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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, 1999
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 59-3546446
(State of Incorporation) (I.R.S. Employer Identification No.)
3652 SOUTH THIRD STREET, SUITE 200, JACKSONVILLE BEACH, FLORIDA 32250
(Address of principal executive offices) (Zip Code)
(904) 246-3433
(Registrant's telephone number)
50 NORTH LAURA STREET, SUITE 3550, JACKSONVILLE, FLORIDA 32202
(Former address of principal executive offices) (Zip Code)
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, 1999 were
$4,492,487.
As of February 29, 2000, there were 2,214,525 shares of Common Stock
outstanding and 1,000 shares of Common Stock issued and held in treasury. The
aggregate market value of the voting Common Stock held by non-affiliates of the
Registrant as of February 29, 2000, as based on the average closing bid and ask
prices, was approximately $1,406,351.
Transitional Small Business Disclosure Format (check one):e
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.
Effective August 1, 1999, ICAP acquired all of the outstanding capital
stock of Allen C. Ewing Financial Services, Inc, a Florida corporation
("ACEFS"). Primarily all of ACEFS's operations were conducted through its
wholly owned subsidiary Allen C. Ewing & Co. ("ACE"). Concurrent with the
acquisition, ICAP contributed the assets and liabilities of ACEFS to CRC.
Subsequent to this acquisition, the operations of CRC and ACEFS were conducted
through the merged entity under the name of Allen C. Ewing & Co. ACEFS was
dissolved on December 30, 1999 and CRC was fully merged with and into ACE on
December 31, 1999.
In the future, ICAP intends to acquire and operate firms that provide
investment advisory, brokerage, investment banking 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, ACE and Enviroq.
ICM
ICM is an investment management company and a registered investment
adviser 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 3652 South Third Street, Suite 200,
Jacksonville Beach, Florida 32250. As of December 31, 1999, ICM had $92.5
million of assets under management for its clients and for fiscal year ended
December 31, 1999, no single client of ICM provided more than 20% of ICM's
revenues.
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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, 1999, investments in
debt represented 55% of ICM's funds invested and investments in equity
securities represented 45% 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.
ACE
ACE is a registered broker-dealer and a member of the NASD and SIPC.
ACE provides full-service securities brokerage and investment banking which
primarily includes advisory services to clients on corporate finance matters,
including mergers and acquisitions and the issuance of public stock. ACE also
operates a general securities business to registered investment advisers,
including ICM, on a fully disclosed basis through National Financial Services
Corporation ("NFSC") and Deutsche Banc Alex. Brown ("DBAB"). ACE's principal
offices are located at 50 North Laura Street, Suite 3625, Jacksonville, Florida
32202 with a branch office located in Tampa, Florida.
ACE's operations, in conjunction with NFSC and DBAB, 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. ACE
typically does not recommend particular securities to registered investment
adviser clients; recommendations are determined by individual investment
advisers based upon their own research and analysis and subject to applicable
NASD customer suitability standards.
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 specialize in investment advice, the provision of financial
information and financial planning. Other firms, like ACE, specialize in
providing lower-cost or discount securities brokerage services.
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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. ACE seeks to be a leading provider of financial services to this new
investor.
ACE's Business Environment
Market conditions during 1999 reflected a continuation of the 1997 and
1998 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 ACE does not.
Continued competition from ultra low cost, flat fee brokers and broader service
offerings from other discount brokers could also limit ACE's growth or even
lead to a decline in ACE'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.
ACE, 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 ACE'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 ACE, 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 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 ACE 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.
ACE
ACE is incorporated under, and required to be in compliance with, the
corporate laws of the State of Florida. ACE 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 ACE.
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ACE 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 ACE 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, ACE (and ICAP by virtue of its
ownership of ACE) 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.
ACE falls within the provisions of Rule 15c3-l(a)(2)(iv) promulgated
by the Commission. ACE is subject to the minimum net capital requirements
applicable to brokers or dealers that introduce customer accounts and receive
securities, which requires that ACE maintain minimum net capital, as defined,
of not less than $250,000. ACE 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). ACE
maintains net capital in excess of the Commission's Rule 17a-11 requirement
which would require ACE to give notice in the event that ACE's net capital
falls below certain levels.
ACE believes that it is currently in compliance with all state and
federal regulations, and its most recent audit met all applicable regulatory
requirements. ACE 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 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.
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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, 1999, ICAP and its subsidiaries employed 31 people,
of whom 19 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 ICM maintain offices at 3652 South Third Street, Suite 200,
Jacksonville Beach, Florida 32250, which occupies approximately 5,600 square
feet under a lease that expires in January 2010.
ACE occupies an office at 50 North Laura Street, Suite 3625,
Jacksonville, Florida 32202, which occupies approximately 4,300 square feet
under a lease that expires in January 2005.
Enviroq and Sprayroq maintain office/warehouse space at 4707 Alton
Court, Irondale, Alabama 35210, which occupies approximately 5,500 square feet
under a lease that 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to ICAP's stockholders during the fourth
quarter of fiscal year 1999.
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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 1998 Low Bid High Bid Low Asked High Asked
- ---------------- ------- -------- --------- ----------
<S> <C> <C> <C> <C>
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
Fiscal Year 1999
- ----------------
First Quarter $1.50 $3.50 $2.63 $6.00
Second Quarter 2.00 3.38 2.75 5.00
Third Quarter 1.25 2.50 2.00 3.50
Fourth Quarter 1.25 6.00 1.69 7.00
</TABLE>
As of December 31, 1999, there were 2,214,525 shares of ICAP Common
Stock outstanding, 1,000 shares held in treasury and 156 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
The accompanying consolidated balance sheets of ICAP as of December
31, 1999 and 1998, includes the accounts of ICAP and its subsidiaries ICM, ACE
and Enviroq.
The 1999 consolidated statements of operations, stockholders' equity
and cash flows of ICAP include the accounts of ICAP and its subsidiaries ICM,
ACE and Enviroq. In accordance with purchase accounting, the accounts of ACEFS
have been included from August 1, 1999, the date of acquisition. 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.
Acquisition
Effective August 1, 1999, the Company consummated the acquisition of
all of the outstanding capital stock of ACEFS. The Company acquired the ACEFS
capital stock in exchange for cash in the amount of $950,000, with funds
borrowed from a bank and three promissory notes in the aggregate principal
amount of $350,000. The acquisition has been accounted for under the purchase
method of accounting.
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Primarily all of ACEFS's operations were conducted through its wholly
owned subsidiary ACE. Concurrent with the acquisition, ICAP contributed the
assets and liabilities of ACEFS to CRC. Subsequent to this acquisition, the
operations of CRC and ACEFS were conducted through the merged entity under the
name of Allen C. Ewing & Co.
Liquidity and Capital Resources
ICAP's assets consist generally of cash, money market funds and
trading securities. Trading securities represent a significant portfolio of
individual securities and an investment in Intrepid Capital, L.P. ICAP has
financed its growth in operations with funds generated from stockholder 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 1999, the net cash used in operating activities was $1,853,458,
primarily attributable to payments on accounts payable, accrued expenses, tax
payments and the net loss. Net cash provided by investing activities of
$1,569,390 is primarily due to the sale of approximately 10.6 acres of
unimproved land in Jacksonville, Florida, which resulted in proceeds of
$1,800,000. Net cash provided by financing activities of $450,582 is primarily
attributable to the net proceeds from notes payable.
ICAP, through its subsidiary ACE, is subject to the net capital
requirements of the Commission, the NASD and other regulatory authorities. At
December 31, 1999, ACE's regulatory net capital was $908,809, $658,809 in
excess of its minimum net capital requirement of $250,000.
Results of Operations
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Total revenues for 1999 were $4,492,487 compared to $2,759,571 for
1998, representing a 62.8% increase.
Commissions decreased $16,926, or 1.0%, to $1,711,110. Commissions
represent revenue earned from securities transactions through ACE. Additional
commissions are also earned on transactions with mutual funds and variable
annuities. Commissions decreased due to decreased transaction volume. The
commissions for the fourth quarter included ACE for its first full quarter
increased $97,830, or 25.2%, to $485,493.
Asset management fees increased $73,615, or 9.3%, to $864,852. 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 ("AUM"). Quarterly
management fees are billed on the first day of each quarter based on each
account value at the market close of the prior quarter. AUM was $92.5 million
at December 31, 1999, compared to $101.0 million at December 31, 1998. The
increase in asset management fees for 1999 relate directly to the net increase
in AUM through investment performance, the addition of new client accounts and
the elimination of external portfolio managers during 1999 prior to some
year-end attrition due to poor market conditions.
Outside manager income decreased $27,917, or 100.0%. Outside manager
income represented revenue earned by ICM for asset management accounts, whereby
ICM utilizes external portfolio management to provide professional management
of the accounts. All outside manager income has been eliminated as a result of
management's decision to internally manage accounts that were previously
managed externally.
9
<PAGE> 11
Investment banking revenues represent fees earned by ACE for providing
advisory services to clients on corporate finance matters, including mergers
and acquisitions and the issuance of public stock.
Net trading profits (losses) decreased $111,415, or 220.9% to
($60,970). There were $16,954 of realized losses and $44,016 of unrealized
losses in ICAP's investment portfolio which consists of trading securities and
an investment in Intrepid Capital, L.P., primarily due to negative market
conditions.
Resinous material sales of $1,744,218 are attributable to
consolidating Enviroq for a full year versus only fifteen days for the year
ended December 31, 1998.
Dividend and interest income increased $60,102, or 254.4% to $83,726
primarily due to increased assets invested in money markets and trading
securities.
Total expenses for 1999 were $5,521,694 compared to $2,779,246 for
1998, representing a 98.7% increase.
Salaries and employee benefits increased $1,072,014, or 68.3%, to
$2,640,868. The increases are due to the addition of new employees, annual
increases in salaries, increased commissions and the acquisition of ACEFS.
Brokerage and clearing expenses decreased $78,684, or 13.4%, to
$506,623. Brokerage and clearing expenses represent the securities transaction
costs directly related to commission revenue earned by ACE. These costs, paid
to the clearing broker-dealer, increase at a declining rate because of volume
discounting.
Cost of resinous material sales of $850,104 is attributable to
consolidating Enviroq for a full year versus only fifteen days for the year
ended December 31, 1998.
Outside manager expense decreased $27,917, or 100.0%. Outside manager
expense directly offsets the outside manager income earned by ICM. All outside
manager expense has been eliminated as a result of management's decision to
internally manage accounts that were previously managed externally.
Advertising and marketing expenses increased $196,986, or 242.8%, to
$278,116. The increase can be attributed to additional advertising and
marketing expenses ICM incurred to increase name recognition, consolidating
Enviroq for a full year and the acquisition of ACEFS in August 1999.
Professional and regulatory expenses increased $275,082, or 216.0%, to
$402,457 due to an increase in outside professional fees for additional
accounting, consulting, and legal services necessary to conduct business as a
public entity beginning in 1998 and the acquisition of ACEFS in August 1999.
Occupancy and maintenance expenses increased $150,743, or 169.3%, to
$239,803 due to increased occupancy and maintenance expenses as a result of
consolidating Enviroq for a full year versus only fifteen days for the year
ended December 31, 1998 and the acquisition of ACEFS in August 1999.
Depreciation and amortization expenses increased $104,708, or 321.6%,
to $137,270 primarily due to the amortization of purchase goodwill and
additional assets to depreciate as a result of the acquisition of Enviroq in
December 1998 and the acquisition of ACEFS in August 1999.
Provision for doubtful accounts of $58,074 is attributable to the
write-off of accounts receivable of Enviroq.
10
<PAGE> 12
Other expenses increased $159,084, or 82.9%, to $351,067 due to an
increase in general and administrative expenses as a result of consolidating
Enviroq for a full year versus only fifteen days for the year ended December
31, 1998 and the acquisition of ACEFS in August 1999.
Year 2000 Matters
ICAP has not experienced any significant problems with its computer
systems as a result of the Year 2000, nor have operations had any disruptions.
In addition, ICAP does not consider there to be any significant continuing
exposure related to the Year 2000 issues.
ITEM 7. FINANCIAL STATEMENTS
The consolidated financial statements of ICAP as of December 31, 1999
and other information required by Item 310(a) of Regulation S-B are set forth
on pages F-1 through F-16 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>
Benjamin C. Bishop, Jr. 68 August 1999 Director
Thomas W. Brander 50 September 1998 Director
Arnold A. Heggestad 56 August 1999 Director
William J. Long 47 April 1998 Executive Vice President and Director
Michael X. Marinelli 40 September 1998 Director
Morgan Payne 56 September 1998 Director
Mark F. Travis 38 September 1998 Executive Vice President and Director
Forrest Travis 61 September 1998 President, Chief Executive Officer and
Director
Alexander P. Zechella 78 September 1998 Director
</TABLE>
11
<PAGE> 13
Benjamin C. Bishop, Jr. has served as a director of ICAP since August
1999. Mr. Bishop has also been President and Chief Executive Officer of ACE
since 1997. From 1972 to 1997, Mr. Bishop served in various management and
executive capacities of ACE. Mr. Bishop has been active for over 30 years in the
securities brokerage business as well as corporate and real estate finance. His
experience includes commercial banking with First Union National Bank in
Charlotte, North Carolina, mortgage banking and 10 years as investment vice
president with The Liberty Corporation of Greenville, South Carolina. Mr. Bishop
has served as a director of Cousins Properties of Atlanta, Georgia, Cummings &
Company of Nashville, Tennessee, GMR Properties of Jacksonville, Florida,
Peninsular Fire Insurance Company of Jacksonville, Florida, and Grubb & Ellis
Company of San Francisco, California. Mr. Bishop received a bachelor's degree
from The Georgia Institute of Technology and a Masters of Business
Administration from Harvard University.
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 1998.
Dr. Arnold A. Heggestad has served as a director of ICAP since August
1999. Dr. Heggestad currently serves as Associate Vice President for Research
and Technology, Professor of Finance, and director of the Center for
Entrepreneurship and Innovation at the University of Florida College of Business
Administration. Dr. Heggestad also serves as Executive Director of the
University of Florida Research Foundation, Inc., director of the Jacksonville,
Florida branch of the Federal Reserve Bank of Atlanta, Georgia, advisory
director of Amsouth Bank of Florida, chairman of The Cypress Equity Fund and a
Commissioner of the Government Accountability to the People Commission. From
1977 until 1986, Dr. Heggestad was the chairman of the Department of Finance,
Insurance, and Real Estate and associate dean of the University of Florida
College of Business Administration. Dr. Heggestad received bachelor's degree
from the University of Maryland and masters and Ph.D. degree from Michigan State
University.
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.
12
<PAGE> 14
Michael X. Marinelli is, and has been, a partner in the Austin, Texas
office of the law firm of Baker & Botts, which he joined as an associate in
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. 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 a 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 Executive Vice President of ACE since August 1999. From
June 1995 until its December 1999 merger with and into ACE, Mr. Travis served
as President of CRC. 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 a 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.
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, 1999 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
beginning with 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.
13
<PAGE> 15
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 SAR PAYOUTS COMPENSATION
------------------ ---- ------ ----- ------------ ----- --- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Forrest Travis, 1999 $218,701 (1) (2) --- --- --- --- --- ---
President and 1998 $208,883 (1) (2) (3) --- --- --- --- --- ---
Chief Executive Officer
Mark F. Travis, 1999 $175,427 (1) (2) --- --- --- --- --- ---
Executive Vice President 1998 $170,994 (1) (2) (3) --- --- --- --- --- ---
William J. Long, 1999 $130,000 (1) --- --- --- --- --- ---
Executive Vice President 1998 $ 86,800 (1) $ 50,000 --- --- --- --- ---
</TABLE>
- --------------------
(1) Includes directors' fees.
(2) This amount includes, for fiscal year 1999 and 1998, the Company's matching
contributions to its 401(k) plan for the benefit of Forrest Travis in the
aggregate amount of $15,701 and $14,489, respectively, and for the benefit
of Mark F. Travis in the aggregate amount of $14,807 and $13,374,
respectively.
(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.
Option/SAR Grants in Last Fiscal Year
During the fiscal year ended December 31, 1999, 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, 1999 by ICAP's Chief Executive Officer or by any other executive
officer whose total cash compensation exceeded $100,000.
Long Term Incentive Plan Awards in Last Fiscal Year
During the fiscal year ended December 31, 1999, 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.
14
<PAGE> 16
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.
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, 1999 of (i) each stockholder known to
ICAP to own more than 5% of the outstanding shares of 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>
Benjamin C. Bishop, Jr. 0 *
3652 South Third Street, Suite 200
Jacksonville Beach, FL 32250
Thomas W. Brander 0 *
3652 South Third Street, Suite 200
Jacksonville Beach, FL 32250
Arnold A. Heggestad 0 *
3652 South Third Street, Suite 200
Jacksonville Beach, FL 32250
William J. Long 263,389 11.1%
3652 South Third Street, Suite 200
Jacksonville Beach, FL 32250
Marinelli Securities Associates 294,900 12.5%
3652 South Third Street, Suite 200
Jacksonville Beach, FL 32250
Antonio M. Marinelli 299,559 12.7%
3652 South Third Street, Suite 200
Jacksonville Beach, FL 32250
</TABLE>
15
<PAGE> 17
<TABLE>
<S> <C> <C>
Michael X. Marinelli 295,420 12.5%
3652 South Third Street, Suite 200
Jacksonville Beach, FL 32250
Morgan Payne 150,000 ** 6.3%
3652 South Third Street, Suite 200
Jacksonville Beach, FL 32250
Mark F. Travis 422,152 17.9%
3652 South Third Street, Suite 200
Jacksonville Beach, FL 32250
Forrest Travis 783,996 33.2%
3652 South Third Street, Suite 200
Jacksonville Beach, FL 32250
Alexander P. Zechella 4,221 *
3652 South Third Street, Suite 200
Jacksonville Beach, FL 32250
All directors and executive officers 1,923,317 81.3%
of Intrepid as a group (9 persons)
- ---------------------------------------
</TABLE>
* Indicates less than 1% beneficial ownership
** Includes underlying shares of warrant issued to Broadland pursuant to
the "Consulting Agreement". (see "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS -- Consulting Agreement").
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.
16
<PAGE> 18
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 Sheets of Intrepid Capital Corporation and
Subsidiaries as of December 31, 1999 and
1998........................................................................................F-2
Consolidated Statements of Operations of Intrepid Capital
Corporation and Subsidiaries for the Years Ended December 31, 1999
and 1998....................................................................................F-3
Consolidated Statements of Stockholders' Equity of Intrepid
Capital Corporation and Subsidiaries for the Years Ended December
31, 1999 and 1998...........................................................................F-4
Consolidated Statements of Cash Flows of Intrepid Capital
Corporation and Subsidiaries for the Years Ended December 31, 1999
and 1998....................................................................................F-5
Notes to Consolidated Financial Statements..................................................F-6
</TABLE>
(b) Exhibit Index
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
----------- ----------------------
<S> <C>
2.1 Share Purchase Agreement dated as of August 4, 1999, among
Intrepid Capital Corporation, Benjamin C. Bishop, Jr., Charles
E. Harris, Synagen Capital Partners, Inc. and Arnold A.
Heggestad (incorporated by reference to Exhibit 2 to the
Registrant's Form 8-K filed August 18, 1999).
3.1 Certificate of Incorporation of the Registrant (incorporated
by reference to Exhibit 3.(A) to the 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 the 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 the 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 the 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 the Registrant's Form S-4 filed November 6,
1998, Registration No. 333-66859).
</TABLE>
17
<PAGE> 19
<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 the 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 the
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
the Registrant's Form S-4 filed November 6, 1998, Registration
No. 333-66859).
10.6 Form of Non-Negotiable Convertible Promissory Note between
Intrepid Capital Corporation and Synagen Capital Partners,
Inc. (incorporated by reference to Exhibit 10.1 to the
Registrant's Form 8-K filed August 18, 1999).
10.7 Form of Non-Negotiable Convertible Promissory Note between
Intrepid Capital Corporation and Benjamin C. Bishop, Jr.
(incorporated by reference to Exhibit 10.2 to the Registrant's
Form 8-K filed August 18, 1999).
10.8 Form of Non-Negotiable Convertible Promissory Note between
Intrepid Capital Corporation and Arnold A. Heggestad
(incorporated by reference to Exhibit 10.3 to the Registrant's
Form 8-K filed August 18, 1999).
10.9 Form of Employment Agreement between Intrepid Capital
Corporation and Benjamin C. Bishop, Jr. (incorporated by
reference to Exhibit 10.4 to the Registrant's Form 8-K filed
August 18, 1999).
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:
On October 18, 1999, ICAP filed an Amendment to its Current Report on
Form 8-K dated August 4, 1999 in order to file the financial statements
required by Item 7 of Form 8-K.
18
<PAGE> 20
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, on March 28, 2000.
INTREPID CAPITAL CORPORATION
By /s/ Forrest Travis
----------------------------------------
Forrest Travis, President and
Chief Executive Officer
By /s/ Michael J. Wallace
----------------------------------------
Michael J. Wallace, Principal
Accounting Officer
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 Officer and Director March 28, 2000
Forrest Travis
/s/ Mark F. Travis
- -------------------------- Executive Vice President and Director March 28, 2000
Mark F. Travis
/s/ William J. Long
- -------------------------- Executive Vice President and Director March 28, 2000
William J. Long
/s/ Benjamin C. Bishop, Jr.
- -------------------------- Director March 28, 2000
Benjamin C. Bishop, Jr.
/s/ Thomas W. Brander
- -------------------------- Director March 28, 2000
Thomas W. Brander
/s/ Arnold Heggestad
- -------------------------- Director March 28, 2000
Arnold Heggestad
/s/ Michael X. Marinelli
- -------------------------- Director March 28, 2000
Michael X. Marinelli
/s/ Morgan Payne
- -------------------------- Director March 28, 2000
Morgan Payne
/s/ Alexander P. Zechella
- -------------------------- Director March 28, 2000
Alexander P. Zechella
</TABLE>
19
<PAGE> 21
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report................................................................F-1
Consolidated Balance Sheets of Intrepid Capital Corporation and
Subsidiaries as of December 31, 1999 and
1998........................................................................................F-2
Consolidated Statements of Operations of Intrepid Capital
Corporation and Subsidiaries for the Years Ended December 31, 1999
and 1998....................................................................................F-3
Consolidated Statements of Stockholders' Equity of Intrepid
Capital Corporation and Subsidiaries for the Years Ended December
31, 1999 and 1998...........................................................................F-4
Consolidated Statements of Cash Flows of Intrepid Capital
Corporation and Subsidiaries for the Years Ended December 31, 1999
and 1998....................................................................................F-5
Notes to Consolidated Financial Statements..................................................F-6
</TABLE>
20
<PAGE> 22
INTREPID CAPITAL CORPORATION AND SUBSIDIARIES
Consolidated Financial Statements
December 31, 1999 and 1998
(With Independent Auditors' Report Thereon)
<PAGE> 23
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Intrepid Capital Corporation
We have audited the accompanying consolidated balance sheets of Intrepid Capital
Corporation and subsidiaries as of December 31, 1999 and 1998, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the years 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 consolidated 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, 1999 and 1998,
and the results of their operations and their cash flows for the years then
ended, in conformity with generally accepted accounting principles.
KPMG LLP
Jacksonville, Florida
March 10, 2000
F-1
<PAGE> 24
INTREPID CAPITAL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1999 and 1998
<TABLE>
<CAPTION>
ASSETS 1999 1998
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,094,700 $ 928,186
Investments, at fair value 461,210 144,574
Accounts receivable, net of allowance
for doubtful accounts of $58,074 in 1999 246,702 195,018
Inventories 107,860 140,288
Prepaid and other assets (note 4) 142,848 14,243
------------ ------------
Total current assets 2,053,320 1,422,309
Land -- 1,800,000
Property, plant, and equipment, net of accumulated
depreciation of $111,122 in 1999 and $85,579 in 1998 388,222 140,049
Goodwill, less accumulated amortization of $71,622
in 1999 and $2,703 in 1998 1,043,377 970,274
Deferred tax assets (note 4) 40,674 --
Other assets 5,299 76,467
------------ ------------
Total assets $ 3,530,892 $4,409,099
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 149,442 $ 696,757
Accrued expenses 388,956 271,803
Securities sold, not yet purchased 2,555 --
Current portion of notes payable (note 3) 133,333 212,933
Other 123,978 150,754
------------ ------------
Total current liabilities 798,264 1,332,247
Notes payable, less current portion (note 3) 916,667 32,816
Deferred tax liabilities (note 4) -- 560,634
------------ ------------
Total liabilities 1,714,931 1,925,697
------------ ------------
Stockholders' equity:
Common stock, $.01 par value. Authorized 15,000,000 shares;
issued 2,215,525 shares at December 31, 1999 and 1998 22,155 22,155
Treasury stock, at cost - 1,000 shares at December 31, 1999 (3,669) --
Additional paid-in capital 2,481,320 2,481,320
Accumulated deficit (683,845) (20,073)
------------ ------------
Total stockholders' equity 1,815,961 2,483,402
------------ ------------
$ 3,530,892 $4,409,099
============ ============
Commitments (note 6)
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE> 25
INTREPID CAPITAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Revenues:
Commissions $ 1,711,110 1,728,036
Asset management fees (note 5) 864,852 791,237
Outside manager income -- 27,917
Investment banking revenues 109,110 --
Net trading (losses) profits (60,970) 50,445
Resinous material sales 1,744,218 104,244
Dividend and interest income 83,726 23,624
Other 40,441 34,068
------------ ------------
Total revenues 4,492,487 2,759,571
------------ ------------
Expenses:
Salaries and employee benefits 2,640,868 1,568,854
Brokerage and clearing 506,623 585,307
Cost of resinous material sales 850,104 51,220
Outside manager expense -- 27,917
Advertising and marketing 278,116 81,130
Professional and regulatory fees 402,457 127,375
Occupancy and maintenance (note 6) 239,803 89,060
Provision for doubtful accounts 58,074 --
Depreciation and amortization 137,270 32,562
Interest expense 57,312 23,838
Other 351,067 191,983
------------ ------------
Total expenses 5,521,694 2,779,246
------------ ------------
Loss before income taxes (1,029,207) (19,675)
Income tax (benefit) expense (note 4) (365,435) 398
------------ ------------
Net loss $ (663,772) (20,073)
============ ============
Basic net loss income per share $ (0.30) (0.02)
============ ============
Weighted average shares outstanding 2,214,585 1,252,893
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 26
INTREPID CAPITAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
RETAINED
ADDITIONAL EARNINGS
COMMON PAID-IN TREASURY (ACCUMULATED
STOCK CAPITAL STOCK DEFICIT) TOTAL
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
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 -- (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
Purchase of treasury stock, at cost -- -- (3,669) -- (3,669)
Net loss -- -- -- (663,772) (663,772)
----------- ----------- ----------- ----------- -----------
Balance at December 31, 1999 $ 22,155 2,481,320 (3,669) (683,845) 1,815,961
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 27
INTREPID CAPITAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (663,772) (20,073)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Depreciation and amortization 137,270 32,562
Provision for doubtful accounts 58,074 --
Sales (purchases) of investments, net 145,292 (40,000)
Distributions from investment -- 33,226
Net trading loss (profits) 60,970 (50,445)
Deferred tax benefit (601,308) --
Change in assets and liabilities:
Accounts receivable (109,758) 97,215
Distribution receivable -- 119,560
Inventories 32,428 (1,148)
Prepaid and other assets (50,051) (10,760)
Accounts payable and accrued expenses (835,827) (130,000)
Other liabilities (26,776) 235,783
------------ ------------
Net cash (used in) provided by operating activities (1,853,458) 265,920
------------ ------------
Cash flows from investing activities:
Purchase of property, plant, and equipment (273,904) (30,308)
Proceeds from sale of land 1,800,000 --
Acquisition of ACEFS, net of cash acquired 43,294 --
Acquisition of Enviroq, net of cash acquired -- 668,750
------------ ------------
Net cash provided by investing activities 1,569,390 638,442
------------ ------------
Cash flows from financing activities:
Proceeds from notes payable 1,000,000 --
Principal payments on notes payable (545,749) (54,200)
Purchase of treasury stock (3,669) --
Distributions -- (104,319)
------------ ------------
Net cash provided by (used in) financing activities 450,582 (158,519)
------------ ------------
Net increase in cash and cash equivalents 166,514 745,843
Cash and cash equivalents at beginning of year 928,186 182,343
------------ ------------
Cash and cash equivalents at end of year $ 1,094,700 928,186
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 45,863 23,838
============ ============
Cash paid during the year for income taxes $ 389,500 --
============ ============
Supplemental disclosure of non-cash transactions:
Common stock and warrants issued for acquisition and
services rendered $ -- 2,637,750
============ ============
Distribution to shareholders through the assumption of note payable $ -- 169,625
============ ============
Notes payable to acquire Allen C. Ewing Financial Services, Inc. $ 350,000 --
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 28
INTREPID CAPITAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(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 was a registered broker/dealer with the Securities Exchange
Commission and a member of the National Association of Securities
Dealers, Inc. (NASD). In a transaction effective on August 1, 1999, the
Company acquired all the outstanding stock of Allen C. Ewing Financial
Services, Inc. (ACEFS). Primarily all of ACEFS' operations were
conducted through its 100% owned subsidiary, Allen C. Ewing & Co., a
registered broker/dealer with the SEC and a member of NASD. Concurrent
with that transaction, the Company contributed the assets and
liabilities of ACEFS to CRC.
Subsequent to the acquisition, the operations of CRC and ACEFS were
conducted through the merged entity under the name of Allen C. Ewing &
Co. (ACE), which retained its registered broker/dealer status.
Effective December 31, 1999, CRC is no longer a registered broker
dealer.
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, 1999,
includes the accounts of the Company and its subsidiaries ICM, ACE and
Enviroq.
F-6
<PAGE> 29
INTREPID CAPITAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
The 1999 consolidated statements of operations, stockholders' equity
and cash flows include the accounts of the Company and its subsidiaries
ICM and Enviroq consolidated with the operations of CRC for the year
ended December 31, 1999 and the operations of ACEFS from the date of
acquisition forward.
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).
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 or Deutsche Bank Alex. Brown, the Company's
clearing broker/dealers, and represents monies earned but not yet
received from these entities.
(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.
F-7
<PAGE> 30
INTREPID CAPITAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(E) OUTSIDE MANAGER INCOME AND EXPENSE
The Company engaged third party asset managers, which acted
on its behalf, to assist in investment consulting and
investment management services. The Company paid the third
party asset managers a percentage of the fee it received 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
paid all amounts of such income to its outside managers,
which is reflected in outside manager expense. The Company
collected this fee from its customers on behalf of the third
party asset managers and passed through the entire amount as
payment for services rendered. The Company discontinued its
use of outside managers in 1998.
(F) INVESTMENT BANKING REVENUE
Investment banking revenues are earned by providing advisory
services to clients on corporate finance matters, including
mergers and acquisitions and the issuance of public stock.
Investment banking revenues are recognized when earned.
(G) RESINOUS MATERIAL SALES
Resinous material sales represent sales of spray-applied
resinous materials and related equipment by Sprayroq.
Resinous material sales are recorded when earned upon
shipment.
(H) CASH AND CASH EQUIVALENTS
Any instruments which have an original maturity of ninety
days or less when purchased are considered cash equivalents.
(I) 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.
F-8
<PAGE> 31
INTREPID CAPITAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(J) INVESTMENTS
Investments at December 31, 1999 and 1998 consist of debt and
equity securities, which are bought and held principally for
the purpose of being sold in the near term. Also included in
investments is the Company's investment in Intrepid Capital,
L.P. of which the Company serves as the general partner. The
Company has classified all investments as trading securities.
Trading securities are primarily recorded at fair value based
on the last sale or bid price reported by national securities
exchanges. Trading security transactions are recorded on the
trade date. Unrealized holding gains and losses are included
in net trading profits or losses. Dividends and interest
income are recognized when earned.
(K) PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment, which includes leasehold
improvements, are carried at cost, less accumulated
depreciation. Depreciation is calculated principally on the
straight-line method over the estimated useful lives, or
lease term, of the underlying assets, which range from three
to ten years. Significant additions or improvements extending
the useful life are capitalized, while normal maintenance and
repairs are charged to expense as incurred. The Company
reviews its property, plant and equipment for impairment
whenever events or changes in circumstances indicate that the
carrying value of an asset may not be recoverable.
(L) INCOME TAXES
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences
between the financial statement carrying amount of existing
assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income
in the period that includes the enactment date.
(M) 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 assesses the recoverability of goodwill
based on the cash flows from the operations of the acquired
entity.
F-9
<PAGE> 32
INTREPID CAPITAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(N) EARNINGS PER SHARE
Net income (loss) 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 and
convertible instruments, when dilutive, are included as share
equivalents. For the years ended December 31, 1999 and 1998,
the Company had no dilutive common stock equivalents.
The weighted average shares outstanding as of December 31,
1998, represent the shares outstanding issued to ICM and CRC
as part of the merger and reorganization as if such shares
had been outstanding since January 1, 1998, and the weighted
average for shares outstanding issued to acquire Enviroq.
(O) 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.
(P) COMPREHENSIVE INCOME
No differences between total comprehensive income (loss) and
net income (loss) existed in the financial statements
reported for the years ended December 31, 1999 and 1998.
(2) ACQUISITIONS
Effective August 1, 1999, the Company acquired all of the outstanding
stock of ACEFS, a Jacksonville, Florida based provider of securities
brokerage and investment banking services for cash of $950,000 and
three promissory notes in the principal amount of $350,000. The
Company financed the cash with funds borrowed from a bank. The
acquisition has been accounted for under the purchase method of
accounting. Assets with a fair value of $1,712,272 were acquired and
liabilities with a fair value of $330,817 were assumed in the
acquisition. Goodwill of $41,022 was recorded and is being amortized
on a straight-line basis over 15 years. The operating results of ACEFS
are included in the Company's consolidated financial statements from
the date of acquisition.
F-10
<PAGE> 33
INTREPID CAPITAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
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.
The fair value of assets acquired and liabilities assumed of Enviroq,
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. During 1999,
additional goodwill of $101,000 has been recorded due to an adjustment
to the liabilities assumed from Enviroq. 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 purchases of ACEFS and
Enviroq had occurred on January 1, 1998. Pro forma total revenues
would have been $5.7 million and $6.1 million in 1999 and 1998,
respectively. Pro forma net loss would have been ($657,000) and
($185,000) in 1999 and 1998, respectively. Pro forma net loss per
share would have been ($0.30) and ($0.08) in 1999 and 1998,
respectively.
F-11
<PAGE> 34
INTREPID CAPITAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(3) NOTES PAYABLE
The notes payable at December 31, 1999 and 1998 consist of the
following:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Notes payable to several banks, interest payable at the
Prime rate plus 1%, secured by various assets,
paid in full during 1999 $ -- 245,749
Note payable to bank, interest only due monthly at LIBOR
plus 1.5% (6.703% at December 31, 1999) through July 15, 2000,
then equal monthly installments of principal and interest
through maturity on July 15, 2005, secured by the assets of ACE 700,000 --
Subordinated convertible promissory notes payable to the
former shareholders of ACEFS, interest only due
quarterly at 8%, unsecured, principal payments due
annually through maturity on December 31, 2003 350,000 --
------------ ------------
1,050,000 245,749
Less current portion 133,333 212,933
------------ ------------
$ 916,667 32,816
============ ============
</TABLE>
The subordinated convertible promissory notes are convertible, at the
option of the holders, into common stock of the Company at any time
after August 1, 2000. The number of shares to be issued upon
conversion is determined by dividing the aggregate principal amount
outstanding, including accrued and unpaid interest, by $4.00.
Principal maturities on the notes payable are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, AMOUNT
------------ ------
<S> <C>
2000 $ 133,333
2001 215,000
2002 240,000
2003 240,000
2004 140,000
Thereafter 81,667
------------
$ 1,050,000
============
</TABLE>
F-12
<PAGE> 35
INTREPID CAPITAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
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
Income tax (benefit) expense attributable to income from continuing
operations was $(365,435) and $398 for the years ended December 31,
1999 and 1998, respectively, and differed from the amounts computed by
applying the U.S. Federal income tax rate of 34% to loss before income
taxes as a result of the following:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Tax at the statutory federal rate $ (349,930) (6,690)
Goodwill amortization 24,433 919
Entertainment expenses 5,743 --
State tax benefit (37,242) --
Other (8,439) 6,169
------------ ------------
$ (365,435) 398
============ ============
</TABLE>
Included in prepaid and other assets as of December 31, 1999, on the
accompanying consolidated balance sheet is $88,627 of current income
taxes receivable.
Income tax expense (benefit) attributable to income from continuing
operations consists of:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------------ ------------ ------------
<S> <C> <C> <C>
Year ended December 31, 1999:
U.S. Federal $ 196,534 (505,542) (309,008)
State 39,339 (95,766) (56,427)
------------ ------------ ------------
$ 235,873 (601,308) (365,435)
============ ============ ============
Year ended December 31, 1998:
U.S. Federal $ 398 -- 398
State -- -- --
------------ ------------ ------------
$ 398 -- 398
============ ============ ============
</TABLE>
F-13
<PAGE> 36
INTREPID CAPITAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and deferred tax liabilities as of
December 31 are presented below:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Deferred tax assets:
Net unrealized losses on investments $ 16,745 --
Allowance for doubtful accounts 22,068 --
Accrued expenses 2,956 --
------------ ------------
Total deferred assets 41,769 --
------------ ------------
Deferred tax liabilities:
Deferred gain on land acquired from Enviroq -- (560,634)
Property, plant and equipment (1,095) --
------------ ------------
Total deferred liabilities (1,095) (560,634)
------------ ------------
Net deferred tax assets (liabilities) $ 40,674 (560,634)
============ ============
</TABLE>
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all
of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of
future taxable income during the periods in which those temporary
differences become deductible. Management considers the scheduled
reversal of deferred tax liabilities, projected future taxable income,
and tax planning strategies in making this assessment. Based upon
projections for future taxable income over the periods which the
deferred tax assets are deductible, management believes it is more
likely than not the Company will realize the benefits of these
deductible differences. The amount of the deferred tax assets
considered realizable, however, could be reduced in the near term if
estimates of future taxable income during the carryforward period are
reduced.
(5) RELATED PARTY TRANSACTION
The Company performs certain asset management functions for Intrepid
Capital, L.P. and during 1999 and 1998, received $57,142 and $68,236,
respectively, for such services.
F-14
<PAGE> 37
INTREPID CAPITAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(6) COMMITMENTS
The Company has entered into lease agreements for office space which
expire in 2009. 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 under the leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, AMOUNT
------------ ------------
<S> <C>
2000 $ 204,208
2001 224,319
2002 236,156
2003 243,469
2004 250,754
Thereafter 755,703
------------
$ 1,914,609
============
</TABLE>
Rent expense for the years ended December 31, 1999 and 1998 was
$95,845 and $44,836, respectively.
ACE is subject to the Securities and Exchange Commission's Net Capital
Rule (Rule 15c3-1) 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. The SEC is
empowered to restrict ACE's business activities should its aggregate
indebtedness to net capital ratio exceed 15 to 1. At December 31,
1999, ACE had net capital of $908,809, which was $658,809 in excess of
its required capital of $250,000. At the same date, ACE's ratio of
aggregate indebtedness to net capital was 0.30 to 1.0. Accordingly,
ACE was in compliance with the net capital requirements.
F-15
<PAGE> 38
INTREPID CAPITAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(7) SEGMENTS
During 1999 and 1998, the Company operated in two principal segments,
investment advisory services and broker/dealer services which includes
investment banking revenues. Enviroq constitutes a separate segment.
The Company assesses and measures operating performance based upon the
net income derived from each of its operating segments, exclusive of
the impact of corporate expenses. The revenues and net income for each
of the reportable segments are summarized as follows for the years
ended December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Revenues:
Investment advisory services segment $ 813,207 1,066,816
Broker/dealer services segment 2,085,042 1,764,160
Enviroq 1,771,250 118,595
Corporate 310,900 --
Intersegment revenues (487,912) (190,000)
------------ ------------
$ 4,492,487 2,759,571
============ ============
Net (loss) income:
Investment advisory services segment $ (311,563) (21,238)
Broker/dealer services segment 62,423 24,997
Enviroq 56,102 12,602
Corporate (470,734) (36,434)
------------ ------------
$ (663,772) (20,073)
============ ============
</TABLE>
During 1999, a significant portion of the Company's resinous materials
sales included within the Enviroq segment, was to one customer which
accounted for 69% of total resinous material sales.
The total assets for each of the reportable segments are summarized as
follows as of December 31, 1999 and 1998. Non segment assets consist
primarily of cash, certain investments and other assets, which are
recorded at the parent company level.
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Assets:
Investment advisory services segment $ 256,129 231,272
Broker-dealer services segment 1,340,988 192,831
Enviroq 1,511,440 3,325,224
Other 422,335 654,772
------------ ------------
$ 3,530,892 4,409,099
============ ============
</TABLE>
F-16
<PAGE> 39
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
- ----------- ----------------------
<S> <C>
2.1 Share Purchase Agreement dated as of August 4, 1999, among
Intrepid Capital Corporation, Benjamin C. Bishop, Jr.,
Charles E. Harris, Synagen Capital Partners, Inc. and Arnold
A. Heggestad (incorporated by reference to Exhibit 2 to the
Registrant's Form 8-K filed August 18, 1999).
3.1 Certificate of Incorporation of the Registrant (incorporated
by reference to Exhibit 3.(A) to the 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 the 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 the 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 the 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 the 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 the 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 the
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
the Registrant's Form S-4 filed November 6, 1998,
Registration No. 333-66859).
10.6 Form of Non-Negotiable Convertible Promissory Note between
Intrepid Capital Corporation and Synagen Capital Partners,
Inc. (incorporated by reference to Exhibit 10.1 to the
Registrant's Form 8-K filed August 18, 1999).
10.7 Form of Non-Negotiable Convertible Promissory Note between
Intrepid Capital Corporation and Benjamin C. Bishop, Jr.
(incorporated by reference to Exhibit 10.2 to the
Registrant's Form 8-K filed August 18, 1999).
10.8 Form of Non-Negotiable Convertible Promissory Note between
Intrepid Capital Corporation and Arnold A. Heggestad
(incorporated by reference to Exhibit 10.3 to the
Registrant's Form 8-K filed August 18, 1999).
</TABLE>
F-17
<PAGE> 40
<TABLE>
<S> <C>
10.9 Form of Employment Agreement between Intrepid Capital
Corporation and Benjamin C. Bishop, Jr. (incorporated by
reference to Exhibit 10.4 to the Registrant's Form 8-K filed
August 18, 1999).
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>
F-18
<PAGE> 1
Exhibit 21.1
LIST OF SUBSIDIARIES
Intrepid Capital Management, Inc. -- State of Florida
Allen C. Ewing & Co. -- State of Florida
Allen C. Ewing Mortgage & Realty -- State of Florida
Ewing Asset Management, Inc. -- State of Florida
Enviroq Corporation -- State of Delaware
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1999 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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 1,094,700
<SECURITIES> 461,210
<RECEIVABLES> 246,702
<ALLOWANCES> (58,074)
<INVENTORY> 107,860
<CURRENT-ASSETS> 2,053,320
<PP&E> 388,222
<DEPRECIATION> (111,122)
<TOTAL-ASSETS> 3,530,892
<CURRENT-LIABILITIES> 798,264
<BONDS> 0
0
0
<COMMON> 22,155
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 3,530,892
<SALES> 0
<TOTAL-REVENUES> 4,492,487
<CGS> 850,104
<TOTAL-COSTS> 5,521,694
<OTHER-EXPENSES> 351,067
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 57,312
<INCOME-PRETAX> (1,029,207)
<INCOME-TAX> 365,435
<INCOME-CONTINUING> (663,772)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (663,772)
<EPS-BASIC> (0.30)
<EPS-DILUTED> (0.30)
</TABLE>
