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: March 31, 1999
Commission File Number: 0-20806
FIRSTMARK CORP.
(Exact Name of Small Business Issuer as Specified in its Charter)
Maine 01-0389195
(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or Organization)
P.O. Box 1398
Richmond, Virginia 23218
(Address of Principle Executive Offices)
(804) 648-9048
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes __X__ No _____
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date:
5,319,876 shares of common stock, par value $0.20 per share,
outstanding as of March 31, 1999
FIRSTMARK CORP.
TABLE OF CONTENTS
Page No.
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
March 31, 1999 and December 31, 1998..............................................3
Condensed Consolidated Statements of Operations
Three Months Ended March 31, 1999 and 1998........................................5
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 1999 and 1998........................................6
Notes to Condensed Consolidated Financial Statements.......................................7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operation..........................................................8
Part II. Other Information
Item 1. Legal Proceedings.........................................................................11
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.........................................................................12
Item 6. Exhibits and Reports on Form 8-K..........................................................12
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PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
FIRSTMARK CORP. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
- --------------------------------------------------------------------------------
ASSETS
March 31, 1999 December 31, 1998*
-------------- ------------------
(Unaudited)
Cash and cash equivalents $5,427,245 $ 53,575
Receivables:
Receivables - related parties 48,062 48,062
Receivables - interest and other 19,833 2,703
------------- -------------
Total receivables 67,895 50,765
------------- -------------
Notes receivable:
Notes receivable - net 25,290 25,290
Notes receivable - related parties 9,773 9,773
------------- -------------
Total notes receivables 35,063 35,063
------------- -------------
Investments:
Marketable securities 89,331 139,112
Venture capital investments - net 424,728 424,728
Real estate and other investments 615,691 613,653
------------- -------------
Total investments 1,129,750 1,177,493
------------- -------------
Other assets:
Property, plant and equipment - net 10,741 11,260
Deferred tax asset - net of valuation allowance 313,605 296,680
Other assets 5,357 11,603
------------- -------------
Total other assets 329,703 319,543
------------- -------------
Net assets of discontinued title insurance operations -- 6,189,261
------------- -------------
TOTAL ASSETS $6,989,656 $7,825,700
============= =============
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FIRSTMARK CORP. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
- --------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, 1999 December 31, 1998*
-------------- ------------------
(Unaudited)
LIABILITIES:
Accounts payable and other liabilities $ 148,960 $ 215,333
Borrowed funds -- 565,000
Deferred tax liability 313,605 296,680
Related party payable 25,873 114,712
--------------- ---------------
Total liabilities 488,438 1,191,725
--------------- ---------------
STOCKHOLDERS' EQUITY:
Preferred stock, Series A, $0.20 par value -
authorized 250,000 shares; issued 57,000 shares
(liquidation preference $2,280,000) 11,400 11,400
Common stock, $0.20 par value - authorized
30,000,000 shares; issued 5,501,430 shares 1,100,286 1,100,286
Additional paid-in capital - preferred 2,162,889 2,162,889
Additional paid-in capital - common 11,432,709 11,432,709
Retained earnings (deficit) (7,438,036) (7,353,293)
Treasury stock, at cost - 181,554 and
201,554 shares, respectively (737,528) (737,528)
Net accumulated comprehensive income -
net of taxes (30,502) 17,512
--------------- ---------------
Total stockholders' equity 6,501,218 6,633,975
--------------- ---------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 6,989,656 $ 7,825,700
=============== ===============
*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)
- --------------------------------------------------------------------------------
Three Months Ended
March 31,
--------
1999 1998
---- ----
REVENUES:
Interest and dividends $ 17,567 $ 21,287
Investment gains -- 19,165
--------- ---------
Total revenues 17,567 40,452
--------- ---------
EXPENSES:
Employee compensation and benefits 18,600 28,103
General and administrative expenses 115,993 121,352
Interest expense 8,995 13,277
--------- ---------
Total expenses 143,588 162,732
--------- ---------
Loss from continuing operations before income taxes (126,021) (122,280)
INCOME TAX (BENEFIT) EXPENSE -- (3,228)
--------- ---------
Net loss from continuing operations (126,021) (119,052)
DISCONTINUED OPERATIONS:
Income from discontinued operations - net of tax 80,596 158,193
Loss from disposal of discontinued operations - net of tax (5,118) --
--------- ---------
NET LOSS (50,543) 39,141
--------- ---------
Other comprehensive income - net of tax:
Unrealized holding gains (losses) arising during period (48,014) 19,896
Less: Reclassification adjustment for gains included in net income -- (9,997)
--------- ---------
Other comprehensive income (loss) (48,014) 9,899
--------- ---------
COMPREHENSIVE INCOME (LOSS) (98,557) 49,040
--------- ---------
PREFERRED STOCK DIVIDEND 34,200 34,200
--------- ---------
NET INCOME (LOSS) APPLICABLE TO COMMON SHARES $(132,757) $ 14,840
========= =========
Loss per common share - basic and diluted $ (0.02) $ 0.00
========= =========
Weighted - average number of shares outstanding 5,319,876 5,299,876
========= =========
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)
- --------------------------------------------------------------------------------
Three Months Ended
March 31,
---------
1999 1998
---- ----
OPERATING ACTIVITIES FROM CONTINUING OPERATIONS
Net loss from continuing operations $ (126,021) $ (119,052)
Adjustments to reconcile net loss to net cash
used by operating activities
Depreciation and amortization 519 1,129
Amortization of goodwill -- 14,195
Gain on sale of securities -- (15,146)
Changes in assets and liabilities:
Decrease (increase) in:
Accounts receivable (17,130) (1,404)
Net decrease in notes receivable -- 8,983
Prepaid expenses and other current assets 6,246 (2,570)
Increase (decrease) in:
Accounts payable (66,373) (75,550)
Accounts payable to related party (88,839) (3,290)
------------- -------------
Net cash used by operating activities (291,598) (192,705)
------------- -------------
Cash flows from Investing Activities
Decrease (increase) in real estate investments (2,038) 2,210
Securities held for sale -- 82,984
Decrease in venture capital investments -- 85,091
------------- -------------
Net cash provided (used) by investing activities (2,038) 170,285
------------- -------------
Cash flows from Financing Activities
Preferred stock dividends (34,200) (34,200)
Proceeds from borrowings 115,000 --
Repayments of borrowed funds (680,000) --
------------- -------------
Net cash used by financing activities (599,200) (34,200)
------------- -------------
Cash Used by Continuing Operations (892,836) (56,620)
Discontinued Operations:
Proceeds from sale of discontinued operations,
net of transaction costs paid 6,242,738 --
Other (269,868) (10,582)
------------- -------------
Cash Provided (Used) by Discontinued Operations 5,972,870 (10,582)
------------- -------------
Net change in cash and cash equivalents 5,373,670 (67,202)
------------- -------------
Cash and cash equivalents, beginning of period 53,575 290,037
------------- -------------
Cash and cash equivalents, end of period $ 5,427,245 $ 222,835
------------- -------------
Cash payments for interest $ 8,995 $ 13,277
============= =============
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, 1998 of Firstmark Corp. (the
"Company"), as amended, as filed with the Securities and Exchange
Commission. The December 31, 1998 balance sheet was derived from the
audited consolidated financial statements, but does not include all
disclosures required by generally accepted accounting principles.
2. In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments (which are of a normal
recurring nature) necessary for a fair presentation of the financial
statements. The results of operations for the three months ended March 31,
1999 are not necessarily indicative of the results to be expected for the
full year.
3. Earnings (Loss) Per Share
The Company adopted the provisions of SFAS No. 128, "Earnings Per Share,"
for the year ended December 31, 1997. SFAS No. 128 establishes new
standards for computing and presenting earnings per share ("EPS"). The
statement replaces the presentation of primary EPS with basic EPS and the
presentation of fully diluted EPS with diluted EPS. Basic EPS is computed
by dividing net income, less required dividends on redeemable preferred
stock, by the weighted average number of common shares outstanding during
the year. Diluted EPS is computed using the weighted average number of
common shares outstanding during the year, including the dilutive effect
of all potential common shares.
4. Reclassifications
Certain reclassifications have been made in the accompanying statements to
permit comparison.
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Firstmark Corp. (the "Company") makes venture capital and real estate
investments either in the form of pure equity investments or in the form of
loans with an equity participation feature. Until March 5, 1999, the Company was
principally engaged in the business of issuing title insurance through a
subsidiary, Southern Title Insurance Corporation ("STIC"). Until January 24,
1997, the Company also actively traded public stocks and bonds and provided
financial consulting services to a select number of individuals and
institutions.
On March 5, 1999, the Company sold Investors Southern Corporation
("ISC") and its subsidiaries, including STIC, to Old Guard Group, Inc. ("Old
Guard") for $6.75 million in cash and a three year earn-out in cash based on the
pre-tax net income of ISC and its subsidiaries, including STIC, for each of the
fiscal years ending December 31, 1999, 2000 and 2001. above. Generally accepted
accounting principles ("GAAP") require that the Company reflect the effects of
the Transaction as of December 31, 1998, including the loss on disposal, and
segregate continuing operations from discontinued operations. A complete
discussion of the Company's business is contained in Item 1, Description of
Business, of Amendment No. 1 to the Company's Annual Report on Form 10-KSB (the
"Form 10-KSB"), filed with the Securities and Exchange Commission on April 23,
1999.
Results of Operations
Three Months ended March 31, 1999
compared to the Three Months ended March 31, 1998
Continuing Operations
Interest and dividends revenue amounted to approximately $18,000 in the
current quarter compared to $21,000 in the comparable quarter of the prior year.
Management expects this comparison to improve for the balance of 1999 as the net
proceeds from the sale of the title insurance operations will be fully invested.
The funds were invested for less than a month during the current quarter.
Investment gains amounted to approximately $19,000 for the quarter ended March
31, 1998 (none for the current quarter).
Operating expenses and general and administrative expenses decreased by
approximately $19,000 during the current quarter compared to the prior year
quarter. This decrease is primarily the result of the satisfaction of the
Company's remaining obligation under a severance agreement with a former
director of the Company and a reduction in interest expense due to the payoff of
the Company's 9% convertible notes payable in March of this year.
Discontinued Operations
As previously disclosed, the title insurance operations were sold as of
March 5, 1999. Accordingly, the condensed consolidated statement of operations
included in this report includes
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operating results for the title insurance operations through that date in the
current quarter while the prior year quarter includes such results for the
entire period. The comparisons below in general show decreases because
approximately one less month of title insurance operations are included in 1999
as compared to 1998.
Title insurance revenues for the current quarter (approximately two
months) amounted to approximately $2.2 million compared to $2.6 million in the
1998 quarter (three months). While title insurance premiums were stronger in the
current quarter, abstract related income was somewhat weaker when compared to
the prior year quarter. Interest and dividends revenue decreased approximately
$42,000 to $32,000 in 1999 (approximately two months) as compared to $74,000 in
1998 (three months).
Operating expenses and general and administrative expenses decreased
$0.3 million from $2.4 million in 1998 (three months) to $2.1 million in 1999
(approximately two months). Substantially all categories of expenses decreased
during this period with the exception of commissions paid to agents. Commission
paid to agents in 1999 increased $166,000, reflecting the increase in agency
premiums earned during this period.
Liquidity and Capital Resources
As a result of the sale of ISC 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. Accordingly,
the Company's cash and cash equivalents remaining after the sale are expected to
exceed its obligations as they become due. The Company continues to maintain the
availability of the $500,000 line of credit with First Union National Bank.
Year 2000 Issues
Year 2000 issues relate primarily to the inability of certain
computerized devices (hardware, software and equipment) to process year-dates
properly after 1999. Many existing computer programs have been written using
only two digits to define an applicable year rather than four digits.
Accordingly, on January 1, 2000, many date-sensitive programs and devices may
recognize a date using the two digits "00" as the year 1900 rather than the year
2000. This situation could result in inaccurate processing of data, erroneous
results or other system failures.
The Company continues to address the Year 2000 issues relating to its
operations with the intent that it (i) identify areas of potential exposure,
both internal and external to 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
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service provider. Management believes, based on discussions with software
vendors and initial tests of the accounting and operational software, that such
software is currently Year 2000 compliant and that the Company's risks in these
areas are minimal. Management has been told that the current version of the
payroll and human resources software is also Year 2000 compliant and plans to
perform tests of this system in the near future to assess any potential
problems.
Costs associated with remediation of Year 2000 issues are not expected
to be material to the Company's financial position, results of operations or
cash flows. To date, such costs have totaled less than $10,000, 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 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
Reference is made to the disclosures in Item 3, Legal Proceedings,
of the Form 10-KSB for a description of the Company's pending legal
proceedings. There have been no additional material developments
with respect to these proceedings.
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
A Special Meeting of Shareholders, which was adjourned from its
previously scheduled time of February 17, 1999, as adjourned until
February 24, 1999, was held on March 5, 1999 (the "Special
Meeting"). Shareholders of record of the Company's Common Stock at
the close of business on January 22, 1999 were entitled to vote at
the Special Meeting.
The shareholders were asked (i) to elect three directors to serve
for terms of one year each and (ii) to approve the Stock Purchase
Agreement by and among the Company, Southern Capital Acquisition
Corporation, a Virginia corporation ("SCAC"), ISC, STIC and Old
Guard, dated as of December 2, 1998 (the "Stock Purchase
Agreement"), pursuant to which the Company and SCAC sold to Old
Guard, and Old Guard bought from the Company and SCAC, all of ISC's
outstanding capital stock in exchange for cash, all on the terms
and conditions set forth in the Stock Purchase Agreement.
The votes cast for, against or withheld for the election of
directors were as follows:
Broker
Name For Against Withheld Abstentions Non-Votes
---- --- ------- -------- ----------- ---------
Donald V. Cruickshanks 3,662,620 -- 84,422 -- --
George H. Morison 3,662,620 -- 84,422 -- --
Steven P. Settlage 3,662,620 -- 84,422 -- --
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The votes cast for, against or withheld for the Stock Purchase
Agreement were as follows:
Broker
Item For Against Abstentions Non-Votes
---- --- ------- ----------- ---------
Stock Purchase Agreement 3,565,765 82,393 98,884 --
Item 5. Other Information
On April 27, 1999, the Company's Common Stock was delisted from the
Nasdaq SmallCap Market for not maintaining a minimum bid price of
$1.00 per share, as required by the Nasdaq SmallCap Market's
continued listing requirements. The Company has requested that the
Board of Governors of The Nasdaq Stock Market review this decision.
Trading of shares of the Company's Common Stock can be conducted in
the over-the-counter trading markets, including the OTC Bulletin
Board.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule (filed electronically only).
(b) Reports on Form 8-K
On March 10, 1999, the Company filed a Current Report on
Form 8-K dated March 5, 1999 to disclose, under Item 2, the
consummation of the Company's sale of ISC and its related
subsidiaries to Old Guard.
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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: May 24, 1999 /s/ Donald V. Cruickshanks
-------------------------------------
Donald V. Cruickshanks
President and Chief Executive Officer
Date: May 24, 1999 /s/ Ronald C. Britt
-------------------------------------
Ronald C. Britt
Chief Financial Officer