SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A
AMENDMENT NO. 2 TO
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 1996
Commission File Number: 0-20806
FIRSTMARK CORP.
(Exact Name of Small Business Issuer as Specified in its Charter)
Maine 01-0389195
(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or Organization)
222 Kennedy Memorial Drive
Waterville, Maine 04901
(Address of Principle Executive Offices)
(207) 873-6362
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes __X__ No _____
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date:
2,068,990 shares of common stock, par value $0.20 per share,
outstanding as of September 30, 1996
FIRSTMARK CORP.
TABLE OF CONTENTS
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Page No.
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Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheet
September 30, 1996 and June 30, 1996 ........................... 3
Condensed Consolidated Statements of Operations
Three Months Ended September 30, 1996 and 1995 ................. 5
Condensed Consolidated Statements of Cash Flows
Three Months Ended September 30, 1996 and 1995 ................. 6
Notes to Condensed Consolidated Financial Statements ........... 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operation .............................. 10
Part II Other Information
Item 1. Legal Proceedings ..................................... 13
Item 2. Change in Securities .................................. 13
Item 3. Defaults Upon Senior Securities ....................... 13
Item 4. Submission of Matters to a Vote of Security Holders.... 13
Item 5. Other Information ..................................... 13
Item 6. Exhibits and Reports on Form 8-K ...................... 13
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PART I -- FINANCIAL INFORMATION
FIRSTMARK CORP.
Condensed Consolidated Balance Sheets
===============================================================================
ASSETS
September 30, 1996 June 30, 1996
(Unaudited) *
Cash and cash investments $ 1,757,217 $ 1,707,327
Accounts and Notes Receivables - trade, net 1,085,595 1,285,212
Accounts and Notes Receivables - related parties 235,365 263,051
Income taxes receivables 537,263 436,910
Marketable securities:
Trading 348,108 386,470
Held for Sale 1,176,239 1,355,376
Held to Maturity 1,997,557 2,000,536
Venture capital investments, net 2,174,638 2,026,176
Real estate and other investments 1,628,218 1,611,455
Title plant 3,544,243 3,544,243
Property, plant and equipment, net 1,096,124 1,130,572
Excess of cost over fair value 1,115,221 1,111,777
Deferred tax asset 829,591 829,591
Other assets 178,239 263,361
----------- -----------
$17,703,618 $17,952,057
=========== ===========
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FIRSTMARK CORP.
Condensed Consolidated Balance Sheets
===============================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, 1996 June 30, 1996
------------------ -------------
(Unaudited) *
Liabilities
Accounts payable and other liabilities $ 348,262 $ 422,120
Borrowed funds 1,861,795 1,885,561
Reserve for title policy claims 953,691 944,754
Deferred tax liability 937,573 931,817
------------ ------------
Total Liabilities $ 4,101,321 $ 4,184,252
============ ============
Redeemable Preferred stock, Series B, $0.20 par value
authorized 188,000 shares;issued 40,000 shares
(liquidation preference $8,000,000) 8,750,000 8,750,000
Stockholders' Equity
Preferred stock, Series A, $0.20 par value -
authorized 250,000 shares; issued 57,000 and
60,000 shares, respectively,
(liquidation preference $2,280,000) 11,400 11,400
Common stock, $0.20 par value - authorized
5,000,000 shares; issued 2,271,044 and 2,196,040
shares, respectively 454,209 454,209
Additional paid-in capital - preferred 2,162,889 2,162,889
Additional paid-in capital - common 3,393,992 3,393,992
Retained earnings (deficit) (418,976) (234,852)
Treasury stock, at cost - 201,554 and 45,770
shares, respectively (818,773) (818,773)
Net unrealized gain (loss) on marketable
equity securities held for sale 67,556 48,940
------------ ------------
Total Stockholders' Equity 13,602,297 13,767,805
------------ ------------
$ 17,703,618 $ 17,952,057
============ ============
*Condensed from audited financial statements
The accompanying notes are an integral part of these condensed financial
statements.
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FIRSTMARK CORP.
Condensed Consolidated Statements of Operations (Unaudited)
===============================================================================
Three Months Ended
September 30,
-------------
1996 1995
---- ----
Revenues
Commissions and fees $ 285,902 $ 412,289
Title insurance 2,915,185 0
Investment gains (93,641) 821,020
Interest and dividends 91,555 42,662
Other revenues 352 572
----------- ----------
Total revenues 3,199,353 1,276,543
=========== ==========
Expenses
Employee compensation and benefits 2,523,113 336,475
Write-offs of loans and investments 0 150,000
General and administrative expenses 894,633 209,561
Interest expense 31,884 21,446
----------- ----------
Total expenses 3,449,630 717,482
=========== ==========
Earnings (losses) before income taxes (250,277) 559,061
Income tax (benefit) expense (100,353) 212,400
----------- ----------
Net earnings (loss) (149,924) 346,661
Preferred stock dividend 34,200 36,000
----------- ----------
Net earnings (loss) available for common shares (184,124) 310,661
=========== ==========
Earnings (loss) per share (.089) .14
=========== ==========
Weighted number of shares and
equivalents outstanding 2,068,990 2,178,952
=========== ==========
The accompanying notes are an integral part of these condensed financial
statements.
-5-
FIRSTMARK CORP.
Condensed Consolidated Statements of Cash Flows (Unaudited)
===============================================================================
Three Months Ended
September 30,
-------------
1996 1995
---- ----
Cash flows from Operating Activities
Net income (loss) $(149,924) $ 346,661
Adjustments to reconcile net income
to net cash provided by operating activities
Depreciation and amortization 78,826 16,267
Deferred Taxes 5,756 --
Gain on InterCel -- (699,865)
Loss on sales of investments 93,641 --
Unrealized gains (18,616) (78,698)
Write-down of investments -- 150,000
Net (increase) decrease in notes receivable 49,583 (276,996)
Marketable securities - trading account 38,362 117,253
Collections on accounts receivable 177,720 101,266
Change in other assets 85,122 413,379
Decrease in payables (64,921) (121,047)
Increase (decrease) in income taxes payable -- 122,400
Increase in income taxes receivables (100,353) --
--------- ---------
Net cash provided (used) by operating activities 195,196 90,620
========= =========
Cash flows from Investing Activities
Decrease (increase) in real estate (16,763) (8,700)
Acquisition costs (23,357) --
Additions to other investments (148,462) (200,000)
Securities held for investments 125,707 111,363
Purchase of property and equipment (24,465) (6,348)
--------- ---------
Net cash used by investing activities (87,340) (103,685)
========= =========
(continued . . .)
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FIRSTMARK CORP.
Condensed Consolidated Statements of Cash Flows (Unaudited)
(continued)
===============================================================================
Three Months Ended
September 30,
-------------
1996 1995
---- ----
Cash flows from Financing Activities
Issuance (purchase) of common stock -- 35,508
Payments on other liabilities -- (11,119)
Preferred stock dividends (34,200) (36,000)
Borrowings (repayments) of debt (23,766) --
--------- ---------
Net cash provided (used) by financing activities (57,966) (11,611)
========= =========
Net change in cash and cash investments 49,890 (24,676)
Cash and cash investments, beginning of period 1,707,327 1,622,016
--------- ---------
Cash and cash investments, end of period 1,757,217 1,597,340
--------- ---------
Cash payments for
Interest 31,884 21,446
Income taxes 0 90,000
--------- ---------
$ 31,884 $ 111,446
========= =========
The accompanying notes are an integral part of these condensed financial
statements.
-7-
FIRSTMARK CORP.
Notes to Condensed Consolidated Financial Statements (Unaudited)
===============================================================================
BASIS OF PRESENTATION
1. The accompanying unaudited consolidated financial statements, which
are for interim periods, do not include all disclosures provided in the annual
consolidated financial statements. These unaudited consolidated financial
statements should be read in conjunction with the consolidated financial
statements and the footnotes thereto contained in the Annual Report on Form
10-KSB for the year ended June 30, 1996 of Firstmark Corp. (the "Company"), as
amended, as filed with the Securities and Exchange Commission. The June 30, 1996
balance sheet was derived from audited consolidated financial statements, but
does not include all disclosures required by generally accepted accounting
principles.
2. In the opinion of the Company, the accompanying unaudited
consolidated financial statements contain all adjustments (which are of a normal
recurring nature) necessary for a fair presentation of the financial statements.
The result of operations for the three months ended September 30, 1996 are not
necessarily indicative of the results to be expected for the full year.
3. Earnings Per Share
Earnings per share are computed by dividing net earnings, after
reduction for preferred stock dividends, by the weighted average number of
common shares and share equivalents assumed outstanding during the year. Common
share equivalents included in the computation represent shares issuable upon
assumed exercise of stock options which would have a dilutive effect.
-8-
FIRSTMARK CORP.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(continued)
===============================================================================
SUBSEQUENT EVENTS
On November 18, 1996, C.J. Jones filed a Complaint against Champion
Broadcasting Corporation ("Champion"), the Company and Southern Capital Corp.
("SCC"), both of which are shareholders of Champion, and H. William Coogan, Jr.,
a director of all three entities, in the United States District Court for the
Eastern District of Virginia, Richmond Division. The Complaint alleges counts of
breach of contract, fraud and negligent misrepresentation against Champion, SCC
and Mr. Coogan and a count of misappropriation against SCC and Mr. Coogan in
connection with Mr. Jones's employment as Chairman and Chief Executive Officer
of Champion and his subsequent termination in September 1996. For these counts,
the Complaint seeks both compensatory damages in the amount of $3,277,384 and
punitive damages in the amount of $10,000,000, plus interest. Mr. Jones further
alleges a count of conspiracy against SCC, Mr. Coogan and the Company. For this
count, the Complaint seeks punitive damages in the amount of $12,000,000, which
have been trebled by statute to the amount of $36,000,000. The Company believes
that the Complaint is without any merit whatsoever and is defending this action
aggressively. Currently, the Company, as only an investor in Champion, is
seeking immediate dismissal as a defendant in this action. While it is possible
that the Company's results of operations or cash flows in a particular quarterly
or annual period or its financial position could be materially affected by an
ultimate unfavorable outcome, the Company believes that the ultimate outcome of
this matter should not have a material effect on its financial position.
-9-
FIRSTMARK CORP.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
===============================================================================
As of September 30, 1996, the Company was engaged in venture capital,
consulting services and title insurance. In June 1996, the Company, through its
wholly owned subsidiary, Southern Capital Acquisition Corp., acquired Southern
Capital Corp., a Virginia corporation ("SCC"). At the time of the acquisition,
SCC was engaged in venture capital investments and owned Southern Title
Insurance Corporation ("STIC"), a title insurance underwriter. In addition, the
Company invested its capital in and provided bridge loans to emerging growth or
startup companies, and provided financial consulting services to individuals,
institutions, and corporations.
In December 1996, the Company closed one of its subsidiaries, Firstmark
Prime Securities. In addition, in January 1997, the Company transferred the
stock of three subsidiaries, Firstmark Capital Corp., Firm Investment Corp. and
Firstmark Properties, Inc., to Ivy L. Gilbert, a director of the Company. These
subsidiaries conducted operations that included financial planning, investment
management, estate and tax planning, insurance planning and securities
brokerage. The Company generally determined that the revenue stream from those
businesses was too uncertain and uneven to justify the related operating
expenses.
The Company's results of operations for the three months ended
September 30, 1996 include the results of SCC and the Company's subsidiaries,
while the results of operations for the three months ended September 30, 1995
do not include the results of SCC.
Results of Operations
Three months ended September 30, 1996 vs.
Three months ended September 30, 1995
Total revenue during the three months ended September 30, 1996 was
$3,199,353, an increase of $1,992,810, compared to total revenue of $1,276,543
during the prior comparable quarter. The inclusion of the title insurance
revenues of $2,915,185 compared to none for the prior comparable quarter was the
major factor causing the increase in revenues. Title insurance fees are expected
to be the largest source of revenues in the future. Interest and dividend
revenue increased $48,933 to $91,555 for the quarter ended September 30, 1996 as
compared to $42,662 for the comparable prior quarter. This increase again was a
result of the addition of the title insurance operations and the interest and
dividends earned on the funds held to cover reserves for policyholders.
Investment gains/(losses) decreased $914,661 to a loss of $91,555 for the
quarter ended September 30, 1996 compared to a gain of $821,020 for the
comparable prior quarter. This increase was a result of two factors. In July
1995, the Company was able to reach agreements with all the interested parties
concerning shares of Intercel held in an acquisitions escrow account and was
able to report a gain of $648,708 as a result of this agreement. An
-10-
additional gain will be reported in May 1997 when the escrow distribution
occurs. The second factor results from losses for the first quarter in the
securities held for trading. These losses are a result of a drop in value of
several stocks of micro-cap companies that did not participate in the recent
stock market rally. Commission and fee income decreased $126,387 to $285,902 for
the quarter ended September 30, 1996 as compared to $412,289 for the comparable
prior quarter. This decrease is a result of fewer venture capital deals closing
during the quarter and a decrease in the level of activity in the financial
planning business.
Total operating expenses increased $2,732,148 to $3,449,630 for the
quarter ended September 30, 1996 compared to operating expenses of $717,482
during the prior comparable quarter. Employees compensation and benefits
increased $2,186,638 to $2,523,113 for the three months ended September 30, 1996
as compared to $336,475 for the comparable prior period. This increase is mainly
a result of the acquisition of SCC in June 1996, as the title insurance
operation is very labor intensive. General and administrative expenses increased
$685,072 to $894,633 for the quarter ended September 30, 1996 compared to
$209,561. The general and administrative expenses are above the 1995 levels
because of the operations of the title company, which were not in the 1995
comparable balances. The title company operates in 10 different offices and thus
expenses will be higher. The write-off of loans and investments decreased
$150,000 to $0 for the quarter ended September 30, 1996 as compared to the
comparable period last year. No new write-offs were deemed necessary by
management during the quarter. Interest expense increased by $10,438 to $31,884
for the quarter ended September 30, 1996 as compared to the prior comparable
quarter. This increase is a result of the additional borrowed funds of SCC.
Overall net income decreased by $496,585 to a loss of $149,924 for the
quarter ended September 30, 1996 as compared to $346,661 income for the prior
comparable quarter. This decrease was mainly a result of the quarter ended
September 30, 1995 having the Unicel gain of $699,865.
Liquidity and Capital Resources
The Company's cash and cash equivalents were approximately $1,700,000
at June 30, 1996, and $1,750,000 at September 30, 1996. However, a significant
portion of the cash and cash equivalents ($654,544 at June 30, 1996 and $973,157
at September 30, 1996) was held by STIC and cannot be used by the Company to
meet obligations other than STIC's without obtaining regulatory permission. In
addition to liquidity needed for normal operations, the Company has $1,035,000
in convertible notes that are due on April 1, 1997.
The Company currently anticipates that it will satisfy its obligations
through cash on hand, income tax refunds, sales of marketable securities and
other assets and payments received on loans receivable. However, it is not
certain that those sources of cash will be sufficient to enable the Company to
satisfy its obligations as they come due. Consequently, the Company will attempt
to secure other sources of credit and extend the maturity of some or all of the
convertible notes due on April 1, 1997. At this time, no other sources of credit
have been obtained, and none of the convertible notes has been extended.
-11-
Due to the nature of its operations, the Company does not expect to
incur significant environmental costs. Its capital resources are not expected to
be affected significantly by the current accounting pronouncements regarding
accounting for impairment of loans and accounting for investments in debt and
equity securities and derivatives.
-12-
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
No new litigation or developments related to previously
reported litigation for the quarter ended September 30, 1996.
Item 2. Changes in Securities
Not Applicable.
Item 3. Defaults upon Senior Securities
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during
the quarter ended September 30, 1996.
Item 5. Other Information
Not Applicable.
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits
None.
(B) Reports on Form 8-K
A current report on Form 8-K, dated August 19, 1996, was filed
on August 21, 1996 and reported Item 4 to announce a change in the
Company's certifying accountant.
An amendment to a current report on Form 8-K/A was filed on
August 22, 1996 and reported an amended Item 7 to include the financial
statements of Southern Capital Corp., a Virginia corporation ("SCC").
The Form 8-K/A amended a current report on Form 8-K, dated June 7,
1996, which announced the merger of SCC into Southern Capital
Acquisition Corp., a Virginia corporation and wholly-owned subsidiary
of the Company,
-13-
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
FIRSTMARK CORP.
Date: February 10, 1997 /s/ Donald V. Cruickshanks
-------------------------------------
Donald V. Cruickshanks
President and Chief Executive Officer
Date: February 10, 1997 /s/ Lewis M. Brubaker, Jr.
-------------------------------------
Lewis M. Brubaker, Jr.
Chief Financial Officer