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: September 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:
5,309,876 shares of common stock, par value $0.20
per share, outstanding as of October 30, 1998
FIRSTMARK CORP.
TABLE OF CONTENTS
Page No.
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
September 30, 1998 and December 31, 1997................3
Condensed Consolidated Statements of Operations
Nine Months and Three Months Ended
September 30, 1998 and 1997.............................5
Condensed Consolidated Statements of Cash Flows
Nine Months Ended September 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...............................................12
Item 2. Changes in Securities and Use of Proceeds.......................12
Item 3. Defaults Upon Senior Securities.................................12
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
Item 1. Financial Statements
FIRSTMARK CORP. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
===============================================================================
ASSETS
September 30, 1998 December 31, 1997*
------------------ ------------------
(Unaudited)
Cash and cash equivalents $3,021,607 $ 2,293,136
Accounts and notes receivables - trade, net 1,198,510 1,287,453
Accounts and notes receivables - related parties 138,206 103,338
Income taxes receivable -- 248,776
Marketable securities:
Held for sale 252,790 348,454
Held to maturity 1,571,239 1,800,091
Venture capital investments, net 1,111,040 1,283,645
Real estate and other investments 817,358 809,668
Title plant 3,563,008 3,563,008
Property, plant and equipment, net 737,760 830,533
Excess of cost over fair value 926,075 961,272
Deferred tax asset 934,935 920,073
Other assets 198,925 168,234
------------- -------------
Total Assets $ 14,471,453 $ 14,617,681
============= =============
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FIRSTMARK CORP. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
===============================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, 1998 December 31, 1997*
------------------ ------------------
(Unaudited)
Liabilities:
Accounts payable and other liabilities $ 530,993 $ 575,463
Borrowed funds 919,412 1,060,465
Reserve for title policy claims 1,035,534 1,027,607
Deferred tax liability 920,073 920,073
---------------- ---------------
Total Liabilities 3,406,012 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) (2,662,579) (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 (226,113) (194,990)
-------------- --------------
Total Stockholders' Equity 11,065,441 11,034,073
-------------- --------------
Total Liabilities and Stockholders' Equity $ 14,471,453 $ 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)
===============================================================================
Nine Months Ended Three Months Ended
September 30, September 30,
------------- -------------
1998 1997 1998 1997
---- ---- ---- ----
Revenues
Title insurance $ 9,568,084 $ 7,662,828 $ 3,734,359 $ 2,961,204
Investment gains 28,922 361,143 4,916 112,582
Interest and dividends 243,971 307,017 86,089 85,062
Other revenues 263,711 203,277 107,777 99,687
----------- ----------- ----------- ------------
Total revenues 10,104,688 8,534,265 3,933,141 3,258,535
----------- ----------- ----------- ------------
Expenses
Employee compensation and
benefits 3,960,280 3,342,610 1,477,924 1,133,395
Commissions and fee expense 2,943,655 2,616,937 1,288,378 980,000
Write-offs of investments -- 100,000 -- --
General and administrative
expenses 2,683,000 2,591,075 986,337 976,762
Minority interest 352,661 267,149 102,207 141,578
----------- ----------- ----------- ------------
Total expenses 9,939,596 8,917,771 3,854,846 3,231,735
----------- ----------- ----------- ------------
Earnings (losses) before income
taxes 165,092 (383,506) 78,295 26,800
Income tax (benefit) expense -- (130,392) -- 9,112
----------- ----------- ----------- ------------
Net earnings (loss) 165,092 (253,114) 78,295 17,688
Preferred stock dividend 102,600 229,000 34,200 34,200
----------- ----------- ----------- ------------
Net earnings (loss) applicable to
common shares $ 62,492 $ (482,114) $ 44,095 $ (16,512)
=========== =========== =========== ===========
Earnings (loss) per common
share - basic and diluted $ .01 $ (.23) $ .01 $ (.01)
=========== =========== =========== ===========
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)
===============================================================================
Nine Months Ended
September 30,
-------------
1998 1997
---- ----
Cash flows from Operating Activities
Net earnings (loss) $ 165,092 $ (253,114)
Adjustments to reconcile net income
to net cash provided by operating activities
Depreciation and amortization 173,536 175,751
Gain on receipt and sale of Intercel shares -- (479,465)
Write-down of investments -- 100,000
Collection of income taxes receivable 244,902 303,385
Marketable securities - trading account -- (58,944)
Changes in assets and liabilities 279,662 77,634
------------ -----------
Net cash provided (used) by operating activities 863,192 (134,753)
------------ -----------
Cash flows from Investing Activities
Decrease (increase) in real estate investments (9,900) 526,199
Decrease in notes receivable 41,044 122,984
Securities held for sale (18,278) 658,629
Securities held to maturity (28,528) 95,625
Decrease in venture capital investments 174,814 43,597
Purchase of property and equipment (50,220) (34,220)
------------ -----------
Net cash provided by investing activities 108,932 1,412,814
------------ -----------
Cash flows from Financing Activities
Preferred stock dividends (102,600) (229,000)
Proceeds from borrowings -- 150,000
Repayments of borrowed funds (141,053) (826,037)
------------ -----------
Net cash used by financing activities (243,653) (905,037)
------------ -----------
Net change in cash and cash equivalents 728,471 373,024
Cash and cash equivalents, beginning of period 2,293,136 1,832,681
------------ -----------
Cash and cash equivalents, end of period $ 3,021,607 $ 2,205,705
------------ -----------
Cash payments for interest $ 77,480 $ 83,707
============ ===========
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 nine months ended
September 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
Nine Months ended September 30, 1998
compared to the Nine Months ended September 30, 1997
Total revenues for the nine months ended September 30, 1998 increased
to approximately $10,105,000, an increase of approximately $1,570,000 or 18%
compared to total revenues of approximately $8,534,000 in the comparable
nine-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 $29,000 for the nine months ended September 30, 1998
compared to net gains of $361,000 in the prior year period. The net gains in the
prior year period were primarily the result of a gain (approximately $479,000)
recognized on the receipt and sale of shares of Intercel, Inc. stock, 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 $244,000 for the nine months ended September 30, 1998 as compared to $307,000
for the comparable period of the prior year. The 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 $1,036,000 during the current nine-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 in May 1998, and (iii) legal expenses relating
to a Firstmark lawsuit, which was resolved in June 1998 through mediation with
an immaterial financial impact on the Company, and a private investigation
brought by the Securities and Exchange Commission (the "SEC"). For further
information on certain of these matters, see Part II, Item 1, Legal Proceedings,
below.
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Three Months ended September 30, 1998
compared to the Three Months ended September 30, 1997
Total revenues for the three months ended September 30, 1998 increased
to approximately $3,933,000, an increase of approximately $674,000 or 21%
compared to total revenues of approximately $3,259,000 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 $5,000 for the quarter ended September 30, 1998 compared to a gain
of $113,000 in the prior year quarter. The gain in the prior year quarter was
primarily the result of a gain recognized on the sale of shares of Intercel,
Inc. stock. Interest and dividends revenue increased approximately $1,000 to
$86,000 for the quarter ended September 30, 1998 as compared to $85,000 for the
comparable quarter of the prior year.
Operating expenses and general and administrative expenses increased by
approximately $662,000 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 and
(iii) legal expenses relating to a Firstmark lawsuit, which was resolved in June
1998 through mediation with an immaterial financial impact on the Company, and a
private investigation brought by the SEC.
Liquidity and Capital Resources
The Company's cash and cash equivalents were approximately $3,022,000
at September 30, 1998 as compared to $2,293,000 at December 31, 1997. However a
significant portion of the cash and cash equivalents (approximately $2,029,000
at September 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 September 30, 1998.
Year 2000 Issues
Year 2000 issues relate primarily to the inability of certain
computerized devices (hardware, software and equipment) to process year-dates
properly after 1999. Many existing computer programs have been written using
only two digits to define an applicable year rather than four digits.
Accordingly, on January 1, 2000, many date-sensitive programs and devices may
recognize a date using the two digits "00" as the year 1900 rather than the year
2000. This situation could result in inaccurate processing of data, erroneous
results or other system failures.
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The Company continues to address the Year 2000 issues relating to its
operations with the intent that it (i) identify areas of potential exposure,
both internal and external to its organization, (ii) assess the risks and costs
associated with eliminating or reducing that exposure, (iii) develop a plan to
take necessary actions before the year 2000 and (iv) consider the need for a
contingency plan to handle the most reasonably likely worst case scenarios.
To date, the Company has primarily focused on the identification and
assessment of its Year 2000 issues. The Company has completed an initial
assessment of its accounting and operational software and discussed the payroll
and human resources software with its third party service provider. Management
believes, based on discussions with software vendors and initial tests of the
accounting and operational software, that such software is currently Year 2000
compliant and that the Company's risks in these areas are minimal. The payroll
and human resources software used by the Company's third party service provider
is not currently Year 2000 compliant. However, management has been told that the
next version of that software to be released (currently scheduled for the end of
1998) will be Year 2000 compliant. Once the new version of the software is
available, the Company plans to perform its own tests and evaluation to assess
any potential problems.
Costs associated with remediation of Year 2000 issues are not expected
to be material to the Company's financial position, results of operations or
cash flows. To date, such costs have totaled less than $5,000, and the Company
expects that future costs will not exceed $10,000. These costs would include
primarily minimal additional data processing consulting costs, purchases of new
personal computers to replace computers that cannot be modified to handle
date-sensitive data correctly and potentially the costs to purchase upgrades to
certain accounting software programs.
No contingency plan has been developed to date since the potential
impact of the Year 2000 issues facing the Company is currently considered to be
minimal. However, management will continue to assess the need for a contingency
plan if additional risks are identified in the further testing of existing,
updated or new hardware and software or if it becomes aware of other concerns
not presently contemplated in the evaluation of the Company's ability to be Year
2000 compliant.
Recent Accounting Pronouncements
Reference is made to the disclosures included under the heading "Recent
Accounting Pronouncements" in Item 6, Management's Discussion and Analysis of
Financial Condition and Results of Operations, of the Form 10-KSB.
Forward-Looking Statements
Certain statements in this report may constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Although the Company believes that its expectations with respect to
certain forward-looking statements are based upon reasonable assumptions within
the bounds of its business and operations, there can be no assurance that
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actual results, performance or achievements of the Company will not differ
materially from any future results, performance or achievements expressed or
implied by such forward-looking statements.
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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 court
issued a Final Order entering judgment on the verdict in favor of STIC.
Lake Anna noted its appeal and, on November 5, 1998, filed a Petition
for Appeal with the Virginia Supreme Court, which raises the same
issues that were raised by Lake Anna in its post-verdict motions.
Counsel for STIC has advised that it is their opinion that there was no
error and that the trial court verdict should be affirmed.
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, 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 former director, officer
and employee of the Company, in January 1997.
The private investigation is in its initial stages of discovery, and
the Company continues 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.
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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, 1998.
Item 5. Other Information
James F. Vigue and Ivy L. Gilbert resigned from the Company's Board of
Directors effective November 10, 1998. George H. Morison, President and
Chief Operating Officer of Patient First Corporation, was appointed to
the Company's Board of Directors on November 10, 1998.
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: November 16, 1998 /s/ Donald V. Cruickshanks
----------------------------
Donald V. Cruickshanks
President and Chief Executive Officer
Date: November 16, 1998 /s/ Ronald C. Britt
---------------------
Ronald C. Britt
Chief Financial Officer