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 December 31, 1999
Commission file number 0-20806
FIRSTMARK CORP.
(Name of Small Business Issuer in its Charter)
Maine 01-0389195
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
P.O. Box 1398
Richmond, Virginia 23218
(Address of Principal Executive Offices) (Zip Code)
(804) 648-9048
(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(g) of the Exchange 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 the fiscal year ended December 31, 1999 were
$177,737.
The aggregate market value of the voting stock held by non-affiliates
computed by reference to the average high and low prices of such stock on March
30, 2000 was $3,165,809.
The number of shares outstanding of Common Stock, as of March 30, 2000
was 5,322,043.
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TABLE OF CONTENTS
PART I
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Item 1. Description of Business.............................................3
Item 2. Description of Property............................................10
Item 3. Legal Proceedings..................................................11
Item 4. Submission of Matters to a Vote of Security Holders................12
PART II
Item 5. Market for Common Equity and Related Stockholder Matters...........12
Item 6. Management's Discussion and Analysis of Financial Condition
and Results of Operation...........................................13
Item 7. Financial Statements...............................................16
Item 8. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.............................17
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act..................17
Item 10. Executive Compensation.............................................18
Item 11. Security Ownership of Certain Beneficial Owners and Management.....19
Item 12. Certain Relationships and Related Transactions.....................19
Item 13. Exhibits, List and Reports on Form 8-K.............................20
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PART I
Item 1. Description of Business
General
Firstmark Corp. (the "Company") was incorporated in Maine on October
28, 1982. Until March 5, 1999, the Company was principally engaged in the
business of issuing title insurance through a subsidiary, Southern Title
Insurance Corporation ("STIC"). See "Recent Developments -- Sale of 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. See "-- Business and Operational Development."
Business and Operational Development
Acquisition of STIC. In June 1996, Southern Capital Corp. ("SCC"), the
former parent company of STIC, was merged with and into Southern Capital
Acquisition Corporation, a Virginia corporation ("SCAC"). 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 "Series B
Preferred Stock"). The Series B Preferred Stock was not convertible by the
holders, but could be converted by the Company, subject to approval by the
Federal Communications Commission ("FCC"), 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. The Series B Preferred Stock began accruing
dividends on January 1, 1997 and, if not converted by the Company sooner, would
have been redeemable at the option of the holders at a price of $200 per share
after June 30, 1998. The Series B Preferred Stock was converted into shares of
Common Stock in October 1997.
Until March 5, 1999, SCAC, through its subsidiary, STIC, was
principally engaged in the business of issuing title insurance. SCAC also
reviews investment opportunities for its own account.
Board Review of Company Operations. At the end of 1996, the Company
reviewed its financial condition and determined to reduce its operating expenses
by closing several of its unprofitable operations. The Board of Directors also
determined that it was important to improve the Company's liquidity by
converting non-cash assets to cash and, if possible, extending the maturity of
some or all of the Company's convertible notes, which, if not extended, were due
on April 21, 1997.
Based on these conclusions, the Company devised a plan intended to help
it achieve its short-term goals of reducing expenses and improving liquidity,
consistent with its clients' interests and its contractual obligations.
Sale of Subsidiaries and Resignation of Officers. Effective January 24,
1997, the Company transferred the stock of three subsidiaries, Firstmark Capital
Corp., Firm Investment Corp. and Firstmark Properties, Inc. to Ivy L. Gilbert.
These subsidiaries conducted the operations that the Company decided to
discontinue. At the time of the transfers, Firstmark Capital Corp. had total
assets of approximately $156,000 and net assets of approximately $56,000; Firm
Investment Corp. had total assets of approximately $47,000 and net assets of
approximately $47,000, and Firstmark Properties, Inc. had total assets of
approximately $1,000 and net assets of approximately $1,000. When the stock of
the subsidiaries was transferred to Ms. Gilbert, she resigned as an officer and
employee of the Company. Ms. Gilbert agreed to serve the Company as a consultant
until July 1997. In addition to the transfer of the subsidiaries, Ms. Gilbert
received $30,000, payable over six months, for her services as a consultant and
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an additional $28,500 for other assistance relating to the extension of the
maturity of $585,000 of the Company's convertible notes. Ms. Gilbert assigned
the right to receive the payments for her services as a consultant to Firstmark
Capital Corp.
On January 24, 1997, James F. Vigue resigned as President and Chief
Executive Officer of the Company. Mr. Vigue was a consultant to the Company from
his resignation until January 1998 and continued to serve as the Chairman of the
Board of Directors until November 1998. For his services as a consultant, Mr.
Vigue was to receive $90,000, payable over 12 months. Mr. Vigue assigned the
right to receive these payments to Firstmark Capital Corp.
As a result of these developments, the Company was released from
several obligations. First, in connection with the transfer of the stock of the
subsidiaries to Ms. Gilbert, Firstmark Capital Corp. assumed the Company's
obligations under the lease, dated January 1, 1993, between the Company, as
tenant, and Pinnacle Investment Group ("Pinnacle"), as landlord, for
approximately 4,000 square feet of commercial space at the Company's office in
Waterville, Maine. At the time of the assumption, the rent under the lease,
which terminates on December 31, 2003, was approximately $44,000 per year. The
Company owned the parcel of land on which its administrative office was located.
On January 27, 1997, Pinnacle purchased the land for $55,000.
In addition, in connection with their respective resignations, both Mr.
Vigue and Ms. Gilbert, as officers of the Company, cancelled their employment
agreements with the Company. Both agreements were for three-year terms that
commenced on May 17, 1996, with renewals by mutual consent of the parties for
successive terms of one year each. Under the agreements, Mr. Vigue and Ms.
Gilbert were each entitled to base compensation of $120,000 per year and
additional compensation based on any fees or commissions that he or she
generated as employees of the Company and its subsidiaries.
Both Mr. Vigue and Ms. Gilbert continued to serve as directors of the
Company until their resignations in November 1998. Donald V. Cruickshanks,
President of STIC, was appointed President and Chief Executive Officer of the
Company on January 24, 1997. Lewis M. Brubaker, Jr., chief financial officer of
SCC at that time, was appointed Chief Financial Officer of the Company on the
same date. Mr. Brubaker resigned on April 25, 1997 to take advantage of a new
employment opportunity.
Conversion of Series B Preferred Stock. On February 25, 1997, in a
special meeting of the Company's shareholders, the Company presented two
proposals that would allow for the conversion of the Series B Preferred Stock.
These two proposals were:
(1) an amendment to the Company's Articles of Incorporation to
increase the amount of authorized Common Stock from 5,000,000 to
30,000,000 shares and
(2) an amendment to the Company's Articles of Incorporation to opt
out of Section 910 of the Maine Business Corporation Act.
The shareholders approved both proposals, which are described in
further detail in the Company's definitive Proxy Statement for a Special Meeting
of Stockholders, filed with the Securities and Exchange Commission on February
5, 1997.
On March 12, 1997, the Company approved the conversion of the shares of
Series B Preferred Stock into shares of Common Stock, effective in April 1997,
subject to the approval of the FCC. Each outstanding share of Series B Preferred
Stock was converted into 80.7571 shares of Common Stock, which figure was
calculated based on the average bid and asked stock prices of the Common Stock
during a 20-day period prior to the date of conversion.
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The Series B Preferred Stock entitled the holders to dividends
beginning January 1, 1997 and, with the approval of the conversion, dividends no
longer accrued after March 12, 1997. The preferred stock dividend accrued to
that date ($3.16 per share) was paid on August 13, 1997. Additionally, the
approval of the conversion of the Series B Preferred Stock eliminated the
obligation to establish a sinking fund beginning April 1, 1997, for the
redemption of such stock.
Extension of Notes. In March 1997, holders of $585,000 of the Company's
8% convertible notes due April 21, 1997 agreed to extend the maturity date of
the indebtedness evidenced by these notes to March 1, 1999 at an interest rate
of nine percent. This amount represented approximately 57% of the $1,035,000 of
such notes outstanding. As of March 1, 1999, all of these extended notes were
paid in full by the Company. The holders of the remaining $450,000 of notes
redeemed their notes in April 1997.
Restructuring of the Board of Directors. At the beginning of 1998, the
Board of Directors consisted of five members, three of whom (Messrs.
Cruickshanks and Vigue and Ms. Gilbert) were current or former executive
officers of the Company and two of whom (H. William Coogan, Jr. and Susan C.
Coogan, as trustee of The H. William Coogan Irrevocable Trust) were holders of
more than 20% of the issued and outstanding shares of the Company's common
stock.
In April 1998, Mr. and Mrs. Coogan resigned from the Board of
Directors. In May 1998, Steven P. Settlage, the President and a director of
three real estate development and consulting firms in the Richmond, Virginia
area, was appointed to the Board of Directors. In November 1998, Mr. Vigue and
Ms. Gilbert resigned from the Board of Directors and George H. Morison, the
President and Chief Operating Officer of Patient First Corporation, a provider
of primary medical care based in Richmond, Virginia, was appointed to the Board
of Directors.
Sale of STIC
On March 5, 1999, the Company sold all of the issued and outstanding
capital stock of Investors Southern Corporation ("ISC") (the "Asset Sale")
pursuant to a Stock Purchase Agreement by and among the Company, SCAC, ISC and
STIC and Old Guard Group, Inc., a Pennsylvania corporation ("Old Guard"), dated
as of December 2, 1998 (the "Stock Purchase Agreement").
The Company is the parent company of SCAC, which owned all of the
outstanding shares of the capital stock of ISC prior to the Asset Sale. ISC is a
holding company and owns all of the outstanding shares of the capital stock of
STIC, a title insurance company, as well as several other entities conducting
activities related to the title insurance and settlement business. As a result
of the Asset Sale, ISC and STIC, the Company's principal operating subsidiary,
became wholly owned subsidiaries of Old Guard.
The purchase price paid by Old Guard consists of two components: cash
paid upon the consummation of the Asset Sale and a three year earn-out to be
paid, if earned, in cash in 2000, 2001 and 2002. Upon the consummation of the
Asset Sale, Old Guard paid to SCAC $6.75 million by wire transfer of immediately
available funds. In addition, in 2000, 2001 and 2002, SCAC will receive
additional cash payments 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. Such earn-out payments will be paid in cash within 90 days
following the end of each such fiscal year and will be in an amount equal to 25%
of (i) the pre-tax net income of ISC and its subsidiaries, including STIC, for
such fiscal year less (ii) the cumulative net loss of ISC and its subsidiaries,
if any, during all such prior fiscal years. The Company has qualified for but
not yet received an earn-out payment in the amount of approximately $174,000 for
the fiscal year ended December 31, 1999.
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Pursuant to the Stock Purchase Agreement, Old Guard has agreed to
continue to operate ISC and its subsidiaries in a manner that is consistent with
past practice. In addition, Old Guard has agreed that, when determining ISC's
pre-tax net income, it will not allocate against the revenues of ISC and its
subsidiaries any liabilities or expenses that did not arise in the ordinary
course of business. Finally, Old Guard has agreed that it will not transfer any
of the business operations of ISC and its subsidiaries to itself or one of its
own subsidiaries or sell, assign or otherwise transfer the business of ISC and
its subsidiaries to a third party, whether by sale of assets or stock, merger or
otherwise.
Donald V. Cruickshanks, President and Chief Executive Officer of the
Company, will continue to serve as President and Chief Executive Officer of
STIC.
Current Operations
The Company is no longer engaged in the title insurance business
formerly conducted by STIC. In addition, the Company has liquidated most of its
venture capital and real estate assets reflected in its financial statements at
the time of the acquisition of SCC in 1996. The remaining investments in real
estate, venture capital investments and other marketable securities totaled
approximately $418,000, $65,000 and $73,000, respectively, as of December 31,
1999. The Company continues to liquidate these investments. Furthermore, since
the Asset Sale, all funded debt and various other liabilities -- including
settlement of certain litigation matters -- have been repaid.
Since March 5, 1999, the Company has devoted substantial effort through
its officers and directors to acquire operating assets of unaffiliated
businesses and/or merge with an unaffiliated operating business. The Company is
committed to becoming engaged in operating businesses as expeditiously as
possible and, in this connection, has had numerous meetings to identify and
evaluate acquisition/merger candidates. Following the Asset Sale, the Company
commenced studies and discussions relating to its acquiring or merging with such
businesses and, as of the date hereof, has considered a number of candidate
companies. In addition, the Company is currently engaged in ongoing studies
and/or discussions with several potential acquisition/merger candidates.
However, no agreements have been reached.
During 1999, management also resolved several cases asserted against
the Company resulting from the conduct of the Company's management prior to the
acquisition of SCC in 1996. The financial uncertainty occasioned by the civil
litigation matters made it difficult to conclude any sort of transaction with a
target company. Litigation made it difficult to predict the financial resources
available for an acquisition. Much of this litigation was not resolved until the
second half of 1999.
The Company continues to hold the proceeds from the Asset Sale so as to
preserve the maximum value of its assets and to await the potential receipt of
additional earn-out payments for the fiscal years ended December 31, 2000 and
2001 from Old Guard.
Related Industry Segments
The following description is a summary of the Company's historical
operations by industry segment.
Title Insurance
Until their sale to Old Guard on March 5, 1999, the title
insurance-related subsidiaries derived 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
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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 that
affect title to the property at the time of closing and not to unforeseen future
events. Revenues were generated from 11 directly, indirectly and/or partially
owned and operated offices as well as from an agency network of over 100 agents.
The majority of these revenues were generated in Ohio and Virginia. The sales
and marketing efforts of STIC were generally targeted at the residential housing
and commercial real estate markets.
Venture Capital and Real Estate
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.
Financial Services
Until their sale to Ivy Gilbert on January 24, 1997, the financial
services subsidiaries derived their revenue from commissions and fees generated
from consulting, investment banking, the creation of proprietary investment
products and the marketing of investment and insurance products of other
companies. In addition, the Company invested its own capital in marketable
securities and other investments and made various business and other loans.
There was no geographical limitation of the financial services and
investment segment.
Subsidiaries
The following lists the Company's subsidiaries after the January 24,
1997 transfer of three subsidiaries to Ivy Gilbert (see "-- Business and
Operational Development") and the services that they provide:
QFAN Marketing Services, Inc. Founded: 1984
This subsidiary held certain real estate holdings of the
Company. Its principal holding was sold in April 1997.
Southern Capital Acquisition Corp. Founded: 1996
This subsidiary was established to serve as the corporation
used to acquire the stock of SCC and SCC's subsidiaries. See "--
General." In addition, this subsidiary holds certain securities
holdings of the Company.
The following lists the subsidiaries of ISC, a subsidiary of the
Company until its sale to Old Guard on March 5, 1999 (see "-- Sale of STIC"),
and the services that they provide. ISC served as the holding company for the
Company's title insurance and related operations.
Southern Title Insurance Corporation Acquired: 1996 (Founded in 1925)
This subsidiary is a title insurance underwriter. It operates
through a combination of 11 directly, indirectly and/or partially owned
and operated offices as well as an agency network of over 100 agents.
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Southern Title Agency Corporation Acquired: 1996
This subsidiary is a title insurance agency for two of the
national title insurance underwriters.
Southern Abstractors Corporation Acquired: 1996
This subsidiary performs title examinations and abstracts.
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:
Ashburn Title Services, L.C. 55%
Express Title Services, LLC 51%
Southern Title of Ohio, Inc. 75%
Southern Title of Ohio, Limited 75%
Southern Title of the Peninsula, LLC 70%
Southern Title of North Carolina, LLC 70%
Southern Agency, LC 70%
Southern Title of Roanoke, LLC 33%
TBD Settlement LLC 50%
Southern Title Services, Inc. Acquired: 1996
This company is a subsidiary of STIC and 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.
The following lists three of the Company's former subsidiaries, which
were transferred to Ms. Gilbert, effective January 24, 1997, and the services
that they provided:
Firstmark Capital Corp. Acquired: June 1982
Firstmark Capital Corp. was the Company's financial planning
subsidiary and offered investment management services to affiliated
partnerships by serving as general partner. The subsidiary also offered
investment management, financial planning, estate and tax planning and
insurance planning. The subsidiary's revenues were derived from
charging fees and receiving commissions on various products. The
subsidiary had been in business since 1972 and was a Federally
Registered Investment Advisory firm, with two certified financial
planners and five financial advisors.
Firm Investment Corp. (formerly Acquired: January 1986
Firstmark Investment Corp.)
This subsidiary also served as the Company's investment
banking and consulting subsidiary. Firm Investment Corp. marketed the
Company's proprietary investment products to other firms and served as
advisor and manager in some cases to the Company's equity funds.
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Firstmark Properties Inc. Founded: 1985
This subsidiary offered commercial and investment real estate
brokerage services primarily to the Company's own holdings. The
subsidiary also advised its former parent company on real estate
related acquisitions and projects. This subsidiary had five State of
Maine Real Estate Agent licensed professionals affiliated with it.
Employees
As of December 31, 1999, the Company and its subsidiaries had no
employees. The Company's President and Chief Executive Officer and its Chief
Financial Officer both serve as consultants to the Company and receive a
consulting fee for their services.
Significant Customers
Prior to the sale of the Company's title insurance-related subsidiaries
to Old Guard on March 5, 1999, the Company did not receive more than 10% of its
business or revenues from any single customer.
Company Operations -- Title Insurance
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.
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 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 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 insureds 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 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 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.
Regulation. The title insurance businesses, like those of other
insurance companies, are subject to comprehensive, detailed regulation in the
jurisdictions in which they do business. Such regulation is
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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.
The Insurance Law of Virginia limits the maximum amount of dividends
that may be paid without approval by the Virginia Bureau of Insurance.
Reinsurance. STIC reinsures portions of title insurance risks with
unaffiliated insurance companies under reinsurance treaties (or reinsurance
treaty agreements). In such reinsurance agreements, the reinsurer accepts that
part of the risk which STIC, as the primary insurer, decides not to retain, in
consideration for a portion of the premium. Generally, STIC enters into
traditional reinsurance arrangements to diversify its risk and to limit loss
exposure on risks that exceed STIC's self-imposed policy retention limits. These
limits are considered prudent by STIC's management and were well below the
limits allowed by statute during the period that STIC was an indirect subsidiary
of the Company. STIC, however, remains liable to the insureds for the total
risk, whether or not the reinsurer meets its obligations.
At December 31, 1998, STIC ceded all of its reinsurance liability to
one carrier, Fidelity National Title Insurance Company ("Fidelity"), with which
STIC has had a treaty reinsurance agreement since October 1, 1992. Under this
agreement, STIC has reinsured all single policy risk in excess of $250,000 from
October 1, 1992 to August 1, 1996 and all single policy risk in excess of
$300,000 since August 1, 1996.
Item 2. Description of Property
Corporate Real Estate
Prior to January 24, 1997, the Company leased its executive and
administrative offices, consisting of approximately 4,000 square feet of
commercial space located in Waterville, Maine, from the Pinnacle Investment
Group ("Pinnacle"), a group consisting of four individuals, one of whom was an
officer of the Company. This facility was leased from Pinnacle under a fifteen
year lease terminating on December 31,
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2003. The lease was renewable and negotiable after five years. Effective January
24, 1997, Firstmark Capital Corp. assumed the lease obligation. The Company
owned the parcel of land on which its administrative offices were located. On
January 27, 1997, Pinnacle purchased the land for $55,000. For further
information, see Item 1., "Description of Business -- Business and Operational
Development," above.
Prior to the sale of the Company's title insurance-related subsidiaries
to Old Guard on March 5, 1999, the Company owned 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 was not encumbered and
was in good operating condition. The brick structure was built in 1920 and
renovated in 1985.
Investment Real Estate
Investments in real estate were made in the past for possible
development of the property or immediate resale. The majority of the real estate
owned by the Company is either developed or undeveloped raw land. All of the
Company's real estate holdings are currently being marketed. In January 1997,
the Company sold a 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
The Company is involved in litigation from time to time in the ordinary
course of business. Except as noted below, the Company was not involved in any
litigation outside the ordinary course of business.
The Company's current management is aware, or has also been advised by
counsel for the Company's prior management, that the Company may be in the
future the subject of civil litigation claims that have been threatened by
certain individuals who are or may have been shareholders of the Company or
customers of FIC, FCC or the Company. The Company believes that any basis for
such actions would arise from the conduct of prior management, but it has
insufficient information to assess whether any such claims, if asserted, would
have any merit. The Company has engaged counsel to make an assessment of these
threatened claims. The Company will vigorously defend any such claims that may
be asserted against it.
As the Company has previously reported, the Securities and Exchange
Commission investigated possible securities violations by the Company and its
former subsidiaries relating entirely to the Company's prior management, all of
whom have resigned from all of their positions with the Company. The SEC filed
an enforcement action against the Company and such action was subsequently
settled by the Company's tender of an offer of settlement and its acceptance by
the SEC, which then issued a cease-and-desist order. At no time did the SEC
impose any financial penalty upon the Company.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the period covered by this report.
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PART II
Item 5. Market for Common Equity and Related Stockholder Matters
Since May, 1999, the Company's common stock has traded on the OTC
Bulletin Board under the symbol "FIRM." Prior to then, the Company's common
stock was listed on the Nasdaq SmallCap MarketSM. Effective April 27, 1999, the
shares of common stock were delisted from the Nasdaq SmallCap MarketSM for
failing to maintain a minimum bid price of $1.00 per share.
The following table sets forth, for the quarters indicated, the high
and low sales prices for the common stock and per share dividends for the
periods indicated.
Bid Information
High ($) Low ($)
Fiscal Year Ended December 31, 1998
1st quarter............................... 0.81 0.25
2nd quarter............................... 2.75 0.63
3rd quarter............................... 2.13 0.56
4th quarter............................... 1.06 0.38
Fiscal Year Ended December 31, 1999
1st quarter............................... 1.50 0.63
2nd quarter............................... 1.12 0.12
3rd quarter............................... 0.60 0.02
4th quarter............................... 0.38 0.18
As of March 24, 2000, there were approximately 322 record holders of
Common Stock.
The Company has never declared any cash dividends on the Common Stock
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
General
The following discussion provides information about the major
components of the results of operations and financial condition, liquidity and
capital resources of the Company. This discussion and analysis should be read in
conjunction with the Consolidated Financial Statements and Notes to Consolidated
Financial Statements.
On March 5, 1999, the Company sold ISC and its subsidiaries, including
STIC, to 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. See Item 1.,
"Description of Business -- Sale of STIC," 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. Accordingly, with
respect to the year ended December 31, 1999, the discontinued operations are
included
-12-
<PAGE>
in the financial statements for the period (approximately two months) from
January 1, 1999 to March 5, 1999, the effective date of the sale to Old Guard
was executed. With respect to the year ended December 31, 1998, the discontinued
operations are included in the financial statements for the entire year.
Results of Operations
Fiscal Year Ended December 31, 1999 vs. Fiscal Year Ended December 31, 1998
Continuing Operations
Investment gains (losses) amounted to approximately $(18,000) and
$22,000 for the years ended December 31, 1999 and 1998, respectively. The loss
for the current year relates to the sale of one parcel of real estate whereas
the net gains in the prior year were primarily the result of gains on the sales
of marketable securities. Interest and dividends revenue increased approximately
$147,000 to $196,000 in 1999 as compared to $49,000 in 1998. The increase in the
current year was principally attributable to investment of the net proceeds from
the sale of ISC and its subsidiaries.
Operating expenses and general and administrative expenses increased by
approximately $210,000 during the current year compared to the prior year. This
increase was primarily the result of an approximately $379,000 increase in
losses from matters related to prior management that were settled in mediation,
which was offset by decreases in employee compensation and benefits ($90,000),
amortization ($45,000) and interest expense ($40,000) due to the sale of ISC in
March 1999. Legal fees decreased from $233,000 to $227,000 but remained higher
than normal due to an investigation by the Securities and Exchange Commission
for matters relating to prior management. Reserves and writeoffs of loans and
investments decreased by $537,000 to $627,000 in 1999 compared to $1,164,000 in
1998. Reserves and writeoffs in the current year included $360,000 relating to
the Company's remaining venture capital investments, $197,000 pertaining to the
Company's real estate holdings, $48,000 relating to receivables from related
parties (primarily limited partnerships in which Firstmark is a limited partner)
and $22,000 pertaining to other receivables. While some of these investments may
increase in value in the future, the reserves and writeoffs were considered
appropriate at this time because currently available information indicated a
deterioration in values or there was a lack of reliable information supporting
our carrying values for those investments.
Discontinued Operations
Title insurance premiums for 1999 (approximately two months) amounted
to approximately $1.7 million, compared to premiums of approximately $10.0
million for the full year of 1998. Abstract related income amounted to $518,000
for the two months of the current year compared to $3.8 million for the full
year of 1998. Interest and dividends revenue amounted to $32,000 and $270,000
for the two months of 1999 and the prior year, respectively. Other revenues were
$65,000 and $404,000 for the respective periods presented. In general, the title
insurance and other discontinued operations continued to benefit in the first
two months of the current year from the favorable interest rate environment that
was in effect for all of 1998.
Operating expenses and general and administrative expenses for the two
months of 1999 amounted to approximately $2.1 million compared to $13.5 million
for the full year of 1998. Commissions to agents and salaries and employee
benefits amounted to $790,000 and $888,000, respectively, for the two months of
1999. Those same categories amounted to $4.5 million and $5.4 million,
respectively, for the year ended December 31, 1998. Southern's provision for
policy claims (loss expense) was only $68,000 for the two months of 1999
compared with $1.1 million for 1998. The 1998
-13-
<PAGE>
expense included an increase of $400,000 in the incurred but not reported (IBNR)
claims liability, which management agreed to as an element of the transaction
with Old Guard.
Fiscal Year Ended December 31, 1998 vs. Fiscal Year Ended December 31, 1997
Continuing Operations
Investment gains amounted to approximately $22,000 for the year ended
December 31, 1998 compared to net gains of $310,000 in the prior year. The net
gains in the prior year were 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. Interest and dividends revenue
decreased approximately $63,000 to $49,000 in 1998 as compared to $112,000 in
1997.
Operating expenses and general and administrative expenses decreased by
approximately $360,000 during 1998 compared to 1997. This decrease is primarily
the result of the elimination of employee compensation and benefits and other
expenses associated with the resignations of former officers of the Company and
the transfer of several subsidiaries to a former officer in 1997, which was
offset in part by increased legal fees pertaining to the investigation by the
Securities and Exchange Commission and other matters pending against the
Company, which have since been settled in mediation. Reserves for and write-offs
of loans and investments increased by $619,000 to $1,164,000 in 1998 compared to
$545,000 in 1997. Reserves and write-offs in 1998 included primarily $450,000
relating to the Company's investments in Champion, approximately $309,000
pertaining to marketable securities (where the investments were considered to
have permanent diminutions in value), $156,000 relating to two of the Company's
remaining venture capital investments and $210,000 pertaining to its real estate
holdings. While some of these investments may increase in value in the future,
reserves and write-offs were considered appropriate at this time because
currently available information indicated a deterioration in values or there was
a lack of reliable information supporting the Company's carrying values for
those investments.
Discontinued Operations
Title insurance revenues for 1998 increased to approximately $13.8
million, an increase of approximately $3.0 million or 28% compared to title
insurance revenues of approximately $10.8 million in 1997. Approximately $1.7
million of the increase was attributable to increases in title insurance
premiums earned due to the favorable interest rate environment, which has
generated a significant number of refinancings in the residential and commercial
markets, and continued growth in new and existing markets. Abstract related
income increased approximately $1.3 million during the same period. Investment
gains decreased to approximately $7,000 for 1998 compared to net gains of
$21,000 in the prior year. Interest and dividends revenue decreased
approximately $50,000 to $270,000 for 1998 as compared to $320,000 for 1997. The
decrease was primarily the result of a one-time dividend of approximately
$94,000 received in the prior year.
Operating expenses and general and administrative expenses increased
$2.2 million or 19.5% from 1997 to 1998. The increase is primarily due to
increases in commissions paid to agents and increases in the costs for searches,
examinations and abstracts. Commissions paid to agents in 1998 increased
$517,000 or 13.0%, which is consistent with the increase in agency premiums
earned of 17.0% over 1997. Employee compensation and benefits increased
approximately $1.1 million or 25.0% in 1998 due primarily to expanding
operations at the affiliate level. STIC's loss expense increased $557,000 to
$1,060,000 in 1998 from $502,000 in 1997. The increase was primarily the result
of an increase of
-14-
<PAGE>
$400,000 in the incurred but not reported (IBNR) claims liability, which
management agreed to as an element of the transaction with Old Guard.
Liquidity and Capital Resources
As a result of the sale of Investors Southern and its related
subsidiaries, the Company received $6.75 million from Old Guard on March 5,
1999. After payment of transaction-related costs, retirement of the Company's 9%
Convertible Notes Payable and retirement of borrowings against the Company's
$500,000 line of credit, the Company retained approximately $5.4 million to
invest. At December 31, 1999, the Company had cash and cash equivalents of
approximately $4.5 million, which is expected to exceed its obligations as they
become due. The Company did not renew the $500,000 line of credit with First
Union National Bank due to the level of cash and cash equivalents on hand.
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
have recognized a date using the two digits "00" as the year 1900 rather than
the year 2000. This situation could have resulted in inaccurate processing of
data, erroneous results or other system failures.
As a result of the identification and assessment of the Company's Year
2000 issues and the subsequent implementation of procedures to address any
potential problem areas, the Company is not aware of any problems it has
experienced in processing transactions to date in the year 2000.
Recent Accounting Pronouncements
Statement of Financial Accounting Standards No. 130 (SFAS 130),
"Reporting Comprehensive Income," established standards for the reporting and
presentation of comprehensive income, which is divided into net income and other
comprehensive income. Other comprehensive income items are to be classified by
their nature and by their related accumulated balances in the appropriate
financial statements of a company. Generally, other comprehensive income
includes transactions not typically recorded as a component of net income such
as foreign currency items, minimum pension liability adjustments, and unrealized
gains and losses on certain debt and equity securities. SFAS 130 requires that
such items be presented with equal prominence on a comparative basis in the
appropriate financial statements for fiscal years beginning after December 15,
1997. Accordingly, the Company began complying with SFAS 130 at the start of its
1998 fiscal year.
Statement of Financial Accounting Standards No. 131 (SFAS 131),
"Disclosures about Segments of an Enterprise and Related Information,"
establishes standards and disclosure requirements for the manner in which
companies report information about operating segments, including related product
information, both in annual and interim reports issued to stockholders.
Operating segments are components of a company about which separate financial
information is available and which are used in determining resource allocations
and performance results. Information such as segment net earnings, appropriate
revenue and expense items and certain balance sheet items are required to be
presented and such amounts are required to be reconciled to the Company's
combined financial information. This standard is effective for financial
statements issued for periods ending after December 31, 1997, including interim
periods. The Company is complying with the methodologies and reporting
established by SFAS 131.
-15-
<PAGE>
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("FAS No. 133"). FAS No. 133 establishes
accounting and reporting standards for derivative instruments and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure those
instruments at fair value.
In June 1999, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133" ("FAS No. 137"). FAS No. 137 amends FAS No. 133 to defer its
effective date to all fiscal quarters of all fiscal years beginning after June
15, 2000. The Company is in the process of determining the impact of adopting
FAS No. 133.
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.
Item 7. Financial Statements
The following financial statements are filed as a part of this report
following Item 13 below:
Independent Auditors' Report
Financial Statements
Consolidated Balance Sheets, December 31, 1999 and 1998
Consolidated Statements of Operations, Years Ended December
31, 1999 and 1998
Consolidated Statements of Stockholders' Equity, Years Ended
December 31, 1999 and 1998
Consolidated Statements of Cash Flows, Years Ended December
31, 1999 and 1998
Notes to Consolidated Financial Statements
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.
-16-
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
Directors
Donald V. Cruickshanks, 42, has been President and Chief Executive
Officer of the Company since January 24, 1997 and has been a Director since June
1996. Mr. Cruickshanks served as President of SCC from 1992 through 1996, and
has served as President and Chief Executive Officer of STIC since 1984. Mr.
Cruickshanks is also Chairman of STIC and President of Southern Abstractors
Corporation, Southern Title Agency Corporation, Glasgow Enterprises Corp. and
Southern Title Services, Inc., all of which are subsidiaries of ISC. He received
his undergraduate degree from Randolph Macon College in 1979.
George H. Morison, 55, has been a director since November 1998. Mr.
Morison has served as President and Chief Operating Officer of Patient First
Corporation, a provider of primary medical care based in Richmond, Virginia,
since 1986. Mr. Morison received his undergraduate degree from the University of
Virginia in 1968 and his M.A. from Virginia Polytechnic Institute & State
University in 1977.
Steven P. Settlage, 48, has been a director since May 1998. Mr.
Settlage has served as President and Director of Rowe Development Company, a
commercial real estate development company in Richmond, Virginia, since 1988, as
President and Director of Phoenix Ventures, Ltd., a real estate investment and
consulting firm in Richmond, Virginia, since 1992, and as President and Director
of Tascon Group, Inc., a residential real estate development company in
Richmond, Virginia, since 1996. From 1995 to 1997, he also served as Chairman of
Zone Management, Inc., an entertainment company in Richmond, Virginia. Mr.
Settlage received his undergraduate degree from Vanderbilt University and his
J.D. degree from Washington and Lee University.
Executive Officers Who Are Not Directors
Ronald C. Britt, 48, has been Chief Financial Officer and Treasurer of
the Company since May 1997. Prior to his engagement by the Company, Mr. Britt
was self-employed as an accounting and business consultant. He is a certified
public accountant and has over 15 years experience in public accounting. Mr.
Britt is a 1974 graduate of the University of Virginia.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors and executive officers, and
any persons who own more than 10% of the Company's Common Stock, to file with
the Commission reports of ownership and changes in ownership of the Company's
Common Stock. Officers and directors are required by SEC regulation to furnish
the Company with copies of all Section 16(a) forms that they file. Based solely
on review of the copies of such reports furnished to the Company or written
representation that no other reports were required, the Company believes that,
during fiscal year 1999, all filing requirements applicable to its officers and
directors were complied with.
-17-
<PAGE>
Item 10. Executive Compensation
Executive Compensation
The following table summarizes the compensation paid or accrued to the
Chief Executive Officer of the Company for the last three fiscal years in all
capacities in which he served the Company and its subsidiaries.
Summary Compensation Table
Annual Compensation
-------------------
Name and Other Annual
Principal Position Year Salary ($) Bonus ($) Compensation
- ------------------ ---- ---------- --------- ------------
($)
Donald V. Cruickshanks, President 1999(1) 24,167 25,952 93,000
and Chief Executive Officer 1998 140,000 61,637 (2)
1997 135,000 6,436 (2)
- -----------------
(1) Amounts for 1999 include salary and bonus paid by STIC during the
period prior to its sale on March 5, 1999. Amounts also include a bonus
of $75,000 and monthly consulting fees of $2,000 paid by the Company
following the sale of STIC.
(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.
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.
Stock Options
There were no stock options granted to or exercised by the executive
officer named in the "Summary Compensation Table" above during the year ended
December 31, 1999.
Director Compensation
Messrs. Morison and Settlage receive a fee of $500 for each meeting of
the Board of Directors that they attend, including travel expenses. Messrs.
Morison and Settlage also received grants of 10,000 shares of Common Stock each
for their service as directors and as consultants to the Company prior to their
respective appointments to the Board of Directors. Mr. Cruickshanks does not
receive any compensation for his service on the Board of Directors.
Item 11. Security Ownership of Certain Beneficial Owners and Management
Security Ownership of Management and Certain Beneficial Owners
The following table sets forth certain information regarding the
beneficial ownership of Common Stock as of March 30, 2000 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 nominee and director of the
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<PAGE>
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 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., P.O. Box 1398,
Richmond, Virginia 23218.
Name Common Stock Percent
- ---- ------------ -------
Donald V. Cruickshanks 1,065,995 20.1%
George Morison 10,000 0.2%
Steven P. Settlage 12,600 0.2%
All Directors and executive officers as a
group (4 persons) 1,088,595 20.5%
The H. William Coogan Irrevocable Trust 1,162,903 21.9%
Susan C. Coogan (1)
c/o Davenport & Company LLC
P.O. Box 85678
Richmond, Virginia 23285
H. William Coogan, Jr. 1,001,389 18.9%
1251 Avenue of the Americas, 51st Floor
New York, New York 10020
- -----------------
(1) Ms. Coogan is sole trustee of The H. William Coogan Irrevocable Trust.
Item 12. Certain Relationships and Related Transactions
STIC and H. William Coogan, Jr., a five percent owner of Common Stock
and formerly a director of the Company, were parties to an agreement dated
January 2, 1998 (the "Coogan Agreement"). Pursuant to the Coogan Agreement, Mr.
Coogan agreed to terminate his employment contract with STIC as of December 31,
1997 and forego a lump sum payment of $270,000 payable upon such termination in
return for STIC's agreement to pay Mr. Coogan $311,000 over a three-year period
commencing January 2, 1998. Such payments took the form of monthly payments of
$8,639, less applicable withholdings, a portion of which could have been applied
to health insurance, disability coverage and a leased automobile. STIC's
obligation to make such monthly payments terminates on December 31, 2000. As a
condition to the sale of the Company's title insurance-related subsidiaries to
Old Guard on March 5, 1999, the Company was required to satisfy STIC's remaining
obligations under the Coogan Agreement or provide security for the payment of
the monthly benefits otherwise due to Mr. Coogan under the Coogan Agreement. The
Company satisfied STIC's remaining obligations under the Coogan Agreement with a
cash payment of $165,573 to Mr. Coogan on March 11, 1999.
For related party information, see Note 9 to the Consolidated Financial
Statements.
-19-
<PAGE>
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, incorporated by reference to
the Company's Annual Report on Form 10-KSB for the fiscal year
ended June 30, 1996.
(b) Reports on Form 8-K.
None.
-20-
<PAGE>
FIRSTMARK CORP. AND SUBSIDIARIES
Consolidated Financial Statements for the
Years Ended December 31, 1999 and 1998,
and Independent Auditors' Report
-21-
<PAGE>
FIRSTMARK CORP. AND SUBSIDIARIES
TABLE OF CONTENTS
- -------------------------------------------------------------------------------
Page
INDEPENDENT AUDITORS' REPORT 23
FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 1999 AND 1998:
Consolidated Balance Sheets 24-25
Consolidated Statements of Operations 26
Consolidated Statements of Stockholders' Equity 27
Consolidated Statements of Cash Flows 28-29
Notes to Consolidated Financial Statements 30-48
-22-
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Firstmark Corp.
We have audited the accompanying consolidated balance sheets of Firstmark Corp.
and subsidiaries as of December 31, 1999 and 1998, and the related consolidated
statements of operations, stockholders' equity, and cash flows for the years
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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
audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the companies at December 31, 1999
and 1998, and the results of their operations and their cash flows for the years
then ended in conformity with accounting principles generally accepted in the
United States of America.
As discussed in Notes 1 and 3 to the consolidated financial statements, the
Company sold its principal subsidiary to the Old Guard Group, Inc. on March 5,
1999.
DELOITTE & TOUCHE LLP
Richmond, Virginia
March 30, 2000
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<PAGE>
FIRSTMARK CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS 1999 1998
<S> <C> <C>
Cash and cash equivalents $4,541,344 $ 53,575
Receivables:
Receivables - trade, net 186,398 2,703
Receivables - related parties -- 48,062
---------- ----------
Total receivables 186,398 50,765
---------- ----------
Notes receivable:
Notes receivable - net -- 25,290
Notes receivable - related parties -- 9,773
---------- ----------
Total notes receivable -- 35,063
---------- ----------
Investments:
Marketable securities 72,828 139,112
Venture capital investments - net 65,000 424,728
Real estate and other investments 418,433 613,653
---------- ----------
Total investments 556,261 1,177,493
---------- ----------
Other assets:
Property, plant, and equipment - net 9,183 11,260
Deferred tax asset - net of valuation allowance 19,428 296,680
Other assets 20,739 11,603
---------- ----------
Total other assets 49,350 319,543
---------- ----------
Net assets of discontinued title insurance operations -- 6,189,261
---------- ----------
TOTAL ASSETS $5,333,353 $7,825,700
========== ==========
</TABLE>
See notes to consolidated financial statements.
- 24-
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1999 1998
<S> <C> <C>
LIABILITIES:
Accounts payable and other liabilities $ 88,252 $ 215,333
Borrowed funds -- 565,000
Deferred tax liability 19,428 296,680
Related party payable -- 114,712
---------- ----------
Total liabilities 107,680 1,191,725
---------- ----------
STOCKHOLDERS' EQUITY:
Preferred stock, Series A, $0.20 par value - authorized,
250,000 shares issued: 1999 - 53,500 and 1998 - 57,00
(liquidation preference: 1999 - $2,140,000 and 1998 - $2,280,000) 10,700 11,400
Common stock, $0.20 par value - authorized
30,000,000 shares; issued, 5,501,430 1,100,286 1,100,286
Additional paid-in capital - preferred 2,023,589 2,162,889
Additional paid-in capital - common 11,358,400 11,432,709
Retained earnings (deficit) (8,569,964) (7,353,293)
Treasury stock, at cost - 179,387 and
181,554 shares, respectively (663,486) (737,528)
Net accumulated comprehensive income -
net of taxes (33,852) 17,512
---------- ----------
Total stockholders' equity 5,225,673 6,633,975
---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $5,333,353 $7,825,700
========== ==========
</TABLE>
-25-
<PAGE>
FIRSTMARK CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999 AND 1998
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
REVENUES:
Investment gains (losses) $ (17,779) $ 21,523
Interest and dividends 195,516 48,625
----------- -----------
Total revenues 177,737 70,148
----------- -----------
EXPENSES:
Employee compensation and benefits 18,600 108,977
Write-offs of loans and investments 627,059 1,164,355
General and administrative expenses 855,882 536,381
Interest expense 8,995 49,363
----------- -----------
Total expenses 1,510,536 1,859,076
----------- -----------
Loss from continuing operations before income taxes (1,332,799) (1,788,928)
INCOME TAX (BENEFIT) EXPENSE -- (103,848)
----------- -----------
Net loss from continuing operations (1,332,799) (1,685,080)
DISCONTINUED OPERATIONS:
Income from discontinued operations - net of tax 122,115 432,776
Gain (loss) from disposal of discontinued operations - net of tax 126,613 (3,239,119)
----------- -----------
Net income (loss) from discontinued operations 248,728 (2,806,343)
----------- -----------
NET LOSS (1,084,071) (4,491,423)
PREFERRED STOCK DIVIDEND (132,600) (136,800)
----------- -----------
NET LOSS APPLICABLE TO COMMON SHARES (1,216,671) (4,628,223)
----------- -----------
OTHER COMPREHENSIVE INCOME (LOSS) - NET OF TAX:
Unrealized holding gains (losses) arising during period (51,364) 20,125
Less: Reclassification adjustment for gains included in net income -- 192,377
----------- -----------
Other comprehensive income (loss) (51,364) 212,502
----------- -----------
COMPREHENSIVE LOSS APPLICABLE TO COMMON SHARES $(1,268,035) $(4,415,721)
=========== ===========
Basic and diluted earnings (loss) per common share:
Loss from continuing operations $ (0.28) $ (0.34)
Discontinued operations 0.05 (0.53)
----------- -----------
Net loss $ (0.23) $ (0.87)
=========== ===========
Comprehensive loss applicable to common shares $ (0.24) $ (0.83)
=========== ===========
Weighted-average number of shares outstanding $ 5,315,878 $ 5,303,684
=========== ===========
</TABLE>
See notes to consolidated financial statements.
-26-
<PAGE>
FIRSTMARK CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999 AND 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Additional Additional
Paid-In Paid-In
Capital - Preferred Capital -
Common Common Stock - Preferred
Stock Stock Series A Stock
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1998 $ 1,100,286 $ 11,498,331 $ 11,400 $ 2,162,889
Net loss -- -- -- --
Treasury stock issued -- (65,622) -- --
Reclassification adjustment for gains
included in income -- -- -- --
Net change in unrealized gain on securities
available for sale -- -- -- --
Preferred dividends paid -- -- -- --
------------ ------------ ------------ ------------
BALANCE, DECEMBER 31, 1998 1,100,286 11,432,709 11,400 2,162,889
Net loss -- -- -- --
Treasury stock issued -- (74,309) -- --
Treasury stock purchased -- -- -- --
Preferred stock purchased -- -- (700) (139,300)
Net change in unrealized gain on securities -- -- -- --
available for sale
Preferred dividends paid -- -- -- --
------------ ------------ ------------ ------------
BALANCE, DECEMBER 31, 1999 $ 1,100,286 $ 11,358,400 $ 10,700 $ 2,023,589
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Retained Other
Earnings Treasury Comprehensive
(Deficit) Stock Income Total
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1998 $ (2,725,070) $ (818,773) $ (194,990) $ 11,034,073
Net loss (4,491,423) -- -- (4,491,423)
Treasury stock issued -- 81,245 -- 15,623
Reclassification adjustment for gains
included in income -- -- 20,125 20,125
Net change in unrealized gain on securities
available for sale -- -- 192,377 192,377
Preferred dividends paid (136,800) -- -- (136,800)
------------ ------------ ------------ ------------
BALANCE, DECEMBER 31, 1998 (7,353,293) (737,528) 17,512 6,633,975
Net loss (1,084,071) -- -- (1,084,071)
Treasury stock issued -- 77,609 -- 3,300
Treasury stock purchased -- (3,567) -- (3,567)
Preferred stock purchased -- -- -- (140,000)
Net change in unrealized gain on securities -- (51,364) (51,364)
available for sale
Preferred dividends paid (132,600) -- -- (132,600)
------------ ------------ ------------ ------------
BALANCE, DECEMBER 31, 1999 $ (8,569,964) $ (663,486) $ (33,852) $ 5,225,673
============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
-27-
<PAGE>
FIRSTMARK CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999 AND 1998
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
OPERATING ACTIVITIES FROM CONTINUING OPERATIONS:
Net loss from continuing operations $(1,332,799) $(1,685,080)
Adjustments to reconcile net loss to net cash
used by operating activities:
Deferred income taxes -- (103,848)
Depreciation and amortization 2,077 5,131
Amortization of goodwill -- 44,933
Write-down of investments 359,728 664,170
Write-down of real estate 196,937 210,000
Write-down of note receivable -- 28,529
Loss on sale of assets 17,779 --
Gain recognized on available for sale securities -- (7,402)
Other than temporary adjustment -- 308,523
Changes in assets and liabilities:
Decrease (increase) in:
Accounts receivable (9,297) 24,600
Net decrease in notes receivable 25,290 12,020
Net decrease in notes receivable from related parties 9,773 40,527
Other assets (9,136) 1,042
Advances to related parties 48,062 --
Refundable income taxes -- 248,776
Increase (decrease) in:
Accounts payable and other liabilities (127,086) 21,961
Accounts payable to related party (114,712) (18,101)
----------- -----------
Net cash used by operating activities (933,384) (204,219)
----------- -----------
</TABLE>
(Continued)
-28-
<PAGE>
FIRSTMARK CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
YEARS ENDED DECEMBER 31, 1999 AND 1998
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
INVESTING ACTIVITIES:
Proceeds from sale of real estate 12,522 --
Proceeds from available-for-sale securities -- 79,362
Proceeds from payments of venture capital loans -- 139,647
Purchase of available-for-sale securities -- (1,592)
Purchase of real estate and other investments (32,018) (13,985)
----------- -----------
Net cash provided (used) by investing activities (19,496) 203,432
----------- -----------
FINANCING ACTIVITIES:
Repayment of convertible notes (485,000) --
Proceeds from borrowed funds 115,000 80,000
Payments on borrowed funds (195,000) (100,000)
Issuance of treasury stock 3,300 15,625
Purchase of treasury stock (3,567) --
Purchase of preferred stock (140,000) --
Preferred stock dividends (132,600) (136,800)
----------- -----------
Net cash used by financing activities (837,867) (141,175)
----------- -----------
CASH PROVIDED (USED) BY CONTINUING OPERATIONS (1,790,747) (141,962)
----------- -----------
DISCONTINUED OPERATIONS:
Net proceeds from sale 6,278,516 --
Operating activities -- (225,620)
Investing activities -- 219,085
Financing activities -- (87,965)
----------- -----------
CASH PROVIDED (USED) BY DISCONTINUED OPERATIONS 6,278,516 (94,500)
----------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 4,487,769 (236,462)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 53,575 290,037
----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 4,541,344 $ 53,575
=========== ===========
</TABLE>
See notes to consolidated financial statements.
-29-
<PAGE>
FIRSTMARK CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
- -------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations - Firstmark Corp. and its subsidiaries, based in
Richmond, Virginia, are engaged primarily in the management of its real
estate and venture capital investments. Until March 5, 1999, the Company
was also engaged in issuing title insurance policies in the Mid Atlantic
Region of the United States. See "Sale of Principal Subsidiary" below.
Sale of Principal Subsidiary - On March 5, 1999, Firstmark Corp. sold all
of the issued and outstanding capital stock of Investors Southern
Corporation ("ISC") pursuant to an agreement between Firstmark Corp.,
Southern Capital Acquisition Corporation ("SCAC"), ISC, Southern Title
Insurance Corporation ("STIC") and Old Guard Group, Inc. ("Old Guard")
dated December 2, 1998.
Firstmark Corp. is the parent company of SCAC, which owned all of the
outstanding shares of the capital stock of ISC prior to the sale. ISC is a
holding company and owns all of the outstanding shares of the capital
stock of STIC, a title insurance company, as well as several other
entities conducting activities related to the title insurance and
settlement business. As a result of the transaction ISC and STIC,
Firstmark's principal operating subsidiary, became wholly owned
subsidiaries of Old Guard. The results of operations of ISC have been
reported separately as discontinued operations in the accompanying
financial statements (see Note 3).
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 and affiliates. Investments in companies in which ownership
interest range from 20 to 50 percent, or in which 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 transactions have
been eliminated.
Debt and Equity Securities - In accordance with Statement of Financial
Accounting Standards ("SFAS") No. 115, all marketable securities
classified as 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, available-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 other than temporarily impaired is
shown as a component of stockholders' equity on the balance sheet, net of
taxes. Gains or losses realized upon sale, unrealized gains or losses on
trading securities, and write-downs necessitated by other than temporary
impairment are reflected in income. The cost of securities sold is based
on the specific identification method. At December 31, 1997, all trading
securities were transferred to available for sale at market value; all
gains or losses on such securities were reflected in income on that date.
-30-
<PAGE>
Real Estate - Investment real estate is stated at the lower of cost or
estimated net realizable value, less cost of disposal. 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. Costs of individual units sold are determined by allocating
total costs based on the relative fair value of the units.
Other Investments - 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.
Title Plants (Discontinued Operations) - Title plants consist of title
records relating to particular regions and are stated at cost. The costs
of acquired title plants and building of new title plants, prior to the
time the plants are put into operation, are capitalized. Expenses such as
salaries and supplies associated with current maintenance are charged to
expense in the year incurred. The cost of title plants is not being
amortized because there is no diminution in their value. Title plants are
included as part of the net assets of discontinued title insurance
operations.
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 was amortized on a straight line basis over 5 to
20 years from the date of acquisition until the sale of ISC, which was
recorded as of December 31, 1998.
Reserve for Loan Losses - The Company measures impairment of loans in
accordance with SFAS No. 114, "Accounting by Creditors for Impairment of a
Loan," as amended by SFAS No. 118. SFAS No. 114 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.
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.
Revenue Recognition (Discontinued Operations) - 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.
Reserve for Policy Claims (Discontinued Operations) - 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.
-31-
<PAGE>
Reinsurance (Discontinued Operations) - In the normal course of business,
the Company seeks to limit its exposure to loss by, ceding reinsurance to
other insurance companies or reinsurers, certain levels of risk in various
areas of exposure. Amounts recoverable from reinsurers are estimated in a
manner consistent with the reinsured policy.
Escrow and Trust Deposits (Discontinued Operations) - 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 sheets.
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 (Loss) Per Common Share - Basic earnings per share (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. Basic earnings (loss) per
common share is equivalent to diluted earnings per common share as a
result of the antidilutive per share effect of losses from continuing
operations.
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.
Reclassifications - Certain reclassifications have been made to the
accompanying statements to permit comparison.
Recent Accounting Pronouncements - Statement of Financial Accounting
Standards No. 130 (SFAS 130), "Reporting Comprehensive Income,"
established standards for the reporting and presentation of comprehensive
income, which is divided into net income and other comprehensive income.
Other comprehensive income items are to be classified by their nature and
by their related accumulated balances in the appropriate financial
statements of a company. Generally, other comprehensive income includes
transactions not typically recorded as a component of net income such as
foreign currency items, minimum pension liability adjustments, and
unrealized gains and losses on certain debt and equity securities. SFAS
130 requires that such items be presented with equal prominence on a
comparative basis in the appropriate financial statements for fiscal years
beginning after December 15, 1997. Accordingly, the Company has adopted
SFAS 130 beginning with its 1998 fiscal year.
Statement of Financial Accounting Standards No. 131 (SFAS 131).
"Disclosures about Segments of an Enterprise and Related Information,"
establishes standards and disclosure requirements for the way companies
report information about operating segments, including related product
information, both in annual and interim reports issued to stockholders.
Operating segments are components of a company about which separate
financial information is available and which are used in determining
resources allocations and performance results. Information such as segment
net earnings, appropriate revenue and expense items and certain balance
sheet items are required to be presented, and such amount are required
-32-
<PAGE>
to be reconciled to the Company's combined financial information. This
standard is effective for financial statements issued for periods ending
after December 31, 1997, including interim periods. The Company has
adopted methodologies for reporting in compliance with SFAS 131.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("FAS No. 133"). FAS No. 133
establishes accounting and reporting standards for derivative instruments
and for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value.
In June 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of
FASB Statement No. 133" ("FAS No. 137"). FAS No. 137 amends FAS No. 133 to
defer its effective date to all fiscal quarters of all fiscal years
beginning after June 15, 2000. The Company is in the process of
determining the impact of adopting FAS No. 133.
2. ACQUISITIONS
Southern Capital Corp. - In June of 1996, Southern Capital Corp. ("SCC"),
a Virginia corporation, was merged into SCAC, 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,
mandatorily redeemable preferred stock, par value $.20 per share. The
mandatorily redeemable preferred stock began accruing dividends after
January 1, 1997. On April 2, 1997 the mandatorily redeemable preferred
stock along with accrued dividends was converted into 3,230,286 shares of
common stock. Additionally, the approval of the conversion of the Series B
Preferred Stock eliminated an obligation to establish a sinking fund
beginning April 1, 1997, for the redemption of such stock. The conversion
of the Series B mandatorily redeemable preferred stock required certain
amendments to the Company's Articles of Incorporation which were approved
by the Company's shareholders at a special meeting of shareholders held on
February 25, 1997.
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 approximately $1.0
million and is being amortized over 20 years on a straight-line basis. The
remaining goodwill was written off at December 31, 1998 as a result of the
disposition of the Company's title insurance operation.
3. DISCONTINUED OPERATIONS
As discussed in Note 1, the Company sold its wholly-owned subsidiary ISC
to Old Guard. The purchase price paid by Old Guard consists of two
components: cash paid in the amount of $6,750,000 upon consummation of the
transaction on March 5, 1999 and a three year earn-out to be paid in cash
within 90 days of $3,239,119 the end of each of the fiscal years ending
December 31, 1999, 2000, and 2001. The earn-out payment will be in an
amount equal to 25% of the pre-tax net income of ISC and subsidiaries for
such fiscal years less the cumulative net loss of ISC and its subsidiaries
during all such prior years. As the three year earn-out was contingent on
future earnings of the Discontinued Title Insurance Operations as of
December 31, 1998, the calculation of the loss on disposal for 1998
considered only the cash payment of $6,750,000 as proceeds from the sale.
Accordingly, the Company recognized a loss on disposal of a segment of its
business in the amount of $3,239,119 as of December 31, 1998. The loss
includes the excess of Net Assets of Discontinued Title Insurance
Operations over net cash received in an amount of $2,235,636. The loss
also includes the write off of goodwill, which resulted from the June
-33-
<PAGE>
1996 acquisition of SCC in the amount of $915,119 and prepaid legal fees
in the amount of $88,364 as of December 31, 1998. The gain on disposal of
the Discontinued Title Insurance Operations in 1999 includes an accrual
for the first year of the earn-out provision ($174,398) less certain
additional expenses of the sale.
The assets and liabilities of the title insurance business are classified
in the Company's consolidated balance sheet as "Net Assets of Discontinued
Title Insurance Operations" and consist of the following:
INVESTORS SOUTHERN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
ASSETS 1998
Cash and cash equivalents $ 3,208,446
Receivables 1,416,632
Investments 1,812,559
Title plants 3,563,008
Property and equipment - net 721,795
Deferred tax asset 933,441
Other assets 173,665
------------
TOTAL ASSETS $ 3,208,446
============
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES:
Accounts payable and other liabilities $ 572,943
Borrowed funds 407,440
Reserve for title policy claims 1,490,825
Deferred tax liability 933,441
------------
Total liabilities 3,404,649
------------
STOCKHOLDER'S EQUITY:
Common stock 1,004,218
Additional paid-in capital 8,779,167
Retained deficit (1,373,649)
Accumulated other comprehensive income, net of taxes 15,161
------------
Total stockholder's equity 8,424,897
------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 11,829,546
============
-34-
<PAGE>
The net income from operations of the title insurance business is
reflected in the Company's consolidated statement of operations as "Income
from Discontinued Operations" and is summarized as follows:
INVESTORS SOUTHERN CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
PERIOD FROM JANUARY 1, 1999 TO MARCH 5, 1999 AND
YEAR ENDED DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
REVENUES:
Title insurance premiums earned $ 1,685,550 $ 10,101,954
Title insurance premiums ceded (19,602) (47,243)
------------ ------------
Net title insurance premiums 1,665,948 10,054,711
Abstract related income 518,082 3,753,826
Investment gains -- 7,399
Interest and dividends 31,571 270,351
Other revenues 65,150 404,200
------------ ------------
Total revenues 2,280,751 14,490,487
------------ ------------
EXPENSES:
Commissions to agents 789,845 4,488,725
Salaries and employee benefits 887,978 5,408,843
Provision for policy claims 67,723 1,059,682
General and administrative expenses 371,612 2,577,963
Minority interest 41,478 528,124
------------ ------------
Total expenses 2,158,636 14,063,337
------------ ------------
INCOME BEFORE INCOME TAX BENEFIT 122,115 427,150
INCOME TAX EXPENSE (BENEFIT) -- (5,626)
------------ ------------
NET INCOME $ 122,115 $ 432,776
============ ============
</TABLE>
-35-
<PAGE>
4. INVESTMENTS
The following is a summary of the Company's investments:
<TABLE>
<CAPTION>
Continuing Operations
-----------------------
1999 1998
<S> <C> <C>
Marketable securities:
Available-for-sale $ 72,828 $ 139,112
---------- ----------
Venture capital investments:
Loans -- 324,728
Preferred stocks 65,000 100,000
---------- ----------
Total venture capital investments 65,000 424,728
---------- ----------
Real estate investments:
Real estate owned 200,311 315,357
Other real estate investments 208,913 289,087
---------- ----------
Total real estate investments 409,224 604,444
---------- ----------
Other investments:
Stamp investments 7,000 7,000
Art pieces 2,209 2,209
---------- ----------
Total other investments 9,209 9,209
---------- ----------
Total real estate and other investments 418,433 613,653
---------- ----------
Total Investments - Continuing Operations $ 556,261 $1,177,493
========== ==========
</TABLE>
-36-
<PAGE>
Discontinued
Operations
------------
1998
Marketable securities:
Available-for-sale:
Common stocks $ 75,748
Preferred stocks 137,250
Held to maturity:
Bonds and notes 1,470,410
----------
Total marketable securities 1,683,408
Other investments:
Common stocks 5,100
----------
Total Investments - Discontinued Operations $1,688,508
==========
Marketable Securities
Securities held to maturity and available for sale are as follows:
<TABLE>
<CAPTION>
Continuing Operations
December 31, 1999
------------------------------------------------------------
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Available-for-sale:
Common stocks $135,545 $17,956 $80,673 $ 72,828
======== ======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1998
------------------------------------------------------------
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Available-for-sale:
Common stocks $135,545 $ 3,964 $ 397 $139,112
======== ======= ======= ========
</TABLE>
There were no sales of investments available for sale for the year ended
December 31, 1999. Proceeds from sales of investments available for sale
were $79,362 for the year ended December 31, 1998. Gross gains of $7,402
were realized for the year ended December 31, 1998. There were no losses
realized on the sale of marketable securities during the years ended
December 31, 1999 and 1998. During 1998 the Company realized losses in the
amount of $308,523 as a result of a write-down due to other than temporary
impairment of marketable securities.
-37-
<PAGE>
<TABLE>
<CAPTION>
Discounted Operations
December 31, 1998
-----------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Available-for-sale:
Common stocks $ 70,027 $ 11,221 $ 5,500 $ 75,748
Preferred stocks 120,000 17,500 250 137,250
---------- ---------- ---------- ----------
190,027 28,721 5,750 212,998
Held-to-maturity:
Bonds and notes 1,470,410 18,764 1,726 1,487,448
---------- ---------- ---------- ----------
Total $1,660,437 $ 47,485 $ 7,476 $1,700,446
========== ========== ========== ==========
</TABLE>
There were no sales of investments available for sale for the period from
January 1, 1999 through March 5, 1999. Proceeds from sales of investments
available for sale were $17,979 for the year ended December 31, 1998.
Gross gains of $4,081 were realized for the year ended December 31, 1998.
There were no losses recognized for the year ended December 31, 1998.
The contractual maturities of bonds and notes as of December 31, 1998 are
as follows:
Discontinued Operations
---------------------------
December 31, 1998
Amortized Market
Cost Value
Due in 1 year or less $ 525,025 $ 525,391
Due after 1 year through 5 years 945,385 962,887
---------- ----------
$1,470,410 $1,488,278
========== ==========
Venture Capital Investments - The Company has 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 several of these investments. Total write-downs of these investments
in the years ended December 31, 1999 and 1998, were $359,728 and $606,250,
respectively.
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
currently being marketed. One lot was sold in 1999 at a loss of $17,779.
There were no sales of real estate for the year ended December 31, 1998.
The Cumberland Ledges investment is a 67% interest in Cumberland Ledges
joint venture, which owns 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 write-downs during the years ended December 31, 1999
and 1998, amounted to $196,937 and $210,000, respectively.
-38-
<PAGE>
5. NOTES RECEIVABLE
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.
The following is a summary of notes receivable - net:
1999 1998
Business loans $ 29,832 $ 80,063
Less reserve for loan losses (29,832) (45,000)
-------- --------
Total notes receivable - net $ -- $ 35,063
======== ========
6. PROPERTY, PLANT, AND EQUIPMENT
The following is a summary of property, plant and equipment - net:
Continuing Operations
-----------------------
1999 1998
Furniture, fixtures, and equipment $34,706 $34,706
Less: Accumulated depreciation 25,523 23,446
------- ------
Total property, plant, and equipment - net $ 9,183 $11,260
======= =======
Depreciation charged to operations was $2,077 and $5,131 for the years
ended December 31, 1999 and 1998, respectively.
Discontinued
Operations
------------
1998
Land and land improvements $ 68,500
Building 364,433
Furniture, fixtures, and equipment 1,585,571
Leasehold improvements 178,864
Property under capital lease 168,217
----------
2,365,585
Less: Accumulated depreciation 1,643,790
----------
Total property, plant, and equipment - net $ 721,795
==========
Depreciation charged to operations was $27,026 and $190,625 for the period
from January 1, 1999 to March 5, 1999 and the year ended December 31,
1998, respectively.
-39-
<PAGE>
7. BORROWINGS
<TABLE>
<CAPTION>
Continuing Operations
-----------------------
1999 1998
<S> <C> <C>
The convertible notes payable were due March 1, 1999,
and carried interest at 9%, the notes were convertible into
common stock of the Company at $5.00 per share;
in addition, the Company had the right to call the notes at
par value plus a 5% call premium (The notes were
subsequently paid in March 1999) $ -- $485,000
Bank line of credit, with interest paid monthly at LIBOR rate
plus 2%, balance due on demand or at August 31, 1999 -- 80,000
-------- --------
Total borrowings $ -- $565,000
======== ========
</TABLE>
<TABLE>
<CAPTION>
Discontinued
Operations
------------
1998
<S> <C>
Bankline of credit, unsecured, quarterly principal payments
of $12,500, plus monthly interest, balance due on demand
or at October 31, 1999, the expiration date of the line
(interest at the 30 day LIBOR rate plus 2%) $387,500
Capital lease obligations 19,940
--------
Total borrowings $407,440
========
</TABLE>
The bank line of credit from discontinued operations stipulates that any
dividend paid by Southern Title Insurance Corporation shall be used first
to pay out any outstanding loan balance under the line of credit.
In June of 1996, the Southern Title Insurance Corporation 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 $19,940. The corresponding liabilities have been
recorded as obligations under capital leases.
The future minimum lease payments, which were assumed by Old Guard as part
of the March 5, 1999 transaction, under the capital leases as of December
31, 1998, are as follows:
<TABLE>
<CAPTION>
<S> <C>
Total lease payments $25,515
Less: Amount representing interest 5,575
-------
Present value of future minimum lease payments $19,940
=======
</TABLE>
-40-
<PAGE>
8. INCOME TAXES
The following is a summary of income tax expense (benefit):
1998 Continuing Operations
-----------------------------------
Current Deferred Total
Federal $ -- $(103,848) $(103,848)
State -- -- --
--------- --------- ---------
$ -- $(103,848) $(103,848)
========= ========= =========
1998 Discontinued Operations
Current Deferred Total
-----------------------------------
Federal $ -- $ (5,626) $ (5,626)
State -- -- --
--------- --------- ---------
$ -- $ (5,626) $ (5,626)
========= ========= =========
There is no current or deferred income tax expense for the year ended
December 31, 1999. The actual tax expense (benefit) differs from the
expected tax benefit (computed at the U.S. federal corporate tax rate of
34.0% applied to earnings before income taxes) for the following reasons:
Continuing Operations
1999 1998
Expected tax expense (benefit) $(453,152) $(608,236)
Valuation allowance 453,152 504,332
Other -- 56
--------- ---------
$ -- $(103,848)
========= =========
Discontinued
Operations
---------
1998
Expected tax expense (benefit) $ 140,556
Realization of a valuation allowance (130,925)
Other (15,257)
--------
$ (5,626)
=========
-41-
<PAGE>
The tax effects of each type of significant item that gives rise to the
deferred taxes are:
<TABLE>
<CAPTION>
Continuing Operations
1999 1998
<S> <C> <C>
Deferred Tax Asset:
Allowance for loan losses $ 11,336 $ 17,100
Net unrealized loss on investments 506,757 366,928
Net unrealized loss on real estate 314,314 235,913
Net operating loss carryforwards 595,000 1,601,237
Net unrealized loss on securities available for sale 8,223 --
Other 17,305 17,305
----------- -----------
Deferred tax asset 1,452,935 2,238,483
Less: Valuation allowance (1,433,507) (1,941,803)
----------- -----------
Net deferred tax asset $ 19,428 $ 296,680
=========== ===========
Deferred Tax Liability:
Net unrealized gain on securities available for sale $ -- $ 1,213
Unrealized gain on sale of subsidiaries -- 275,900
Depreciation 1,992 2,131
Other 17,436 17,436
----------- -----------
Deferred tax liability $ 19,428 $ 296,680
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
Discontinued
Operations
------------
1998
<S> <C>
Deferred Tax Asset:
Allowance for loan losses $ 38,000
IBNR reserve 453,570
Net operating loss carryforwards (426,085)
-----------
Deferred tax asset $ 65,485
===========
Deferred Tax Liability:
Premium reserve $ 860,776
Net unrealized gain on securities available for sale 7,810
Depreciation 64,855
-----------
Deferred tax liability 933,441
Less: Valuation allowance 867,956
-----------
Net deferred tax asset $ --
===========
</TABLE>
-42-
<PAGE>
During the year ended December 31, 1999 and 1998, the Company recorded a
valuation allowance of $1,433,507 and $1,941,803, respectively on the net
deferred tax assets to reduce the total amount that management believes
will ultimately be realized. Realization of deferred tax assets is
dependent upon sufficient future taxable income during the period that
temporary differences and carryforwards are expected to be available to
reduce taxable income.
The Company has net operating loss carryforwards of approximately $1.7
million for federal income tax purposes, which expire beginning in 2012.
9. 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.
1999 1998
Interest bearing notes:
Employees and independent agents $ -- $ 9,773
------ --------
Advances to related parties:
Limited partnerships in operation $ -- $ 48,062
------ --------
10. CASH FLOW INFORMATION
Cash paid for interest and income taxes is as follows:
1999 1998
Interest $8,995 $101,810
====== ========
11. PREFERRED STOCK
At December 31, 1999 and 1998, the Company had 53,500 and 57,000 shares,
respectively, of nonvoting 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 of date of
issue. Since all of the Series A Preferred Stock was issued prior to June
30, 1995, the warrants have expired. 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 AND CONTINGENCIES
The Securities and Exchange Commission has completed an investigation of
possible securities violations by the Company and its former subsidiaries
for periods prior to March 31, 1996 relating entirely to the Company's
prior management, all of whom have resigned from their positions with the
Company. As a result, the SEC has issued a cease-and-desist order relating
to such prior actions. The SEC did not impose any financial penalty upon
the Company.
In the normal course of business, the Company is involved in litigation
from time to time. In the opinion of Management, none of the proceedings
will have a material effect on the Company's financial position or results
of operations.
-43-
<PAGE>
13. REGULATORY REQUIREMENTS
The Company's title insurance subsidiary, STIC, was subject to a
$4,000,000 minimum level of capital and surplus, at December 31, 1998, as
required by statutes of the states in which it is authorized to do
business. STIC was also subject to regulations under which the payment of
certain dividends required the prior approval of applicable insurance
regulatory authorities. At December 31, 1998, STIC exceeded all minimum
statutory capital requirements.
The maximum amount of dividends which can be paid by insurers domiciled in
the Commonwealth of Virginia without prior approval of the Insurance
Commissioner is subject to restrictions relating to statutory surplus. As
required by state law, STIC's statutory surplus at December 31, 1998 was
$4,613,669. In accordance with these restrictions, $596,190 was available
for dividends subject to the broad discretionary powers of insurance
regulatory authorities to further limit dividend payments of insurance
companies.
At December 31, 1998, investments and certificates of deposits with a book
value of $989,961 were either on deposit with various regulatory
authorities or held by Southern Title in accordance with statutory
requirements for the protection of its policyholders.
14. STATUTORY FINANCIAL INFORMATION
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles ("GAAP"), which
differ in some respects from the statutory accounting requirements for
reporting in Southern Title's annual statements filed with insurance
regulatory authorities. Reconciliation's of net earnings and stockholder's
equity as reported to the insurance regulatory authorities to that
reported in the accompanying consolidated financial statements are as
follows:
1998
----------------------------
Net
Earnings Stockholders'
(Loss) Equity
Balances - Firstmark Consolidated - GAAP basis $ 4,812,268 $ 6,633,975
Adjustments:
Losses and stockholders' deficit of companies
not included in statutory reporting 4,812,268 2,151,191
----------- -----------
Balances - Southern Title - GAAP basis 320,845 8,785,166
Adjustments:
Statutory reserves (174,852) (2,816,191)
Restored nonadmitted assets 31,230 (2,687,411)
IBNR reserve 541,757 1,149,603
Deferred income taxes 107,629 165,023
----------- -----------
Balances - Southern Title - statutory basis $ 826,609 $ 4,596,190
=========== ===========
-44-
<PAGE>
15. LIABILITY FOR UNPAID CLAIMS AND CLAIMS ADJUSTMENT EXPENSES
Activity in the liability for unpaid claims and claims adjustment expenses
is summarized as follows:
1998
Balance, beginning $ 1,027,607
------------
Incurred related to:
Current period 874,206
Prior periods 185,471
------------
Total incurred 1,059,677
------------
Paid net of recoveries related to:
Current period 133,891
Prior periods 462,568
------------
Total paid 596,459
------------
Balance, ending $ 1,490,825
============
As a result of changes in estimates of insured events in prior periods,
the provision for claims and claims adjustment expenses increased by
$557,290 (including an increase of $400,000 in the IBNR reserve, which was
an element of the transaction with Old Guard) during the year ended
December 31, 1998.
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
exposures. Premiums earned in 1998 exclude $47,243 of charges for
reinsurance ceded to reinsurance companies. No reinsurance is expected to
be recovered on claims filed as of December 31, 1998.
The effect of reinsurance on premiums earned is as follows:
1999 1998
Premiums assessed against policyholders $ 1,685,550 $ 10,101,954
Reinsurance ceded (19,602) (47,243)
------------ ------------
Net premium earned $ 1,665,948 $ 10,054,711
============ ============
The Company evaluates the financial condition of its reinsurer and
monitors concentrations of credit risk arising from similar geographic
regions, activities, or economic characteristics of the reinsurer to
minimize its exposure to significant losses for reinsurance insolvencies.
-45-
<PAGE>
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.
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 Receivables 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 4 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
based on the current estimated net realizable value.
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 December 31, 1998, fair value
approximates carrying value. There were no convertible notes payable and
other borrowings at December 31, 1999.
-46-
<PAGE>
The estimated fair values of the Company's financial instruments are as
follows:
1999 1998
------------------- -------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
Venture capital investments
for which it is practicable to
estimate fair value $ 65,000 $ 65,000 $424,728 $424,728
Notes receivable -- -- 35,063 35,063
-------- -------- -------- --------
$ 65,000 $ 65,000 $459,791 $459,791
======== ======== ======== ========
17. INDUSTRY SEGMENT INFORMATION
The following summarizes the Company's operating results and certain other
financial information by industry segment. The venture capital and other
investments segment includes principally the Company's investments in, or
loans to, several start-up companies and its investments in real estate.
The segment also includes the Company's investments in marketable
securities, loans, and cash and other investments.
1999 1998
Revenues:
Venture capital and other investments $ 177,737 $ 70,148
Title insurance 2,280,751 14,490,487
------------ ------------
$ 2,458,488 $ 14,560,635
============ ============
Earnings (losses) before income taxes:
Venture capital and other investments $ (1,332,799) $ (1,788,928)
Title insurance 122,115 427,150
------------ ------------
$ (1,210,684) $ (1,361,778)
============ ============
Identifiable assets:
Venture capital and other investments $ 5,333,353 $ 1,636,443
Title insurance -- 11,829,546
------------ ------------
$ 5,333,353 $ 13,465,989
============ ============
-47-
<PAGE>
18. OTHER COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
Continuing Operations
December 31, 1999
---------------------------------------
Before-Tax Tax Net-of-tax
Amount Expense Amount
<S> <C> <C> <C>
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising
during period $ (66,284) $ 14,920 $ (51,364)
----------- ----------- ---------
Other comprehensive income (loss) $ (66,284) $ 14,920 $ (51,364)
=========== =========== =========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1998
---------------------------------------
Before-Tax Tax Net-of-tax
Amount Expense Amount
<S> <C> <C> <C>
Unrealized gains on securities:
Unrealized holding gains arising during period $ 13,945 $ (4,741) $ 9,204
Less: Reclassification adjustment for gains
realized in net income 291,483 (99,104) 192,379
----------- ----------- ---------
Other comprehensive income $ 305,429 $ (103,846) $ 201,583
=========== =========== =========
</TABLE>
<TABLE>
<CAPTION>
Discontinued Operations
December 31, 1998
---------------------------------------
Before-Tax Tax Net-of-tax
Amount Expense Amount
<S> <C> <C> <C>
Unrealized gains on securities:
Unrealized holding gains arising
during period $ 16,547 $ (5,626) $ 10,921
=========== =========== =========
Other comprehensive income $ 16,547 $ (5,626) $ 10,921
=========== =========== =========
</TABLE>
* * * * * *
-48-
<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: March 31, 2000 By: /s/ Donald V. Cruickshanks
--------------------------
Donald V. Cruickshanks
President 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/ Donald V. Cruickshanks President and Chief Executive March 31, 2000
- -------------------------- Officer and Director
Donald V. Cruickshanks (Principal Executive Officer)
/s/ Ronald C. Britt Chief Financial Officer, Secretary and March 31, 2000
- -------------------------- Treasurer (Principal Financial and
Ronald C. Britt Principal Accounting Officer)
/s/ George H. Morison Director March 31, 2000
- --------------------------
George H. Morison
Director March , 2000
- --------------------------
Steven P. Settlage
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 4,541,344
<SECURITIES> 72,828
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 19,126
<DEPRECIATION> 9,943
<TOTAL-ASSETS> 5,333,353
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
10,700
<COMMON> 1,100,286
<OTHER-SE> 4,114,687
<TOTAL-LIABILITY-AND-EQUITY> 5,333,353
<SALES> 0
<TOTAL-REVENUES> 177,737
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,501,541
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,995
<INCOME-PRETAX> (1,332,799)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,332,799)
<DISCONTINUED> 248,728
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,084,071)
<EPS-BASIC> (0.24)
<EPS-DILUTED> (0.24)
</TABLE>
