10QSB
10QSB filed by Firstmark Corp.
FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 1997
Commission File Number: 0-20806
FIRSTMARK CORP.
(Exact name of registrant as specified in its charter)
Maine 01-0389195
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
222 Kennedy Memorial Drive, Waterville, ME 04901
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (207) 873-6392
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes X No .
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at June 30, 1997
- --------------------------------------------------------------------------------
Common stock, $.20 par value 2,069,590
<PAGE>
FIRSTMARK CORP. AND SUBSIDIARIES
INDEX
Page No.
Part I Financial Information
Condensed Consolidated Balance Sheets -
June 30, 1997 and December 31, 1996 3
Condensed Consolidated Statements of Operations -
Six Months Ended June 30, 1997 and 1996 and
Three Months Ended June 30, 1997 and 1996 4
Condensed Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1997 and 1996 5
Notes to Condensed Consolidated Financial Statements 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Part II Other Information
Item 1. Legal Proceedings 9
Item 2. Changes in Securities 9
Item 3. Defaults upon Senior Securities 9
Item 4. Submission of Matters to a Vote of Security
Holders 9
Item 5. Other Information 9
Item 6. Exhibits and Reports on Form 8-K 9
-2-
<PAGE>
PART I - FINANCIAL INFORMATION
FIRSTMARK CORP. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
ASSETS
June 30, 1997 December 31,
(Unaudited) 1996 *
----------- ------------
<S> <C> <C>
Cash and cash equivalents $ 1,364,249 $ 1,832,681
Accounts and notes receivables - trade, net 1,340,632 1,063,926
Accounts and notes receivables - related parties 215,188 210,413
Income taxes receivable 163,683 330,372
Marketable securities:
Trading 58,915 125,750
Held for sale 1,204,516 900,666
Held to maturity 1,685,753 1,867,343
Venture capital investments, net 1,694,465 1,836,540
Real estate and other investments 1,068,592 1,624,121
Title plant 3,563,008 3,544,243
Property, plant and equipment, net 900,910 1,005,806
Excess of cost over fair value 970,497 1,013,696
Deferred tax asset 1,540,808 1,468,518
Other assets 189,280 246,320
----------- -----------
$15,960,496 $17,070,395
=========== ===========
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Liabilities:
<S> <C> <C>
Accounts payable and other liabilities $ 394,994 $ 571,383
Borrowed funds 1,235,972 1,749,435
Reserve for title policy claims 892,460 972,703
Deferred tax liability 1,141,222 1,127,659
----------- -----------
Total Liabilities 3,664,648 4,421,180
----------- -----------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
MANDATORILY REDEEMABLE PREFERRED STOCK
Series B, $0.20 par value - authorized
188,000 shares; issued 40,000 shares
(liquidation preference $8,000,000) 8,750,000 8,750,000
----------- -----------
Stockholders' Equity:
Preferred stock, Series A, $0.20 par value
authorized 250,000 shares; issued 57,000
shares (liquidation preference $2,280,000) 11,400 11,400
Common stock, $0.20 par value - authorized
5,000,000 shares; issued 2,271,144 454,229 454,229
Additional paid-in capital - preferred 2,162,889 2,162,889
Additional paid-in capital - common 3,394,388 3,394,388
Retained earnings (deficit) (1,609,414) (1,143,812)
Treasury stock, at cost - 201,554 shares (818,773) (818,773)
Net unrealized gain (loss) on marketable
equity securities available for sale, net of taxes (48,871) (161,106)
----------- -----------
Total Stockholders' Equity 3,545,848 3,899,215
----------- -----------
$15,960,496 $17,070,395
=========== ===========
</TABLE>
*Condensed from audited financial statements
The accompanying notes are an integral part of these condensed financial
statements.
-3-
<PAGE>
FIRSTMARK CORP. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Six Months Three Months
Ended June 30 Ended June 30
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues
Title insurance $ 4,701,623 $ 803,035 $ 2,555,895 $ 803,035
Commission and fees 5,261 767,975 0 171,729
Investment gains (losses) 248,561 (55,604) 387,034 (94,470)
Interest and dividends 221,956 98,567 56,748 67,870
Other revenues 98,329 24,614 59,143 21,794
----------- ----------- ----------- -----------
Total revenues 5,275,730 1,638,587 3,058,820 969,958
----------- ----------- ----------- -----------
Expenses
Employee compensation and benefits 2,209,214 804,994 1,117,583 766,112
Commissions and fee expense 1,636,937 667,782 891,833 454,960
Write-offs of investments 100,000 1,099,347 0 1,099,347
General and administrative expenses 1,739,884 397,375 960,591 184,456
----------- ----------- ----------- -----------
Total expenses 5,686,035 2,969,498 2,970,007 2,504,875
----------- ----------- ----------- -----------
Earnings (losses) before income taxes (410,305) (1,330,911) 88,813 (1,534,917)
Income tax (benefit) expense (139,504) (500,525) 30,144 (573,480)
----------- ----------- ----------- -----------
Net earnings (loss) (270,801) (830,386) 58,669 (961,437)
Preferred stock dividends 194,800 70,800 160,600 35,400
----------- ----------- ----------- -----------
Net earnings (loss) applicable to
common shares $ (465,601) $ (901,186) $ (101,931) $ (996,837)
=========== =========== =========== ===========
Earnings (loss) per common share $ (.22) $ (.43) $ (.05) $ (.48)
=========== =========== =========== ===========
Weighted-average number of shares
outstanding 2,069,590 2,082,483 2,069,590 2,074,191
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
-4-
<PAGE>
FIRSTMARK CORP. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30
1997 1996
---- ----
<S> <C> <C>
Cash flows from Operating Activities
Net earnings (loss) $ (270,801) $ (830,386)
Adjustments to reconcile net income
to net cash provided by operating
activities:
Gain on receipt of Intercel shares (381,124)
Depreciation and amortization 115,382 51,395
Write-down of investments 100,000 1,099,347
Collection of income taxes receivable 303,385 0
Marketable securities - trading account (66,835) (47,149)
Changes in assets and liabilities (171,788) (685,372)
----------- -----------
Net cash used by operating activities (371,781) (412,165)
----------- -----------
Cash flows from Investing Activities
Acquisition of business, net of cash acquired 1,012,322
Acquisition costs (28,998)
Decrease (increase) in real estate 504,828 13,258
Decrease in notes receivable 36,925
Additions to other investments (1,691,277)
Securities held for sale 99,116 1,197,627
Purchase of property and equipment (29,257) (32,501)
----------- -----------
Net cash provided by investing activities 611,612 470,431
----------- -----------
Cash flows from Financing Activities
Purchase of preferred stock 0 (81,000)
Purchase of treasury stock 0 (78,718)
Preferred stock dividends (194,800) (70,800)
Proceeds from borrowings 150,000 158,084
Repayments of borrowed funds (663,463) (41,003)
----------- -----------
Net cash used by financing activities (708,263) (113,437)
----------- -----------
Net change in cash and cash equivalents (468,432) (55,171)
Cash and cash equivalents, beginning of period 1,832,681 1,762,498
----------- -----------
Cash and cash equivalents, end of period $ 1,364,249 $ 1,707,327
=========== ===========
Cash payments for:
Interest $ 59,305 $ 40,970
=========== ===========
Income taxes $ 0 $ 119,113
=========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
-5-
<PAGE>
PART I - FINANCIAL INFORMATION
FIRSTMARK CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
BASIS OF PRESENTATION
1. The accompanying unaudited consolidated financial statements, which are for
interim periods, do not include all disclosures provided in the annual
consolidated financial statements. These unaudited consolidated financial
statements should be read in conjunction with the consolidated financial
statements and the footnotes thereto contained in the Annual Report on Form
10-KSB for the transition period from July 1, 1996 to December 31, 1996 of
Firstmark Corp. (the "Company"), as filed with the Securities and Exchange
Commission. The December 31, 1996 balance sheet was derived from the
audited consolidated financial statements, but does not include all
disclosures required by generally accepted accounting principles.
2. In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments (which are of a normal
recurring nature) necessary for a fair presentation of the financial
statements. The results of operations for the six months ended June 30,
1997 are not necessarily indicative of the results to be expected for the
full year.
3. Earnings (Loss) Per Share
Earnings (loss) per share are computed by dividing net earnings (loss),
after reduction for preferred stock dividends, by the weighted average
number of common shares and share equivalents assumed outstanding during
the period. Earnings (loss) per share is equivalent to fully diluted
earnings per share.
-6-
<PAGE>
FIRSTMARK CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations
The Company is engaged in title insurance and makes real estate and venture
capital investments. In June 1996, Southern Capital Corp. was merged into
Southern Capital Acquisition Corporation which was acquired by The Company.
Southern Capital Corp. was engaged in venture capital investments and owned
Southern Title Insurance Corporation, a title insurance underwriter. The
Company's results of operations for the six months ended June 30, 1997 include
the results of Southern Capital Corp. while the results of operations for the
six months ended June 30, 1996 include the results of Southern Capital Corp.
only for the period from June 7, 1996.
RESULTS OF OPERATIONS:
Six Months ended June 30, 1997 Compared to
the Six Months ended June 30, 1996
Total revenue during the six months ended June 30, 1997 was approximately
$5,276,000, an increase of approximately $3,637,000, compared to total revenue
of $1,639,000 during the comparable six-month period of the prior year. The
increase is attributable to the inclusion of the title insurance revenues of
$4,702,000 in the current six-month period as compared to $803,000 in the
comparable period of the prior year. Title insurance revenues are expected to
continue to be the largest source of revenues in the future. Revenues from
commissions and fees decreased approximately $763,000 during the current
six-month period primarily due to Management's decision to close certain
business operations, which were not considered profitable, in the latter part of
1996 and to transfer several subsidiaries to the former chief financial officer
in January 1997 (see "Part I - Recent Developments" of the Company's Form 10-KSB
filed May 5, 1997). Interest and dividends revenue increased approximately
$123,000 to $222,000 for the six-month period ended June 30, 1997 as compared to
$99,000 for the comparable period of the prior year. This again was a result of
the inclusion of the title insurance operations and consists primarily of the
interest and dividends earned on the funds held to cover reserves for
policyholders. Net investment gains amounted to approximately $249,000 for the
six-month period ended June 30, 1997 compared to net investment losses of
$64,000 in the prior year period. This was primarily the result of a gain
(approximately $381,000) recognized on the receipt of shares of Intercel stock
previously held in escrow, which was partially offset by losses on the sales of
certain investments, principally small cap stocks, due to Management's continued
review of the Company's investments with an increased focus on their liquidity
and future value.
Operating expenses and general and administrative expenses increased by
approximately $3,716,000 during the current six-month period compared to the
comparable period of the prior year. This increase also results from the
inclusion of the title insurance operations, which are very labor intensive, for
the full six-month period as compared to a period of less than one month in the
comparable period of the prior year. Writeoffs of approximately $1,099,000 in
the prior year period relate principally to investments in venture capital
investments and loans in several startup companies, where the future value and
collectibility of such amounts were uncertain. The writeoff of investments of
$100,000 in the current period ended June 30, 1997 relates to Management's
decision to continue to provide an allowance for certain investments, where the
ultimate realization of the Company's investment is in doubt.
Three Months ended June 30, 1997 Compared to
the Three Months ended June 30, 1996
Total revenue during the three months ended June 30, 1997 was approximately
$3,059,000, an increase of approximately $2,089,000, compared to total revenue
of $970,000 during the comparable quarter of the prior year. The increase is
attributable to the inclusion of the title insurance revenues of $2,556,000 in
the current quarter as compared to $803,000 in the comparable quarter of the
prior year. Title insurance revenues are expected to continue to be the largest
source of revenues in the future. Revenues from commissions and fees decreased
approximately $172,000 during the current quarter primarily due to Management's
decision to close certain business operations, which were not considered
profitable, in the latter part of 1996 and to transfer several subsidiaries to
the former chief financial officer in January 1997 (see "Part I - Recent
Developments" of the Company's Form 10-KSB filed May 5, 1997). Interest and
dividends revenue amounted to approximately $57,000 in the current quarter ended
June 30, 1997 compared to $68,000 for the comparable quarter of the prior year.
-7-
<PAGE>
Net investment gains amounted to approximately $387,000 for the current quarter
compared to net investment losses of $94,000 in the prior year quarter. This was
primarily the result of a gain (approximately $381,000) recognized on the
receipt of shares of Intercel stock previously held in escrow.
Operating expenses and general and administrative expenses increased by
approximately $1,564,000 during the current quarter compared to the comparable
quarter of the prior year. This increase also results from the inclusion of the
title insurance operations, which are very labor intensive, for the full quarter
as compared to a period of less than one month in the comparable quarter of the
prior year. Writeoffs of approximately $1,099,000 in the prior year period
relate principally to investments in venture capital investments and loans in
several startup companies, where the future value and collectibility of such
amounts were uncertain.
LIQUIDITY AND CAPITAL RESOURCES:
The Company's cash and cash equivalents were approximately $1,364,000 at
June 30, 1997 as compared to $1,833,000 at December 31, 1996. However, a
significant portion of the cash and cash equivalents (approximately $1,020,000
at June 30, 1997 and $1,136,000 at December 31, 1996) was held by a subsidiary,
Southern Title Insurance Corporation ("STIC"), and is subject to certain
regulatory requirements as to use. In addition to the liquidity needed for
operations, the Company redeemed $450,000 of convertible notes payable, which
were due April 21, 1997. Holders of $585,000 of the $1,035,000 of such
convertible notes agreed to extend the maturity date of their indebtedness
evidenced by these notes until March 1, 1999.
The Company intends to satisfy its obligations through cash on hand, income
tax refunds, sales of marketable securities and other assets and payments
received on loans receivable. Management believes that its available and
expected sources of cash will be sufficient to enable the Company to satisfy its
obligations as they come due.
Reference in made to the "Description of Business - Regulation" and "Recent
Developments" sections included in the Form 10-KSB filed on May 5, 1997.
-8-
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On June 20, 1997, the beneficiaries of the DiBello Loving Trust filed a civil
lawsuit against James Vigue, former President and Chief Executive Officer of the
Company, Ivy Gilbert, former Treasurer and Chief Financial Officer of the
Company, and the Company. The lawsuit is pending in the Maine Superior Court for
Kennebec County.
The beneficiaries allege that James Vigue, as trustee of the trust, mismanaged
the trust, breached his duties as trustee, made misrepresentations to them, was
negligent in the management of the trust and violated the Maine Securities Act
and the Maine Unfair Trade Practices Act. They allege that Ivy Gilbert
participated in the breach of trust. They allege that the Company is liable for
Mr. Vigue's actions and is liable as a trustee and for violation of the Maine
Securities Act and the Maine Unfair Trade Practices Act. The beneficiaries claim
compensatory damages in a range of $500,000 to $1 million, plus punitive
damages.
The Company has denied all liability and it intends to defend the
lawsuit vigorously.
Item 2. Changes in Securities
Not Applicable
Item 3. Defaults upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports of Form 8-K
(A) Exhibits
NONE
(B) Reports on Form 8-K
NONE
-9-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRSTMARK CORP.
/s/ Donald V. Cruickshanks
-----------------------------------
Donald V. Cruickshanks
President and Chief Executive Officer
/s/ Ronald C. Britt
-----------------------------------
Ronald C. Britt
Chief Financial Officer
-10-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,364,249
<SECURITIES> 2,949,184
<RECEIVABLES> 1,340,632
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 2,304,640
<DEPRECIATION> (1,403,730)
<TOTAL-ASSETS> 15,960,496
<CURRENT-LIABILITIES> 0
<BONDS> 1,235,972
8,750,000
11,400
<COMMON> 454,229
<OTHER-SE> 3,080,219
<TOTAL-LIABILITY-AND-EQUITY> 15,960,496
<SALES> 0
<TOTAL-REVENUES> 5,275,730
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 5,526,730
<LOSS-PROVISION> 100,000
<INTEREST-EXPENSE> 59,305
<INCOME-PRETAX> (410,305)
<INCOME-TAX> (139,504)
<INCOME-CONTINUING> (270,801)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (270,801)
<EPS-PRIMARY> (0.22)
<EPS-DILUTED> (0.22)
</TABLE>
