for negotiated
commissions and the unbundling of investment services. These developments
brought about the advent of the lower-cost and discount brokerage firm which
could separate financial advisory services from execution services and could
execute trades at a lower cost than a full-commission broker. Although
investors have been able to use discount brokerage services for years, various
emerging trends make the modern investor more likely to use discount brokerage
services.
First, the unbundling of brokerage services from other financial
services has permitted investors to pick and choose among various financial
service providers for specified services. As a result, firms like ICM have
emerged that provide the services provided by a full-commission broker on an "A
LA CARTE" basis.
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Firms like ICM specialize in investment advice, the provision of financial
information and financial planning. Other firms, like CRC, specialize in
providing lower-cost or discount securities brokerage services.
Second, investors are becoming more self-reliant and value conscious
in the pursuit of their financial goals. Investors are increasingly willing to
acquire the information about, and an understanding of, investment alternatives
and have become increasingly sophisticated and knowledgeable about investing.
Access to a broad range of financial information and advice has decreased the
necessity for full-service brokers. These investors make their own decisions
about their financial future and tend to seek greater value, often in the form
of lower transaction costs. As a result, the use of discount brokers and
directly marketed no-load mutual funds have increased in market share at the
expense of traditional providers charging a higher commission or sales load.
Finally, the growth in financial assets held by an individual is
accelerating. Large numbers of "baby boomers" are beginning to invest for their
children's education and for their own retirement. Additionally, it is
estimated that these individuals, many of whom have greater education,
technical capabilities and investment choices than their parents, as well as
greater access to information, will inherit a historically significant amount
of assets available for investing from the previous generation during the next
decade. This represents the largest absolute transference of wealth in history.
The convergence of these trends is creating a new marketplace for financial
services. It is also creating a new investor, who is self-reliant and value
oriented. CRC seeks to be a leading provider of financial services to this new
investor.
CRC's Business Environment
Market conditions during 1998 reflected a continuation of the 1997
bull market characterized by record volumes and record high market levels. At
the same time, competition has continued to intensify both among all classes of
brokerage firms and within the discount brokerage business as well as from new
firms not previously in the discount brokerage business. Electronic trading
continues to grow as a retail discount market segment with some firms offering
very low flat rate trading execution fees that are difficult for any
conventional discount firm to meet. Many of the flat fee brokers, however,
impose charges for services such as mailing, transfers and handling exchanges
and also direct their executions to captive market makers, which CRC does not.
Continued competition from ultra low cost, flat fee brokers and broader service
offerings from other discount brokers could also limit CRC's growth or even
lead to a decline in CRC's customer base which would adversely affect its
results of operations. Industry-wide changes in trading practices are expected
to cause continuing pressure on fees earned by discount brokers for the sale of
order flow.
CRC, like other securities firms, is directly affected by general
economic and market conditions, including fluctuations in volume and prices of
securities, changes and prospects for changes in interest rates and demand for
brokerage and investment banking services, all of which can affect CRC's
relative profitability. In periods of reduced market activity, profitability is
likely to be adversely affected because certain expenses, including salaries
and related costs, portions of communication costs and occupancy expenses,
remain relatively fixed.
Enviroq
Enviroq, incorporated on February 9, 1995, is principally engaged in
the development, commercialization, formulation and marketing of spray-applied
resinous products, and in the treatment of municipal wastewater biosolids.
Enviroq's operations are conducted primarily through Sprayroq, Inc., a Florida
corporation of which Enviroq owns 50% of the outstanding capital stock
("Sprayroq"). Sprayroq is engaged in the development, commercialization,
manufacturing and marketing of spray-applied resinous materials. Since this
business is inconsistent with ICAP's primary mission, ICAP is evaluating
alternatives for the future of this operation.
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ICAP Business Strategy
ICAP intends to grow its business by leveraging its competitive asset
management and brokerage service strengths through ICM and CRC, including ICM's
long-term performance record, diverse product offerings and experienced
research, client service and investment staff. In order to achieve continued
growth and profitability, ICAP will continue to pursue its business strategy,
the key elements of which include:
Maintain Asset Management As Core Business
ICAP's core business is asset management. Concentrating its
professional and financial resources on providing high quality investment
products and client service, ICAP hopes to further establish a respected
reputation among its clients and in the investment community. ICAP believes
that its continuing commitment to its core asset management business, together
with its continued independence during a period of consolidation in the
financial services industry, is attractive to potential clients and will also
contribute to its ability to attract and retain highly qualified investment
professionals.
Broadening and Strengthening the ICAP Brand
ICAP intends to strengthen its brand name identity by, among other
things, increasing its marketing and advertising to provide a uniform regional
image in the southeast United States. ICAP has the capacity to create new
products and services around the core ICM brand to complement its existing
product offerings.
Enhancing Diverse Product and Service Offerings
ICAP believes that its ability to offer a broad range of investment
products and services in a wide variety of investment styles will enhance its
opportunities for attracting new clients and cross-selling its products and
services to existing clients. ICAP also seeks to complement existing product
offerings through internal development and acquisition of new investment
capabilities.
Increasing Penetration in the Accredited Investor Market
ICAP's high net worth business focuses, in general, on serving clients
who fit within the definition of "accredited investors" under the federal
securities laws. That means ICAP's customers will generally be (i) banks or
other financial institutions; (ii) registered broker-dealers; (iii) registered
investment companies; (iv) small business investment companies; (v) natural
persons whose individual net worth, or joint net worth with that person's
spouse, exceed $1,000,000; (vi) natural persons whose individual net income
exceeded $200,000, or $300,000 together with their spouses, for each of the
past two years, and such persons have the reasonable expectation of achieving
such incomes in the current year; (vii) certain types of trusts with total
assets in excess of $5,000,000; and (viii) entities in which all of the equity
owners are accredited investors. With ICM's history of serving this segment and
its long-term performance record, ICAP believes that it is well positioned to
capitalize on the growth opportunities in this market.
Attracting and Retaining Experienced Professionals
The availability of the publicly traded ICAP Common Stock will enhance
ICAP's ability to attract and retain top performing investment professionals.
The ability to attract and retain highly experienced investment and other
professionals with a long-term commitment to ICAP and its clients will be a
significant factor in ICAP's long-term growth. As ICAP continues to increase
the breadth of its investment management capabilities, it plans to add
portfolio managers and investment management capabilities, portfolio managers
and other investment personnel in order to foster expansion of its products.
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Capitalizing on Acquisitions and Strategic Alliances
ICAP intends to selectively and opportunistically pursue acquisitions
and alliances that will broaden its product offerings and add new sources of
distribution. ICAP believes that it is well positioned to pursue acquisitions
and alliances because it is one of a relatively few publicly-traded investment
management and brokerage companies.
Supervision and Regulation
ICAP
ICAP is incorporated under, and required to be in compliance with, the
laws of the State of Delaware. ICAP is also subject to the reporting
requirements of the Exchange Act as well as to applicable regulation and
supervision by the Commission. Because ICAP is not engaged in the rendering of
investment advisory services, its activities as a holding company will not
result in ICAP being deemed an "investment adviser", as such term is defined in
the Investment Advisers Act and various state advisers acts. ICAP, therefore,
is not required to be registered under the Investment Advisers Act or any state
advisers acts. However, because CRC is subject to the Uniform Net Capital Rule
(as defined below), ICAP is also subject to the requirements of such rule.
ICM
ICM is incorporated under, and required to be in compliance with, the
corporate laws of the State of Florida. Because ICM is engaged in the business
of providing investment advisory services to a number of clients, ICM is
registered under the Investment Advisers Act and under applicable state
investment advisers acts. All registrations, reporting, maintenance of books
and records and compliance procedures required by the foregoing laws and
regulations are maintained independently by ICM. Any associated person of ICM
providing investment advice to clients will be required to have passed the
Series 7 examination of the National Association of Securities Dealers, Inc.
(the "NASD") for general securities representatives. ICM is also subject to the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and to
U.S. Department of Labor regulations promulgated thereunder, insofar as ICM is
a "fiduciary" under ERISA with respect to its clients.
The laws and regulations applicable to ICM and its operations
generally grant supervisory agencies and bodies broad administrative powers,
including the power to limit or restrict ICM from carrying on its business in
the event that it fails to comply with such laws and regulations. Possible
sanctions that may be imposed in the event of such noncompliance include the
suspension of individual employees, limitations on ICM's engaging in business
for specified periods of time, revocation of ICM's registration as an
investment adviser, censures and fines.
ICM believes that it is currently in compliance with all state and
federal regulations, and its most recent audit met all applicable regulatory
requirements. ICM also has in place an ongoing internal compliance program
supported by regulators, external consultants, accountants and attorneys.
CRC
CRC is incorporated under, and required to be in compliance with, the
corporate laws of the State of Florida. CRC is registered as a broker-dealer
with the Commission under the Exchange Act and, where applicable, under various
state securities laws, and is further regulated by the rules of the NASD. All
registrations, reporting, maintenance of books and records and compliance
procedures required by the foregoing laws and regulations are maintained
independently by CRC.
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CRC is also required by federal law to belong to the Securities
Investment Protection Corporation (the "SIPC"), which provides, in the event of
the liquidation of a broker-dealer, protection for securities held in customer
accounts of up to $500,000 per customer, subject to a limitation of $100,000 on
claims for cash balances. The SIPC is funded through assessments levied on
registered broker-dealers. Stocks, bonds, mutual funds and money market funds
are considered securities and are protected on a share basis for the purposes
of SIPC protection. SIPC protection does not apply to fluctuations in the
market value of securities.
Margin lending arranged by CRC is subject to the margin rules of the
Board of Governors of the Federal Reserve System and the NASD. Under such
rules, broker-dealers are limited in the amount they may lend in connection
with certain purchases and short sales of securities and are also required to
impose certain maintenance requirements on the amount of securities and cash
held in margin accounts. In addition, those rules govern the amount of margin
customers must provide and maintain in writing uncovered options.
As a registered broker-dealer, CRC (and ICAP by virtue of its
ownership of CRC) is subject to the Commission's Rule 15c3-1, the Uniform Net
Capital Rule (the "Uniform Net Capital Rule"), which has also been adopted by
the NASD. The Uniform Net Capital Rule specifies minimum net capital
requirements for all registered broker-dealers and is designed to measure
financial integrity and liquidity. Failure to maintain the required regulatory
net capital may subject a firm to suspension or expulsion by the NASD, certain
punitive actions by the Commission and, ultimately, may require a firm's
liquidation.
CRC falls within the provisions of Rule 15c3-l(a)(2)(iv) promulgated
by the Commission. CRC is subject to the minimum net capital requirements
applicable to brokers or dealers that introduce customer accounts and receive
securities, which requires that CRC maintain minimum net capital, as defined,
of not less than $50,000. CRC is not subject to Commission Rule 15c3-3, which
regulates a broker-dealer's custody of customer securities, and claims
exemption from the reserve requirement under Section 15c3-3(k)(2)(ii). CRC
maintains net capital in excess of the Commission's Rule 17a-11 requirement
which would require CRC to give notice in the event that CRC's net capital
falls below certain levels.
CRC believes that it is currently in compliance with all state and
federal regulations, and its most recent audit met all applicable regulatory
requirements. CRC also has in place an ongoing internal compliance program
supported by regulators, external consultants, accountants and attorneys.
Enviroq
Enviroq is incorporated under, and required to be in compliance with,
the corporate laws of the State of Delaware. Enviroq must also comply with
various federal, state and local laws and administrative regulations relating
to the protection of the environment. Federal, state and local laws and
administrative regulations which have been enacted or adopted regulating the
discharge of materials into the environment or otherwise relating to the
protection of the environment will not, in the opinion of management, have a
material effect on the capital expenditures, earnings, or the competitive
position of Enviroq.
Competition
ICAP, through its wholly owned subsidiaries, is principally engaged in
an extremely competitive business, the financial services industry. Competitors
include, with respect to one or more aspects of its business, all of the member
organizations of the New York Stock Exchange and other registered securities
exchanges, all of the members of the NASD, investment management firms,
commercial banks, thrift institutions and financial consultants. Many of these
organizations have substantially more employees and greater financial resources
than ICAP. ICAP also competes for investment funds with banks, insurance
companies and investment companies. Discount brokerage firms oriented to the
retail market, including firms affiliated with commercial banks and thrift
institutions, are devoting substantial funds to advertising and
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direct solicitation of customers in order to increase their share of commission
dollars and other securities related income. ICAP is not engaged in extensive
advertising programs for this type of business.
Management believes that the most important factors affecting
competition in the investment management business are the abilities and
reputations of investment managers, differences in investment performance of
the various firms, the development and execution of new investment strategies,
access to channels of distribution, and resources to invest in information
technologies and client service capabilities. ICAP expects that other industry
participants will from time to time seek to recruit ICAP investment
professionals and other employees away from ICAP. The loss of key professionals
could have a material adverse affect on ICAP.
The financial services industry is, by its nature, subject to various
risks, particularly in volatile or illiquid markets, including the risk of
losses resulting from the ownership of securities, customer fraud, employee
errors or misconduct, failures in connection with the processing of securities
transactions and litigation. ICAP's business and its profitability are affected
by many factors, including the volatility and price level of the securities
markets, the volume, size and timing of securities transactions, the demand for
investment banking services, the level and volatility of interest rates, the
availability of credit, legislation affecting the business and financial
communities, and the economy in general. Markets characterized by low trading
volumes and depressed prices generally result in reduced commissions and
investment banking revenues as well as losses from declines in the market value
of securities positions.
Employees
As of December 31, 1998, ICAP and its subsidiaries employed 17 people,
of whom 9 are registered with the NASD. ICAP has no collective bargaining with
any of its employees and believes that its overall relations with employees are
good.
ITEM 2. DESCRIPTION OF PROPERTY
ICAP and its ICM and CRC subsidiaries maintain offices at 50 North
Laura Street, Suite 3550, Jacksonville, Florida 32202, which occupy
approximately 4000 square feet under a lease that expires in December 1999.
Enviroq owns approximately 10.6 acres of real estate in Jacksonville,
Florida. At the present time, this acreage is undeveloped and is zoned light
industrial. ICAP has no plans to improve or develop the property and presently
has a contract to sell the property at its recorded cost.
Enviroq leases, on a month-to-month basis, approximately 1,300 square
feet of office space located at 3918 Montclair Road, Birmingham, Alabama 35213.
This leased space serves as the principal executive offices of Enviroq and may
be cancelled upon 90 days written notice. Enviroq's subsidiary, Sprayroq,
leases approximately 5500 square feet of office/warehouse space at 4707 Alton
Court, Irondale, Alabama 35210. This lease may be cancelled upon 90 days
written notice.
ITEM 3. LEGAL PROCEEDINGS
There are no material legal proceedings pending, or to ICAP's
knowledge, threatened against ICAP or any of its subsidiaries.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On November 20, 1998, prior to the consummation of the Mergers, the
sole stockholder of ICAP, Enviroq, voted by written consent in lieu of a
special meeting of the sole stockholder to authorize ICAP to qualify to do
business in various states.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
ICAP's common stock trades in the over-the-counter market and is
quoted on the NASDAQ OTC Bulletin Board under the symbol "ICAP". The following
table sets forth, for the last two fiscal years, the high and low bid and asked
prices of the common stock of ICAP. The information set forth below has been
obtained from Bloomberg L.P. and is believed to be reliable. The reported high
and low bid and asked quotations reflect inter-dealer prices without retail
mark-up, mark-down or commission and may not represent actual transactions. For
periods prior to December 16, 1998, the reported high and low bid and asked
quotations reflect inter-dealer prices of Enviroq only, which ICAP succeeded by
virtue of the Mergers.
<TABLE>
<CAPTION>
Fiscal Year 1997 Low Bid High Bid Low Asked High Asked
- ---------------- ------- -------- --------- ----------
<S> <C> <C> <C> <C>
First Quarter $0.25 $0.63 $0.75 $1.50
Second Quarter 0.64 1.50 1.50 3.00
Third Quarter 0.75 1.00 1.25 3.00
Fourth Quarter 0.38 0.75 0.57 1.25
Fiscal Year 1998
- ----------------
First Quarter $0.50 $0.75 $0.88 $1.50
Second Quarter 0.69 3.50 0.89 5.00
Third Quarter 1.86 3.25 2.06 4.00
Fourth Quarter 1.80 4.31 2.25 4.44
</TABLE>
As of December 31, 1998, there were 2,215,525 shares of ICAP Common
Stock outstanding and 339 stockholders of record. The number of record holders
includes as single holders various institutions (such as brokerage firms) that
hold shares in "street name" for multiple stockholders.
ICAP has not paid any cash dividends on the ICAP Common Stock since
its organization, and currently intends to retain any earnings for operations
and the expansion of its business. Other than state corporate law limitations,
there are no restrictions on ICAP's ability to pay dividends.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
On December 16, 1998, ICAP consummated the Mergers, whereby ICM, CRC
and Enviroq were merged into and became separate subsidiaries of ICAP. The
Mergers have been accounted for as a purchase for accounting and reporting
purposes with ICM and CRC considered to be the acquiring enterprises and with
Enviroq considered to be the acquired company, based on the fact that the
shareholders of ICM and CRC consisted of two related individuals who acted in
concert as a control group, and subsequent to the Mergers such shareholders
retained the controlling interest in ICAP.
The accompanying consolidated balance sheet of ICAP as of December 31,
1998, includes the accounts of ICAP and its subsidiaries ICM, CRC and Enviroq.
The combined balance sheet as of December 31, 1997, reflects the combined
accounts of ICM and CRC, entities under common control prior to the formation
of ICAP.
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The 1998 consolidated statements of operations, stockholders' equity
and cash flows of ICAP include the accounts of ICM and CRC on a combined basis
through December 15, 1998 and consolidated with Enviroq from December 16, 1998
through December 31, 1998. In accordance with purchase accounting, in which ICM
and CRC were deemed to be the acquiring entities in the Mergers, the accounts
of Enviroq have been included since December 16, 1998, the date of acquisition.
Liquidity and Capital Resources
ICAP's assets consist generally of cash, land, money market funds and
trading securities, which represents an investment in Intrepid Capital, L.P.
ICAP has financed its growth in operations with funds generated from
shareholder capital and long-term loans. ICAP's management believes that
existing capital and funds generated from operations will provide ICAP with
sufficient resources to meet present cash and capital needs.
For 1998, the net cash provided by operating activities increased to
$265,920, primarily due to an increase in accrued expenses and the receipt of a
distribution from investments. Net cash provided by investing activities of
$638,442 consists of cash acquired from Enviroq which was used to pay
distributions to the Enviroq stockholders. Net cash used in financing
activities was $158,519 due to principal payments on notes payable and
distributions to stockholders. Presently, ICAP does not anticipate significant
capital expenditures that would require additional capital resources.
ICAP, through its subsidiary CRC, is subject to the net capital
requirements of the Commission, the NASD and other regulatory authorities. At
December 31, 1998, CRC's regulatory net capital was $96,475, $46,475 in excess
of its minimum net capital requirement of $50,000.
Results of Operations
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Total revenues for 1998 were $2,759,571 compared to $2,129,867 for
1997, representing a 29.6% increase.
Commissions increased $520,395, or 43.1%, to $1,728,036. Commissions
represent revenue earned from securities transactions through CRC. CRC added a
new branch office and hired two registered representatives late in the fourth
quarter of 1997 that significantly attributed to increased transaction volumes
and revenues for 1998.
Asset management fees increased $139,647, or 21.4%, to $791,237. Asset
management fees represent revenue earned by ICM for investment advisory
services. The fees earned are generally a function of the overall fee rate
charged to each account and level of assets under management. The increase in
asset management fees for 1998 relate directly to the net increase in assets
under management through investment performance, the addition of new client
accounts and the elimination of external portfolio managers.
Outside manager income decreased $64,957, or 69.9%, to $27,917.
Outside manager income represents revenue earned by ICM for asset management
accounts, whereby ICM utilizes external portfolio management to provide
professional management of the accounts. Outside manager income decreased for
1998 as a result of managing accounts internally that were previously managed
externally.
Unrealized gains on investment decreased $110,799, or 68.7% to $50,445
due to a decrease in the performance of ICAP's investment in Intrepid Capital,
L.P.
Resinous material sales of $104,244 are attributable to the
acquisition of Enviroq in December 1998.
9
<PAGE> 11
Other income increased $41,174, or 249.3%, to $57,692 primarily due to
an increase in interest income.
Total expenses for 1998 were $2,779,246 compared to $1,786,970 for
1997, representing a 55.5% increase.
Salaries and employee benefits increased $609,866, or 63.6%, to
$1,568,854. The increases are due to the addition of new employees, annual
increases in salaries and increased commissions. During 1998, ICM hired three
new employees and paid a profit-sharing bonus to all of its employees.
Additionally, both ICM and CRC began paying salaries to Forrest Travis and Mark
F. Travis, President and Vice President respectively, in July 1997.
Accordingly, salaries and benefits for fiscal year 1998 reflect a full year of
salaries as opposed to only six months in 1997.
Brokerage and clearing expenses increased $243,458, or 71.2%, to
$585,307. Brokerage and clearing expenses represent the securities transaction
costs directly related to commission revenue earned by CRC. These costs, paid
to the clearing broker-dealer, increase at a declining rate because of volume
discounting. The addition of a new branch office and the hiring of two
registered representatives late in the fourth quarter of 1997 significantly
attributed to increased transaction volumes and brokerage and clearing expenses
for 1998.
Cost of resinous material sales of $51,220 is attributable to the
acquisition of Enviroq in December 1998.
Outside manager expense decreased $64,957, or 69.9%, to $27,917.
Outside manager expense directly offsets the outside manager income earned by
ICM. Outside manager expense decreased for 1998 as a result of managing
accounts internally that were previously managed externally.
Advertising and marketing expenses increased $36,878, or 83.3%, to
$81,130. The increase can be attributed to additional travel and marketing
expenses ICM incurred to increase name recognition and enhance client
relationships.
Professional and regulatory expenses increased $4,146, or 3.4%, to
$127,375 due to an increase in outside professional fees for additional
services required as a public entity.
Other expenses increased $92,683, or 93.3%, to $191,983. Other
expenses include all of Enviroq's expenses except for the cost of resinous
material sales. The increase can be directly attributed to the acquisition of
Enviroq in December 1998.
Year 2000 Matters
ICAP is working to ensure that its operating and processing systems
will, along with those of its service providers and vendors, continue to
function when the Year 2000 ("Y2K") arrives. ICAP has developed and implemented
a comprehensive plan to prepare its computer systems and applications for Y2K,
as well as to identify and address any other Y2K operational issues which may
affect operations.
Due to the potential impact of Y2K on the financial services industry,
the Commission, the NASD and other regulatory and self-regulatory securities
organizations have monitored and required reports from their members concerning
Y2K and encouraged planning for system wide function tests. Y2K problems arise
because of concern that widely distributed information technology systems and
imbedded microprocessors date recognition and processing functions which
designate and recognize a year by the year's last two digits will not be able
to distinguish a year in the twenty-first century from one in the twentieth
century.
10
<PAGE> 12
Management has determined that Y2K will not pose significant
operational problems for its internal computer systems. Management believes the
internal modification and upgrade costs associated with ICAP's operations will
not be material and will be expensed as incurred. Mission critical systems, as
well as third party vendors, have been identified and testing for Y2K readiness
is on schedule to be completed by June 30, 1999.
Due to the enormous task facing the securities industry and the
interdependent nature of securities transactions, there can be no assurances
with respect to Y2K's impact on ICAP. Disruptions in the economy generally and
in the United States investment markets as a result of Y2K could materially
adversely affect ICAP and its subsidiaries. Specifically, unexpected
volatilities within and possible suspension of trading in the securities
industry generally could adversely impact ICAP's revenues and its ability to do
business because a significant portion of ICAP's revenues are based solely upon
its ability to make investments and securities trades for its customers and the
net asset value of funds under management. The amount of potential lost revenue
cannot be reasonably estimated at this time.
Management believes that it has an effective program in place to
manage any contingencies arising out of Y2K. This contingency plan involves,
among other actions, manual workarounds and adjusting staffing strategies.
ITEM 7. FINANCIAL STATEMENTS
The consolidated financial statements of ICAP as of December 31, 1998
and other information required by Item 310(a) of Regulation S-B are set forth
on pages F-1 through F-XX hereof.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
There have been no changes in or disagreements with accountants
regarding accounting procedures or financial disclosure.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS,
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Executive officers and directors of ICAP as of the date hereof are as
follows:
<TABLE>
<CAPTION>
NAME AGE DIRECTOR SINCE POSITION AND OFFICES WITH INTREPID
- ---- --- -------------- ----------------------------------
<S> <C> <C> <C>
Thomas W. Brander 49 September 1998 Director
William J. Long 46 April 1998 Chief Operating Officer, Executive Vice President
and Director
Michael X. Marinelli 39 September 1998 Director
Morgan Payne 55 September 1998 Director
Mark F. Travis 36 September 1998 Executive Vice President and Director
Forrest Travis 59 September 1998 President, Chief Executive Officer and Director
Alexander P. Zechella 77 September 1998 Director
</TABLE>
11
<PAGE> 13
Thomas W. Brander is currently retired, having retired in April 1998.
From 1988 until April 1998, Mr. Brander served as Senior Vice President,
Management Information Systems and Communications of Compass Bankshares, Inc.
in Birmingham, Alabama. From 1987 until 1988, Mr. Brander served as a Vice
President - Management Consulting for American International Group in New York,
NY. From 1976 until 1987, Mr. Brander served as Vice President - General
Manager, Assistant Vice President - Commercial Loans, and Assistant Vice
President - Domestic Money Transfer with Citibank, N.A. in Sydney, Australia,
Atlanta, Georgia and New York, New York, respectively. Mr. Brander has been a
director of ICAP since September 1998. Prior to September 1998, he had served
as a director of Enviroq since September 1997.
William J. Long has been Chief Operating Officer and Executive Vice
President of ICAP since December 1998 and has also served as a director of ICAP
since its incorporation in April 1998. Mr. Long has also been the President and
Chief Executive Officer of Enviroq since April 1995. From October 1984 to April
1995, Mr. Long was Vice President-Marketing and a director of a Delaware
corporation formally known as Enviroq Corporation ("Old Enviroq"). At the time
of its incorporation, Enviroq was a wholly-owned subsidiary of Old Enviroq. On
April 18, 1995, Old Enviroq distributed all of the issued and outstanding
capital stock of Enviroq to the holders of the common stock of Old Enviroq.
Since May 25, 1995, Mr. Long has been Chairman of the Board and a director of
Sullivan, Long & Hagerty, an Alabama corporation ("SLH"), a heavy construction
contractor, which is the parent of SCE, Incorporated, an Alabama corporation
("SCE"), also a heavy construction contractor. Prior to October 1995, Mr. Long
had been Chief Executive Officer of SCE and SLH. Prior to May 25, 1995, Mr.
Long had been a director and Senior Vice President of SCE, and a director and
Senior Vice President of SLH for over five years.
Michael X. Marinelli is, and has been, an associate with the
Washington, D.C. law firm of Baker & Botts since 1989. He graduated from
Catholic University Law School in 1989. Mr. Marinelli served as Assistant
Secretary of Old Enviroq from January 1987 to July 1987. He served as Special
Assistant to the General Manager of Instituform East, Inc. from February 1986
to August 1986. From October 1985 to February 1986, Mr. Marinelli served as an
assistant to the President of Old Enviroq, and from October 1984 to October
1995 he was a sales representative for Old Enviroq. He has served as a director
of ICAP since September 1998. Prior to September 1998, Mr. Marinelli served as
a director of Enviroq since April 1995. Prior to April 1995, Mr. Marinelli
served as a director of Old Enviroq since October 1984.
Morgan Payne has been President of Broadland Capital Partners, L.P., a
financial advisory limited partnership, since 1990. Mr. Payne has served as a
director of ICAP since September 1998.
Mark F. Travis has been Executive Vice President of ICAP since
December 1998 and has served as a director since September 1998. Mr. Travis
also has been President of ICM since December 1998 and Vice President of CRC
since June 1995. From its inception in January 1995 until December 1998, Mr.
Travis was Vice President of ICM. From June 1984 to January 1995, Mr. Travis
was a Vice President of Smith Barney, Inc. in Jacksonville, Florida. Mr. Travis
received his Bachelor of Arts in Economics from the University of Georgia in
1984 and currently holds NASD Series 3, 7, 24, 63 and 65 licenses. Mark F.
Travis is the son of Forrest Travis.
Forrest Travis has been President and Chief Executive Officer of ICAP
since December 1998 and has served as a director since September 1998. Mr.
Travis also has been President of CRC since June 1995. From its inception in
January 1995, until December 1998, Mr. Travis was President of ICM. From
December 1980 to January 1995, Mr. Travis was a Senior Vice President and a
Director of the Consulting Group of Smith Barney, Inc. in Jacksonville,
Florida. Mr. Travis received his bachelor's degree from The Georgia Institute
of Technology and currently holds NASD Series 2, 3, 4, 7, 24, 27, 53, 63 and 65
licenses. Forrest Travis is the father of Mark F. Travis.
12
<PAGE> 14
Alexander P. Zechella served from September 1983 to April
1984, as Chairman of Charter Oil Company and Executive Vice President
of the Charter Company ("Charter"). From April 1984 until his
retirement in December 1985, Mr. Zechella served as President, Chief
Executive Officer and Chief Operating Officer of Charter. Mr. Zechella
has served as a director of ICAP since September 1998. Prior to
September 1998, he served as a director or Enviroq since April 1995.
Prior to April 1995, he served as a director of Old Enviroq since
April 1987.
ITEM 10. EXECUTIVE COMPENSATION
The following table and notes present the cash and non-cash
compensation paid or accrued during the fiscal year ended December 31,
1998 to ICAP's Chief Executive Officer and to any other executive
officer whose total cash compensation exceeded $100,000. Because ICAP
did not commence operations until December 16, 1998, the compensation
history for the Chief Executive Officer and other executive officers
of ICAP only includes information for the fiscal year ended December
31, 1998. The compensation history for William J. Long represents his
compensation as Chief Operating Officer and Executive Vice President
of ICAP after December 16, 1998 as well as his compensation as Chief
Executive Officer of Enviroq prior to the Mergers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
-----------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
-------------------------------------------- ------------------- --------
OTHER RESTRICTED ALL OTHER
NAME AND ANNUAL STOCK OPTIONS/ LTIP ANNUAL
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION AWARD SARS PAYOUTS COMPENSATION
- ---------------------------- ---- ------------------ --------- ------------ ---------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Forrest Travis, 1998 $208,883 (1)(2)(3) --- --- --- --- --- ---
President and
Chief Executive Officer
Mark F. Travis, 1998 $170,994 (1)(2)(3) --- --- --- --- --- ---
Executive Vice President
William J. Long, 1998 $ 86,800 (1)(4) $50,000(4) --- --- --- --- ---
Executive Vice President 1997 $ 84,133 -- -- -- -- -- --
1996 $ 58,335 -- -- -- -- -- --
</TABLE>
- ----------------------------------
(1) Includes directors' fees.
(2) This amount includes, for fiscal year 1998, the Company's matching
contributions to its 401(k) plan for the benefit of Forrest Travis in
the aggregate amount of $14,489 and for the benefit of Mark F. Travis
in the aggregate amount of $13,374.
(3) Compensation for Mr. Forrest Travis for 1998 was paid 50% by ICM and
50% by CRC, and compensation for Mr. Mark F. Travis for 1998 was paid
by ICM. After the effective time of the Mergers and prior to December
31, 1998, ICAP paid no salaries to its executive officers.
(4) Compensation for Mr. Long for 1998 was paid by Enviroq. After the
effective time of the Mergers and prior to December 31, 1998, ICAP
paid no salaries to its executive officers.
Option/SAR Grants in Last Fiscal Year
During the fiscal year ended December 31, 1998, no options or
SAR's were granted to ICAP's Chief Executive Officer or to any other
executive officer whose total cash compensation exceeded $100,000.
Aggregate Option/SAR Exercises and Fiscal Year-End Option/SAR Values
No options or SARs were exercised during the fiscal year
ended December 31, 1998 by ICAP's Chief Executive Officer or to any
other executive officer whose total cash compensation exceeded
$100,000.
13
<PAGE> 15
Long Term Incentive Plan Awards in Last Fiscal Year
During the fiscal year ended December 31, 1998, ICAP made no awards
under any Long Term Incentive Plan to ICAP's Chief Executive Officer or to any
other executive officer whose total cash compensation exceeded $100,000.
Employment Agreements
ICAP has entered into an Employment Agreement with each of Messrs.
Forrest Travis, Mark F. Travis and William J. Long, each effective as of
December 16, 1998 (each, an "Employment Agreement" and, collectively, the
"Employment Agreements"). All of the Employment Agreements are "at will"
agreements and will expire only upon the occurrence of certain events,
including upon thirty (30) days prior written notice by either party. However,
the Employment Agreements automatically terminate if the employee dies, becomes
permanently disabled or is convicted of a felony. In the event of an employee's
disability, ICAP is obligated to pay the employee's full salary for the three
months following his termination and 50% of his full salary for the three
months after that, at which time the employee's salary will terminate under
each Employment Agreement. Each Employment Agreement also includes certain
restrictive covenants which limit the employee's ability to compete with ICAP
for two years after the termination of employment or to divulge certain
confidential information concerning ICAP. As consideration for the employee's
covenant not to compete or disclose confidential information, ICAP is obligated
to pay the employee $50,000 per year during the duration of the restrictive
covenant.
Pursuant to Forrest Travis' Employment Agreement, Mr. Travis has
agreed to serve as the President and Chief Executive Officer of ICAP. Mr.
Travis' Employment Agreement provides that he will receive an annual base
salary of $200,000. Further, Mr. Travis is entitled to receive an annual bonus
and to participate in all present and future employee benefit, retirement and
compensation plans of ICAP consistent with his salary and his position as the
President and Chief Executive Officer of ICAP.
Pursuant to Mark F. Travis' Employment Agreement, Mr. Travis has
agreed to serve as an Executive Vice President of ICAP. Mr. Travis' Employment
Agreement provides that he will receive an annual base salary of $157,620.
Further, Mr. Travis is entitled to receive an annual bonus and to participate
in all present and future employee benefit, retirement and compensation plans
of ICAP consistent with his salary and his position as an Executive Vice
President of ICAP.
Pursuant to William J. Long's Employment Agreement, Mr. Long has
agreed to serve as an Executive Vice President of ICAP. Mr. Long's Employment
Agreement provides that he will receive an annual base salary of $130,000.
Further, Mr. Long is entitled to receive an annual bonus and to participate in
all present and future employee benefit, retirement and compensation plans of
ICAP consistent with his salary and his position as an Executive Vice President
of ICAP.
Compensation of Directors.
All non-employee directors receive a fee of $1,000 per quarter for a
maximum of six meetings of the Board of Directors and all committees thereof.
In the event that additional meetings of the Board of Directors are required,
non-employee directors will be compensated at a rate of $1,000 per meeting. All
directors are reimbursed for travel expenses incurred in connection with their
attendance at meetings of the Board of Directors.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table set forth below presents certain information regarding the
beneficial ownership as of December 31, 1998 of (i) each stockholder known to
ICAP to own more than 5% of the outstanding shares of
14
<PAGE> 16
any class of the Company's outstanding securities entitled to vote; (ii)
directors of ICAP; (iii) executive officers of ICAP; and (iv) all executive
officers and directors of ICAP as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF OWNERSHIP
------------------------ -------------------- --------------------
<S> <C> <C>
Thomas W. Brander 0 *
William J. Long 263,389 11.9%
Marinelli Securities Associates 294,900 13.3%
2100 North Dixie Highway
Fort Lauderdale, Florida 33305
Antonio M. Marinelli 299,559 13.5%
Michael X. Marinelli 295,420 13.3%
Morgan Payne 0 *
Mark F. Travis 422,152 19.1%
Forrest Travis 783,996 35.4%
Alexander P. Zechella 4,221 *
1000 Vicar's Landing Way, #F-109
Ponte Vedra Beach, Florida 32088
All directors and executive officers 1,773,837 80.1%
of Intrepid as a group (7 persons)
</TABLE>
*Indicates less than 1% beneficial ownership
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Consulting Agreement
On December 4, 1997, ICM entered into a consulting agreement with
Broadland Capital Partners, L.P. ("Broadland"), an affiliate of Mr. Morgan
Payne, a director of the Company (the "Consulting Agreement"), pursuant to
which Broadland agreed to provide certain consulting services to ICM in
connection with the Mergers and, after the consummation of the Mergers, to help
identify and assist ICAP in acquiring suitable acquisition candidates. The
Consulting Agreement provides that Broadland will receive a consulting fee of
$3,000 per month beginning after the consummation of the Mergers. ICAP also
issued a warrant to Broadland under the Consulting Agreement, whereby Broadland
is entitled to purchase up to 150,000 shares of ICAP Common Stock at $.75 per
share, subject to certain vesting requirements and conditions to exercise. In
addition, Broadland is entitled to reimbursement for its pre-approved
reasonable expenses incurred in connection with its duties under the Consulting
Agreement.
15
<PAGE> 17
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following financial statements are filed with this report on Form
10-KSB:
<TABLE>
<S> <C>
Independent Auditors' Report................................................................F-1
Consolidated Balance Sheet of Intrepid Capital Corporation and
Subsidiaries for the Year Ended December 31, 1998 and the Combined
Balance Sheet of Intrepid Capital Management and Capital Research
Corporation for the Year Ended December 31, 1997............................................F-2
Consolidated Statement of Operations of Intrepid Capital Corporation
and Subsidiaries for the Year Ended December 31, 1998 and the Combined
Statement of Operations of Intrepid Capital Management, Inc. and
Capital Research Corporation for the Year Ended December 31, 1997...........................F-3
Consolidated Statement of Stockholders' Equity of Intrepid Capital
Corporation and Subsidiaries for the Year Ended December 31, 1998 and
the Combined Statement of Stockholders' Equity of Intrepid Capital
Management, Inc. and Capital Research Corporation for the Year Ended
December 31, 1997...........................................................................F-4
Consolidated Statement of Cash Flows of Intrepid Capital Corporation
and Subsidiaries for the Year Ended December 31, 1998 and the Combined
Statement of Cash Flows of Intrepid Capital Management, Inc. and
Capital Research Corporation for the Year Ended December 31, 1997...........................F-5
Notes to Consolidated and Combined Financial Statements.....................................F-6
</TABLE>
(b) Exhibit Index
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
- ----------- ----------------------
<S> <C>
3.1 Certificate of Incorporation of the Registrant (incorporated
by reference to Exhibit 3.(A) to Registrant's Form S-4 filed
November 6, 1998, Registration No. 333-66859).
3.2 Bylaws of the Registrant (incorporated by reference to
Exhibit 3.(B) to Registrant's Form S-4 filed November 6,
1998, Registration No. 333-66859).
9.1 Form of Voting Agreement (incorporated by reference to
Exhibit 9 to Registrant's Form S-4 filed November 6, 1998,
Registration No. 333-66859).
10.1 Form of Employment Agreement between Intrepid Capital
Corporation and William J. Long (incorporated by reference to
Exhibit 10.(A) to Registrant's Form S-4 filed November 6,
1998, Registration No. 333-66859).
10.2 Form of Employment Agreement between Intrepid Capital
Corporation and Forrest Travis (incorporated by reference to
Exhibit 10.(B) to Registrant's Form S-4 filed November 6,
1998, Registration No. 333-66859).
</TABLE>
16
<PAGE> 18
<TABLE>
<S> <C>
10.3 Form of Employment Agreement between Intrepid Capital
Corporation and Mark F. Travis (incorporated by reference to
Exhibit 10.(C) to Registrant's Form S-4 filed November 6,
1998, Registration No. 333-66859).
10.4 Incentive Stock Option Plan of Intrepid Capital Corporation
(incorporated by reference to Exhibit 10.(D) to Registrant's
Form S-4 filed November 6, 1998, Registration No. 333-66859).
10.5 Non-Employee Directors' Stock Option Plan of Intrepid Capital
Corporation (incorporated by reference to Exhibit 10.(E) to
Registrant's Form S-4 filed November 6, 1998, Registration
No. 333-66859).
21.1 List of Subsidiaries.
24.1 Power of Attorney relating to this Form 10-KSB is set forth
on the signature page of this Form 10-KSB.
27 Financial Data Schedule.
</TABLE>
(c) Reports on Form 8-K: None.
17
<PAGE> 19
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
INTREPID CAPITAL CORPORATION
By: /s/ Forrest Travis
---------------------------------
Forrest Travis, President and
Chief Executive Officer
Dated: April 12, 1999
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Forrest Travis as his attorney-in-fact,
acting with full power of substitution for him in his name, place and stead, in
any and all capacities, to sign any amendments to this Form 10-KSB and to file
the same, with exhibits thereto, and any other documents in connection
therewith, with the Securities and Exchange Commission and hereby ratifies and
confirms all that said attorney-in-fact, or his substitute or substitutes, may
do or cause to be done by virtue thereof.
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Forrest Travis President, Chief Executive April 12, 1999
- --------------------------------------- Officer and Director
Forrest Travis
/s/ Mark F. Travis Vice President and Director April 9, 1999
- ---------------------------------------
Mark F. Travis
/s/ Brian S. Dickens Chief Financial Officer April 9, 1999
- --------------------------------------- (Principal Accounting Officer)
Brian S. Dickens
/s/ William J. Long Vice President and Director April 9, 1999
- ---------------------------------------
William J. Long
/s/ Morgan Payne Director April 12, 1999
- ---------------------------------------
Morgan Payne
/s/ Thomas W. Brander Director April 10, 1999
- ---------------------------------------
Thomas W. Brander
Director April , 1999
- --------------------------------------- -----
Michael X. Marinelli
/s/ Alexander P. Zechella Director April 10, 1999
- ---------------------------------------
Alexander P. Zechella
</TABLE>
18
<PAGE> 20
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report............................................................F-1
Consolidated Balance Sheet of Intrepid Capital Corporation and
Subsidiaries for the Year Ended December 31, 1998 and the Combined
Balance Sheet of Intrepid Capital Management and Capital Research
Corporation for the Year Ended December 31, 1997........................................F-2
Consolidated Statement of Operations of Intrepid Capital Corporation
and Subsidiaries for the Year Ended December 31, 1998 and the Combined
Statement of Operations of Intrepid Capital Management, Inc. and
Capital Research Corporation for the Year Ended December 31, 1997.......................F-3
Consolidated Statement of Stockholders' Equity of Intrepid Capital
Corporation and Subsidiaries for the Year Ended December 31, 1998 and
the Combined Statement of Stockholders' Equity of Intrepid Capital
Management, Inc. and Capital Research Corporation for the Year Ended
December 31, 1997.......................................................................F-4
Consolidated Statement of Cash Flows of Intrepid Capital Corporation
and Subsidiaries for the Year Ended December 31, 1998 and the Combined
Statement of Cash Flows of Intrepid Capital Management, Inc. and
Capital Research Corporation for the Year Ended December 31, 1997.......................F-5
Notes to Consolidated and Combined Financial Statements.................................F-6
</TABLE>
19
<PAGE> 21
INTREPID CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
INTREPID CAPITAL MANAGEMENT
AND CAPITAL RESEARCH CORPORATION
COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
<PAGE> 22
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Intrepid Capital Corporation
We have audited the accompanying consolidated balance sheet of Intrepid Capital
Corporation and subsidiaries as of December 31, 1998, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the year then ended, and the combined balance sheet of Intrepid Capital
Management and Capital Research Corporation as of December 31, 1997 and the
related combined statements of operations, stockholders' equity and cash flows
for the year then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
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 Intrepid Capital
Corporation and subsidiaries as of December 31, 1998, and the results of their
operations and their cash flows for the year then ended, and the combined
financial position of Intrepid Capital Management and Capital Research
Corporation as of December 31, 1997, and the results of their operations and
their cash flows for the year then ended in conformity with generally accepted
accounting principles.
/s/ KPMG LLP
Jacksonville, Florida
March 10, 1999
F-1
<PAGE> 23
INTREPID CAPITAL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheet
December 31, 1998
INTREPID CAPITAL MANAGEMENT
AND CAPITAL RESEARCH CORPORATION
Combined Balance Sheet
December 31, 1997
<TABLE>
<CAPTION>
ASSETS 1998 1997
---------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 928,186 182,343
Investment, at fair value 144,574 87,355
Accounts receivable 195,018 35,488
Distribution receivable -- 119,560
Inventories 140,288 --
Prepaid and other assets 14,243 --
---------- ----------
Total current assets 1,422,309 424,746
Land 1,800,000 --
Property, plant, and equipment, net of accumulated
depreciation of $85,579 in 1998 and $55,720
in 1997 (note 3) 140,049 85,299
Goodwill, less accumulated amortization of $2,703 (note 2) 970,274 --
Other assets 76,467 5,568
---------- ----------
Total assets $4,409,099 515,613
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable (note 2) $ 696,757 200,531
Accrued expenses 271,803 --
Current portion of notes payable (note 3) 212,933 37,367
Other 150,754 45,089
---------- ----------
Total current liabilities 1,332,247 282,987
Notes payable, less current portion (note 3) 32,816 92,957
Deferred tax liability (note 4) 560,634 --
---------- ----------
Total liabilities 1,925,697 375,944
---------- ----------
Stockholders' equity:
Common stock, $.01 par value. Authorized 15,000,000 shares; 22,155 --
issued and outstanding 2,215,525 shares at December 31, 1998
Additional paid-in capital 2,481,320 82,114
(Accumulated deficit) retained earnings (20,073) 57,555
---------- ----------
Total stockholders' equity 2,483,402 139,669
---------- ----------
Commitments (note 6)
$4,409,099 515,613
========== ==========
</TABLE>
See accompanying notes to consolidated and combined financial statements.
F-2
<PAGE> 24
INTREPID CAPITAL CORPORATION AND SUBSIDIARIES
Consolidated Statement of Operations
Year ended December 31, 1998
INTREPID CAPITAL MANAGEMENT
AND CAPITAL RESEARCH CORPORATION
Combined Statement of Operations
Year ended December 31, 1997
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Revenues:
Commissions $1,728,036 1,207,641
Asset management fees (note 5) 791,237 651,590
Outside manager income 27,917 92,874
Unrealized gains on investment 50,445 161,244
Resinous material sales 104,244 --
Other 57,692 16,518
---------- ----------
Total revenues 2,759,571 2,129,867
---------- ----------
Expenses:
Salaries and employee benefits 1,568,854 958,988
Brokerage and clearing 585,307 341,849
Cost of resinous material sales 51,220 --
Outside manager expense 27,917 92,874
Advertising and marketing 81,130 44,252
Professional and regulatory fees 127,375 123,229
Occupancy and maintenance (note 6) 89,060 88,192
Depreciation and amortization 32,562 23,986
Interest expense 23,838 14,300
Other 191,983 99,300
---------- ----------
Total expenses 2,779,246 1,786,970
---------- ----------
(Loss) income before income taxes (19,675) 342,897
Income tax expense 398 --
---------- ----------
Net (loss) income $ (20,073) 342,897
========== ==========
Basic net (loss) income per share $ (0.02) 0.28
========== ==========
Weighted average shares outstanding 1,252,893 1,206,148
========== ==========
</TABLE>
See accompanying notes to consolidated and combined financial statements.
F-3
<PAGE> 25
INTREPID CAPITAL CORPORATION AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
Year ended December 31, 1998
INTREPID CAPITAL MANAGEMENT
AND CAPITAL RESEARCH CORPORATION
Combined Statement of Stockholders' Equity
Year ended December 31, 1997
<TABLE>
<CAPTION>
RETAINED
ADDITIONAL EARNINGS
COMMON PAID-IN (ACCUMULATED
STOCK CAPITAL DEFICIT) TOTAL
------- ---------- ------------ ---------
<S> <C> <C> <C> <C>
Balance at December 31, 1996 $ -- 105,346 (137,925) (32,579)
Distributions -- (23,232) (147,417) (170,649)
Net income -- -- 342,897 342,897
------- ---------- ------------ ----------
Balance at December 31, 1997 -- 82,114 57,555 139,669
Distributions -- (46,764) (57,555) (104,319)
Intrepid Capital Corporation common
stock issued for Intrepid Capital
Management and Capital Research
Corporation common stock 12,061 (12,061) -- --
Common stock issued in acquisition (note 2) 10,094 2,239,906 -- 2,250,000
Distribution to shareholders through the
assumption of note payable (note 3) -- (169,625) -- (169,625)
Stock warrants issued for services
rendered (note 2) -- 387,750 -- 387,750
Net loss -- -- (20,073) (20,073)
------- ---------- ------------ ---------
Balance at December 31, 1998 $22,155 2,481,320 (20,073) 2,483,402
======= ========== ============ ==========
</TABLE>
See accompanying notes to consolidated and combined financial statements.
F-4
<PAGE> 26
INTREPID CAPITAL CORPORATION AND SUBSIDIARIES
Consolidated Statement of Cash Flows
Year ended December 31, 1998
INTREPID CAPITAL MANAGEMENT
AND CAPITAL RESEARCH CORPORATION
Combined Statement of Cash Flows
Year ended December 31, 1997
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (20,073) 342,897
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Depreciation and amortization 32,562 23,986
Purchases of investment (40,000) (40,000)
Distributions from investment 33,226 27,533
Unrealized gains on investment (50,445) (161,244)
Change in assets and liabilities:
Accounts receivable 97,215 (22,730)
Distribution receivable 119,560 --
Inventories (1,148) --
Prepaid and other assets (10,760) (4,000)
Accounts payable (130,000) 118,960
Accrued expenses 248,700 --
Other liabilities (12,917) (19,617)
---------- ----------
Net cash provided by operating activities 265,920 265,785
---------- ----------
Cash flows from investing activities:
Purchase of property, plant, and equipment (30,308) (14,452)
Acquisition of Enviroq, net of cash acquired 668,750 --
---------- ----------
Net cash provided by (used in) investing activities 638,442 (14,452)
---------- ----------
Cash flows from financing activities:
Principal payments on notes payable (54,200) (31,176)
Distributions (104,319) (170,649)
---------- ----------
Net cash used in financing activities (158,519) (201,825)
---------- ----------
Net increase in cash and cash equivalents 745,843 49,508
Cash and cash equivalents at beginning of year 182,343 132,835
---------- ----------
Cash and cash equivalents at end of year $ 928,186 182,343
========== ==========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 23,838 14,822
========== ==========
Supplemental disclosure of non-cash transactions:
Accrued distribution receivable $ -- 119,560
========== ==========
Common stock and warrants issued for acquisition and
services rendered $2,637,750 --
========== ==========
Distribution to shareholders through the assumption of note payable $ 169,625 --
========== ==========
</TABLE>
See accompanying notes to consolidated and combined financial statements.
F-5
<PAGE> 27
INTREPID CAPITAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998
INTREPID CAPITAL MANAGEMENT
AND CAPITAL RESEARCH CORPORATION
Notes to Combined Financial Statements
December 31, 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OPERATIONS
(A) ORGANIZATION
Intrepid Capital Corporation (the Company) was formed on April
3,1998 for the purpose of becoming a full service investment
management and consulting business. On December 16, 1998 as part
of a simultaneous merger and reorganization, the Company acquired
all the outstanding shares of Enviroq Corporation (Enviroq),
Intrepid Capital Management (ICM) and Capital Research
Corporation (CRC) through a series of stock-for-stock and cash
exchanges with the former shareholders of each entity. The
Company is located in Jacksonville, Florida and conducts its
business through its three wholly-owned subsidiaries.
ICM provides investment consulting and investment management to
individuals and corporations. ICM has received authority to act
as an investment manager in several states to meet the needs of
its customers, the majority of which are located in the
southeastern United States.
CRC is a registered broker/dealer with the Securities Exchange
Commission and is a member of the National Association of
Securities Dealers, Inc. (NASD). CRC is approved to conduct
general securities business on a fully-disclosed basis through a
clearing broker/dealer, which carries all accounts and prepares
and maintains all books and records for CRC's customers.
Enviroq conducts its operations through Sprayroq, Inc.
(Sprayroq), a 50% owned subsidiary. Sprayroq is engaged in
development, commercialization, manufacture and marketing of
spray-applied resinous materials and in the treatment of
municipal wastewater.
(B) PRINCIPLES OF CONSOLIDATION
The accompanying consolidated balance sheet as of December 31,
1998, includes the accounts of the Company and its subsidiaries
ICM, CRC and Enviroq. The combined balance sheet as of December
31, 1997, reflects the combined accounts of ICM and CRC, entities
under common control prior to formation of the Company.
The 1998 consolidated statements of operations, stockholders'
equity and cash flows include the accounts of ICM and CRC on a
combined basis through December 15, 1998 and consolidated with
Enviroq from December 16, 1998 through December 31, 1998. In
accordance with purchase accounting, in which ICM and CRC were
deemed to be the acquiring entities in the merger and
reorganization described above, the accounts of Enviroq have been
included since December 16, 1998 (the date of acquisition), see
note 2.
F-6
<PAGE> 28
INTREPID CAPITAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998
INTREPID CAPITAL MANAGEMENT
AND CAPITAL RESEARCH CORPORATION
Notes to Combined Financial Statements
December 31, 1997
All significant intercompany balances and transactions have been
eliminated in consolidation. The Company, through its ownership
in Enviroq, controls the operations and activities of Sprayroq.
There is no recognition of minority interest in this subsidiary
because of its accumulated deficit position.
(C) COMMISSION REVENUE
Commissions are earned on securities transactions with a clearing
broker/dealer initiated on behalf of customers. Additional
commissions are also earned on transactions with mutual funds and
variable annuities and are received directly from the related
fund or issuer. All commission revenue is recognized as income
when earned. Included within accounts receivable are amounts due
from National Financial Service Corporation (NFSC), the Company's
clearing broker/dealer, which represent monies earned but not yet
received from NFSC.
(D) ASSET MANAGEMENT FEES
The Company earns an asset management fee from each of its
customers based on the outstanding balance of assets under
management. The fee is calculated quarterly based on a percentage
(usually 1% annually) of the individual customers account balance
at the beginning of the period. All customers are billed on the
first day of the quarter and the Company earns this fee ratably
such that by the end of the reporting period, no deferred income
remains.
(E) OUTSIDE MANAGER INCOME AND EXPENSE
The Company engages third party asset managers, which act on its
behalf, to assist in investment consulting and investment
management services. The Company pays the third party asset
managers a percentage of the fee it receives from the customers
to which the third party asset manager provided service. The
Company does not retain any of the income characterized as
outside manager income. Rather, the Company pays all amounts of
such income to its outside managers, which is reflected in
outside manager expense. The Company collects this fee from its
customers on behalf of the third-party asset managers and passes
through the entire amount as payment for services rendered.
(F) PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are carried at cost, less
accumulated depreciation. Depreciation is calculated principally
on the straight-line method over the estimated useful lives of
the underlying assets, which range from three to twenty years.
Significant additions or improvements extending the useful life
are capitalized, while normal maintenance and repairs are charged
to expense as incurred.
F-7
<PAGE> 29
INTREPID CAPITAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998
INTREPID CAPITAL MANAGEMENT
AND CAPITAL RESEARCH CORPORATION
Notes to Combined Financial Statements
December 31, 1997
(G) INVENTORIES
Inventories consist of raw material and supplies needed for the
operations of Sprayroq. Such amounts are valued at the lower of
cost or market using the first-in, first-out method.
(H) INVESTMENT
The Company serves as the general partner and maintains an
investment in Intrepid Capital, L.P. The investment is adjusted
for additional contributions made, unrealized gains or losses,
and distributions received. The Company has classified this
investment as a trading security and it is carried at fair value.
Unrealized holding gains and losses are included in the
accompanying statements of operations.
(I) INCOME TAXES
On December 16, 1998, in connection with the merger and
reorganization discussed in note 1a, the Company adopted the
asset and liability method of accounting for income taxes in
accordance with Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes." Prior to that date, no
provision for income taxes is made in the financial statements
since ICM and CRC were Subchapter S Corporations and all earnings
and losses were passed through to the individual stockholders.
(J) CASH AND CASH EQUIVALENTS
Any instruments which have an original maturity of ninety days or
less when purchased are considered cash equivalents.
(K) GOODWILL
Goodwill consists of excess purchase price over net tangible
assets and identifiable intangible assets associated with
purchase acquisitions. Goodwill is amortized over the period
estimated to benefit from the acquired assets which is 15 years.
Management periodically assesses the recoverability of goodwill
based on the cash flows from the operations of the acquired
entity.
(L) EARNINGS PER SHARE
The Company applies the provisions of Statement of Financial
Accounting Standards (SFAS) No. 128, "Earnings per Share." This
statement governs the computation, presentation, and disclosure
requirements of earnings per share (EPS) for entities with
publicly held common stock.
F-8
<PAGE> 30
INTREPID CAPITAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998
INTREPID CAPITAL MANAGEMENT
AND CAPITAL RESEARCH CORPORATION
Notes to Combined Financial Statements
December 31, 1997
Net income per share of common stock is computed based upon the
weighted average number of common shares and share equivalents
outstanding during the year. Stock warrants, when dilutive, are
included as share equivalents. For the years ended December 31,
1998 and 1997, the Company had no dilutive common stock
equivalents.
The weighted average shares outstanding as of December 31, 1998
and 1997, represent the shares issued to ICM and CRC as part of
the merger and reorganization as if such shares had been
outstanding since January 1, 1997, and the weighted average for
shares outstanding issued to acquire Enviroq.
(M) ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires the Company's
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, and disclosure of
contingent assets and liabilities, at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
those estimates.
(N) COMPREHENSIVE INCOME
The Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" (FAS 130), which is effective for fiscal years beginning
after December 15, 1997. FAS 130 establishes standards for
reporting total comprehensive income in financial statements, and
requires that companies explain the differences between total
comprehensive income and net income. Management has adopted this
statement in 1998. No differences between total comprehensive
income (loss) and net income (loss) existed in the financial
statements reported for the years ended December 31, 1998 and
1997.
(2) REORGANIZATION, MERGER AND ACQUISITION OF ENVIROQ
On December 16, 1998, the Company consummated a transaction whereby ICM,
CRC, and Enviroq were merged into the Company and became separate
subsidiaries of the Company. The transaction has been accounted for as a
purchase for accounting and reporting purposes with ICM and CRC
considered to be the acquiring enterprises, and with Enviroq as the
acquired company, based on the fact that the shareholders of ICM and CRC
consisted of two related individuals who acted in concert as a control
group, and subsequent to the transaction such shareholders retained the
controlling interest in the Company.
F-9
<PAGE> 31
INTREPID CAPITAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998
INTREPID CAPITAL MANAGEMENT
AND CAPITAL RESEARCH CORPORATION
Notes to Combined Financial Statements
December 31, 1997
The fair value of assets acquired and liabilities assumed, and the
components of the purchase price is as follows:
<TABLE>
<S> <C>
Fair value of assets acquired:
Cash $ 764,244
Land, net of deferred taxes 1,239,366
Other assets 524,568
-----------
2,528,178
Fair value of liabilities assumed 767,911
-----------
Net fair value of assets acquired 1,760,267
-----------
Purchase price:
Common stock issued 2,250,000
Warrants issued to investment banker 387,750
Cash paid for other acquisition costs 95,494
-----------
2,733,244
-----------
Goodwill $ 972,977
===========
</TABLE>
Included within the fair value of liabilities assumed is $482,251 of
payments due to the former Enviroq shareholders. Goodwill is being
amortized on a straight line basis over a period of 15 years. The
results of operations of Enviroq have been included in the consolidated
statements of operations from the acquisition date.
The following unaudited pro forma financial information presents the
consolidated results of operations as if the purchase of Enviroq had
occurred on January 1, 1997. Pro forma total revenues would have been
$4.1 million and $3.6 million in 1998 and 1997, respectively. Pro forma
net (loss) income would have been ($163,000) and $227,000 in 1998 and
1997, respectively. Pro forma net (loss) income per share would have
been ($0.07) and $0.10 in 1998 and 1997, respectively.
F-10
<PAGE> 32
INTREPID CAPITAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998
INTREPID CAPITAL MANAGEMENT
AND CAPITAL RESEARCH CORPORATION
Notes to Combined Financial Statements
December 31, 1997
(3) NOTES PAYABLE
The notes payable at December 31, 1998 and 1997 consist of the
following:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Note payable to a bank, due in monthly installments of $3,750, plus
interest at the Prime rate plus 1% (8.75% at December 31, 1998),
repaid January 1999 $ 9,000 43,500
Note payable to a bank, at the Prime rate plus 1%, (8.75% at December
31, 1998), secured by furniture, fixtures, and equipment and the
personal guarantee of certain shareholders, repaid January 2, 1999 27,510 40,829
Note payable to a bank, monthly installments of $833 including
principal and interest at the Prime rate plus 1%, (8.75% at
December 31, 1998), due January 2, 2001 secured by furniture,
fixtures and equipment and the personal guarantee of
certain shareholders 39,614 45,995
Note payable to a bank, assumed from the former shareholders of ICM
and CRC, payable in monthly interest only installments at the
Prime rate plus 1% (8.75% at December 31, 1998), unsecured due
April 15, 1999 169,625 --
--------- ---------
245,749 130,324
Less current portion 212,933 37,367
--------- ---------
$ 32,816 92,957
========= =========
</TABLE>
Principal maturities on the notes payable are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, AMOUNT
------------ ---------
<S> <C>
1999 $ 212,933
2000 7,418
2001 25,398
---------
$ 245,749
=========
</TABLE>
F-11
<PAGE> 33
INTREPID CAPITAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998
INTREPID CAPITAL MANAGEMENT
AND CAPITAL RESEARCH CORPORATION
Notes to Combined Financial Statements
December 31, 1997
The Company considers the carrying value of its notes payable to be a
reasonable estimation of their fair value based on the current market
rates available for debt of the same remaining maturities.
(4) INCOME TAXES
The income tax expense for the year was $398, was all related to current
tax expense, and has all been allocated to income from continuing
operations. In connection with the acquisition of Enviroq, discussed in
note 2, the Company has recorded a deferred tax liability of $560,634,
which represents the excess book basis over the tax basis for acquired
property, plant and equipment.
Income tax expense attributable to income from continuing operations
differed from the amounts computed by applying the U.S. Federal income
tax rate of 34% to income (loss) before taxes primarily as a result of
ICM and CRC having the tax status of S Corporations prior to December
16, 1998.
(5) RELATED PARTY TRANSACTION
The Company performs certain asset management functions for Intrepid
Capital, L.P. During 1998 and 1997, the Company received $68,236 and
$30,330, respectively, for such services.
(6) COMMITMENTS
The Company has entered into lease agreements for office space which
expire in 1999. Leases are accounted for as operating leases with rental
payments recorded on a straight-line basis over the term of the lease
regardless of when payments are due. The future minimum rental
obligations for 1999 under the leases are $21,492.
Rent expense for the years ended December 31, 1998 and 1997 was $44,836
and $44,796, respectively. Rent expense has been adjusted to reflect the
effects of recording rent on a straight-line basis.
CRC is subject to the Securities and Exchange Commission's Uniform Net
Capital Rule (Rule15c3-1) which requires the maintenance of minimum net
capital and requires that the ratio of aggregate indebtedness to net
capital, both as defined, shall not exceed 15 to 1. At December 31,
1998, CRC has net capital of $96,475 which is $46,475 in excess of its
required capital of $50,000.
F-12
<PAGE> 34
INTREPID CAPITAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998
INTREPID CAPITAL MANAGEMENT
AND CAPITAL RESEARCH CORPORATION
Notes to Combined Financial Statements
December 31, 1997
(7) SEGMENTS
During 1998 and 1997, the Company, ICM and CRC operated in two principal
segments, investment advisory services and broker/dealer services.
Enviroq constitutes a separate segment upon its acquisition on December
16, 1998. The Company assesses and measures operating performance based
upon the net income derived from each of its operating segments. The
accounting policies of the segments are the same as those described in
note 1. The revenues and net income for each of the reportable segments
are summarized as follows for the years ended December 31, 1998 and
1997:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Revenues:
Investment advisory services segment $1,066,816 1,059,553
Broker/dealer services segment 1,764,160 1,221,814
Enviroq 118,595 --
Intersegment revenues (190,000) (151,500)
---------- ----------
$2,759,571 2,129,867
========== ==========
Net (loss) income:
Investment advisory services segment $ (21,238) 343,104
Broker/dealer services segment 24,997 (207)
Enviroq 12,602 --
Other (36,434) --
---------- ----------
$ (20,073) 342,897
========== ==========
</TABLE>
The total assets for each of the reportable segments are summarized as
follows as of December 31, 1998 and 1997. Non segment assets consist
primarily of cash, which is recorded at the parent company level.
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Assets:
Investment advisory services segment $ 231,272 292,674
Broker-dealer services segment 192,831 222,939
Enviroq 3,325,224 --
Other 654,772 --
---------- ----------
$4,409,099 515,613
========== ==========
</TABLE>
F-13
<PAGE> 35
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
- ----------- ----------------------
<S> <C>
3.1 Certificate of Incorporation of the Registrant (incorporated by
reference to Exhibit 3.(A) to Registrant's Form S-4 filed November
6, 1998, Registration No. 333-66859).
3.2 Bylaws of the Registrant (incorporated by reference to Exhibit 3.(B)
to Registrant's Form S-4 filed November 6, 1998, Registration No.
333-66859).
9.1 Form of Voting Agreement (incorporated by reference to Exhibit 9 to
Registrant's Form S-4 filed November 6, 1998, Registration No.
333-66859).
10.1 Form of Employment Agreement between Intrepid Capital Corporation
and William J. Long (incorporated by reference to Exhibit 10.(A) to
Registrant's Form S-4 filed November 6, 1998, Registration No.
333-66859).
10.2 Form of Employment Agreement between Intrepid Capital Corporation
and Forrest Travis (incorporated by reference to Exhibit 10.(B) to
Registrant's Form S-4 filed November 6, 1998, Registration No.
333-66859).
10.3 Form of Employment Agreement between Intrepid Capital Corporation
and Mark F. Travis (incorporated by reference to Exhibit 10.(C) to
Registrant's Form S-4 filed November 6, 1998, Registration No.
333-66859).
10.4 Incentive Stock Option Plan of Intrepid Capital Corporation
(incorporated by reference to Exhibit 10.(D) to Registrant's Form
S-4 filed November 6, 1998, Registration No. 333-66859).
10.5 Non-Employee Directors' Stock Option Plan of Intrepid Capital
Corporation (incorporated by reference to Exhibit 10.(E) to
Registrant's Form S-4 filed November 6, 1998, Registration No.
333-66859).
21.1 List of Subsidiaries.
24.1 Power of Attorney relating to this Form 10-KSB is set forth on the
signature page of this Form 10-KSB.
27 Financial Data Schedule. (for SEC use only)
</TABLE>
<PAGE> 1
Exhibit 21.1
LIST OF SUBSIDIARIES
<TABLE>
<S> <C>
Intrepid Capital Management, Inc. -- State of Florida
Capital Research Corporation -- State of Florida
Enviroq Corporation -- State of Delaware
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF INTREPID CAPITAL CORPORATION AS OF DECEMBER
31, 1998 AND FOR THE YEAR THEN ENDED. THIS INFORMATION IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 928,186
<SECURITIES> 144,574
<RECEIVABLES> 195,018
<ALLOWANCES> 0
<INVENTORY> 140,288
<CURRENT-ASSETS> 1,422,309
<PP&E> 140,049
<DEPRECIATION> (85,579)
<TOTAL-ASSETS> 4,409,099
<CURRENT-LIABILITIES> 1,332,247
<BONDS> 0
0
0
<COMMON> 22,155
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 4,409,099
<SALES> 0
<TOTAL-REVENUES> 2,759,571
<CGS> 51,220
<TOTAL-COSTS> 2,779,246
<OTHER-EXPENSES> 191,983
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,838
<INCOME-PRETAX> (19,675)
<INCOME-TAX> 398
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (20,073)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
