SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1996
Commission file number 0-20806
FIRSTMARK CORP.
(Exact Name of Small Business Issuer in its Charter)
Maine 01-0389195
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation) Identification No.)
222 Kennedy Memorial Drive, 04901
Waterville, Maine (Zip Code)
(Address of Principal Executive Offices)
(207) 873-6362
(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(g) of the Act:
Common Stock, $.20 par value
(Title of Class)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for 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 its most recent fiscal year was $3,398,900.
The aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of August 31, 1996 was $8,371,459.
The number of shares outstanding of Common Stock, as of June 30, 1996
was 2,080,634.
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TABLE OF CONTENTS
PART I
Page
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Item 1. Description of Business..................................................................................3
Item 2. Description of Property..................................................................................8
Item 3. Legal Proceedings........................................................................................8
Item 4. Submission of Matters to a Vote of Security Holders......................................................9
PART II
Item 5. Market for Common Equity and Related Stockholder Matters................................................10
Item 6. Management's Discussion and Analysis of Financial Condition
and Results of Operation.......................................................................10
Item 7. Financial Statements....................................................................................13
Item 8. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.........................................................13
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons............................................14
Item 10. Executive Compensation..................................................................................15
Item 11. Security Ownership of Certain Beneficial Owners and Management..........................................17
Item 12. Certain Relationships and Related Transactions..........................................................19
Item 13. Exhibits, List and Reports on Form 8-K..................................................................19
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PART I
Item 1. Description of Business
A. General
Firstmark Corp. (the "Company") was incorporated in Maine in January
1982.
In June 1996, Southern Capital Corporation ("SCC"), a Virginia
corporation, was merged with and into Southern Capital Acquisition Corporation,
a subsidiary of the Company. As part of the merger, the shareholders of SCC
received 40,000 shares of the Company's Series B, cumulative, non-voting
preferred stock, par value $.20 per share. The preferred stock is not
convertible by the holders, but may be converted by the Company into not less
than 2,000,000 shares of the Company's common stock, par value $.20 per share
(the "Common Stock"), subject to adjustment if the market price of the Common
Stock is less than $4.00 per share at the time of conversion. If not converted
by the Company sooner, the preferred stock begins accruing dividends after
January 1, 1997 and is redeemable at the option of the holders at a price of
$200 per share after June 30, 1998.
SCC, through its subsidiary, Southern Title Insurance Corporation
("STIC"), is principally engaged in the business of issuing title insurance. SCC
is also involved in providing financial consulting advice to corporations and
reviews investment opportunities for its own account. Currently, SCC is an
investor in Champion Broadcasting Corp., a small market radio acquisition
company that acquires multiple stations in single markets ranked below the top
150 markets by Arbitron.
The Company is an investment company that makes private investments in
venture capital situations either in the form of pure equity investments or in
the form of loans with an equity participation feature. In addition, the Company
makes control investments in situations where the Company's management actually
operates the business. Currently, the Company has numerous minority interest
investments and one control investment in title insurance. The Company also
actively trades public stocks and bonds and provides financial consulting
services to a select number of individuals and institutions.
The Company is also involved in the title insurance business through
STIC. The title insurance industry is highly sensitive to the volume of real
estate transactions and to interest rate levels. The Company is not subject to
environmental litigation.
B. Related Industry Segments
The following description is a summary of the Company's operations by
industry segment.
Financial Services
Financial services subsidiaries derive their revenues from commissions
and fees generated from consulting, investment banking, the manufacturing of
proprietary investment products and the marketing of investment and insurance
products manufactured by others. In addition, the Company invests its own
capital in marketable securities and other investments and makes various
business and other loans.
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There is no geographical limitation to the financial services and
investment segment. Through proper licensing with each State, these services may
be provided nationwide.
Venture Capital
The venture capital segment derives its revenue from interest earned on
loans to companies in venture capital situations and from equity returns.
Investment real estate transactions are also considered a source of revenues for
this segment.
Title Insurance
The title insurance related subsidiaries derive their revenues from
policy premiums and other related fees for title abstracts, binder preparations
and escrow closings. Title insurance policies are issued to buyers of real
property and secured real property lenders. These policies customarily insure
against title defects, liens and encumbrances that are not specifically exempted
in the policy. Title insurance differs from other types of insurance because it
is related to past events which affect title to the property at the time of
closing and not to unforeseen future events. Revenues are generated from 14
directly owned and operated offices as well as an agency network of over 100
agents. The majority of these revenues are generated in the Commonwealth of
Virginia. STIC's sales and marketing efforts are generally targeted at the
residential housing market.
C. Subsidiaries
The Company attempts to serve the total financial needs of a broad
range of clients. The following lists its subsidiaries and the services that
they provide:
Firstmark Capital Corp. Acquired: June 1982
The Company's financial planning subsidiary offers investment
management services to Firstmark's affiliated partnerships by serving as general
partner. The subsidiary also offers investment management, financial planning,
estate and tax planning, and insurance planning. The subsidiary's revenues are
derived by charging fees and receiving commissions on various products. The
subsidiary has been in business since 1972 and is a Federally Registered
Investment Advisory firm. Firstmark Capital Corp. has four certified financial
planners and seven financial advisors.
Firstmark Investment Corp. Acquired: January 1986
This subsidiary also serves as the Company's investment banking and
consulting subsidiary. Firstmark Investment Corp. markets the Company's
proprietary investment products to other firms and serves as advisor and manager
in some cases to the Company's equity funds.
Firstmark Properties Inc. Founded: 1985
This subsidiary offers commercial and investment real estate brokerage
services primarily to the Company's own holdings. The subsidiary also advises
its parent company on real estate related acquisitions and projects. This
subsidiary currently has five State of Maine Real Estate Agent licensed
professionals affiliated with it.
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Firstmark Corp.
In addition to being the parent company, the Company also invests its
own capital in various real estate and venture capital projects, business loans,
and other investments.
QFAN Marketing Services, Inc. Founded: 1984
This subsidiary provides consulting services to emerging growth
companies. These services include business consulting, marketing consulting,
financial public relations, and other promotional activities. In addition, this
subsidiary holds certain real estate holdings of the Company.
Southern Capital Acquisitions Corp. Founded: 1996
This subsidiary was established to serve as the corporation used to
acquire the stock of SCC and SCC's subsidiaries. See "Description of Business --
General."
Investors Southern Corporation Acquired: 1996
Investors Southern Corporation serves as the holding company for the
title insurance operations.
Subsidiaries of Investors Southern Corporation:
Southern Title Insurance Corporation Acquired: 1996 (Founded in 1925)
This subsidiary is a title insurance underwriter. It operates
through a combination of 14 direct offices and over 100 agents.
Southern Title Agency Corporation Acquired: 1996
This subsidiary is an title insurance agency for two of the
national title insurance underwriters.
Southern Abstractors Corporation Acquired: 1996
This subsidiary performs all title examinations and abstracts
for all of the title insurance operations. Title examinations and
abstracts involve the researching of court and other land records to
find the status of title to that particular property.
Glasgow Enterprises Corp. Acquired: 1996
This subsidiary is involved in title agency joint ventures
with various partners. These joint ventures and the percentage of
ownership are as follows:
Southern Title of Ohio, Inc. 75%
Southern Title of Ohio, Limited 75%
Southern Title of the Peninsula, LLC 70%
Southern Title of Chesapeake, Inc. 70%
Southern Title of North Carolina, LLC 70%
Virginia First Title and Escrow LLC 70%
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Southern Agency, LC 70%
Attorneys' Title Insurance Company LLC 50%
Southern Title of Roanoke, LLC 33%
Southern Title Services, Inc. Acquired: 1996
This company is a subsidiary of STIC and currently provides
special title insurance and real estate transaction accommodation
functions, such as exchanger in like kind exchanges and mechanics' lien
agent for construction loans in Virginia.
Firstmark and all of its subsidiaries are collectively hereinafter
referred to as the "Company'.
D. Employees
The Company and its subsidiaries have 148 total employees, of which 13
are part-time, as of June 30, 1996. The Company believes that its relations with
its employees are good.
E. Significant Customers
The Company did not receive more than 10% of its business or revenues
from any single customer.
F. Competition
The title insurance business is very competitive. Competition is based
primarily on price, service, and expertise. Competition within the title
insurance industry has increased as new local and regional title insurance
operations as well as national companies are vying for market share. Title
insurance underwriters also compete for agents on the basis of service and
commission levels.
The financial services industry is highly competitive. Everyone from
bankers to securities brokers is marketing financial services. In recent years,
competition has intensified as more people have entered the industry. Stock
brokers have expanded into financial planning, banks are now buying out
brokerage firms, insurance companies are doing the same, and all of them are
calling themselves financial advisors. The Company feels, however, that it has
developed an ability to identify and penetrate niche markets. In the venture
capital area, the Company targets firms that are too small for the large firms
to work with and too large for the smaller firms to service. This market is
particularly appealing to a company the Company's size. In the financial
consulting area, the Company has assembled a team of specialists with
diversified backgrounds in investments, law and accounting. This specialist
approach provides our individual and corporate clients with objective
personalized service.
G. Insured Risk and Loss Reserves
The insured risk or "face amount" of insurance under a title insurance
policy is generally equal to either the purchase price of the property or the
amount of the loan secured by the property. The insurer is also responsible for
the cost of defending claims against the insured title. The insurer's actual
exposure at any time is significantly less than the total face amount of
policies in force because the risk on an owner's policy is often reduced over
time as a result of subsequent transfers of the property and
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the reissuance of title insurance by other title insurance underwriters, and the
coverage of the lender's policy is reduced and eventually terminated as a result
of payment of the mortgage loan. Because of these factors, there is no practical
way to ascertain the total contingent liability of a title underwriter on
outstanding policies.
In the ordinary course of business, STIC represents and defends the
interests of their insured and provides on its books for estimated losses and
loss adjustment expenses. In recent years, the cost of defending policy claims
has increased. Title insurers are also sometimes subject to claims arising
outside the insurance contract, such as for alleged negligence in search,
examination or closing, alleged improper claims handling and alleged bad faith.
The damages alleged in such claims may often exceed the stated liability limits
of the policies involved.
Liabilities for estimated losses and loss adjustment expenses are
accrued when premium revenues are recognized and are based upon historical and
anticipated loss experience. The resulting liability reflects discounted
estimates of net costs to settle all reported claims and claims incurred but not
yet reported to the company. Loss reserve calculations are based on annual
reviews of the actual paid claims experience. Reserves for losses incurred but
not reported (IBNR) are estimated based on the use of actuarial methods.
H. Regulation
The title insurance businesses, in common with those of other insurance
companies, are subject to comprehensive, detailed regulation in the
jurisdictions in which they do business. Such regulation is primarily for the
protection of policyholders rather than for the benefit of investors. Although
their scope varies from place to place, insurance laws in general grant broad
powers to supervisory agencies or officials to examine companies and to enforce
rules or exercise discretion touching almost every significant aspect of the
conduct of the insurance business. These powers include the licensing of
companies and agents to transact business, the imposition of monetary penalties
for rules violations, varying degrees of control over premium rates, the forms
of policies offered to customers, financial statements, periodic reporting,
permissible investments and adherence to financial standards relating to
surplus, dividends and other criteria of solvency intended to assure the
satisfaction of obligations to policyholders.
State holding company acts also regulate changes of control in
insurance holding companies and transactions and dividends between an insurance
company and its parent or affiliates. Although the specific provisions vary, the
holding company acts generally prohibit a person from acquiring a controlling
interest in an insurer incorporated in the state promulgating the act or in any
other controlling person of such insurer unless the insurance authority has
approved the proposed acquisition in accordance with the applicable regulations.
In many states, including Virginia, where STIC is domiciled, "control" is
presumed to exist if 10% or more of the voting securities of the insurer are
owned or controlled by a party, although the insurance authority may find that
such control in fact does or does not exist where a person owns or controls
either a lesser or a greater amount of securities. The holding company acts also
impose standards on certain transactions with related companies, which generally
include, among other requirements, that all transactions be fair and reasonable
and that certain types of transactions receive prior regulatory approval either
in all instances or when certain regulatory thresholds have been exceeded.
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The Insurance Law of Virginia limits the maximum amount of dividends
which may be paid without approval by the Virginia Bureau of Insurance.
I. Reinsurance
STIC distributes title insurance risks through the mechanism of
reinsurance. In reinsurance agreements, the reinsurer accepts that part of the
risk which the primary insurer (the "ceder") decides not to retain, in
consideration for a portion of the premium. The ceder, however, remains liable
to the insureds for the total risk, whether or not the reinsurer meets its
obligation.
At June 30, 1996, STIC had a treaty reinsurance agreement where all
single policy risk in excess of $250,000 is reinsured.
Item 2. Description of Property
Corporate Real Estate
The Company's executive and administrative offices, consisting of
approximately 4,000 square feet, are located in a 6,000 square foot building
owned by the Pinnacle Investment Group ("Pinnacle"), a group consisting of four
individuals, one of whom is an officer of the Company. This facility is leased
from Pinnacle under a fifteen year lease terminating on December 31, 2003. The
lease is renewable and negotiable after five years. The Company owns the parcel
of land where its administrative offices are located. Pinnacle, however, holds
an option to purchase the land for $60,000.
The Company also owns 5,716 square feet of land and a two-story office
building containing 3,842 square feet that contains the Charlottesville,
Virginia office of STIC. The building is not encumbered and is in good operating
condition. The brick structure was built in 1920 and renovated in 1985.
Investment Real Estate
Investments in real estate are made for possible development of the
property or immediate re-sale. Most real estate held by the Company consists of
lakefront property, but non-lakefront property is also owned. The majority of
the real estate owned by the Company is either developed or undeveloped raw
land. The Company has one single-family housing unit that was acquired in
connection with the moving of an employee.
The Company's real estate properties are reviewed for impairment
whenever events or circumstances indicate that the carrying value of such
properties may not be recoverable.
Item 3. Legal Proceedings
Firstmark is involved in litigation from time to time in the ordinary
course of business. As of June 30, 1996, the Company was not involved in any
litigation.
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On August 7, 1996, Lake Anna Development, L.C. ("Lake Anna") filed a
Motion for Judgment against STIC in the Circuit Court of Louisa County in the
Commonwealth of Virginia. The Motion for Judgment alleges that STIC breached a
contractual obligation under a title insurance policy that contained affirmative
mechanics' lien coverage when STIC denied liability under the exclusions of the
title insurance policy. STIC issued the title insurance policy at issue to the
lender, a federal savings bank, in connection with the development of the
insured project. Lake Anna alleges that it has succeeded to the position of the
lender. The Motion for Judgment seeks relief in the amount of $1,342,374.38 plus
interest from May 6, 1996. STIC denies any liability to the lender and is
vigorously defending the claims asserted against it.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders.
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PART II
Item 5. Market for Common Equity and Related Stockholder Matters
The Common Stock of the Company is traded on the Nasdaq SmallCap Market
under the symbol of "FIRM".
The following table sets forth the high and low bid information for the
Common Stock on the Nasdaq SmallCap Market for each quarter within the last two
fiscal years.
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Fiscal Year Ended June 30, Bid Information
High Low
1995
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1st quarter............................................................ 4.625 4.50
2nd quarter............................................................ 4.75 4.625
3rd quarter............................................................ 4.75 4.625
4th quarter............................................................ 4.625 4.625
1996
1st quarter............................................................ 4.25 4.00
2nd quarter............................................................ 4.375 4.00
3rd quarter............................................................ 4.50 4.375
4th quarter............................................................ 4.375 4.094
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As of August 31, 1996, there were approximately 647 shareholders of the
Common Stock.
The Company has never declared any cash dividends, and any future
payment of dividends is solely in the discretion of the Board of Directors and
is dependent upon the earnings and financial condition of the Company and such
other factors as the Board of Directors from time to time may deem relevant.
Item 6. Management's Discussion and Analysis of Financial Condition
and Results of Operation
Results of Operations
1996 vs. 1995
Fiscal year 1996 was one of significant change for the Company. On June
7, 1996, the Company completed the acquisition of Southern Capital Corp., and as
a result the Company's assets increased by $11.4 million or 164% and its
shareholders' equity by $8.75 million or 154%. As more fully explained in Note 2
to the Consolidated Financial Statements, the assets of Southern Capital Corp.
were merged into a wholly owned subsidiary of the Company in exchange for 40,000
shares of the company's Preferred Series B, cumulative, non-voting preferred
stock. It is anticipated that these shares will be converted into
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at least 2,000,000 shares of the Common Stock. This larger balance sheet will
allow the Company a broader base to build on and increase shareholders' equity.
This increase in the assets and shareholders' equity was offset by $1.2
million of write-offs and reserves for venture capital investments and loans in
several startup companies. Due to the uncertainty of these investments and
loans, the Company's Board of Directors has described it as prudent to make
these adjustments in the venture capital investments. The progress of these
investments and the repayment of these loans will be actively managed for
improvements which may allow the Company to recover these writeoffs and
reserves.
Please note that the statement of earnings as shown in the Consolidated
Financial Statements only includes the consolidated results of operations for
Southern Capital for the period of June 7, 1996 to June 30, 1996. It is
anticipated that in the future the title insurance revenues will become the
Company's major source of revenues.
Pretax earnings decreased $1.5 million or 200% from 1995 largely as a
result of the write-offs and reserves noted above.
Revenues increased $.3 million or 11% from 1995 mainly as a result of
$.8 million in title insurance revenues which were not present in 1995. This
increase was offset by a decrease in real estate and timber revenues of $.7
million or nearly 100%. There were no timber revenues in 1996 as all timber has
been harvested. The real estate market continues to be sluggish. The Company
continues to believe that its properties, located largely on Maine lakes, will
prove to be profitable investments over the longer term. As a result of
management's review of the real estate holdings, the Company added an additional
$20,000 to the reserve against real estate holdings. Investment gains increased
$.2 million or 50% from 1995 mainly as a result of the Intercel stock
distribution. Please see Note 3 to the Consolidated Financial Statements for
additional information on this investment.
Expenses before write-offs of loans and investments increased $.6
million or 27% from 1995. This increase was mainly from increased employee
compensation and benefits costs of $.7 million or 59% from 1995. This increase
is attributed largely to the Southern Capital Corp. insurance operations as the
title insurance operations is highly labor intensive.
During fiscal 1996 the Company had to make some hard decisions
concerning its venture capital, investments, but with the decisions behind the
Company and with the addition of the Southern Capital Corp. companies,
management is working on strategies to return to profitability.
Results of Operations
1995 vs. 1994
Pre-tax earnings in 1995 increased 185% to $771,895 over the $271,003
level of 1994. Total expenses, 91% of revenues in 1994, only amounted to 75% of
revenues in 1995. Total 1995 revenues of $3,054,453 were slightly lower than the
prior year's $3,176,950.
Real estate and timber revenues were higher in 1995 than in 1994 due to
increased harvesting from the timber tract purchased in August 1993. This tract
was completely harvested by June 30, 1995. The real estate market continues to
be sluggish. However, in March 1994 the Company provided an additional write
down of $296,000 related to its real estate holdings. The Company continues to
believe
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its properties, located largely on Maine lakes, will prove to be profitable
investments over the longer term.
Commissions and fees went from $1,562,684 in 1994 to $1,665,078 in
1995. The 6.55% increase resulted both from increased consulting fees as well as
additional revenues generated at the Firstmark Prime Securities division of
Firstmark Investment Corp. in Portland, Maine. The property and equipment of
Prime Securities were acquired and its employees were hired in April 1994;
therefore, fiscal year 1995 was the first year which included a full year's
worth of revenues.
Gains on securities, $443,134, were significantly higher than in the
prior year. Over $200,000 of these gains were due to the implementation of a
trading program at Firstmark Prime Securities. In addition, the parent company
changed its method of accounting for investments in equity securities and
accordingly reported an unrealized gain of approximately $176,000 on trading
securities.
Interest and dividend income was up over 10% from last year due to
improved interest rates earned on cash investments. The increase was partially
offset because of paydowns on loans receivable.
Commissions and fees expense decreased to $916,227 in 1995 from
$1,072,464 in 1994, despite an increase in related revenues. The decrease
resulted primarily because some commissioned representatives became employees in
January 1994 and received lower commission percentages. In addition, certain fee
income was generated for which no commissions were paid.
The cost of real estate and timber revenues was 47% lower than in the
prior year. One reason for the decrease was the $296,000 write down, discussed
above, that occurred last year. There was no comparable write down in 1995. In
addition, there were fewer real estate sales in 1995 than in 1994.
General and administrative expenses increased slightly to $763,160 from
$718,901. Depreciation and amortization were $26,000 higher than in the prior
year. These increases were largely due to the cost associated with the new
trading office in Portland and the acquisition of a client list from a former
financial advisor.
Interest expense, $87,476 in 1995, was almost 40% lower than in the
prior year. The decrease resulted because $675,000 of short term borrowing
obtained to finance the timberland purchase, outstanding for most of fiscal year
1994, were paid off. In addition, the Company's long term debt has been reduced
from $1,147,500 at June 30, 1994 to $1,035,000 at June 30, 1995.
Overall, Firstmark increased its profitability over 1994 because both
financial services and real estate operations improved. The financial services
improvement resulted from gains on trading securities and increased net
commissions and fees offset by the one time gain on Unity Telephone in 1994. The
real estate operations improvement resulted from higher profitability on its
timber cutting operation and the one time write down of real estate in 1994.
Liquidity and Capital Resources at June 30, 1996
The Company's cash level is at $1,600,000 at June 30, 1996. The Company
continues to focus on maintaining and in fact increasing it liquidity by
converting real estate and other nonliquid investments to cash in a timely
manner so that it can meet its obligations when due. The Company has the
following obligations coming due in fiscal year 1997:
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Convertible notes issued April, 1992 due April, 1997 1,035,000
Advance from shareholder due January, 1997 100,000
Bank line of credit due April, 1997 400,000
Reference is made to the "Regulation" section of Part I concerning
payments of dividends from the title insurance companies.
Due to the nature of its operations, the Company does not expect to
incur significant environmental costs. Its capital resources are not expected to
be affected significantly by the current accounting pronouncements regarding
accounting for impairment of loans and accounting for investments in debt and
equity securities and derivatives.
Item 7. Financial Statements
The following list is the index to Consolidated Financial Statements,
attached hereto as Exhibit 99a:
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Report of Independent Certified Public Accountant..................................................................
Financial Statements
Consolidated Balance Sheets, June 30, 1996 and 1995......................................................2
Consolidated Statement of Earnings, Years Ended June 30, 1996 and 1995...................................3
Consolidated Statements of Stockholder's Equity Years Ended June 30, 1996 and 1995.......................4
Consolidated Statement of Cash Flows, Years Ended June 30, 1996 and 1995.................................5
Notes to Financial Statements............................................................................7
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Item 8. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure
No changes in the Company's independent accountants or disagreements on
accounting and financial disclosure required to be reported hereunder have taken
place.
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PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons
Directors. The business experience of the Directors of the Company fo
the past five years is summarized below.
JAMES F. VIGUE, 47, is founder of the Company and has served as
President, Chairman of the Board of Directors and Chief Executive Officer since
the Company's inception in March 1981. Mr. Vigue is also President and a
Director of Firstmark Capital Corp., Firstmark Investment Corp., Firstmark
Properties Inc., QFAN Marketing Services, Inc., and Southern Capital Acquisition
Corp., all of which are subsidiaries of the Company. Mr. Vigue is a 1972
graduate of Colby College and was the first practicing Certified Financial
Planner in the State of Maine. Mr. Vigue is the author of WEALTH POWER: How to
Work With Your Financial Advisors to Maximize, Protect and Control Your Assets.
ROBERT A. RICE, 41, joined the Company in January 1994 and is head of
the Company's brokerage and trading operations. He has been a Director of the
Company since June 1995. Mr. Rice has also been Vice President of Firstmark
Investment Corp. and Firstmark Capital Corp. since 1994. Mr. Rice holds a degree
in Business Administration from the University of Southern Maine and has done
graduate work in business at New Hampshire College. In 1983, Mr. Rice founded
Prime Discount Securities, Inc., an investment broker/dealer registered with the
National Association of Securities Dealers, Inc., and presently serves as its
President and Chairman. In 1991, he founded Prime Securities Corp., which acts
as a management company for various investments, including its wholly owned
subsidiary, Prime Discount Securities, Inc. Mr. Rice is a general partner of
B.R. Partners, a partnership which owns and operates commercial and residential
real estate holdings in Maine. He is also a director of Sunrise Preschools, Inc.
IVY L. GILBERT, 35, has served as Corporate Secretary and Chief
Financial Officer of the Company since June 1986, Treasurer since June 1992, and
a Director since June 1993. Ms. Gilbert also serves as Corporate Secretary and
Treasurer for each of the Company's subsidiaries. Ms. Gilbert is a 1981 graduate
of Thomas College and is also Chief Executive Officer of The Hamilton
Foundation, a non-profit organization. Ms. Gilbert is the founder of Women &
Investing and the publisher of a newsletter with the same name.
H. WILLIAM COOGAN, JR., 43, has been a Director of the Company since
June 1996. He has served as Chairman and Chief Executive Officer of Southern
Capital Corp. since April 1995 and is currently a director and Chief Investment
Officer of its subsidiary, Southern Title Insurance Corporation, and Chairman of
another subsidiary, Champion Broadcasting Corporation. From June 1992 to April
1995, he was Managing Director of Libra Investment, Inc., a high-yield debt and
special situation investment firm based in Los Angeles. From May 1991 to May
1992, he was a private investor. From August 1990 to April 1991, he was a
Managing Director and Head of Corporate Finance at Wheat First Butcher & Singer
and, from September 1982 to July 1990, was an investment banking partner of CS
First Boston in New York, San Francisco and Los Angeles. Mr. Coogan received his
undergraduate degree from the University of Vermont and his MBA degree from the
University of Virginia. He is also a director of Wireless Financial, Inc.
DONALD V. CRUICKSHANKS, 39, has been a Director of the Company since
June 1996. He served as President of Southern Capital Corp. from 1992 through
1996, and has served as Chairman,
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President and Chief Executive Officer of Southern Title Insurance Corporation
since 1984. He is a 1979 graduate of Randolph Macon College. Mr. Cruickshanks is
also President of Southern Abstractors Corporation, Southern Title Agency
Corporation, Glasgow Enterprises Corp. and Southern Title Services, Inc.
SUSAN C. COOGAN, 42, has been a Director of the Company since June
1996. From 1992 to 1996, she was a director of Southern Capital Corp. From 1994
to 1995, she was a member and Executive Vice President of CKC Advisors and
Chesapeake Capital Lending Fund, L.P., a SBIC applicant. From 1987 to 1990, she
served as Executive Vice President and Chief Operating Officer of Country Wide
Mortgage Investments, a real estate management trust. In 1987, Ms. Coogan joined
Countrywide Credit Industries, Inc., a mortgage banking firm headquartered in
Pasadena, CA. She was Senior Vice President responsible for all capital raising
activities. Ms. Coogan received her undergraduate degree from Hollins College
and a MBA from the Colgate Darden Graduate Business School of the University of
Virginia. Ms. Coogan is currently on the Board of Directors of Regency
Bancshares, a Richmond, Virginia bank holding company.
R. BRIAN BALL, 45, has served as a Director of the Company since June
1996. Mr. Ball is a partner and a director of Williams, Mullen, Christian &
Dobbins, P.C., a law firm in Richmond, Virginia.
Executive Officers. The business experience of James F. Vigue,
President and Chief Executive Officer, Robert A. Rice, Vice President of
Trading, and Ivy L. Gilbert, Chief Financial Officer, Corporate Secretary and
Treasurer, for the past five years is summarized above.
Family Relationships. James F. Vigue and Ivy L. Gilbert are husband
and wife, and H. William Coogan, Jr., and Susan C. Coogan are husband and wife.
Item 10. Executive Compensation
The following table summarizes the compensation paid or accrued to the
Chief Executive Officer of the Company and its other most highly paid executive
officers for the last fiscal year in all capacities in which they served the
Company and its subsidiaries.
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Compensation
Annual Compensation Awards
Securities
Name and Other Annual Underlying
Principal Position Year Salary Bonus Compensation(1) Options
<S> <C> <C> <C> <C> <C>
James F. Vigue, Chairman of 1996 $ 0 $ 0 205,351 5,000
the Board, President and Chief 1995 0 0 177,241 5,000
Executive Officer 1994 0 0 130,663 5,000
</TABLE>
-15-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Ivy L. Gilbert, Chief Financial 1996 0 0 101,571 5,000
Officer, Corporate Secretary 1995 0 0 108,392 5,000
and Treasurer
Robert A. Rice, Vice President 1996 64,500 28,722 (2) 5,000
of Trading 1995 42,016 72,193 (2) 80,000
H. William Coogan, Jr., Chairman 1996 126,975 0 (2) --
and Chief Executive Officer of SCC(3) 1995 124,375 6,250 (2) --
1994 119,375 0 (2) --
Donald V. Cruickshanks, President 1996 126,975 0 (2) --
of SCC(3) 1995 124,375 7,979 (2) --
1994 119,375 69,869 (2) --
</TABLE>
- -------
(1) As of March 28, 1996, per contract, the Chairman of the Board and the
Chief Financial Officer are entitled to receive a base compensation of
$120,000 per year. They are also entitled to receive commissions and
fees from the Company's operating subsidiaries based solely on
production. The method in which the above compensation is calculated
is as follows: The Company receives a commission or fee. The above
individual receives a percentage of that commission. See "Executive
Compensation -- Employment Agreements."
(2) The value of perquisites and other personal benefits did not exceed the
lesser of $50,000 or 10% of the total annual salary and bonus shown in
the table.
(3) SCC merged with and into a subsidiary of the Company on June 7, 1996.
See "Description of Business -- General."
The executive officers of the Company participate in other benefit
plans provided to all full-time employees of the Company who meet eligibility
requirements, including group life insurance, hospitalization and major medical
insurance.
Key Man and Officers' Insurance. James F. Vigue, Ivy L. Gilbert and
Robert A. Rice are key officers of the Company, and their contributions to the
Company have been and will be significant factors in the Company's plans and
operations. The Company presently maintains key-man life insurance policies on
Mr. Vigue, Ms. Gilbert and Mr. Rice with aggregate face values of approximately
$3,000,000, $500,000 and $1,000,000, respectively. In addition, the Company
presently maintains a key-man life insurance policy on H. William Coogan, Jr.,
a Director of the Company and an officer of SCC, with an aggregate face value of
approximately $3,000,000.
Compensation of Directors. For the fiscal year ended June 30, 1996, the
Company provided no compensation to its Directors for attending meetings of the
Board of Directors.
Employment Agreements. The Company and James F. Vigue, Chief Executive
Officer and President, are parties to an employment agreement for a term
commencing March 28, 1996, and
-16-
<PAGE>
terminating March 30, 1999, with automatic renewals at the expiration date for
regular periods of one year, which agreement provides for his employment with
the Company. Under the agreement, Mr. Vigue is entitled to base compensation of
$120,000 per year. Mr. Vigue is entitled to additional compensation based on any
fees or commissions that he may generate, as calculated by a July 1, 1995
resolution of the Board of Directors. The agreement will continue to renew for
successive terms of one year each if it is not expressly terminated by Mr. Vigue
or the Company. If, during the term of the agreement, the Company terminates the
agreement, Mr. Vigue will be entitled to compensation for the remainder of the
contract.
The Company and Ivy L. Gilbert, Chief Financial Officer, Secretary and
Treasurer, are parties to an employment agreement for a term commencing March
28, 1996, and terminating March 30, 1999,with automatic renewals at the
expiration date for regular periods of one year, which agreement provides for
her employment with the Company. Under the agreement, Ms. Gilbert is entitled to
base compensation of $120,000 per year. Ms. Gilbert is entitled to additional
compensation based on any fees or commissions that she may generate. The
agreement will continue to renew for successive terms of one year each if it is
not expressly terminated by Ms. Gilbert or the Company. If, during the term of
the agreement, the Company terminates the agreement, Ms. Gilbert will be
entitled to compensation for the remainder of the contract.
STIC and H. William Coogan, Jr., a Director of the Company, are parties
to an employment agreement for a term commencing August 15, 1992, and
terminating August 15, 1997. The agreement provides for his employment as
Chairman of the Board of Directors and Chief Investment Officer of STIC. Under
the agreement, Mr. Coogan is entitled to base compensation of $115,000 per year,
with an increase in compensation of $5,000 each year. Mr. Coogan may terminate
his employment at any time by giving STIC 30 days' notice of such termination.
The agreement will terminate upon the employee's death or disability or upon his
knowing violation of criminal law or willful misconduct, as reasonably
determined by STIC's board of directors.
STIC and Donald V. Cruickshanks, a Director of the Company, are parties
to an employment agreement for a term commencing August 15, 1992, and
terminating August 15, 1997. The agreement provides for his employment as
President and Chief Executive Officer of STIC. Under the agreement, Mr. Coogan
is entitled to base compensation of $115,000 per year, with an increase in
compensation of $5,000 each year. Mr. Coogan may terminate his employment at any
time by giving STIC 30 days' notice of such termination. The agreement will
terminate upon the employee's death or disability or upon his knowing violation
of criminal law or willful misconduct, as reasonably determined by STIC's board
of directors.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding the
beneficial ownership of Common Stock as of August 31, 1996, by (i) each person
who is known to the Company to be the beneficial owner of more than 5% of the
outstanding shares of Common Stock, (ii) each director of the Company, and (iii)
all of the directors and executive officers of the Company as a group. For the
purposes of the following table, beneficial ownership has been determined in
accordance with the provisions of Rule 13d-3 under the Exchange Act, under
which, in general, a person is deemed to be a beneficial owner of a security if
he or she has or shares the power to vote or direct the voting of the security
or the power to dispose or direct disposition of the security, or if he or she
has the right to acquire beneficial ownership of the
-17-
<PAGE>
security within 60 days. Except as otherwise indicated (i) each stockholder
identified in the table possesses sole voting and investment power with respect
to his shares, and (ii) the mailing address of each individual is Firstmark
Corp., One Financial Place,222 Kennedy Memorial Drive, Waterville, Maine 04901.
Name Common Stock Percent
James F. Vigue 143,858(1) 6.7%
Chairman of the Board, President,
Chief Executive Officer and Director
Ivy L. Gilbert 156,624(2) 7.3%
Chief Financial Officer, Corporate
Secretary, Treasurer and Director
Robert A. Rice -- --
Vice President of Trading and Director
H. William Coogan, Jr. -- --
Director
Donald V. Cruickshanks -- --
Director
Susan C. Coogan -- --
Director
R. Brian Ball -- --
Director
All Directors and executive officers as a
group (7 persons) 194,108 9.0%
In June 1996, SCC was merged with and into Southern Capital Acquisition
Corporation, a subsidiary of the Company. As part of the merger, the
shareholders of SCC received 40,000 shares of the Company's Series B,
cumulative, non-voting preferred stock, par value $.20 per share. The preferred
stock is not convertible by the holders, but may be converted by the Company
into not less than 2,000,000 shares of the Common Stock subject to adjustment if
the market price of the Common Stock is less than $4.00 per share at the time of
conversion. If not converted by the Company sooner, the preferred stock begins
accruing dividends after January 1, 1997 and is redeemable at the option of the
holders at a price of $200 per shareafter June 30, 1998. H. William Coogan, Jr.,
Donald V. Cruickshanks and Susan C. Coogan, Directors of the Company, were
shareholders of SCC and are now holders of the Company's preferred stock.
- --------
1 Includes 37,484 shares held as trustee for various trusts and 4,599
shares held by his spouse, Ivy L. Gilbert.
2 Includes 50,250 shares held as custodian for her minor children and
101,775 shares held by her spouse, James F. Vigue.
-18-
<PAGE>
Item 12. Certain Relationships and Related Transactions
The Company obtains certain related party receivables and payables in
the normal course of business and through advances for accommodation. In
addition, the Company has certain loans receivable from related parties at terms
consistent with those provided to other customers. The loans are substantially
secured by real estate mortgages. Balances at June 30, 1996 are as follows:
Advances to Related Parties $142,919
Loans to Related Parties $124,734
The Company's executive and administrative offices, consisting of
approximately 4,000 square feet, are located in a 6,000 square foot building
owned by the Pinnacle Investment Group ("Pinnacle"), a group consisting of four
individuals, one of whom is an officer of the Company. This facility is leased
from Pinnacle under a fifteen year lease terminating on December 31, 2003. The
lease is renewable and negotiable after five years. The Company owns the parcel
of land where its administrative offices are located. Pinnacle, however, holds
an option to purchase the land for $60,000.
On April 10, 1996, H. William Coogan, Jr. loaned $100,000 to the
Company to be used for its general corporate purposes. The principal under the
loan is due on January 1997, and the Company currently is making monthly
interest payments on the loan at the rate of one percent above the prime
rate.
Williams, Mullen, Christian & Dobbins, P.C., in which a Director of
the Company is a partner, provides legal services to the Company and its
subsidiaries from time to time.
For related party information, see Note 8 to the Consolidated Financial
Statements.
Item 13. Exhibits, List and Reports on Form 8-K
(a) Exhibits.
3a Articles of Incorporation, as amended, incorporated by
reference to the Company's Annual Report on Form 10-KSB for
the fiscal year ended June 30, 1994.
3b Bylaws, as amended, incorporated by reference to the Company's
Annual Report on Form 10-KSB for the fiscal year ended June
30, 1994.
4a Stock Certificate, incorporated by reference to the Company's
Annual Report on Form 10-KSB for the fiscal year ended June
30, 1994.
4b Convertible notes, incorporated by reference to the Company's
Annual Report on Form 10-KSB for the fiscal year ended June
30, 1994.
4c Preferred "A" stock certificate, incorporated by reference to
the Company's Annual Report on Form 10-KSB for the fiscal year
ended June 30, 1994.
4d Preferred "A" stock warrant, incorporated by reference to the
Company's Annual Report on Form 10-KSB for the fiscal year
ended June 30, 1994.
4e Preferred "B" stock certificate.
11a Lease, incorporated by reference to the Company's Annual
Report on Form 10-KSB for the fiscal year ended June 30, 1994.
-19-
<PAGE>
99a Consolidated Financial Statements.
(b) Reports on Form 8-K.
On June 12, 1996, the Company filed a Current Report on Form 8-K
reporting the merger of Southern Capital Corp., a Virginia corporation, into
Southern Capital Acquisition Corp., a Virginia corporation and wholly-owned
subsidiary of the Company.
-20-
<PAGE>
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.
FIRSTMARK CORP.
Date: September 30, 1996 By: /s/ James F. Vigue
--------------------
James F. Vigue
President, Chairman of the Board and
Chief Executive Officer
In accordance with Section 13 or 15(d) of the Exchange Act, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ James F. Vigue President, Chairman of the Board, September 30, 1996
- ---------------------------------------
James F. Vigue Chief Executive Officer and Director
(Principal Executive Officer)
./s/ Ivy L. Gilbert Chief Financial Officer, Corporate September 30, 1996
- ----------------------------------------
Ivy L. Gilbert Secretary, Treasurer and Director
(Principal Financial and Accounting
Officer)
Vice President of Trading and September 30, 1996
- ----------------------------------------
Robert A. Rice Director
/s/ H. William Coogan, Jr. Director September 30, 1996
- ----------------------------------------
H. William Coogan, Jr.
/s/ Donald V. Cruickshanks Director September 30, 1996
- ----------------------------------------
Donald V. Cruickshanks
/s/ Susan C. Coogan
- ---------------------------------------- Director September 30, 1996
Susan C. Coogan
- ---------------------------------------- Director September 30, 1996
R. Brian Ball
</TABLE>
Exhibit 4e
STOCK CERTIFICATE
Number Shares
FIRSTMARK CORP.
Incorporated under the laws of the State of Maine
SERIES B. PREFERRED STOCK
($.20 par value)
This certifies that ____________________ is the registered holder
of ____________________ Shares of Cumulative Nonconvertible
Nonvoting Preferred Stock, Series B
transferable only on the books of the Corporation by the holder hereof in person
or by Attorney upon surrender of this Certificate properly endorsed.
In Witness Whereof, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and its Corporate Seal to be hereunto
affixed this _____ day of __________ A.D. 19__.
/s/ James F. Vigue /s/ Ivy L. Gilbert
- ------------------ -------------------
James F. Vigue, President Ivy L. Gilbert, Secretary/Treasurer
[CORPORATE SEAL]
Exhibit 99a
FIRSTMARK CORP.
Consolidated Financial Statements for
the Years Ended June 30, 1996 and 1995
and Independent Auditors' Report
<PAGE>
FIRSTMARK CORP.
TABLE OF CONTENTS
Page
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS FOR THE YEARS ENDED
JUNE 30, 1996 AND 1995:
Consolidated Balance Sheets 2
Consolidated Statements of Earnings 3
Consolidated Statements of Stockholders' Equity 4
Consolidated Statements of Cash Flows 5-6
Notes to Consolidated Financial Statements 7-23
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Firstmark Corp.
We have audited the consolidated balance sheet of Firstmark Corp. and
subsidiaries as of June 30, 1996, and the related consolidated statements of
earnings, stockholders' equity, and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit. The financial statements of the Company for the year ended June 30,
1995 were audited by other auditors whose report, dated September 11, 1995,
expressed an unqualified opinion on those statements and included an explanatory
paragraph that described the issues involving the valuation of certain
investments discussed in Note 2 to the financial statements.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated 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 audit provides a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements present fairly, in all
material respects, the financial position of the Company at June 30, 1996, and
the results of its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles.
September 9, 1996
DELOITTE & TOUCHE LLP
Richmond, Virginia
<PAGE>
FIRSTMARK CORP.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND 1995
<TABLE>
<CAPTION>
ASSETS 1996 1995
<S> <C> <C>
Cash and cash equivalents $ 1,707,327 $ 1,622,016
Receivables:
Receivables - trade, net 1,065,469 190,986
Receivables - related parties 53,116 424,169
-------------- -------------
Total receivables 1,118,585 615,155
Notes receivables:
Notes receivables, net 219,743 268,134
Notes receivables - related parties 209,935 310,338
-------------- -------------
Total notes receivables 429,678 578,472
Income taxes receivables 436,910 -
Investments:
Marketable securities 3,742,382 1,242,101
Venture capital investments, net 2,026,176 1,574,789
Real estate and other investments 1,611,455 1,226,585
-------------- -------------
Total investments 7,380,013 4,043,475
Title plant 3,544,243 -
Property, plant and equipment, net 1,130,572 156,561
Excess of cost over fair value 1,111,777 114,384
Deferred tax asset 829,591 80,000
Other assets 263,361 118,050
-------------- -------------
TOTAL ASSETS $ 17,952,057 $ 7,328,113
============== =============
</TABLE>
See notes to consolidated financial statements.
- 2 -
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
LIABILITIES:
<S> <C> <C>
Accounts payable and other liabilities $ 422,120 $ 237,830
Borrowed funds 1,885,561 1,035,000
Reserve for title policy claims 944,754 -
Income taxes payable - 89,594
Deferred tax liability 931,817 -
----------- ----------
Total liabilities 4,184,252 1,362,424
----------- ----------
STOCKHOLDERS' EQUITY:
Preferred stock, Series A, $0.20 par value - authorized
250,000 shares; issued 57,000 and 60,000 shares,
respectively, (liquidation preference $2,280,000) 11,400 12,000
Preferred stock, Series B, $0.20 par value - authorized 188,000 shares;
issued 40,000 shares 8,000 -
Common stock, $0.20 par value - authorized 5,000,000
shares; issued 2,271,044 and 2,196,040 shares, respectively 454,209 439,209
Additional paid-in capital - preferred 10,904,889 2,283,789
Additional paid-in capital - common 3,393,992 3,106,201
Retained earnings (deficit) (234,852) 380,391
Treasury stock, at cost - 201,554 and 45,770 shares, respectively (818,773) (193,898)
Net unrealized gain (loss) on marketable equity securities held for sale 48,940 (62,003)
----------- ----------
Total stockholders' equity 13,767,805 5,965,689
----------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 17,952,057 $ 7,328,113
============== ==============
</TABLE>
<PAGE>
FIRST MARK CORP.
CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED JUNE 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
REVENUES:
<S> <C> <C>
Commissions and fees $ 1,729,389 $ 1,665,078
Title insurance 803,035 -
Investment gains 661,147 443,134
Interest and dividends 177,144 176,474
Other revenues 28,185 769,767
----------- -------------
Total revenues 3,398,900 3,054,453
------------- -------------
EXPENSES:
Employee compensation and benefits 1,950,887 1,225,135
Write-offs of loans and investments 1,249,347 -
General and administrative expenses 869,676 969,947
Interest expense 84,558 87,476
------------- -------------
Total expenses 4,154,468 2,282,558
------------- -------------
Earnings (losses) before income taxes (755,568) 771,895
Income tax (benefit) expense (281,925) 304,000
------------- -------------
Net earnings (loss) (473,643) 467,895
Preferred stock dividend 141,600 143,749
------------- -------------
Net earnings (loss) available for common shares $ (615,243) $ 324,146
============= =============
Earnings (loss) per share $ (0.287) $ 0.145
============= =============
Weighted number of shares and equivalents outstanding 2,147,006 2,231,530
============= =============
</TABLE>
See notes to consolidated financial statements.
- 3 -
<PAGE>
FIRSTMARK CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1996 AND 1995
<TABLE>
<CAPTION>
Additional Additional
Paid-In Preferred Preferred Paid-In
Common Capital Stock, Stock, Capital
Stock Common Series A Series B Preferred
<S> <C> <C> <C> <C> <C>
BALANCE, JULY 1, 1994 $ 439,209 $ 3,106,201 $ 10,250 $ -- $ 1,965,914
Treasury stock purchased -- -- -- -- --
Preferred stock sold -- -- 1,750 -- 317,875
Net earnings -- -- -- -- --
Preferred dividends paid -- -- -- -- --
Change in valuation of securities -- -- -- -- --
------------ ------------ ------------ ------------- ------------
BALANCE, JUNE 30, 1995 439,209 3,106,201 12,000 -- 2,283,789
Common stock issued 15,000 287,791 -- -- --
Preferred stock issued -- -- -- 8,000 8,742,000
Preferred dividends paid -- -- -- --
Preferred stock redeemed -- -- (600) -- (120,900)
Treasury stock purchased -- -- -- -- --
Net loss -- -- -- -- --
Change in valuation of securities
------------ ------------ ------------ ------------- ------------
BALANCE, JUNE 30, 1996 $ 454,209 $ 3,393,992 $ 11,400 $ 8,000 $ 10,904,889
============ ============ ============ ============= ============
</TABLE>
<TABLE>
<CAPTION>
Net
Unrealized
Loss on
Retained Marketable
Earnings Treasury Equity
(Deficit) Stock Securities
<S> <C> <C> <C>
BALANCE, JULY 1, 1994 $ 56,245 $ (26,172) $ (32,229)
Treasury stock purchased (167,726) --
Preferred stock sold -- -- --
Net earnings 467,895 -- --
Preferred dividends paid (143,749) -- --
Change in valuation of securities -- -- (29,774)
------------ ------------ ------------
BALANCE, JUNE 30, 1995 380,391 (193,898) (62,003)
Common stock issued -- -- --
Preferred stock issued -- -- --
Preferred dividends paid -- (141,600) --
Preferred stock redeemed -- -- --
Treasury stock purchased -- (624,875) --
Net loss (473,643) -- --
Change in valuation of securities 110,943
------------ ------------ ------------
BALANCE, JUNE 30, 1996 $ (234,852) $ (818,773) $ 48,940
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
- 4 -
<PAGE>
FIRSTMARK CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
OPERATING ACTIVITIES:
<S> <C> <C>
Net income(loss) $ (473,643) $ 467,895
Adjustments to reconcile net income
to net cash provided by operating activities:
Deferred income taxes (276,283) 96,000
Depreciation and amortization 85,659 66,768
Write-down of investments 1,271,569 -
Depletion of timberland - 445,687
Commissions paid in stock 33,743 -
Gain on sale of property (21,065) -
Gain on sale of investments (2,408) -
Loss realized on available-for-sale securities 12,952 -
Fee received in stock or property (145,550) (125,000)
Gain on spin off of Unitel (587,365) -
Issuance of stock for services 211,539 -
Net decrease in notes receivable 96,848 226,946
Net decrease in notes receivable from related parties 51,946 106,710
Net change in marketable trading securities 160,682 (899,903)
Changes in current assets and liabilities:
Decrease (increase) in:
Accounts receivable 96,150 (23,168)
Accrued interest receivable (30,468) -
Prepaid expenses and other current assets 6,088 (22,614)
Advances to related parties 371,053 (319,175)
Refundable income taxes (233,611) -
Increase (decrease) in:
Accounts payable (107,823) 126,643
Accrued expenses 7,477 (44,300)
Reserve for policy claims (27,078) -
Income taxes (89,594) (12,850)
------------- -------------
Net cash provided by operating activities 410,818 89,639
------------ ------------
</TABLE>
(Continued)
- 5 -
<PAGE>
FIRSTMARK CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
YEARS ENDED JUNE 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
INVESTING ACTIVITIES:
<S> <C> <C>
Acquisiton of business, net of cash acquired 1,012,322 -
Acquisition costs (28,998) -
Proceeds from sale of real estate (9,301) (144,217)
Increase in numismatic and stamp investments (50,701)
Additions to other investments (1,726,626) (440,481)
Securities held for investments - (195,531)
Proceeds from sale of property, plant and equipment (21,908) -
Purchase of property, plant and equipment (25,827) (8,104)
Proceeds from available-for-sale securities 1,104,494 -
Purchase of available-for-sale securities (250,019) -
------------- -------------
Net cash provided (used) by investing activities 54,137 (839,034)
-------------- --------------
FINANCING ACTIVITIES:
Issuance (purchase) of preferred stock (121,500) 825,875
Payments on other liabilities (41,003) (61,908)
Repayment of convertible notes - (112,500)
Proceeds from lease buy-back 158,084 -
Purchase of treasury stock (233,625) (167,726)
Preferred stock dividends (141,600) (143,749)
------------- -------------
Net cash provided (used) by
financing activities (379,644) 339,992
------------- -------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 85,311 (409,403)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 1,622,016 2,031,419
------------- -------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 1,707,327 $ 1,622,016
============= =============
</TABLE>
See notes to consolidated financial statements.
- 6 -
<PAGE>
FIRSTMARK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1996 AND 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations - Firstmark Corp. ("the Company") and it
subsidiaries, based in Waterville, Maine, are engaged in venture capital,
consulting services and title insurance. The Company invests its capital
in and provides bridge loans to emerging growth or start up companies, and
provides financial consulting services to individuals, institutions, and
corporations. The Company also issues title insurance policies through
branch offices and independent agencies in Mid-Atlantic states of the
United States. The majority of the Company's title insurance business is
concentrated in Virginia.
Management Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Principles of Consolidation - The consolidated financial statements
include the accounts of the Company, all wholly-owned and majority-owned
subsidiaries. Investments in companies in which ownership interest range
from 20 to 50 percent, and the Company exercises significant influence
over operating and financial policies, are accounted for using the equity
method. Other investments are accounted for using the cost method. All
significant intercompany accounts and transaction have been eliminated.
Debt and Equity Securities - All marketable securities held for trading or
available-for-sale are stated at market value at the balance sheet date,
and securities held to maturity are stated at cost. Securities are
classified as trading, held for sale, or held to maturity based on
management's intent at the time they are purchased. The excess of cost
over market for securities available for sale not considered to be
permanently impaired is shown as a valuation allowance in the equity
section of the balance sheet. Gains or losses realized upon sale,
unrealized gains or losses on trading securities, and write-down
necessitated by permanent impairment are reflected in income. The cost of
the securities sold is based on the specific identification of each
security held at the time of sale.
Real Estate and Timber Investments - Investment real estate is stated at
the lower of cost or estimated net realizable value. Sales of units of a
real estate development project are recorded when the buyer's down payment
is sufficient, collectibility of the receivable is reasonably assured, and
the Company has completed substantially all development related to the
property sold. Sales not meeting this criteria are recorded using the
installment method. Costs of individual units sold are determined by
allocating total costs based on the relative fair value of the units.
Timberland is stated at cost less depletion on harvested timber.
Other Investments - Numismatic and stamp investments are carried at the
lower of cost or market. Other investments are carried at cost, unless
evidence indicates a loss has been incurred, at which time the investments
are marked to their net realizable value.
- 7 -
<PAGE>
Property and Equipment - Property and equipment are stated at cost, less
accumulated depreciation. Depreciation is charged to expense over the
estimated useful lives of the assets and is computed using the
straight-line method for financial reporting purposes. Depreciation for
tax purposes is computed based upon accelerated methods. The costs of
major renewals or improvements are capitalized while the costs of ordinary
maintenance and repairs are charged to expense as incurred.
Intangible Assets - Goodwill represents the excess of purchase price over
net assets acquired, and is being amortized on a straight line basis over
15 to 20 years from the date of acquisition. Other intangible assets,
consisting mainly of deferred note offering costs are being amortized on
the straight line method over five years.
Other Real Estate Owned - Assets acquired in settlement of claims are
carried at estimated realizable value. Adjustments to reported estimated
realizable values and realized gains and losses on dispositions are
recorded as increases or decreases in income.
Reserve for Loan Losses - An allowance is maintained for losses on loans.
Loan losses, net of recoveries on loans previously charged off, are
charged to the allowance. The allowance for loan losses is based upon
management's periodic evaluation of the portfolio with consideration given
to the overall loss experience, delinquency data, financial condition of
the borrowers, and such other factors that, in management's judgment,
warrant recognition in providing an adequate allowance.
Effective July 1, 1995, the Company adopted the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 114, "Accounting by Creditors
for Impairment of a Loan," as amended by SFAS No. 118, which requires that
an impaired loan be measured based on the present value of expected future
cash flows discounted at the loan's effective interest rate or, as a
practical expedient, at the loan's observable market price or the fair
value of collateral if the loan is collateral dependent. A loan is
considered impaired when it is probable that a creditor will be unable to
collect all interest and principal payments as scheduled in the loan
agreement. The Company records interest receipts on impaired loans as
interest income only when the ultimate collectibility of the principal is
not in doubt. A valuation allowance is maintained to the extent that the
measure of the impaired loans is less than the recorded investment.
Revenue Recognition - Title insurance premiums are recognized as income
when policies are issued or liabilities are incurred under title
commitments, whichever occurs first. An allowance for credits is provided
for unearned premiums.
Commission Revenues and Expenses - The Company records commission revenues
and expenses on the sale of life insurance policies or annuities when the
sale is complete and the customer has accepted delivery of the product.
Brokerage commissions are recorded as customer security transactions are
completed. All customer transactions are executed through correspondent
brokers, National Financial Services Corporation, a subsidiary of Fidelity
Investments, and Cantella and Company, which carry and clear all customer
accounts on a fully-disclosed basis. The brokerage subsidiary is a member
of the National Association of Securities Dealers and the Securities
Investor Protection Corporation.
Reserve for Policy Claims - Liabilities for reported claims are based on
management's estimate of the ultimate loss. Reserves for losses incurred
but not reported (IBNR) are estimated based on the use of actuarial
methods. Such liabilities are reviewed and updated by management, and any
adjustments resulting therefrom are reflected in income currently. Actual
results could differ from these estimates.
- 8 -
<PAGE>
Reinsurance - In the normal course of business, the Company seeks to
reduce the loss that may arise from events that cause unfavorable
underwriting results by reinsuring certain levels of risk in various areas
of exposure with other insurance enterprises or reinsurers. Amounts
recoverable from reinsurers are estimated in a manner consistent with the
reinsured policy. Reinsurance is charged against title insurance premiums
for financial reporting purposes.
Escrow and Trust Deposits - As a service to its customers, the Company
administers escrow and trust deposits representing undisbursed amounts
received for settlements of mortgage loans and indemnities against
specific title risks. These funds are not considered assets of the Company
and therefore are excluded from the accompanying consolidated balance
sheet.
Income Taxes - The Company uses an asset and liability approach to
financial accounting and reporting for income taxes. Deferred income tax
assets and liabilities are computed annually for differences between the
consolidated financial statement and tax basis of assets and liabilities
that will result in taxable or deductible amounts in the future. The
taxable or deductible amounts are based on enacted tax laws and rates
applicable to the periods in which the differences are expected to affect
taxable income. Income tax expense is the tax payable or refundable for
the period plus or minus the change during the period in deferred tax
assets and liabilities.
Earnings Per Share - Earnings per share are computed by dividing net
earnings, after reduction for preferred stock dividends, by the weighted
average number of common shares and share equivalents assumed outstanding
during the year. Earnings per share are equivalent to fully diluted
earnings per share. Common share equivalents included in the computation
represent shares issuable upon assumed exercise of stock options and
warrants which would have a dilutive effect.
Impact of Recently Issued Accounting Standards - In March 1995, the
Financial Accounting Standards Board ("FASB") issued SFAS No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of." This Statement establishes accounting standards
for the impairment of long-lived assets, certain identifiable intangibles,
and goodwill related to those assets to be held and used and for
long-lived assets and certain identifiable intangibles to be disposed of.
This Statement requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. This Statement is effective for
financial statements for fiscal years beginning after December 15, 1995.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"). SFAS No. 123 establishes financial
accounting and reporting standards for stockbased employer compensation
plans. The financial accounting standards of SFAS No. 123 permit companies
to either continue accounting for stock-based compensation under existing
rules or adopt SFAS No. 123 and begin reflecting the fair value of stock
options and other forms of stock-based compensation in the results of
operations as additional expense. The disclosure requirements of SFAS No.
123 require companies which elect not to record the fair value in the
statement of operations to provide pro forma disclosures of net income and
earnings per share in the notes to the consolidated financial statements
as if the fair value of stock-based compensation had been recorded. The
disclosure requirements of SFAS No. 123 are effective for financial
statements for fiscal years beginning after December 15, 1995. The Company
will provide the pro forma disclosures beginning in 1996 and will continue
accounting for such plans under the existing accounting rules. The
implementation of this standard is not expected to have a significant
impact on the Company's financial statements.
- 9 -
<PAGE>
Statement of Cash Flows - The statement of cash flows is presented using
the indirect method which reconciles net income to net cash flows from
operating activities. The Company's definition of cash and cash
equivalents includes short-term, highly-liquid investments with maturities
of three months or less at date of purchase.
Reclassification - Certain reclassifications have been made to the
accompanying statements to permit comparison. In particular, the cash
flows statements have been modified to present real estate (except for
timberland), investment securities, and other investments as investment
activities.
2. ACQUISITIONS
Southern Capital Corp. - In June of 1996, Southern Capital Corp. ("SCC"),
a Virginia corporation, was merged into Southern Capital Acquisition
Corporation ("Southern Capital"), which was acquired by the Company. As
part of the acquisition, the shareholders of SCC received 40,000 shares
of the Company's Series B, cumulative, non-voting preferred stock, par
value $.20 per share. The preferred stock is not convertible by the
holders prior to June 30, 1998, but may be converted by the Company into
not less than 2,000,000 shares of the Company's common stock, subject
to adjustment if the price of the Company's stock is less than $4.00 per
share at the time of conversion. If not converted by the Company sooner,
the preferred stock begins accruing dividends after January 1, 1997
and is redeemable at the option of the holders at a price of $200 per
share after June 30, 1998. As long as any of the Series B preferred
stock is outstanding, the Company must set aside as a sinking fund for
redemption of the preferred stock, on or before April 1 of each year,
commencing April 1, 1997, the sum of $1.0 million.
The acquisition has been accounted for using the purchase method of
accounting whereby the purchase cost was allocated to the fair value of
assets acquired and liabilities assumed based on valuations and other
studies performed as of the date of the acquisition. Accordingly, the
operating results of the acquired companies have been included in
consolidated operating results since the date of the acquisition. Combined
goodwill resulting from the acquisition amounted to $992,928 and is being
amortized over 20 years on a straight-line basis.
The following unaudited pro forma information has been prepared assuming
that the acquisition had taken place at the beginning of the respective
periods. The pro forma information includes adjustments for the
amortization of intangibles arising from the transaction and certain other
adjustments for the adequacy of intangibles arising from the transactions
and certain related income tax effects together with related income tax
effects. The pro forma financial information does not purport to be
indicative of what would have occurred had the acquisition been effected
on the assumed dates.
1996 1995
Revenues $ 12,220,000 $ 11,544,546
Net Loss $ (734,000) $ (142,252)
Net Loss Per Common Share $( .17) $( .06)
Prime Securities - In May 1994, the Company issued common stock valued at
$100,750 in exchange for the property and equipment and $10,000 in cash of
Prime Securities, a Portland, Maine brokerage firm. The excess of the
purchase price over fair value of assets acquired, $29,048, was accounted
for as goodwill and is being amortized over 15 years on a straight-line
basis.
- 10 -
<PAGE>
Other - In October 1994, the Company purchased the right to service the
clients of a former sales representative for a percentage of the
commissions estimated to be generated. The purchase was recorded at
$100,000, which is being paid as commissions are earned.
3. INVESTMENTS
The following is a summary of the Company's investments at June 30, 1996
and 1995:
<TABLE>
<CAPTION>
1996 1995
Marketable Securities:
<S> <C> <C>
Trading $ 386,470 $ 932,153
Available-for-Sale:
Common Stocks 1,179,376 309,948
Preferred Stocks 176,000 -
Held to Maturity:
Bonds and Notes 2,000,536 -
------------- --------------
Total Marketable Securities 3,742,382 1,242,101
------------- --------------
Venture Capital Investments:
Loans 534,182 50,000
Loan Participations 288,403 200,000
Common Stocks 682,800 1,324,789
Preferred Stocks 225,000 -
Warrants 106,750 -
Limited Partnerships 189,041 -
------------- --------------
Total Venture Capital Investments 2,026,176 1,574,789
------------- --------------
Real Estate Investments:
Real estate owned 1,142,591 772,345
Other real estate investments 408,954 394,330
------------- --------------
Total Real Estate Investments 1,551,545 1,166,675
------------- --------------
Other investments:
Numismatic and Stamp Investments 57,701 57,701
Art Pieces 2,209 2,209
------------- -------------
Total Other Investments 59,910 59,910
------------- --------------
Total Real Estate and Other Investments 1,611,455 1,226,585
------------- --------------
Total Investments $ 7,380,013 $ 4,043,475
============= ==============
</TABLE>
- 11 -
<PAGE>
Marketable Securities
In 1995, the Company implemented SFAS No. 115 on accounting for
investments in debt and equity securities. Accordingly, all investments in
securities held for trading and available-for-sale are carried at market,
and securities held to maturity are carried at amortized cost. Previously,
securities were carried at the lower of cost or market, except for the
securities of the brokerage subsidiary, which were carried at market. The
effect of the change was to increase 1995 income before income taxes by
$176,063, the amount of unrealized gains at the parent company on trading
securities held at June 30, 1995.
Following is a summary of gains and losses on marketable securities:
<TABLE>
<CAPTION>
1996 1995
Securities for Trading:
<S> <C> <C>
Gains (losses) on sales $ (46,277) $ 244,473
Unrealized gains (losses) 34,766 187,100
----------- -----------
Total trading gains (losses) (11,511) 431,573
Securities Available for Sale:
Gains (losses) on sales 23,950 11,561
----------- -----------
Total gains on securities $ 12,439 $ 443,134
=========== ===========
</TABLE>
Securities held to maturity and available for sale are as follows:
<TABLE>
<CAPTION>
1996
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
Held to Maturity:
<S> <C> <C> <C> <C>
Bonds and Notes $ 2,000,536 $ - $ 7,012 $ 1,993,524
Available for Sale:
Common stocks 1,093,463 434,653 348,740 1,179,376
Preferred stocks 176,666 2,162 2,828 176,000
-------------- ---------- ----------- -------------
Total $ 3,270,665 $ 436,815 $ 358,580 $ 3,348,900
============== ========== =========== =============
1995
Available for Sale:
Common stocks $ 401,951 $ 16,800 $ 108,803 $ 309,948
</TABLE>
There were no investments classified as held to maturity and no available
for sale preferred stock at June 30, 1995.
- 12 -
<PAGE>
Proceeds from sales of investments available for sale were $227,689 and
$62,912 in 1996 and 1995, respectively. Gross gains of $26,271 and $4,561
were realized on sales in 1996 and 1995, respectively. Gross losses of
$4,730 were realized in 1996, no gross losses were realized in 1995.
The contractual maturities of bonds and notes as of June 30, 1996 are as
follows:
Amortized Market
Cost Value
Due in 1 year or less $ 357,035 $ 356,772
Due after 1 year through 5 years 1,042,346 1,040,084
Due after 5 years through 10 years 601,155 596,668
------------- --------------
$ 2,000,536 $ 1,993,524
============= ==============
Venture Capital Investments
The $681,569 investment in a television marketing company at December 31,
1995, included stock valued at $125,000 received for consulting services
provided by the Company. In addition to this investment, a limited
partnership in which the Company is a general partner has invested
$360,000 in the marketing company. The marketing company has transferred
certain of its operations to a new company, which is currently being
capitalized. The Company has received shares of stock in the newly formed
company. Due to the uncertainty surrounding the newly formed company and
the inability to determine the recoverability of the investment, the
Company has written off the entire investment at June 30, 1996.
Additionally, during fiscal year 1996, the Company provided loans and
venture capital to several start up companies. Due to the uncertainty of
the ability of these companies to become operational and the inability to
determine the recoverability of the investments, the Company has written
down these investments at June 30, 1996. Total write-downs of these
investments in the fourth quarter of 1996 were $1,249,347. There were no
write-downs in fiscal year ended 1995. Included in the write-down amounts
is a $450,000 addition to a reserve for loan loss. There were no amounts
in the reserve at June 30, 1995.
The Company owned a 21% interest in Unity Telephone Company, which had two
wholly-owned subsidiaries: Unitel for its telephone operations and Unicel
for its cellular operations. In January 1994, Unity Telephone was merged
into InterCel. Prior to the merger, Unity Telephone spun off Unitel to its
stockholders in a taxable transaction. The Company received Unitel stock
with an appraised value of $642,720, of which $165,568 was estimated to be
an ordinary dividend distribution and $477,152 was estimated to be a
return of capital distribution. In addition, Firstmark received $367,071
in a cash distribution paid by InterCel to offset the Company's income
taxes payable to the transaction. The cash distribution was also
considered to be a return of capital dividend to the recipients.
- 13 -
<PAGE>
Receipt of the InterCel shares in the merger were not recorded because of
an outstanding option on the Company's Unity holdings. The Unitel
investment was accounted for on the cost method because the Company does
not exert significant influence over the operations of Unitel. On July 21,
1995, the Company and the option holder reached an agreement in which
Firstmark will transfer its Unitel stock and a majority of the InterCel
shares received in exchange for cash and Firstmark stock owned by the
option holder. The Company retained 57,236 shares of InterCel stock and
will also retain up to 29,614 shares of InterCel stock that may be
released from an acquisitions escrow account in March 1997. The Company
reported a gain of $648,708 as a result of the agreement in July 1995 and
will report an additional gain in March 1997 when the escrow distribution
occurs.
Real Estate Investments
Real estate investments include seasonal cottages, lots that are located
on or near Maine lakes, a residential lot in Maine, and ocean side lots in
Nova Scotia. These properties are being marketed or developed for
marketing. Timberland consists of one tract of timber that was fully
harvested at June 30, 1995. In addition, the Company has three subdivided
lots of approximately two acres each and approximately 84 acres of raw
land in Clarke County, Virginia and a single family housing unit in
Everett, Washington.
The Cumberland Ledges investment is a 67% interest in Cumberland Ledges, a
joint venture owning an undeveloped parcel of commercial real estate in
Cumberland, Maine. The Falmouth Hills investment is a 50% general
partnership interest in Falmouth Hills Limited Partnership, which owns
approximately 200 acres of raw residential land in Falmouth, Maine.
The Company periodically reevaluates its real estate investments and
adjusts their values in conjunction with a plan to market them more
aggressively. Total adjustments during 1996 amounted to $20,000 and are
included in cost of real estate revenues. No adjustments were recorded in
1995.
4. NOTES RECEIVABLES
The Company provides financing on certain real estate sales after making
an appropriate determination of the creditworthiness of the buyer.
Property sold is utilized as collateral and would be repossessed and
resold by the Company in the event of default. In addition, the Company
makes certain business and accommodation loans to its customers and
others. These loans are secured by real estate, insurance policies, and
other assets of the borrower to the extent deemed necessary by the
Company. Most of the Company's loans are due from customers residing in
Maine.
Following is a summary of notes receivable:
1996 1995
Real estate mortgage loans $ 86,183 $ 86,889
Business loans 178,560 211,245
------------ ------------
264,743 298,134
Less reserve for loan losses (45,000) (30,000)
------------ ------------
$ 219,743 $ 268,134
============ ============
- 14 -
<PAGE>
The following is a summary of activity in the reserve for losses on notes
receivable:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Balance, beginning $ 30,000 $ 130,000
Additions to reserve charged to expense 15,000 22,296
Loans charged off - (122,296)
------------ ------------
Balance, ending $ 45,000 $ 30,000
============ ============
</TABLE>
5. PROPERTY AND EQUIPMENT
Following is a summary of property, plant and equipment owned:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Land and land improvements $ 195,339 $ 126,839
Building 360,950 -
Furniture, fixtures, and equipment 1,634,661 180,778
Leasehold improvements 165,088 -
Property under capital lease 158,083 -
Automobiles 12,994 -
------------- -----------
2,527,115 307,617
Less accumulated depreciation 1,396,543 151,056
------------- -----------
Total property, plant and equipment $ 1,130,572 $ 156,561
============= ===========
</TABLE>
Depreciation and amortization charged to operations was $42,220 and
$29,707 for the years ended June 30, 1996 and 1995, respectively.
6. BORROWINGS
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
The convertible notes payable are due April 1, 1997 and carry
interest at 8%. The notes are convertible into common stock of
the Company at $5.00 per share. In addition, the Company has the
right to call the notes
at par value plus a 5% call premium. $ 1,035,000 $ 1,035,000
Equity Line of Credit (assumed as part of movement of an employee)
secured by a second deed of trust on a single family residential
housing unit in Everett, Washington, monthly principal and
interest payments
(interest at prime plus 3%) 16,877 -
</TABLE>
- 15 -
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Mortgage loan (assumed as part of movement of an employee) secured by
a first deed of trust on a single family residential housing unit
in Everett, Washington, monthly principal and interest payments
(interest at 6.1%) final payment due
December 2022 175,601 -
BankLine of Credit, unsecured, interest only payments, balance due
April 1997 (interest at the 30 Day LIBOR
Rate plus 2% as of the first business day of each month) 400,000 -
Advance from shareholder, unsecured, interest only
payments, balance due January 1997 (interest at
prime plus 1%) 100,000 -
Capital lease obligation 158,083 -
------------- --------------
Total Borrowings $ 1,885,561 $ 1,035,000
============= ==============
</TABLE>
In June, the Company entered into lease agreements for certain office
equipment which, in accordance with generally accepted accounting
principles, has been accounted for as a capital lease. As a result, the
present value of future minimum lease payments under these leases has been
recorded as property under capital leases, in the amount of $158,083. The
corresponding liabilities have been recorded as obligations under capital
leases.
The future minimum lease payments under the capital leases as of June 30,
1996 are as follows:
1997 $ 61,236
1998 61,236
1999 61,236
-----------
Total lease payments 183,708
Less: Amount representing interest 25,625
Present value of future minimum lease payments $ 158,083
=================
- 16 -
<PAGE>
7. INCOME TAXES
Income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
Current Deferred Total
<S> <C> <C> <C>
1996
Federal $ (5,589) $ (247,200) $ (252,789)
State (53) (29,083) (29,136)
----------- ------------ ------------
$ (5,642) $ (276,283) $ (281,925)
=========== ============ ============
1995
Federal $ 166,000 $ 72,000 $ 238,000
State 42,000 24,000 66,000
----------- ------------ ------------
$ 208,000 $ 96,000 $ 304,000
=========== ============ ============
</TABLE>
The actual tax expense differs form the expected tax (computed at the U.S.
federal corporate tax rate of 34.0% applied to earnings before income
taxes) for the following reasons:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Expected tax expense (benefit) $ (256,893) $ 262,444
State income taxes, net of federal taxes (30,233) 43,560
Nondeductible goodwill amortization 1,765
Dividend deduction for corporations (3,487)
Other 5,201 (282)
------------ -----------
$ (281,925) $ 304,000
============ ===========
</TABLE>
The tax effects of each type of significant items that give rise to
deferred taxes are:
<TABLE>
<CAPTION>
1996 1995
Deferred Tax Asset:
<S> <C> <C>
Allowance for loan losses $ 240,324 $ 10,000
Unrealized loss on investments - 72,000
IBNR reserve 221,288 -
Net unrealized loss on real estate 106,588 -
NOL carry forward 225,602 -
Other 35,789 (2,000)
------------ ----------
Deferred tax asset 829,591 80,000
------------ ----------
</TABLE>
- 17 -
<PAGE>
<TABLE>
<CAPTION>
1996 1995
Deferred Tax Liability:
<S> <C> <C>
Net unrealized gain on securities available for sale 35,874 -
Premium reserve 684,244 -
Purchase accounting adjustments 136,243 -
Depreciation 58,020 -
Other 17,436 -
------------ ----------
Deferred tax liability 931,817 -
------------ ----------
Net Deferred Tax Asset (Liability) $ (102,226) $ 80,000
============ ==========
</TABLE>
At June 30, 1996, the Company has net operating loss carryforwards
totaling $663,532 related to the acquisition of Southern Capital which
will be utilized by that subsidiary, subject to certain tax law
limitations. The Company expects to utilize these carryforwards prior to
their expiration dates and, accordingly, has recorded a deferred tax asset
of $225,600.
8. RELATED PARTY TRANSACTIONS
Related party balances include receivables and advances from related
parties arising in the normal course of business. Interest at the current
rate is charged on notes, and no interest is charged on advances. Notes
receivable are substantially secured by real estate mortgages.
<TABLE>
<CAPTION>
1996 1995
Interest bearing notes:
<S> <C> <C>
Officers $ 25,000 $ -
Employees and independent agents 97,123 100,145
Others 87,812 210,193
----------- -----------
$ 209,935 $ 310,338
=========== ===========
Advances to related parties:
Limited partnerships in operation $ 50,505 $ -
Limited partnerships being formed - 361,504
Other advances to employees and officers 2,611 62,665
----------- -----------
$ 53,116 $ 424,169
=========== ===========
Advances from related parties:
Advance from shareholder $ 100,000 $ -
=========== ===========
</TABLE>
The Company is the general partner in Firstmark Vacationland Partners, a
limited partnership that purchases, develops, and sells vacation property.
Noninterest bearing advances to Vacationland amounted to $1,000 at June
30, 1996.
- 18 -
<PAGE>
The Company is the general partner in Venture One Limited Partnership, a
venture capital fund formed in 1995. The Company received management fees
from the partnership in the amount of $26,700 in 1996. As of June 30, 1996
and 1995, the Company had advances outstanding of $28,625 and $361,000,
respectively.
The Company is also the general partner in Equity First Limited
Partnership, an equity fund formed in 1995. The Company received
management fees from the partnership in the amount of $26,250 in 1996. As
of June 30, 1996, the Company had advances outstanding of $20,880.
9. STOCK OPTIONS
The Board of Directors has previously approved a stock option plan,
however, the plan has not been approved by the shareholders as required by
Maine law.
Under its stock option plan, options to purchase shares of the Company's
common stock are granted at a price equal to the market price of the stock
at the date of grant. Options may be exercised generally over a five year
period.
Following is a summary of transactions:
1996 1995
Outstanding, beginning of year 304,888 209,888
Granted during the year 15,000 95,000
----------- -----------
Outstanding, end of year 319,888 304,888
=========== ===========
All of the options outstanding are eligible for exercise currently at
prices ranging from $3.125 to $4.50 per share, if the plan is approved
by the shareholders and the issuance of such options is ratified by the
shareholders.
10. CASH FLOW INFORMATION
The Company had the following noncash investment and financing
transactions:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Stock issued for business acquisition $ 8,750,000 $ -
Stock issued for services 211,539 -
Stock received as investment in exchange
for consulting services 145,550 125,000
Purchase of client list for note - 100,000
Commissions paid in securities 33,743 -
Cash paid for interest and income taxes was as follows:
Interest $ 85,000 $ 87,000
=========== ===========
Income taxes $ 282,000 $ 220,850
=========== ===========
</TABLE>
- 19 -
<PAGE>
11. PREFERRED STOCK - SERIES A
At June 30, 1996, the Company had 57,000 shares of Series A Preferred
Stock outstanding. Each Series A share was issued with ten attached
warrants which allow for the purchase of common stock at $6.00 per share
within three years. The stock pays dividends at a 6% rate ($2.40 per
share) and is convertible into ten shares of common stock at $4.00 per
share.
12. COMMITMENTS
The Company leases the majority of its offices and certain equipment under
noncancellable operating lease agreements. In addition the Company leases
its administrative offices in Waterville, Maine from a company controlled
by corporate officers and key people affiliated with the Company. The
facility is rented under a noncancelable operating lease expiring in 2003.
The lease calls for rent at $3,665 per month, of which a portion is
subleased. In addition, the Company rents its Portland, Maine office space
for $2,300 per month under a month to month operating lease from an
officer of the Company. Future minimum lease payments under these lease
agreements are as follows as of June 30, 1996:
1997 $ 367,913
1998 329,992
1999 114,459
2000 112,773
2001 115,882
Thereafter 214,740
-------------
Total future minimum lease payments $ 1,255,759
=============
Total rental expense under noncancellable operating leases approximated
$107,000 for 1996 and $67,000 for 1995.
13. RETIREMENT PLAN
The Company has 401(k) profit sharing plans (the "Plans") covering
employees who meet the participation requirements outlined in the Plans.
The Company's contribution aggregated $8,608 and $1,163 for the years
ended June 30, 1996 and 1995, respectively. Contributions to the Plans are
made based on a matching percentage of employee contributions as
designated in the Plans.
14. REGULATORY REQUIREMENTS
The Company's title insurance subsidiary, Southern Title Insurance Corp
("Southern"), is subject to certain minimum levels of capital and surplus
as required by statutes of the states in which it is authorized to do
business. Southern is also subject to regulations under which the payment
of certain dividends requires the prior approval of applicable insurance
regulatory authorities. At June 30, 1996, Southern exceeded all minimum
statutory capital requirements.
At June 30, 1996, investments and certificates of deposits with a book
value of $908,654 were either on deposit with various regulatory
authorities or held by Southern in accordance with statutory requirements
for the protection of its policyholders.
- 20 -
<PAGE>
15. LIABILITY FOR UNPAID CLAIMS AND CLAIMS ADJUSTMENT EXPENSES
Activity in the liability for unpaid known claims and claim adjustment
expense is summarized as follows:
Acquired balance at June 7, 1996 $ 971,832
Less reinsurance recoverables 20,205
-----------
Net acquired balance at June 7, 1996 951,627
Incurred related to:
Current year 13,585
Prior years -
-----------
Total incurred 13,585
-----------
Paid net of recoveries related to:
Current year 3,320
Prior years 37,343
-----------
Total paid 40,663
-----------
Net balance at June 30, 1996 924,549
Plus reinsurance recoverables 20,205
-----------
Balance at June 30, 1996 $ 944,754
===========
As a result of changes in estimates of insured events in prior years, the
provision for claims and claim adjustment expense decreased by $22,222 in
1996.
State insurance regulations require an insurer to obtain reinsurance to
limit the primary insurer's coverage. The Company has elected reinsurance
limits lower than the State requirements. Although the ceding of insurance
does not discharge an insurer from its primary liability to an insured,
the reinsuring company assumes the related liability and, accordingly, the
ceding company's liabilities do not include amounts for reinsured
exposure. Reinsurance expected to be recovered on claims filed was $20,205
as of June 30, 1996 .
16. DISCLOSURES CONCERNING THE FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS No. 107,
"Disclosures about Fair Value of Financial Instruments." The estimated
fair value amounts have been determined based on available market
information and appropriate valuation methodologies. However, considerable
judgment is required to interpret market data to develop the estimates of
fair value. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts the Company could realize in a
current market exchange. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair
value amounts.
- 21 -
<PAGE>
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to
estimate that value:
Cash and Short-Term Investments - The nature of these instruments and
their relatively short maturities provides for the reporting of fair value
equal to the historical cost.
Accounts and Accounts Payable - The nature of these instruments and their
relatively short maturities provides for the reporting of fair value equal
to the historical cost.
Investment Securities - The fair value of investment securities is based
on quoted market prices. The fair value of the Company's investment
securities is disclosed in Note 3 of these financial statements.
Venture Capital Investments - The fair values of some of the venture
capital investments are estimated primarily on the most recent rounds of
financing and securities transactions and to a lesser extent, on other
pertinent information, including financial condition and operations. For
other investments for which there are no quoted market prices, a
reasonable estimate of fair value could not be made without incurring
excessive costs. The investments are carried at the lower of cost or
estimated net realizable value.
Real Estate and Other Investments - The carrying amount is a reasonable
estimate of the fair value.
Notes Receivable - The fair value of the Company's notes receivable is
estimated based on the current rates offered for similar issuances.
Convertible Notes Payable and Other Borrowings - The fair value of the
Company's convertible notes payable and other borrowings is estimated
based on the current rates available to the Company for debt of similar
terms and remaining maturities. At June 30, 1996, fair value approximates
carrying value.
The estimated fair values of the Company's financial instruments are as
follows:
<TABLE>
<CAPTION>
1996
Carrying Fair
Amount Value
<S> <C> <C>
Venture Capital investments for which it is:
Practicable to estimate fair value $ 1,850,676 $ 2,360,675
Not practicable 235,411 -
Notes receivable 429,678 392,420
------------- -------------
$ 2,515,765 $ 2,753,095
============= =============
</TABLE>
- 22 -
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 1707327
<SECURITIES> 3742382
<RECEIVABLES> 1480212
<ALLOWANCES> 195000
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 2527115
<DEPRECIATION> 1396543
<TOTAL-ASSETS> 17952057
<CURRENT-LIABILITIES> 0
<BONDS> 1885561
0
19400
<COMMON> 454209
<OTHER-SE> 11408635
<TOTAL-LIABILITY-AND-EQUITY> 17952057
<SALES> 0
<TOTAL-REVENUES> 3398900
<CGS> 0
<TOTAL-COSTS> 2820563
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1249347
<INTEREST-EXPENSE> 84558
<INCOME-PRETAX> (755568)
<INCOME-TAX> (281925)
<INCOME-CONTINUING> (473643)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (473643)
<EPS-PRIMARY> (.287)
<EPS-DILUTED> 0
</TABLE>
