SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 1998
Commission File Number: 0-20806
FIRSTMARK CORP.
(Exact Name of Small Business Issuer as Specified in its Charter)
Maine 01-0389195
(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or Organization)
P.O. Box 1398
Richmond, Virginia 23218
(Address of Principle Executive Offices)
(804) 648-6000
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes __X__ No _____
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date:
5,299,876 shares of common stock, par value $0.20
per share, outstanding as of August 1, 1998
FIRSTMARK CORP.
TABLE OF CONTENTS
Page No.
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
June 30, 1998 and December 31, 1997...............................................3
Condensed Consolidated Statements of Operations
Six Months and Three Months Ended
June 30, 1998 and 1997............................................................5
Condensed Consolidated Statements of Cash Flows
Six Months Ended June 30, 1998 and 1997...........................................6
Notes to Condensed Consolidated Financial Statements.......................................7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operation..........................................................8
Part II. Other Information
Item 1. Legal Proceedings.........................................................................10
Item 2. Changes in Securities and Use of Proceeds.................................................11
Item 3. Defaults Upon Senior Securities...........................................................11
Item 4. Submission of Matters to a Vote of Security Holders.......................................11
Item 5. Other Information.........................................................................11
Item 6. Exhibits and Reports on Form 8-K..........................................................11
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PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
FIRSTMARK CORP. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
================================================================================
ASSETS
June 30, 1998 December 31, 1997*
------------- ------------------
(Unaudited)
Cash and cash equivalents $ 2,754,503 $ 2,293,136
Accounts and notes receivables - trade, net 1,149,263 1,287,453
Accounts and notes receivables - related parties 111,301 103,338
Income taxes receivable -- 248,776
Marketable securities:
Held for sale 278,131 348,454
Held to maturity 1,670,342 1,800,091
Venture capital investments, net 1,192,865 1,283,645
Real estate and other investments 816,817 809,668
Title plant 3,563,008 3,563,008
Property, plant and equipment, net 770,136 830,533
Excess of cost over fair value 936,881 961,272
Deferred tax asset 915,454 920,073
Other assets 180,258 168,234
------------- -------------
Total Assets $ 14,338,959 $ 14,617,681
============= =============
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FIRSTMARK CORP. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, 1998 December 31, 1997*
------------- ------------------
(Unaudited)
Liabilities:
Accounts payable and other liabilities $ 406,926 $ 575,463
Borrowed funds 1,033,483 1,060,465
Reserve for title policy claims 941,763 1,027,607
Deferred tax liability 913,424 920,073
------------- -------------
Total Liabilities 3,295,596 3,583,608
------------- -------------
Stockholders' Equity:
Preferred stock, Series A, $0.20 par value -
authorized 250,000 shares; issued 57,000 shares
(liquidation preference $2,280,000) 11,400 11,400
Common stock, $0.20 par value - authorized
30,000,000 shares; issued 5,501,430 shares 1,100,286 1,100,286
Additional paid-in capital - preferred 2,162,889 2,162,889
Additional paid-in capital - common 11,498,331 11,498,331
Retained earnings (deficit) (2,706,673) (2,725,070)
Treasury stock, at cost - 201,554 shares (818,773) (818,773)
Net unrealized gain (loss) on marketable
equity securities held for sale, net of taxes (204,097) (194,990)
------------- -------------
Total Stockholders' Equity 11,043,363 11,034,073
------------- -------------
Total Liabilities and Stockholders' Equity $ 14,338,959 $ 14,617,681
============= =============
*Condensed from audited financial statements
The accompanying notes are an integral part of these condensed financial
statements.
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FIRSTMARK CORP. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited)
================================================================================
Six Months Ended Three Months Ended
June 30, June 30,
-------- --------
1998 1997 1998 1997
---- ---- ---- ----
Revenues
Title insurance $ 5,833,725 $ 4,701,623 $ 3,258,011 $ 2,555,895
Investment gains (losses) 24,006 248,561 1,423 387,034
Interest and dividends 157,882 221,956 62,519 56,748
Other revenues 155,934 103,590 83,397 59,143
----------- ----------- ----------- -----------
Total revenues 6,171,547 5,275,730 3,405,350 3,058,820
----------- ----------- ----------- -----------
Expenses
Employee compensation and 2,482,356 2,209,214 1,278,310 1,117,583
benefits
Commissions and fee expense 1,655,277 1,636,937 1,019,752 891,833
Write-offs of investments -- 100,000 -- --
General and administrative 1,696,663 1,614,313 921,018 892,746
expenses
Minority interest 250,454 125,571 138,614 67,845
----------- ----------- ----------- -----------
Total expenses 6,084,750 5,686,035 3,357,694 2,970,007
----------- ----------- ----------- -----------
Earnings (losses) before income 86,797 (410,305) 47,656 88,813
taxes
Income tax (benefit) expense -- (139,504) -- 30,144
----------- ----------- ----------- -----------
Net earnings (loss) 86,797 (270,801) 47,656 58,669
Preferred stock dividend 68,400 194,800 34,200 160,600
----------- ----------- ----------- -----------
Net earnings (loss) applicable to
common shares $ 18,397 $ (465,601) $ 13,456 $ (101,931)
=========== =========== =========== ===========
Earnings (loss) per common
share - basic and diluted $ .00 $ (.22) $ .00 $ (.05)
=========== =========== =========== ===========
Weighted - average number of
shares outstanding 5,299,876 2,069,590 5,299,876 2,069,590
=========== =========== =========== ===========
The accompanying notes are an integral part of these condensed financial
statements.
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FIRSTMARK CORP. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
================================================================================
Six Months Ended
June 30,
1998 1997
Cash flows from Operating Activities
Net earnings (loss) $ 86,797 $ (270,801)
Adjustments to reconcile net income
to net cash provided by operating activities
Depreciation and amortization 117,497 115,382
Gain on receipt of Intercel shares -- (381,124)
Write-down of investments -- 100,000
Collection of income taxes receivable 244,902 303,385
Marketable securities - trading account -- (66,835)
Changes in assets and liabilities 71,019 (309,488)
----------- -----------
Net cash provided (used) by operating activities 520,215 (509,481)
----------- -----------
Cash flows from Investing Activities
Decrease (increase) in real estate investments (7,150) 504,828
Decrease in notes receivable 12,178 36,925
Securities held for sale (13,898) 99,116
Securities held to maturity (28,528) 95,625
Decrease in venture capital investments 90,780 42,075
Purchase of property and equipment (16,848) (29,257)
----------- -----------
Net cash provided by investing activities 36,534 749,312
----------- -----------
Cash flows from Financing Activities
Preferred stock dividends (68,400) (194,800)
Proceeds from borrowings -- 150,000
Repayments of borrowed funds (26,982) (663,463)
----------- -----------
Net cash used by financing activities (95,382) (708,263)
----------- -----------
Net change in cash and cash equivalents 461,367 (468,432)
Cash and cash equivalents, beginning of period 2,293,136 1,832,681
----------- -----------
Cash and cash equivalents, end of period $ 2,754,503 $ 1,364,249
----------- -----------
Cash payments for interest $ 53,029 $ 59,305
=========== ===========
The accompanying notes are an integral part of these condensed financial
statements.
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FIRSTMARK CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
================================================================================
BASIS OF PRESENTATION
1. The accompanying unaudited consolidated financial statements, which are
for interim periods, do not include all disclosures provided in the
annual consolidated financial statements. These unaudited consolidated
financial statements should be read in conjunction with the consolidated
financial statements and the footnotes thereto contained in the Annual
Report on Form 10-KSB for the year ended December 31, 1997 of Firstmark
Corp. (the "Company"), as amended, as filed with the Securities and
Exchange Commission. The December 31, 1997 balance sheet was derived from
the audited consolidated financial statements, but does not include all
disclosures required by generally accepted accounting principles.
2. In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments (which are of a normal
recurring nature) necessary for a fair presentation of the financial
statements. The results of operations for the six months ended June 30,
1998 are not necessarily indicative of the results to be expected for the
full year.
3. Earnings (Loss) Per Share
The Company adopted the provisions of SFAS No. 128, "Earnings Per Share,"
for the year ended December 31, 1997. SFAS No. 128 establishes new
standards for computing and presenting earnings per share ("EPS"). The
statement replaces the presentation of primary EPS with basic EPS and the
presentation of fully diluted EPS with diluted EPS. Basic EPS is computed
by dividing net income, less required dividends on redeemable preferred
stock, by the weighted average number of common shares outstanding during
the year. Diluted EPS is computed using the weighted average number of
common shares outstanding during the year, including the dilutive effect
of all potential common shares.
4. Reclassifications
Certain reclassifications have been made in the accompanying statements
to permit comparison.
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Through a subsidiary, Southern Title Insurance Corporation ("STIC"),
Firstmark Corp. (the "Company") is principally engaged in the business of
issuing title insurance. The Company also makes venture capital and real estate
investments either in the form of pure equity investments or in the form of
loans with an equity participation feature and makes control investments in
situations where the Company's management actually operates the business. 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. A complete discussion of the Company's business is contained in
Item 1, Description of Business, of Amendment No. 1 to the Company's Annual
Report on Form 10-KSB (the "Form 10-KSB"), filed with the Securities and
Exchange Commission on April 20, 1998.
Results of Operations
Six Months ended June 30, 1998
compared to the Six Months ended June 30, 1997
----------------------------------------------
Total revenues for the six months ended June 30, 1998 increased to
approximately $6,172,000, an increase of approximately $896,000 or 17% compared
to total revenues of approximately $5,276,000 in the comparable six-month period
of the prior year. The increase is primarily attributable to increased title
insurance revenues due to a favorable interest rate environment and expansion in
the Company's title insurance operations. Investment gains amounted to
approximately $24,000 for the six months ended June 30, 1998 compared to net
gains of $249,000 in the prior year period. The net gains in the prior year
period were primarily the result of a gain (approximately $381,000) recognized
on the receipt of shares of Intercel, Inc. 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 $64,000 to $158,000 for the six months ended June 30, 1998 as
compared to $222,000 for the comparable period of the prior year. This decrease
is primarily the result of a one-time dividend of approximately $94,000 received
in the prior year period.
Operating expenses and general and administrative expenses increased by
approximately $274,000 during the current six-month period compared to the
comparable period of the prior year. This increase is primarily the result of
(i) higher personnel costs related to increasing volumes and expansion of the
title insurance operations, (ii) an increase in the provision for policy claims
primarily attributable to legal expenses relating to a STIC lawsuit, which
received a favorable jury verdict, and (iii) legal expenses relating to a
Firstmark lawsuit, which recently was resolved through mediation with an
immaterial financial impact on the Company. For further information on these
lawsuits, see Part II, Item 1, Legal Proceedings, below.
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Three Months ended June 30, 1998
compared to the Three Months ended June 30, 1997
------------------------------------------------
Total revenues for the three months ended June 30, 1998 increased to
approximately $3,405,000, an increase of approximately $346,000 or 11% compared
to total revenues of approximately $3,059,000 in the comparable quarter of the
prior year. The increase is primarily attributable to increased title insurance
revenues due to a favorable interest rate environment and expansion in the
Company's title insurance operations. Investment gains amounted to approximately
$1,000 for the quarter ended June 30, 1998 compared to a gain of $387,000 in the
prior year quarter. The gain in the prior year quarter was primarily the result
of a gain (approximately $381,000) recognized on the receipt of shares of
Intercel, Inc. stock previously held in escrow. Interest and dividends revenue
increased approximately $6,000 to $63,000 for the quarter ended June 30, 1998 as
compared to $57,000 for the comparable quarter of the prior year.
Operating expenses and general and administrative expenses increased by
approximately $317,000 during the current quarter compared to the comparable
quarter of the prior year. This increase is primarily the result of (i) higher
personnel costs related to increasing volumes and expansion of the title
insurance operations, (ii) an increase in the provision for policy claims
primarily attributable to legal expenses relating to a STIC lawsuit, which
received a favorable jury verdict, and (iii) legal expenses relating to a
Firstmark lawsuit, which recently was resolved through mediation with an
immaterial financial impact on the Company. For further information on these
lawsuits, see Part II, Item 1, Legal Proceedings, below.
Liquidity and Capital Resources
The Company's cash and cash equivalents were approximately $2,755,000
at June 30, 1998 as compared to $2,293,000 at December 31, 1997. However a
significant portion of the cash and cash equivalents (approximately $1,901,000
at June 30, 1998 and $1,707,000 at December 31, 1997) was held by a subsidiary,
STIC, and is subject to certain regulatory requirements as to use.
The Company intends to satisfy its obligations through cash on hand,
sales of marketable securities and other assets and payments received on loans
receivable. Management believes that its available and expected sources of cash
will be sufficient to enable the Company to satisfy its obligations as they come
due. Additionally, the Company has an available line of credit of $500,000, for
which no borrowings are outstanding at June 30, 1998.
Year 2000 and Recent Accounting Pronouncements
Reference is made to the disclosures included under the headings "Year
2000" and "Recent Accounting Pronouncements" in Item 6, Management's Discussion
and Analysis of Financial Condition and Results of Operations, of the Form
10-KSB.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Lake Anna Litigation. On August 7, 1996, Lake Anna Development, L.C.
("Lake Anna") filed a Motion for Judgment against STIC in the
Circuit Court of Louisa County in the Commonwealth of Virginia. The
Motion for Judgment alleged that STIC breached a contractual
obligation under a title insurance policy that contained affirmative
mechanics' lien coverage when STIC denied liability under the
exclusions of the title insurance policy. STIC issued the title
insurance policy at issue to the lender, a federal savings bank, in
connection with the development of the insured project. Lake Anna
alleged that it had succeeded to the position of the lender. The
Motion for Judgment sought relief in the amount of $1,342,374.38
plus interest from May 6, 1996.
On May 22, 1998, a jury returned a verdict in favor of STIC. On
August 5, 1998, following several post-verdict motions by Lake Anna,
the Circuit Court issued a final order entering judgment on the
verdict. Lake Anna has until September 4, 1998 to appeal the
judgment to the Supreme Court of Virginia.
DiBello Loving Trust Litigation. On June 20, 1997, the beneficiaries
of the DiBello Loving Trust filed a civil lawsuit against James
Vigue, former President and Chief Executive Officer of the Company,
Ivy Gilbert, former Treasurer and Chief Financial Officer of the
Company, and the Company. The lawsuit was pending in the Maine
Superior Court for Kennebec County. The beneficiaries alleged that
James Vigue, as trustee of the trust, mismanaged the trust, breached
his duties as trustee, made misrepresentations to them, was
negligent in the management of the trust and violated the Maine
Securities Act and the Maine Unfair Trade Practices Act. They
alleged that Ivy Gilbert participated in the breach of trust. They
alleged that the Company was liable for Mr. Vigue's actions and was
liable as a trustee and for violation of the Maine Securities Act
and the Maine Unfair Trade Practices Act. The beneficiaries claimed
compensatory damages in a range of $500,000 to $1.0 million, plus
punitive damages.
On June 30, 1998, the parties reached an agreement through mediation
to settle the lawsuit. The terms of the settlement arrangement,
however, are subject to a confidentiality agreement executed by the
parties.
Investigation by the Securities and Exchange Commission. The
Securities and Exchange Commission (the "SEC") recently entered an
Order Directing Private Investigation and Designating Officers to
Take Testimony in a proceeding titled In the Matter of Firstmark
Corp. The SEC is investigating the possible violation of Sections
5(a), 5(c) and 17(a) of the Securities Act of 1933, as amended, and
Section 10(b) of the Securities Exchange Act of 1934, as amended,
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and Rule 10b-5 thereunder by Firstmark Investment Corp. ("FIC"),
Firstmark Capital Corp. ("FCC") and the Company. The private
investigation focuses on events that have occurred from, in or
before January 1994 to the present. The Company transferred FIC and
FCC to Ivy L. Gilbert, a director and former officer and employee of
the Company, in January 1997.
The private investigation is in its initial stages of discovery, and
the Company intends to cooperate fully with the SEC.
Item 2. Changes in Securities and Use of Proceeds
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the
quarter ended June 30, 1998.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule (filed electronically only).
(b) Reports on Form 8-K - none.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
FIRSTMARK CORP.
Date: August 19, 1998 /s/ Donald V. Cruickshanks
-------------------------------------
Donald V. Cruickshanks
President and Chief Executive Officer
Date: August 19, 1998 /s/ Ronald C. Britt
-------------------------------------
Ronald C. Britt
Chief Financial Officer