SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 1999
Commission File Number: 0-20806
FIRSTMARK CORP.
(Exact Name of Small Business Issuer as Specified in its Charter)
Maine 01-0389195
(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or Organization)
P.O. Box 1398
Richmond, Virginia 23218
(Address of Principle Executive Offices)
(804) 648-9048
(Issuer's Telephone Number, Including Area Code)
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 the past 90 days.
Yes __X__ No _____
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date:
5,319,876 shares of common stock, par value $0.20 per share,
outstanding as of June 30, 1999
<PAGE>
FIRSTMARK CORP.
TABLE OF CONTENTS
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Page No.
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Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
June 30, 1999 and December 31, 1998...................................3
Condensed Consolidated Statements of Operations
Six Months and Three Months Ended
June 30, 1999 and 1998................................................5
Condensed Consolidated Statements of Cash Flows
Six Months Ended June 30, 1999 and 1998...............................6
Notes to Condensed Consolidated Financial Statements...........................7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operation..............................................8
Part II. Other Information
Item 1. Legal Proceedings.............................................................12
Item 2. Changes in Securities and Use of Proceeds.....................................13
Item 3. Defaults Upon Senior Securities...............................................13
Item 4. Submission of Matters to a Vote of Security Holders...........................13
Item 5. Other Information.............................................................13
Item 6. Exhibits and Reports on Form 8-K..............................................13
</TABLE>
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<PAGE>
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
FIRSTMARK CORP. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
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<TABLE>
<CAPTION>
ASSETS
June 30, 1999 December 31, 1998*
------------- ------------------
(Unaudited)
<S> <C> <C>
Cash and cash equivalents $ 5,202,908 $ 53,575
Receivables:
Receivables - related parties 55,062 48,062
Receivables - interest and other 21,720 2,703
------------ ------------
Total receivables 76,782 50,765
------------ ------------
Notes receivable:
Notes receivable - net 25,290 25,290
Notes receivable - related parties 9,773 9,773
------------ ------------
Total notes receivables 35,063 35,063
------------ ------------
Investments:
Marketable securities 59,142 139,112
Venture capital investments - net 274,728 424,728
Real estate and other investments 566,501 613,653
------------ ------------
Total investments 900,371 1,177,493
------------ ------------
Other assets:
Property, plant and equipment - net 10,222 11,260
Deferred tax asset - net of valuation allowance 323,870 296,680
Other assets -- 11,603
------------ ------------
Total other assets 334,092 319,543
------------ ------------
Net assets of discontinued title insurance operations -- 6,189,261
------------ ------------
TOTAL ASSETS $ 6,549,216 $ 7,825,700
============ ============
</TABLE>
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<PAGE>
FIRSTMARK CORP. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
- --------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998*
------------- ------------------
(Unaudited)
<S> <C> <C>
LIABILITIES:
Accounts payable and other liabilities $ 352,062 $ 215,333
Borrowed funds -- 565,000
Deferred tax liability 323,870 296,680
Related party payable -- 114,712
------------- -------------
Total liabilities 675,932 1,191,725
------------- -------------
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
30,000,000 shares; issued 5,501,430 shares 1,100,286 1,100,286
Additional paid-in capital - preferred 2,162,889 2,162,889
Additional paid-in capital - common 11,432,709 11,432,709
Retained earnings (deficit) (8,046,046) (7,353,293)
Treasury stock, at cost - 181,554 and
201,554 shares, respectively (737,528) (737,528)
Net accumulated comprehensive income -
net of taxes (50,426) 17,512
------------- -------------
Total stockholders' equity 5,873,284 6,633,975
------------- -------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 6,549,216 $ 7,825,700
============= =============
</TABLE>
*Condensed from audited financial statements
The accompanying notes are an integral part of these condensed financial
statements.
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<PAGE>
FIRSTMARK CORP. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
-------- --------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES
Interest and dividends $ 76,290 $ 29,648 $ 58,723 $ 8,361
Investment gains -- 20,689 -- 1,524
------------ ------------ ------------ ------------
Total revenues 76,290 50,337 58,723 9,885
------------ ------------ ------------ ------------
EXPENSES
Employee compensation and benefits 18,600 55,899 -- 27,796
Write-offs of loans and investments 202,000 -- 202,000 --
General and administrative expenses 546,526 264,335 430,533 142,983
Interest expense 8,995 26,440 -- 13,163
------------ ------------ ------------ ------------
Total expenses 776,121 346,674 632,533 183,942
------------ ------------ ------------ ------------
Loss from continuing operations before
income taxes (699,831) (296,337) (573,810) (174,057)
INCOME TAX (BENEFIT) EXPENSE -- (7,663) -- (4,435)
------------ ------------ ------------ ------------
Net loss from continuing operations (699,831) (288,674) (573,810) (169,622)
DISCONTINUED OPERATIONS
Income from discontinued operations -- net of
tax 80,596 375,472 -- 217,279
Loss from disposal of discontinued operations -
net of tax (5,118) -- -- --
NET INCOME (LOSS) (624,353) 86,798 (573,810) 47,657
------------ ------------ ------------ ------------
Other comprehensive loss - net of tax
Unrealized holding gains (losses) arising
during period (67,938) (9,107) (19,924) (29,003)
Less: Reclassification adjustment for gain
included in net income -- (9,997) -- --
Other comprehensive loss (67,938) (19,104) (19,924) (29,003)
------------ ------------ ------------ ------------
COMPREHENSIVE INCOME (LOSS) (692,291) 67,694 (593,734) 18,654
PREFERRED STOCK DIVIDEND 68,400 68,400 34,200 34,200
------------ ------------ ------------ ------------
NET LOSS APPLICABLE TO COMMON SHARES $ (760,691) $ (706) $ (627,934) $ (15,546)
============ ============ ============ ============
Loss per common share - basic and diluted $ (0.14) $ (0.00) $ (0.12) $ (0.00)
============ ============ ============ ============
Weighted - average number of shares outstanding 5,319,876 5,299,876 5,319,876 5,299,876
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
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<PAGE>
FIRSTMARK CORP. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
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<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------
1999 1998
---- ----
<S> <C> <C>
OPERATING ACTIVITIES FROM CONTINUING OPERATIONS
Net loss from continuing operations $ (699,831) $ (288,674)
Adjustments to reconcile net loss to net cash
used by operating activities
Depreciation and amortization 1,038 2,443
Amortization of goodwill -- 24,391
Write-offs of loans and investments 202,000 --
Gain on sale of securities -- (14,946)
Other noncash items 12,032 (25,514)
Changes in assets and liabilities:
Decrease (increase) in:
Accounts receivable (26,017) 257,782
Notes receivable -- 12,178
Prepaid expenses and other current assets 11,603 (1,220)
Increase (decrease) in:
Accounts payable 136,729 (71,594)
Accounts payable to related party (114,712) (44,999)
------------- -------------
Net cash used by operating activities (477,158) (150,153)
------------- -------------
Cash flows from Investing Activities
Decrease (increase) in real estate investments (4,848) (4,940)
Proceeds from sale of securities -- 85,314
Decrease in venture capital investments -- 88,571
------------- -------------
Net cash provided (used) by investing activities (4,848) 168,945
------------- -------------
Cash flows from Financing Activities
Preferred stock dividends (68,400) (68,400)
Proceeds from borrowings 115,000 --
Repayments of borrowed funds (680,000) --
------------- -------------
Net cash used by financing activities (633,400) (68,400)
------------- -------------
Cash Used by Continuing Operations (1,115,406) (49,608)
Discontinued Operations:
Proceeds from sale of discontinued operations,
net of transaction costs paid 6,242,738 --
Other 22,001 8,817
------------- -------------
Cash Provided (Used) by Discontinued Operations 6,264,739 8,817
------------- -------------
Net change in cash and cash equivalents 5,149,333 (40,791)
------------- -------------
Cash and cash equivalents, beginning of period 53,575 290,037
------------- -------------
Cash and cash equivalents, end of period $ 5,202,908 $ 249,246
------------- -------------
Cash payments for interest $ 8,995 $ 26,440
============= =============
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
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<PAGE>
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 year ended December 31,
1998 of Firstmark Corp. (the "Company"), as amended, as filed with the
Securities and Exchange Commission. The December 31, 1998 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,
1999 are not necessarily indicative of the results to be expected for
the full year.
3. Earnings (Loss) Per Share
The Company adopted the provisions of SFAS No. 128, "Earnings Per
Share," for the year ended December 31, 1997. SFAS No. 128 establishes
new standards for computing and presenting earnings per share ("EPS").
The statement replaces the presentation of primary EPS with basic EPS
and the presentation of fully diluted EPS with diluted EPS. Basic EPS
is computed by dividing net income, less required dividends on
redeemable preferred stock, by the weighted average number of common
shares outstanding during the year. Diluted EPS is computed using the
weighted average number of common shares outstanding during the year,
including the dilutive effect of all potential common shares.
4. Reclassifications
Certain reclassifications have been made in the accompanying statements
to permit comparison.
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<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Firstmark Corp. (the "Company") makes venture capital and real estate
investments either in the form of pure equity investments or in the form of
loans with an equity participation feature. Until March 5, 1999, the Company was
principally engaged in the business of issuing title insurance through a
subsidiary, Southern Title Insurance Corporation ("STIC"). Until January 24,
1997, the Company also actively traded public stocks and bonds and provided
financial consulting services to a select number of individuals and
institutions.
On March 5, 1999, the Company sold Investors Southern Corporation
("ISC") and its subsidiaries, including STIC, to Old Guard Group, Inc. ("Old
Guard") for $6.75 million in cash and a three year earn-out in cash based on the
pre-tax net income of ISC and its subsidiaries, including STIC, for each of the
fiscal years ending December 31, 1999, 2000 and 2001. above. Generally accepted
accounting principles ("GAAP") required that the Company reflect the effects of
the Transaction as of December 31, 1998, including the loss on disposal, and
segregate continuing operations from discontinued operations. A complete
discussion of the Company's business is contained in Item 1, Description of
Business, of Amendment No. 1 to the Company's Annual Report on Form 10-KSB (the
"Form 10-KSB"), filed with the Securities and Exchange Commission on April 23,
1999.
Results of Operations
Six Months Ended June 30, 1999 Compared to Six Months Ended June 30, 1998
Continuing Operations
Interest and dividends revenue amounted to approximately $76,000 in the
current period compared to $30,000 in the comparable period of the prior year.
The increase is principally the result of investment of the net proceeds from
the sale of the title insurance operations, which were received in the first
quarter of this year. Investment gains amounted to approximately $21,000 for the
period ended June 30, 1998 (none for the current period).
Operating expenses and general and administrative expenses increased by
approximately $227,000 during the six months ended June 30, 1999 compared to the
six months ended June 30, 1998. This increase is primarily the result of the
Company recording a provision of approximately $232,000 for the estimated loss
from certain claims settled through mediation as of June 30, 1999. In addition,
increased legal and accounting fees were offset by reductions in interest
expense and the Company's obligation under a severance agreement with a former
director of the Company. The reduction in interest expense was due principally
to the payoff of the Company's 9% convertible notes payable in March of this
year. Write-offs of loans and investments amounted to $202,000 in the first six
months of 1999, whereas there were no write-offs in the comparable period of
1998. The write-offs, all of which occurred in the second quarter of this year,
pertain to a portion of the Company's venture capital investment in a
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<PAGE>
Canadian company, which has filed for bankruptcy protection in order to
reorganize, and a real estate investment, where the Company is negotiating a
potential sale.
Discontinued Operations
As previously disclosed, the title insurance operations were sold as of
March 5, 1999. Accordingly, the condensed consolidated statement of operations
included herein includes operating results for the title insurance operations
through that date in the current period while the six months ended June 30, 1998
include such results for the entire six months. The decrease in income from
discontinued operations is principally due to the 1998 period representing
approximately four more months of operations than the 1999 period. Further
discussion of changes in title insurance revenues and operating and other
expenses is not considered meaningful herein.
Three Months Ended June 30, 1999 Compared to Three Months Ended June 30, 1998
Continuing Operations
Interest and dividends revenue amounted to approximately $59,000 in the
current quarter compared to $8,000 in the comparable quarter of the prior year.
The increase is principally the result of investment of the net proceeds from
the sale of the title insurance operations, which were received in the first
quarter of this year. Investment gains amounted to approximately $1,500 for the
quarter ended June 30, 1998 (none for the current quarter).
Operating expenses and general and administrative expenses increased by
approximately $247,000 during the current quarter compared to the prior year
quarter. This increase is primarily the result of the Company recording a
provision of approximately $232,000 for the estimated loss from certain claims
settled through mediation as of June 30, 1999. In addition, increased legal and
accounting fees were offset by reductions in interest expense and the Company's
obligation under a severance agreement with a former director of the Company.
The reduction in interest expense was due principally to the payoff of the
Company's 9% convertible notes payable in March of this year. Write-offs of
loans and investments amounted to $202,000 in the second quarter of 1999,
whereas there were no write-offs in the comparable quarter of 1998. The
write-offs pertain to a portion of the Company's venture capital investment in a
Canadian company, which has filed for bankruptcy protection in order to
reorganize, and a real estate investment, where the Company is negotiating a
potential sale.
Discontinued Operations
See related discussion above for the six-month periods. The
discontinued operations were sold in March of this year. Accordingly, there were
no discontinued operations for the quarter ended June 30, 1999.
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<PAGE>
Liquidity and Capital Resources
As of June 30, 1999, the Company had cash and cash equivalents of
approximately $5.2 million. Subsequent to June 30, 1999, the Company paid out in
excess of $500,000 to settle various claims and litigation and received shares
of the Company's Preferred and Common Stock and other assets in return. After
settlement of these matters, the Company's cash and cash equivalents remain at a
level expected to exceed its obligations in the foreseeable future. The Company
continues to maintain the availability of the $500,000 line of credit with First
Union National Bank.
Year 2000 Issues
Year 2000 issues relate primarily to the inability of certain
computerized devices (hardware, software and equipment) to process year-dates
properly after 1999. Many existing computer programs have been written using
only two digits to define an applicable year rather than four digits.
Accordingly, on January 1, 2000, many date-sensitive programs and devices may
recognize a date using the two digits "00" as the year 1900 rather than the year
2000. This situation could result in inaccurate processing of data, erroneous
results or other system failures.
The Company continues to address the Year 2000 issues relating to its
operations with the intent that it (i) identify areas of potential exposure,
both internal and external to the organization, (ii) assess the risks and costs
associated with eliminating or reducing that exposure, (iii) develop a plan to
take necessary actions before the year 2000 and (iv) consider the need for a
contingency plan to handle the most reasonably likely worst case scenarios.
To date, the Company has primarily focused on the identification and
assessment of its Year 2000 issues. The Company has completed an initial
assessment of its accounting and operational software and discussed the payroll
and human resources software with its third party service provider. Management
believes, based on discussions with software vendors and initial tests of the
accounting and operational software, that such software is currently Year 2000
compliant and that the Company's risks in these areas are minimal. Management
has been told that the current version of the payroll and human resources
software is also Year 2000 compliant and plans to perform tests of this system
in the near future to assess any potential problems.
Costs associated with remediation of Year 2000 issues are not expected
to be material to the Company's financial position, results of operations or
cash flows. To date, such costs have totaled less than $20,000 and the Company
expects that future costs will not exceed $10,000. These costs would include
primarily minimal additional data processing consulting costs, purchases of new
personal computers to replace computers that cannot be modified to handle
date-sensitive data correctly and potentially the costs to purchase upgrades to
certain accounting software programs.
No contingency plan has been developed to date since the potential
impact of the Year 2000 issues facing the Company is currently considered to be
minimal. However, management will continue to assess the need for a contingency
plan if additional risks are identified in the further testing of existing,
updated or new hardware and software or if it becomes aware of other
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<PAGE>
concerns not presently contemplated in the evaluation of the Company's ability
to be Year 2000 compliant.
Recent Accounting Pronouncements
Reference is made to the disclosures included under the heading "Recent
Accounting Pronouncements" in Item 6, Management's Discussion and Analysis of
Financial Condition and Results of Operations, of the Form 10-KSB.
Forward-Looking Statements
Certain statements in this report may constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Although the Company believes that its expectations with respect to
certain forward-looking statements are based upon reasonable assumptions within
the bounds of its business and operations, there can be no assurance that actual
results, performance or achievements of the Company will not differ materially
from any future results, performance or achievements expressed or implied by
such forward-looking statements.
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<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is involved in litigation from time to time in the ordinary
course of business. Except as noted below, the Company is not involved
in any litigation outside the ordinary course of business.
Investigation by the Securities and Exchange Commission. As the Company
has previously reported, the Securities and Exchange Commission has
been investigating possible securities violations by Firstmark
Investment Corp. ("FIC"), Firstmark Capital Corp. ("FCC") and the
Company. The private investigation has focused on events that have
occurred from, in or before January 1994 to the present. The Company
transferred FIC and FCC to Ivy L. Gilbert, a former director, officer
and employee of the Company, in January 1997.
The staff of the SEC has made a preliminary determination to recommend
that the SEC file a civil action against the Company for certain
securities violations. The staff's recommendation is based on the
Company's overstatement of income and assets in financial statements
filed with Forms 10-KSB and 10-QSB for the periods ended September 30,
1994 through March 31, 1996 and its failure to maintain a system of
internal controls and accurate books and records.
The events at issue in the SEC's investigation relate entirely to the
Company's prior management, all of whom have resigned from all of their
positions with the Company. In 1996, when it joined the Company,
current management reviewed the Company's financial statements and took
corrective steps to sell certain assets and to write down or completely
write off of a number of the Company's venture capital investments and
loans to several start-up companies, including those at issue in the
SEC's investigation. The Company continues to cooperate fully with the
Commission and intends to seek a prompt and efficient resolution to
this matter.
Burden Litigation. As previously disclosed in the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1998, D. Frick
and Tammy F. Burden filed a Complaint against the Company in the United
States District Court for the District of Maine. The Complaint was
based on certain actions of the Company beginning in 1992, at which
time the Company was acting through its president, James F. Vigue, in
connection with the formation and administration of a trust holding
certain assets of the plaintiffs and the management of such assets. On
July 16, 1999, the parties reached an agreement through mediation to
settle the lawsuit. Pursuant to the agreement, the parties are required
to keep the terms of the settlement confidential.
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<PAGE>
Item 2. Changes in Securities and Use of Proceeds
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the
quarter ended June 30, 1999.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule (filed electronically only).
(b) Reports on Form 8-K
None.
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<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
FIRSTMARK CORP.
Date: August 20, 1999 /s/ Donald V. Cruickshanks
-------------------------------------
Donald V. Cruickshanks
President and Chief Executive Officer
Date: August 23, 1999 /s/ Ronald C. Britt
-------------------------------------
Ronald C. Britt
Chief Financial Officer
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
QUARTERLY REPORT ON FORM 10-QSB FOR FIRSTMARK CORP. FOR THE PERIOD ENDED JUNE
30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 5,202,908
<SECURITIES> 59,142
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 19,126
<DEPRECIATION> 8,904
<TOTAL-ASSETS> 6,549,216
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
11,400
<COMMON> 1,100,286
<OTHER-SE> 4,761,598
<TOTAL-LIABILITY-AND-EQUITY> 6,549,216
<SALES> 0
<TOTAL-REVENUES> 76,290
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 767,126
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,995
<INCOME-PRETAX> (699,831)
<INCOME-TAX> 0
<INCOME-CONTINUING> (699,831)
<DISCONTINUED> 75,478
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (624,353)
<EPS-BASIC> (0.14)
<EPS-DILUTED> (0.14)
</TABLE>
