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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[X] Annual Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
OR
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ______________ to
________________
Commission file number 333-66859
INTREPID CAPITAL CORPORATION
(Exact name of Registrant as specified in its Charter)
DELAWARE 59-3546446
(State of Incorporation) (I.R.S. Employer Identification No.)
3652 SOUTH THIRD STREET, SUITE 200, JACKSONVILLE BEACH, FLORIDA 32250
(Address of principal executive offices) (Zip Code)
(904) 246-3433
(Registrant's telephone number)
50 NORTH LAURA STREET, SUITE 3550, JACKSONVILLE, FLORIDA 32202
(Former address of principal executive offices) (Zip Code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Check whether the issuer: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 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 [ ]
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, 2000 were
$5,155,925.
As of February 28, 2001, there were 2,318,996 shares of Common Stock
outstanding and 1,000 shares of Common Stock issued and held in treasury. The
aggregate market value of the voting Common Stock held by non-affiliates of the
Registrant as of February 28, 2001, as based on the average closing bid and ask
prices, was approximately $864,461.
Transitional Small Business Disclosure Format (check one): Yes [ ]
No [X]
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PART I
Certain statements contained in this Annual Report on Form 10-KSB are
"forward-looking statements," within the meaning of the Private Securities
Litigation Reform Act of 1995, and are thus prospective in nature. Such
forward-looking statements reflect management's beliefs and assumptions and are
based on information currently available to management. The forward-looking
statements involve known and unknown risks, uncertainties and other factors that
may cause actual results, performance or achievements of Intrepid Capital
Corporation to differ materially from those expressed or implied in such
statements. There can be no assurance that such factors or other factors will
not affect the accuracy of such forward-looking statements
ITEM 1. DESCRIPTION OF BUSINESS
General
Intrepid Capital Corporation ("ICAP") was formed in April 1998 to merge
(hereinafter referred to as the "Mergers"), through its wholly owned
subsidiaries, with each of Intrepid Capital Management, Inc., a Florida
corporation ("ICM"), Capital Research Corporation, a Florida corporation
("CRC"), and Enviroq Corporation, a Delaware corporation ("Enviroq"). ICAP was
formed as a wholly owned subsidiary of Enviroq. At the effective time of the
Mergers, ICM, CRC and Enviroq each became wholly owned subsidiaries of ICAP, and
the shareholders of ICM and CRC and the stockholders of Enviroq received cash
and shares of the common stock, par value $.01, of ICAP (the "ICAP Common
Stock") in exchange for their shares of ICM, CRC and Enviroq, as the case may
be. Prior to the Mergers, Enviroq was subject to the periodic reporting
requirements of Section 13 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). Immediately following the Mergers, Enviroq suspended its
duty to file periodic reports under Section 13 of the Exchange Act, and ICAP
commenced reporting thereunder.
In a transaction effective August 1, 1999, ICAP acquired all of the
outstanding capital stock of Allen C. Ewing Financial Services, Inc, a Florida
corporation ("ACEFS"). Primarily all of ACEFS's operations were conducted
through its wholly owned subsidiary Allen C. Ewing & Co. Concurrent with the
acquisition, ICAP contributed the assets and liabilities of ACEFS to CRC.
Subsequent to this acquisition, the operations of CRC and ACEFS were conducted
through the merged entity under the name of Allen C. Ewing & Co. ("Ewing").
ACEFS was dissolved on December 30, 1999 and CRC was fully merged with and into
Ewing on December 31, 1999.
In a transaction effective November 30, 2000, ICAP acquired all of the
outstanding capital stock of Sears Thompson Investment Group, Inc., a Florida
corporation ("Sears Thompson"). Simultaneous to this acquisition, Sears Thompson
was fully merged with and into Ewing.
In the future, ICAP intends to continue to expand through the growth of
its present subsidiaries and through the acquisition of additional firms that
provide investment advisory, brokerage, investment banking and other financial
services. Currently, the principal business of ICAP is the operation of its
wholly owned subsidiaries, ICM, Ewing and Enviroq.
ICM
ICM is an investment management company and a registered investment
adviser under the Investment Advisers Act of 1940, as amended (the "Investment
Advisers Act"), operating with clients in several states primarily in the
southeast United States. ICM's investment strategy is to capitalize on growth
opportunities for investment management services in the institutional,
for-profit corporate, non-profit corporate and private client markets. ICM is
responsible for developing and implementing its own investment philosophy,
business plans and management fees. ICM seeks to grow by expanding the
capabilities of its investment management services, increasing and focusing its
marketing efforts and selectively expanding its distribution channels. ICM's
principal offices are located at 3652 South Third Street, Suite 200,
Jacksonville
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Beach, Florida 32250. As of December 31, 2000, ICM had $105.3 million of assets
under management for its clients and for fiscal year ended December 31, 2000, a
single client of ICM provided approximately 23% of ICM's revenues, with the next
largest client providing less than 13%.
ICM manages assets across a diverse range of investment styles, asset
classes and client types, with significant participation in both the debt and
equity markets. For the fiscal year ended December 31, 2000, investments in debt
represented 58% of ICM's funds invested and investments in equity securities
represented 42% of ICM's funds invested.
Factors Affecting Institutional Investment Managers.
Revenues in the institutional investment management industry are
determined primarily by fees based on assets under management. Therefore, the
principal determinant of growth in the industry is the growth of institutional
assets under management. In management's judgment, the major factors which
influence changes in institutional assets under management are: (a) changes in
the market value of securities; (b) net cash flow into or out of existing
accounts; (c) gains of new or losses of existing accounts by specific firms or
segments of the industry; and (d) the introduction of new products by the
industry or by particular firms.
In general, assets under management in the institutional segments of
the industry have increased steadily, primarily due to increased rates of
return, client retention, client acquisition, asset removals and asset
additions.
Ewing
Ewing is a registered broker-dealer and a member of the National
Association of Securities Dealers, Inc. ("NASD") and the Securities Investor
Protection Corporation ("SIPC"). Ewing provides full-service securities
brokerage and investment banking which primarily includes advisory services to
clients on corporate finance matters, including mergers and acquisitions and the
issuance of public stock. Ewing also operates a general securities business to
registered investment advisers, including ICM, on a fully disclosed basis
through National Financial Services, LLC ("NFS"). Ewing's principal offices are
located at 50 North Laura Street, Suite 3625, Jacksonville, Florida 32202.
Ewing's operations, in conjunction with NFS, include the execution of
orders, processing of transactions, receipt, identification and delivery of
funds and securities, custody of customer securities, internal financial
controls and compliance with regulatory and legal requirements. Ewing typically
does not recommend particular securities to registered investment adviser
clients; recommendations are determined by individual investment advisers based
upon their own research and analysis and subject to applicable NASD customer
suitability standards.
Factors Affecting Broker-Dealers
Before 1975, all stock exchanges required brokers to charge fixed
minimum commissions for trades of listed stocks. Under pressure from Congress,
the Department of Justice and the Securities and Exchange Commission (the
"Commission"), these policies were changed, which allowed for negotiated
commissions and the unbundling of investment services. These developments
brought about the advent of the lower-cost and discount brokerage firm which
could separate financial advisory services from execution services and could
execute trades at a lower cost than a full-commission broker. Although investors
have been able to use discount brokerage services for years, various emerging
trends make the modern investor more likely to use discount brokerage services.
First, the unbundling of brokerage services from other financial
services has permitted investors to pick and choose among various financial
service providers for specified services. As a result, firms like ICM
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have emerged that specialize in investment advice, the provision of financial
information and financial planning. Other firms, like Ewing, specialize in
providing lower-cost or discount securities brokerage services.
Second, investors are becoming more self-reliant and value conscious in
the pursuit of their financial goals. Investors are increasingly willing to
acquire the information about, and an understanding of, investment alternatives
and have become increasingly sophisticated and knowledgeable about investing.
Access to a broad range of financial information and advice has decreased the
necessity for full-service brokers. These investors make their own decisions
about their financial future and tend to seek greater value, often in the form
of lower transaction costs. As a result, the use of discount brokers and
directly marketed no-load mutual funds have increased in market share at the
expense of traditional providers charging a higher commission or sales load.
Finally, the growth in financial assets held by an individual is
accelerating. Large numbers of "baby boomers" are beginning to invest for their
children's education and for their own retirement. Additionally, it is estimated
that these individuals, many of whom have greater education, technical
capabilities and investment choices than their parents, as well as greater
access to information, will inherit a historically significant amount of assets
available for investing from the previous generation during the next decade.
This represents the largest absolute transference of wealth in history. The
convergence of these trends is creating a new marketplace for financial
services. It is also creating a new investor, who is self-reliant and value
oriented. Ewing seeks to be a leading provider of financial services to this new
investor.
Ewing's Business Environment
Market conditions during 2000 began with a continuation of the 1997
through 1999 bull market characterized by record volumes and record high market
levels. However, early in the second quarter of 2000, the bull market weakened,
leading to a significant downturn. The NASDAQ Composite fell more than
thirty-nine percent (39%) and the S&P 500 Index fell over nine percent (9%). At
the same time, competition has continued to intensify among all classes of
brokerage firms and specifically within the discount brokerage business. In
addition, new firms not previously in the discount brokerage business have
emerged. Electronic trading continues to grow as a retail discount market
segment with some firms offering very low flat rate trading execution fees that
are difficult for any conventional discount firm to meet. Many of the flat fee
brokers, however, impose charges for services such as mailing, transfers and
handling exchanges and also direct their executions to captive market makers,
which Ewing does not. Continued competition from ultra low cost, flat fee
brokers and broader service offerings from other discount brokers could also
limit Ewing's growth or even lead to a decline in Ewing's customer base which
would adversely affect its results of operations. Industry-wide changes in
trading practices are expected to cause continuing pressure on fees earned by
discount brokers for the sale of order flow.
Ewing, like other securities firms, is directly affected by general
economic and market conditions, including fluctuations in volume and prices of
securities, changes and prospects for changes in interest rates and demand for
brokerage and investment banking services, all of which can affect Ewing's
relative profitability. In periods of reduced market activity, profitability is
likely to be adversely affected because certain expenses, including salaries and
related costs, portions of communication costs and occupancy expenses, remain
relatively fixed.
Enviroq
Enviroq, incorporated on February 9, 1995, is principally engaged in
the development, commercialization, formulation and marketing of spray-applied
resinous products, and in the treatment of municipal wastewater biosolids.
Enviroq's operations are conducted primarily through Sprayroq, Inc., a Florida
corporation of which Enviroq owns 50% of the outstanding capital stock
("Sprayroq"). Sprayroq is
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engaged in the development, commercialization, manufacturing and marketing of
spray-applied resinous materials. Since this business is inconsistent with
ICAP's primary mission, ICAP is evaluating alternatives for the future of this
operation.
ICAP Business Strategy
ICAP intends to grow its business by leveraging its competitive asset
management, investment banking and securities brokerage service strengths
through ICM and Ewing, including ICM's long-term performance record, diverse
product offerings and experienced research, client service and investment staff.
In order to achieve continued growth and profitability, ICAP will continue to
pursue its business strategy, the key elements of which include:
Maintain Asset Management As Core Business
ICAP's core business is asset management. Concentrating its
professional and financial resources on providing high quality investment
products and client service, ICAP hopes to further establish a respected
reputation among its clients and in the investment community. ICAP believes that
its continuing commitment to its core asset management business, together with
its continued independence during a period of consolidation in the financial
services industry, is attractive to potential clients and will also contribute
to its ability to attract and retain highly qualified investment professionals.
Broadening and Strengthening the ICAP Brand
ICAP intends to strengthen its brand name identity by, among other
things, increasing its marketing and advertising to provide a uniform regional
image in the southeastern United States. ICAP has the capacity to create new
products and services around the core ICM brand to complement its existing
product offerings.
Enhancing Diverse Product and Service Offerings
ICAP believes that its ability to offer a broad range of investment
products and services in a wide variety of investment styles will enhance its
opportunities for attracting new clients and cross-selling its products and
services to existing clients. ICAP also seeks to complement existing product
offerings through internal development and acquisition of new investment
capabilities.
Increasing Penetration in the Accredited Investor Market
ICAP's high net worth business focuses, in general, on serving clients
who fit within the definition of "accredited investors" under the federal
securities laws. That means ICAP's customers will generally be (i) banks or
other financial institutions; (ii) registered broker-dealers; (iii) registered
investment companies; (iv) small business investment companies; (v) natural
persons whose individual net worth, or joint net worth with that person's
spouse, exceed $1,000,000; (vi) natural persons whose individual net income
exceeded $200,000, or $300,000 together with their spouses, for each of the past
two years, and such persons have the reasonable expectation of achieving such
incomes in the current year; (vii) certain types of trusts with total assets in
excess of $5,000,000; and (viii) entities in which all of the equity owners are
accredited investors. With ICM's history of serving this segment and its
long-term performance record, ICAP believes that it is well positioned to
capitalize on the growth opportunities in this market.
Attracting and Retaining Experienced Professionals
The availability of the publicly traded ICAP Common Stock will enhance
ICAP's ability to attract and retain top performing investment professionals.
The ability to attract and retain highly experienced investment and other
professionals with a long-term commitment to ICAP and its clients will be a
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significant factor in ICAP's long-term growth. As ICAP continues to increase the
breadth of its investment management capabilities, it plans to add portfolio
managers and other investment personnel in order to foster expansion of its
products.
Capitalizing on Acquisitions and Strategic Alliances
ICAP intends to selectively and opportunistically pursue acquisitions
and alliances that will broaden its product offerings and add new sources of
distribution. ICAP believes that it is well positioned, as a publicly traded
company, to pursue strategic acquisitions and alliances of investment
management, investment banking and securities brokerage companies.
Supervision and Regulation
ICAP
ICAP is incorporated under, and required to be in compliance with, the
laws of the State of Delaware. ICAP is also subject to the reporting
requirements of the Exchange Act as well as to applicable regulation and
supervision by the Commission. Because ICAP is not engaged in the rendering of
investment advisory services, its activities as a holding company will not
result in ICAP being deemed an "investment adviser", as such term is defined in
the Investment Advisers Act and various state advisers acts. ICAP, therefore, is
not required to be registered under the Investment Advisers Act or any state
advisers acts. However, because Ewing is subject to the Uniform Net Capital Rule
(as defined below), ICAP is also subject to the requirements of such rule.
ICM
ICM is incorporated under, and required to be in compliance with, the
corporate laws of the State of Florida. Because ICM is engaged in the business
of providing investment advisory services to a number of clients, ICM is
registered under the Investment Advisers Act and under applicable state
investment advisers acts. All registrations, reporting, maintenance of books and
records and compliance procedures required by the foregoing laws and regulations
are maintained independently by ICM. ICM is subject to the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), and to U.S. Department of
Labor regulations promulgated thereunder, insofar as ICM is a "fiduciary" under
ERISA with respect to its clients.
The laws and regulations applicable to ICM and its operations generally
grant supervisory agencies and bodies broad administrative powers, including the
power to limit or restrict ICM from carrying on its business in the event that
it fails to comply with such laws and regulations. Possible sanctions that may
be imposed in the event of such noncompliance include the suspension of
individual employees, limitations on ICM's engaging in business for specified
periods of time, revocation of ICM's registration as an investment adviser,
censures and fines.
ICM believes that it is currently in compliance with all state and
federal regulations, and its most recent audit met all applicable regulatory
requirements. ICM also has in place an ongoing internal compliance program
supported by regulators, external consultants, accountants and attorneys.
Ewing
Ewing is incorporated under, and required to be in compliance with, the
corporate laws of the State of Florida. Ewing is registered as a broker-dealer
with the Commission under the Exchange Act and, where applicable, under various
state securities laws, and is further regulated by the rules of the NASD. All
registrations, reporting, maintenance of books and records and compliance
procedures required by the foregoing laws and regulations are maintained
independently by Ewing.
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Ewing is also required by federal law to belong to the SIPC, which
provides, in the event of the liquidation of a broker-dealer, protection for
securities held in customer accounts of up to $500,000 per customer, subject to
a limitation of $100,000 on claims for cash balances. The SIPC is funded through
assessments levied on registered broker-dealers. Stocks, bonds, mutual funds and
money market funds are considered securities and are protected on a share basis
for the purposes of SIPC protection. SIPC protection does not apply to
fluctuations in the market value of securities.
Margin lending arranged by Ewing is subject to the margin rules of the
Board of Governors of the Federal Reserve System and the NASD. Under such rules,
broker-dealers are limited in the amount they may lend in connection with
certain purchases and short sales of securities and are also required to impose
certain maintenance requirements on the amount of securities and cash held in
margin accounts. In addition, those rules govern the amount of margin customers
must provide and maintain in writing uncovered options.
As a registered broker-dealer, Ewing (and ICAP by virtue of its
ownership of Ewing) is subject to Rule 15c3-1 of the Exchange Act, also known as
the "Uniform Net Capital Rule", which has also been adopted by the NASD. The
Uniform Net Capital Rule specifies minimum net capital requirements for all
registered broker-dealers and is designed to measure financial integrity and
liquidity. Failure to maintain the required regulatory net capital may subject a
firm to suspension or expulsion by the NASD, certain punitive actions by the
Commission and, ultimately, may require a firm's liquidation.
Ewing falls within the provisions of Rule 15c3-l(a)(2)(iv) of the
Exchange Act. Ewing is subject to the minimum net capital requirements
applicable to brokers or dealers that introduce customer accounts and receive
securities, which requires that Ewing maintain minimum net capital, as defined,
of not less than $250,000 at December 31, 2000. Subsequent to December 31, 2000,
Ewing's required minimum net capital has been reduced from $250,000 to $50,000
as a result of operational changes that include the curtailing of the Company's
market making activity. Ewing is not subject to Rule 15c3-3 of the Exchange Act,
which regulates a broker-dealer's custody of customer securities, and claims
exemption from the reserve requirement under of Rule 15c3-3(k)(2)(ii) of the
Exchange Act. Ewing maintains net capital in excess of that required by Rule
17a-11 of the Exchange Act which requires Ewing to give notice in the event that
Ewing's net capital falls below certain levels.
Ewing believes that it is currently in compliance with all state and
federal regulations, and its most recent audit met all applicable regulatory
requirements. Ewing also has in place an ongoing internal compliance program
supported by regulators, external consultants, accountants and attorneys.
Enviroq
Enviroq is incorporated under, and required to be in compliance with,
the corporate laws of the State of Delaware. Enviroq must also comply with
various federal, state and local laws and administrative regulations relating to
the protection of the environment. Federal, state and local laws and
administrative regulations which have been enacted or adopted regulating the
discharge of materials into the environment or otherwise relating to the
protection of the environment will not, in the opinion of management, have a
material effect on the capital expenditures, earnings, or the competitive
position of Enviroq.
Competition
ICAP, through its wholly owned subsidiaries, is principally engaged in
an extremely competitive business, the financial services industry. Competitors
include, with respect to one or more aspects of its business, all of the member
organizations of the New York Stock Exchange and other registered securities
exchanges, all of the members of the NASD, investment management firms,
commercial banks, thrift institutions and financial consultants. Many of these
organizations have substantially more employees and greater financial resources
than ICAP. ICAP also competes for investment funds with banks, insurance
companies and investment companies. Discount brokerage firms oriented to the
retail market, including firms
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affiliated with commercial banks and thrift institutions, are devoting
substantial funds to advertising and direct solicitation of customers in order
to increase their share of commission dollars and other securities related
income. ICAP is not engaged in extensive advertising programs for this type of
business.
Management believes that the most important factors affecting
competition in the investment management business are the abilities and
reputations of investment managers, differences in investment performance of the
various firms, the development and execution of new investment strategies,
access to channels of distribution, and resources to invest in information
technologies and client service capabilities. ICAP expects that other industry
participants will from time to time seek to recruit ICAP investment
professionals and other employees away from ICAP. The loss of key professionals
could have a material adverse affect on ICAP.
The financial services industry is, by its nature, subject to various
risks, particularly in volatile or illiquid markets, including the risk of
losses resulting from the ownership of securities, customer fraud, employee
errors or misconduct, failures in connection with the processing of securities
transactions and litigation. ICAP's business and its profitability are affected
by many factors, including the volatility and price level of the securities
markets, the volume, size and timing of securities transactions, the demand for
investment banking services, the level and volatility of interest rates, the
availability of credit, legislation affecting the business and financial
communities, and the economy in general. Markets characterized by low trading
volumes and depressed prices generally result in reduced commissions and
investment banking revenues as well as losses from declines in the market value
of securities positions.
Employees
As of December 31, 2000, ICAP and its subsidiaries employed 31 people,
30 full-time and 1 part-time, of whom 17 are registered with the NASD. ICAP has
no collective bargaining with any of its employees and believes that its overall
relations with employees are good.
ITEM 2. DESCRIPTION OF PROPERTY
ICAP and ICM maintain offices at 3652 South Third Street, Suite 200,
Jacksonville Beach, Florida 32250, occupying approximately 5,600 square feet
under a lease that expires in January 2010.
Ewing maintains an office at 50 North Laura Street, Suite 3625,
Jacksonville, Florida 32202, occupying approximately 4,300 square feet under a
lease that expires in January 2005.
Enviroq and Sprayroq maintain office/warehouse space at 4707 Alton
Court, Irondale, Alabama 35210, occupying approximately 5,500 square feet under
a lease that may be cancelled upon 90 days written notice.
All properties are in adequate condition for the purposes for which
ICAP uses them.
ITEM 3. LEGAL PROCEEDINGS
There are no material legal proceedings pending, or to ICAP's
knowledge, threatened against ICAP or any of its subsidiaries.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to ICAP's stockholders during the fourth
quarter of fiscal year 2000.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
ICAP's common stock trades in the over-the-counter market and is quoted
on the NASDAQ OTC Bulletin Board under the symbol "ICAP". The following table
sets forth, for the last two fiscal years, the high and low bid and asked prices
of the common stock of ICAP. The information set forth below has been obtained
from Bloomberg L.P. and is believed to be reliable. The reported high and low
bid and asked quotations reflect inter-dealer prices without retail mark-up,
mark-down or commission and may not represent actual transactions.
Fiscal Year 2000 Low Bid High Bid Low Asked High Asked
---------------- ------- -------- --------- ----------
First Quarter $ 2.25 $ 4.00 $ 2.94 $ 5.13
Second Quarter 1.63 3.75 1.88 4.25
Third Quarter 1.63 1.88 2.00 2.25
Fourth Quarter 1.69 1.75 2.00 2.06
Fiscal Year 1999
First Quarter $ 1.50 $ 3.50 $ 2.63 $ 6.00
Second Quarter 2.00 3.38 2.75 5.00
Third Quarter 1.25 2.50 2.00 3.50
Fourth Quarter 1.25 6.00 1.69 7.00
As of December 31, 2000, there were 2,318,996 shares of ICAP Common
Stock outstanding, 1,000 shares held in treasury and 158 stockholders of record.
The number of record holders includes as single holders various institutions
(such as brokerage firms) that hold shares in "street name" for multiple
stockholders.
ICAP has not paid any cash dividends on the ICAP Common Stock since its
organization, and currently intends to retain any earnings for operations and
the expansion of its business. Other than state corporate law limitations, there
are no restrictions on ICAP's ability to pay dividends.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The accompanying consolidated financial statements of ICAP as of
December 31, 2000 and 1999 include the accounts of ICAP and its subsidiaries
ICM, Ewing and Enviroq. In accordance with purchase accounting, the accounts of
ACEFS were included from August 1, 1999, the date of acquisition.
Acquisitions
Effective August 1, 1999, ICAP consummated the acquisition of all of
the outstanding capital stock of ACEFS. The Company acquired the ACEFS capital
stock in exchange for cash in the amount of $950,000, with funds borrowed from a
bank and three promissory notes in the aggregate principal amount of $350,000.
Primarily all of ACEFS's operations were conducted through its wholly owned
subsidiary Allen C. Ewing & Co. Concurrent with the acquisition, ICAP
contributed the assets and liabilities of ACEFS to CRC. Subsequent to this
acquisition, the operations of CRC and ACEFS were conducted through the merged
entity Allen C. Ewing & Co. ("Ewing"). The acquisition was accounted for under
the purchase method of accounting.
Effective November 30, 2000, ICAP consummated the acquisition of all of
the outstanding capital stock of Sears Thompson. ICAP acquired the Sears
Thompson capital stock in exchange for 32,193 shares of ICAP common stock,
valued at $2.00 per share, resulting in a total purchase price $64,386. The
acquisition was accounted for under the purchase method of accounting.
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Liquidity and Capital Resources
ICAP's current assets consist generally of cash, money market funds and
accounts receivable. ICAP has financed its operations with funds provided by
stockholder capital and the sale of trading securities. ICAP has developed a
growth strategy plan that includes both internal and external growth through
acquisitions.
For the six month period ended June 30, 2000, and, to a lesser extent,
for the six month period ended December 31, 2000, ICAP incurred significant
operating losses and negative cash flows from operations. ICAP is evaluating
several options to raise capital which include the issuance of equity securities
in private placements, and enhancing the operations, or the complete disposal
of, Sprayroq, Inc. (Enviroq's 50% owned subsidiary). ICAP also believes that its
broker-dealer services segment will generate substantial high-margin investment
banking revenues during 2001. If additional funds are raised through the
issuance of equity securities, the percentage of ownership of the stockholders
of ICAP will be reduced. While management believes it will be able to meet its
capital needs through several of the above alternatives, there can be no
assurances that such transactions will take place on terms favorable to ICAP, if
at all. If adequate funds are not available or terms are not suitable, ICAP's
growth strategy would be significantly limited and such limitation could have an
effect on ICAP's business, results of operations and financial condition.
For 2000, the net cash used in operating activities of $435,385 was
primarily attributable to the net loss, offset by cash proceeds from sales of
investments. Net cash used in investing activities of $152,327 was primarily due
to the purchase of property, plant, and equipment. Net cash used in financing
activities of $32,444 was primarily attributable to principal payments on notes
payable, net of proceeds from the issuance of common stock.
ICAP, through its subsidiary Ewing, is subject to the net capital
requirements of the Exchange Act, the NASD and other regulatory authorities. At
December 31, 2000, Ewing's regulatory net capital was $303,556, $53,556 in
excess of its minimum net capital requirement of $250,000.
Since its acquisition of Enviroq in December 1998, ICAP has been
evaluating alternatives for the future of this business because of its
inconsistency with ICAP's primary mission. ICAP is currently pursuing several
alternatives for this business, including a possible sale of Sprayroq, Enviroq's
50% owned subsidiary that conducts primarily all of Enviroq's operations.
Results of Operations
Year Ended December 31, 2000 Compared to Year Ended December 31, 1999
Total revenues for 2000 were $5,155,925 compared to $4,492,487 for
1999, representing a 14.8% increase.
Commissions increased $68,486, or 4.0%, to $1,779,596. Commissions
represent revenue earned by Ewing from securities transactions conducted on
behalf of clients, including sales of mutual fund shares and variable annuities.
The increase primarily represents increased transaction volume as a result of
the acquisition of ACEFS in August 1999, partially offset by decreasing
transaction volumes resulting from negative market conditions.
Asset management fees decreased $168,277, or 19.5%, to $696,575. Asset
management fees represent revenue earned by ICM for investment advisory
services. The fees earned are generally a function of the overall fee rate
charged to each account and level of Assets Under Management ("AUM"). Quarterly
management fees are billed on the first day of each quarter based on each
account value at the market close of the prior quarter. AUM was $92.5 million,
$84.5 million, $76.8 million, and $77.8 million at December 31,
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11
1999, March 31, 2000, June 30, 2000, and September 30, 2000, respectively,
compared to $101.0 million, $89.3 million, $101.4 million, and $98.0 million at
December 31, 1998, March 31, 1999, June 30, 1999, and September 30, 1999,
respectively. The decrease in asset management fees for 2000 relates directly to
the net decreases in AUM at the market close prior to each quarter during the
year. The negative net change in client assets is primarily attributable to
ICAP's "value investment style", which has not performed at historical levels
over the past three years, and has resulted in client movement. Management
believes that this trend reversed during the first quarter of 2000 and may well
be followed by an extended period more favorable to the value investment style.
AUM increased during the fourth quarter of 2000 to $105.3 million at December
31, 2000, compared to $92.5 million at December 31, 1999. The increase is
primarily attributable to the hiring of an investment manager that brought
existing client relationships to ICAP with AUM of approximately $29.2 million.
Investment banking revenues increased $401,858, or 368.3%, to $510,968.
Investment banking revenues represent fees earned by Ewing for providing
investment banking services to clients on corporate finance matters, including
mergers and acquisitions and the issuance of capital stock to the public. Such
revenues are dependent on the timing of services provided and are normally
received upon consummation of the transaction. The increase is primarily
attributable to the acquisition of ACEFS in August 1999. A significant fee was
earned in the fourth quarter of 2000 accounting for approximately 47% of total
investment banking revenue for the year.
Net trading profits increased $214,332, or 351.5%, to $153,362. There
were $202,544 of realized gains and $49,182 of unrealized losses in ICAP's
investment in trading securities, which includes securities obtained through the
acquisition of ACEFS in August 1999 and ICAP's investment in Intrepid Capital,
L.P.
Resinous material sales increased $168,366, or 9.7%, to $1,912,584. The
increase is primarily attributable to an increase in resin demand from licensees
and the sale of three new licenses during the year ended December 31, 2000.
Dividend and interest income decreased $20,124, or 24.0%, to $63,602.
The decrease is primarily attributable to the sale of dividend and interest
bearing trading securities.
Total expenses for 2000 were $6,026,293 compared to $5,521,694 for
1999, representing a 9.1% increase.
Salaries and employee benefits increased $152,868, or 5.8%, to
$2,793,736. The increase is primarily attributable to incremental salary
increases and increased commission expenses as a result of increased commission
and investment banking revenues.
Brokerage and clearing expenses decreased $144,162, or 28.5%, to
$362,461. Brokerage and clearing expenses represent securities transaction and
other costs paid to the clearing broker-dealer, and are related to commission
revenue earned by Ewing. During the three months ended March 31, 2000, ICAP
re-negotiated its clearing agreement, resulting in reduced transactional costs
and decreased brokerage and clearing expenses per trade. The net decrease
reflects decreased costs as a result of the re-negotiated clearing agreement.
Cost of resinous material sales increased $178,632, or 21.0%, to
$1,028,736. The increase is primarily attributable to a change in product mix
and an increase in the cost of components of equipment used in the resinous
material business.
Advertising and marketing expenses decreased $16,202, or 5.8%, to
$261,914. The decrease can be attributed to decreased travel and entertainment
costs and to decreased advertising costs resulting from a nonrecurring
advertising campaign for Sprayroq conducted during the year ended December 31,
1999.
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Professional and regulatory expenses increased $39,919, or 9.9%, to
$442,376. The increase is primarily attributable to increased technology costs
at Ewing and to a nonrecurring certification fee at Sprayroq.
Occupancy and maintenance expenses increased $208,065, or 86.8%, to
$447,868. The increase is primarily attributable to the acquisition of ACEFS in
August 1999 and to the relocation of ICAP's headquarters in January 2000.
Provision for doubtful accounts of $58,074 in 1999 is attributable to
the write-off of accounts receivable of Enviroq. No accounts receivable were
written off in 2000.
Depreciation and amortization expenses increased $61,633, or 44.9%, to
$198,903. The increase is primarily attributable to the depreciation of acquired
assets as a result of the acquisition of ACEFS in August 1999 and to
depreciation costs incurred on leasehold improvements for ICAP's new
headquarters.
Interest expense increased $34,273, or 59.8%, to $91,585. The increase
is primarily attributable to interest costs associated with the debt incurred as
a result of the acquisition of ACEFS in August 1999 and to increased market
interest rates on ICAP's variable rate bank note.
Other expenses increased $47,647, or 13.6%, to $398,714. The increase
is primarily attributable to increased general and administrative expenses as a
result of the acquisition of ACEFS in August 1999.
New Accounting Pronouncements
In 1998, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities ("FASB No. 133"). In June 1999, the FASB
delayed the implementation date of FASB No. 133 making it effective for ICAP for
periods beginning January 1, 2001. FASB No. 133 requires that all derivative
instruments be recorded on the balance sheet at their fair value. Changes in the
fair value of derivatives are recorded each period in current earnings or other
comprehensive income, depending on whether a derivative is designated as part of
hedge transaction and, if it is, the type of hedge transaction. Management
anticipates that, due to its limited use of derivative instruments, the adoption
of FASB No. 133 will not have a significant effect on ICAP's financial position
or results of operations.
ITEM 7. FINANCIAL STATEMENTS
The consolidated financial statements of ICAP as of December 31, 2000
and other information required by Item 310(a) of Regulation S-B are set forth on
pages F-1 through F-14 hereof.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
There have been no changes in or disagreements with accountants
regarding accounting procedures or financial disclosure.
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PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS,
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Executive officers and directors of ICAP as of the date hereof are as
follows:
NAME AGE DIRECTOR SINCE POSITION AND OFFICES WITH INTREPID
---- --- -------------- ----------------------------------
Benjamin C. Bishop, Jr. 69 August 1999 Director
Thomas W. Brander 51 September 1998 Director
Arnold A. Heggestad 57 August 1999 Director
William J. Long 49 April 1998 Executive Vice President and Director
Michael X. Marinelli 42 September 1998 Director
Morgan Payne 57 September 1998 Director
Mark F. Travis 39 September 1998 Executive Vice President and Director
Forrest Travis 62 September 1998 President, Chief Executive Officer and Director
Alexander P. Zechella 80 September 1998 Director
Benjamin C. Bishop, Jr. has served as a director of ICAP since August
1999. Mr. Bishop has also been President and Chief Executive Officer of Ewing
since 1997. From 1972 to 1997, Mr. Bishop served in various management and
executive capacities of Ewing. Mr. Bishop has been active for over 30 years in
the securities brokerage business as well as corporate and real estate finance.
His experience includes commercial banking with First Union National Bank in
Charlotte, North Carolina, mortgage banking and 10 years as investment vice
president with The Liberty Corporation of Greenville, South Carolina. Mr. Bishop
has served as a director of Cousins Properties of Atlanta, Georgia, Cummings &
Company of Nashville, Tennessee, GMR Properties of Jacksonville, Florida,
Peninsular Fire Insurance Company of Jacksonville, Florida, and Grubb & Ellis
Company of San Francisco, California. Mr. Bishop received a Bachelor of
Engineering degree from The Georgia Institute of Technology and a Masters of
Business Administration from Harvard University.
Thomas W. Brander is currently retired, having retired in April 1998.
From 1988 until April 1998, Mr. Brander served as Senior Vice President,
Management Information Systems and Communications of Compass Bankshares, Inc. in
Birmingham, Alabama. From 1987 until 1988, Mr. Brander served as a Vice
President - Management Consulting for American International Group in New York,
New York. From 1976 until 1987, Mr. Brander served as Vice President - General
Manager, Assistant Vice President - Commercial Loans, and Assistant Vice
President - Domestic Money Transfer with Citibank, N.A. in Sydney, Australia,
Atlanta, Georgia and New York, New York, respectively. Mr. Brander has been a
director of ICAP since September 1998. Prior to September 1998, he had served as
a director of Enviroq.
Dr. Arnold A. Heggestad has served as a director of ICAP since August
1999. Dr. Heggestad currently serves as Holloway Professor of Finance and
Entrepreneurship and director of the Center for Entrepreneurship and Innovation
at the University of Florida College of Business Administration. Dr. Heggestad
has served as Executive Director of the University of Florida Research
Foundation, Inc., director of the Jacksonville, Florida branch of the Federal
Reserve Bank of Atlanta, Georgia, advisory director of Florida Bank, chairman of
The Cypress Equity Fund and a Commissioner of the Government Accountability to
the People Commission. From 1977 until 1986, Dr. Heggestad was the chairman of
the Department of Finance, Insurance, and Real Estate and associate dean of the
University of Florida College of Business
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Administration. Dr. Heggestad received a bachelor's degree from the University
of Maryland and masters and Ph.D. degree from Michigan State University.
William J. Long has been Chief Operating Officer and Executive Vice
President of ICAP since December 1998 and has also served as a director of ICAP
since its incorporation in April 1998. Mr. Long has also been the President and
Chief Executive Officer of Enviroq since April 1995. From October 1984 to April
1995, Mr. Long was Vice President-Marketing and a director of a Delaware
corporation formally known as Enviroq Corporation ("Old Enviroq"). At the time
of its incorporation, Enviroq was a wholly-owned subsidiary of Old Enviroq. On
April 18, 1995, Old Enviroq distributed all of the issued and outstanding
capital stock of Enviroq to the holders of the common stock of Old Enviroq.
Since May 25, 1995, Mr. Long has been Chairman of the Board and a director of
Sullivan, Long & Hagerty, an Alabama corporation ("SLH") and a heavy
construction contractor which is the parent of SCE, Incorporated, an Alabama
corporation ("SCE"), also a heavy construction contractor.
Michael X. Marinelli has been a partner of the law firm of Verner,
Liipfert, Bernhard, McPherson and Hand since 2000. Mr. Marinelli was a partner
of the law firm of Baker & Botts, which he joined as an associate in 1989, until
2000. He graduated from Catholic University Law School in 1989. Mr. Marinelli
served as Assistant Secretary of Old Enviroq from January 1987 to July 1987. He
served as Special Assistant to the General Manager of Instituform East, Inc.
from February 1986 to August 1986. From October 1985 to February 1986, Mr.
Marinelli served as an assistant to the President of Old Enviroq, and from
October 1984 to October 1995 he was a sales representative for Old Enviroq. He
has served as a director of ICAP since September 1998. Prior to September 1998,
Mr. Marinelli served as a director of Enviroq since April 1995. Prior to April
1995, Mr. Marinelli served as a director of Old Enviroq since October 1984.
Morgan Payne has been President of Broadland Capital Partners, L.P., a
financial advisory limited partnership, since 1990. Mr. Payne has served as a
director of ICAP since September 1998. Prior to 1990, Mr. Payne worked for both
IBM and Robinson-Humphrey in sales and management. Mr. Payne received a Bachelor
of Electrical Engineering degree from The Georgia Institute of Technology.
Mark F. Travis has been Executive Vice President of ICAP since December
1998 and has served as a director since September 1998. Mr. Travis also has been
President of ICM since December 1998. From its inception in January 1995 until
December 1998, Mr. Travis was Vice President of ICM. From June 1984 to January
1995, Mr. Travis was a Vice President of Smith Barney, Inc. in Jacksonville,
Florida. Mr. Travis received a Bachelor of Arts in Economics from the University
of Georgia in 1984 and currently holds NASD Series 3, 7, 24, 63 and 65 licenses.
Mark F. Travis is the son of Forrest Travis.
Forrest Travis has been President and Chief Executive Officer of ICAP
since December 1998 and has served as a director since September 1998. Mr.
Travis also has been Executive Vice President of Ewing since August 1999. From
June 1995 until its December 1999 merger with and into Ewing, Mr. Travis served
as President of CRC. From its inception in January 1995, until December 1998,
Mr. Travis was President of ICM. From December 1980 to January 1995, Mr. Travis
was a Senior Vice President and a Director of the Consulting Group of Smith
Barney, Inc. in Jacksonville, Florida. Mr. Travis received a Bachelor of
Engineering degree from The Georgia Institute of Technology and currently holds
NASD Series 2, 3, 4, 7, 24, 27, 53, 63 and 65 licenses. Forrest Travis is the
father of Mark F. Travis.
Alexander P. Zechella served from September 1983 to April 1984, as
Chairman of Charter Oil Company and Executive Vice President of the Charter
Company ("Charter"). From April 1984 until his retirement in December 1985, Mr.
Zechella served as President, Chief Executive Officer and Chief Operating
Officer of Charter. Mr. Zechella has also served as Regional Vice President of
Westinghouse Electric for the northeast U.S. region. Mr. Zechella has served as
a director of ICAP since September 1998. Prior to September 1998, he served as a
director of Enviroq since April 1995. Prior to April 1995, he served as a
director of Old Enviroq since April 1987.
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ITEM 10. EXECUTIVE COMPENSATION
The following table and notes present the cash and non-cash
compensation paid or accrued during the fiscal years ended December 31, 2000,
1999 and 1998 to ICAP's Chief Executive Officer and to any other executive
officer whose total cash compensation exceeded $100,000.
SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION
---------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
----------------------------------------- ----------------------- -------
OTHER RESTRICTED ALL OTHER
NAME AND ANNUAL STOCK OPTIONS/ LTIP ANNUAL
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION AWARD SAR PAYOUTS COMPENSATION
--------------------------- ---- -------- -------- ------------ ---------- -------- ------- ------------
Forrest Travis, 2000 $221,767(1) --- --- --- --- --- ---
President and 1999 $218,701(1) --- --- --- --- --- ---
Chief Executive Officer 1998 $208,883(1)(2) --- --- --- --- --- ---
Mark F. Travis, 2000 $175,855(1) --- --- --- --- --- ---
Executive Vice President 1999 $175,427(1) --- --- --- --- --- ---
1998 $170,994(1)(2) --- --- --- --- --- ---
William J. Long, 2000 $149,656 --- --- --- --- --- ---
Executive Vice President 1999 $130,000 --- --- --- --- --- ---
1998 $ 86,000 $ 50,000 --- --- --- --- ---
---------------
(1) This amount includes, for fiscal year 2000, 1999 and 1998, the
Company's matching contributions to its 401(k) plan for the benefit of
Forrest Travis in the aggregate amount of $5,100, $15,701 and $14,489,
respectively, and for the benefit of Mark F. Travis in the aggregate
amount of $5,100, $14,807 and $13,374, respectively.
(2) Compensation to Mr. Forrest Travis for 1998 was paid 50% by ICM and 50%
by CRC, and compensation for Mr. Mark F. Travis for 1998 was paid by
ICM. After the effective time of the Mergers and prior to December 31,
1998, ICAP paid no salaries to its executive officers.
Option/SAR Grants in Last Fiscal Year
During the fiscal year ended December 31, 2000, no options or SAR's
were granted to ICAP's Chief Executive Officer or to any other executive officer
whose total cash compensation exceeded $100,000.
Aggregate Option/SAR Exercises and Fiscal Year-End Option/SAR Values
No options or SARs were exercised during the fiscal year ended December
31, 2000 by ICAP's Chief Executive Officer or by any other executive officer
whose total cash compensation exceeded $100,000.
Long Term Incentive Plan Awards in Last Fiscal Year
During the fiscal year ended December 31, 2000, ICAP made no awards
under any Long Term Incentive Plan to ICAP's Chief Executive Officer or to any
other executive officer whose total cash compensation exceeded $100,000.
Employment Agreements
ICAP has entered into an Employment Agreement with each of Messrs.
Forrest Travis, Mark F. Travis and William J. Long, each effective as of
December 16, 1998 (each, an "Employment Agreement" and, collectively, the
"Employment Agreements"). All of the Employment Agreements are "at will"
agreements and will expire only upon the occurrence of certain events, including
upon thirty (30) days prior written notice by either party. However, the
Employment Agreements automatically terminate if the employee dies, becomes
permanently disabled or is convicted of a felony. In the event of an employee's
disability, ICAP is obligated to pay the employee's full salary for the three
months following his termination and 50% of his full salary for the three months
after that, at which time the employee's salary will terminate under each
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Employment Agreement. Each Employment Agreement also includes certain
restrictive covenants which limit the employee's ability to compete with ICAP
for two years after the termination of employment or to divulge certain
confidential information concerning ICAP. As consideration for the employee's
covenant not to compete or disclose confidential information, ICAP is obligated
to pay the employee $50,000 per year during the duration of the restrictive
covenant.
Pursuant to Forrest Travis' Employment Agreement, Mr. Travis has agreed
to serve as the President and Chief Executive Officer of ICAP. Mr. Travis'
Employment Agreement provides that he will receive an annual base salary of
$200,000. Further, Mr. Travis is entitled to receive an annual bonus and to
participate in all present and future employee benefit, retirement and
compensation plans of ICAP consistent with his salary and his position as the
President and Chief Executive Officer of ICAP.
Pursuant to Mark F. Travis' Employment Agreement, Mr. Travis has agreed
to serve as an Executive Vice President of ICAP. Mr. Travis' Employment
Agreement provides that he will receive an annual base salary of $157,620.
Further, Mr. Travis is entitled to receive an annual bonus and to participate in
all present and future employee benefit, retirement and compensation plans of
ICAP consistent with his salary and his position as an Executive Vice President
of ICAP.
Pursuant to William J. Long's Employment Agreement, Mr. Long has agreed
to serve as an Executive Vice President of ICAP. Mr. Long's Employment Agreement
provides that he will receive an annual base salary of $130,000. Further, Mr.
Long is entitled to receive an annual bonus and to participate in all present
and future employee benefit, retirement and compensation plans of ICAP
consistent with his salary and his position as an Executive Vice President of
ICAP.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table set forth below presents certain information regarding the
beneficial ownership as of December 31, 2000 of (i) each stockholder known to
ICAP to own more than 5% of the outstanding shares of any class of the ICAP's
outstanding securities entitled to vote; (ii) directors of ICAP; (iii) executive
officers of ICAP; and (iv) all executive officers and directors of ICAP as a
group.
AMOUNT AND NATURE OF
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF OWNERSHIP
------------------------ -------------------- --------------------
Benjamin C. Bishop, Jr 0 *
3652 South Third Street, Suite 200
Jacksonville Beach, FL 32250
Thomas W. Brander 0 *
3652 South Third Street, Suite 200
Jacksonville Beach, FL 32250
Arnold A. Heggestad 0 *
3652 South Third Street, Suite 200
Jacksonville Beach, FL 32250
William J. Long 239,385 9.7%
3652 South Third Street, Suite 200
Jacksonville Beach, FL 32250
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Marinelli Securities Associates 294,900 11.9%
3652 South Third Street, Suite 200
Jacksonville Beach, FL 32250
Antonio M. Marinelli 299,559 12.1%
3652 South Third Street, Suite 200
Jacksonville Beach, FL 32250
Michael X. Marinelli 295,420 12.0%
3652 South Third Street, Suite 200
Jacksonville Beach, FL 32250
Morgan Payne 160,000** 6.5%
3652 South Third Street, Suite 200
Jacksonville Beach, FL 32250
Mark F. Travis 416,353 16.9%
3652 South Third Street, Suite 200
Jacksonville Beach, FL 32250
Forrest Travis 831,678 33.7%
3652 South Third Street, Suite 200
Jacksonville Beach, FL 32250
Alexander P. Zechella 4,221 *
3652 South Third Street, Suite 200
Jacksonville Beach, FL 32250
All directors and executive officers 1,947,057 78.9%
of Intrepid as a group (9 persons)
* Indicates less than 1% beneficial ownership
** Includes underlying shares of warrant issued to Broadland pursuant to
the "Consulting Agreement". (See "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS -- Consulting Agreement").
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Consulting Agreement
On December 4, 1997, ICM entered into a consulting agreement with
Broadland Capital Partners, L.P. ("Broadland"), an affiliate of Mr. Morgan
Payne, a director of ICAP (the "Consulting Agreement"), pursuant to which
Broadland agreed to provide certain consulting services to ICM in connection
with the Mergers and, after the consummation of the Mergers, to help identify
and assist ICAP in acquiring suitable acquisition candidates. In accordance with
the Consulting Agreement, Broadland received a consulting fee of $3,000 per
month beginning after the consummation of the Mergers. In December 2000, the
Consulting Agreement was amended to discontinue the monthly consulting fee of
$3,000. ICAP also issued a warrant to Broadland under the Consulting Agreement,
whereby Broadland is entitled to purchase up to 150,000 shares of ICAP Common
Stock at $.75 per share, subject to certain vesting requirements and conditions
to exercise. In addition, Broadland is entitled to reimbursement for its
pre-approved reasonable expenses incurred in connection with its duties under
the Consulting Agreement.
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ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following financial statements are filed with this report on Form
10-KSB:
Independent Auditors' Report ......................................................................................... F-1
Consolidated Balance Sheets of Intrepid Capital Corporation and Subsidiaries as of December 31, 2000
and 1999............................................................................................................ F-2
Consolidated Statements of Operations of Intrepid Capital Corporation and Subsidiaries for the Years Ended
December 31, 2000 and 1999 ......................................................................................... F-3
Consolidated Statements of Stockholders' Equity of Intrepid Capital Corporation and Subsidiaries for the Years
Ended December 31, 2000 and 1999 ..................................................................................... F-4
Consolidated Statements of Cash Flows of Intrepid Capital Corporation and Subsidiaries for the Years Ended
December 31, 2000 and 1999 ......................................................................................... F-5
Notes to Consolidated Financial Statements ........................................................................... F-6
(b) Exhibit Index
Exhibit No. Description of Exhibit
----------- ----------------------
2.1 Share Purchase Agreement dated as of August 4, 1999, among Intrepid
Capital Corporation, Benjamin C. Bishop, Jr., Charles E. Harris,
Synagen Capital Partners, Inc. and Arnold A. Heggestad (incorporated by
reference to Exhibit 2 to the Registrant's Form 8-K filed August 18,
1999).
3.1 Certificate of Incorporation of the Registrant (incorporated by
reference to Exhibit 3.(A) to the Registrant's Form S-4 filed November
6, 1998, Registration No. 333-66859).
3.2 Bylaws of the Registrant (incorporated by reference to Exhibit 3.(B) to
the Registrant's Form S-4 filed November 6, 1998, Registration No.
333-66859).
9.1 Form of Voting Agreement (incorporated by reference to Exhibit 9 to the
Registrant's Form S-4 filed November 6, 1998, Registration No.
333-66859).
10.1 Form of Employment Agreement between Intrepid Capital Corporation and
William J. Long (incorporated by reference to Exhibit 10.(A) to the
Registrant's Form S-4 filed November 6, 1998, Registration No.
333-66859).
10.2 Form of Employment Agreement between Intrepid Capital Corporation and
Forrest Travis (incorporated by reference to Exhibit 10.(B) to the
Registrant's Form S-4 filed November 6, 1998, Registration No.
333-66859).
10.3 Form of Employment Agreement between Intrepid Capital Corporation and
Mark F. Travis (incorporated by reference to Exhibit 10.(C) to the
Registrant's Form S-4 filed November 6, 1998, Registration No.
333-66859).
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10.4 Incentive Stock Option Plan of Intrepid Capital Corporation
(incorporated by reference to Exhibit 10.(D) to the Registrant's Form
S-4 filed November 6, 1998, Registration No. 333-66859).
10.5 Non-Employee Directors' Stock Option Plan of Intrepid Capital
Corporation (incorporated by reference to Exhibit 10.(E) to the
Registrant's Form S-4 filed November 6, 1998, Registration No.
333-66859).
10.6 Form of Non-Negotiable Convertible Promissory Note between Intrepid
Capital Corporation and Synagen Capital Partners, Inc. (incorporated by
reference to Exhibit 10.1 to the Registrant's Form 8-K filed August 18,
1999).
10.7 Form of Non-Negotiable Convertible Promissory Note between Intrepid
Capital Corporation and Benjamin C. Bishop, Jr. (incorporated by
reference to Exhibit 10.2 to the Registrant's Form 8-K filed August 18,
1999).
10.8 Form of Non-Negotiable Convertible Promissory Note between Intrepid
Capital Corporation and Arnold A. Heggestad (incorporated by reference
to Exhibit 10.3 to the Registrant's Form 8-K filed August 18, 1999).
10.9 Form of Employment Agreement between Intrepid Capital Corporation and
Benjamin C. Bishop, Jr. (incorporated by reference to Exhibit 10.4 to
the Registrant's Form 8-K filed August 18, 1999).
21.1 List of Subsidiaries.
24.1 Power of Attorney relating to this Form 10-KSB is set forth on the
signature page of this Form 10-KSB.
(c) Reports on Form 8-K:
No reports on Form 8-K were filed during the year ended December 31,
2000.
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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, on March 30, 2001.
INTREPID CAPITAL CORPORATION
By /s/ Forrest Travis
---------------------------------------
Forrest Travis, President and
Chief Executive Officer
By /s/ Michael J. Wallace
---------------------------------------
Michael J. Wallace, Chief
Accounting Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Forrest Travis as his attorney-in-fact,
acting with full power of substitution for him in his name, place and stead, in
any and all capacities, to sign any amendments to this Form 10-KSB and to file
the same, with exhibits thereto, and any other documents in connection
therewith, with the Securities and Exchange Commission and hereby ratifies and
confirms all that said attorney-in-fact, or his substitute or substitutes, may
do or cause to be done by virtue thereof.
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant in the capacities and on
the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Forrest Travis President, Chief Executive Officer and Director March 30, 2001
-------------------------------------
Forrest Travis
/s/ Mark F. Travis Executive Vice President and Director March 30, 2001
-------------------------------------
Mark F. Travis
/s/ William J. Long Executive Vice President and Director March 30, 2001
-------------------------------------
William J. Long
/s/ Benjamin C. Bishop, Jr. Director March 30, 2001
-------------------------------------
Benjamin C. Bishop, Jr.
/s/ Thomas W. Brander Director March 30, 2001
-------------------------------------
Thomas W. Brander
/s/ Arnold Heggestad Director March 30, 2001
-------------------------------------
Arnold Heggestad
/s/ Michael X. Marinelli Director March 30, 2001
-------------------------------------
Michael X. Marinelli
/s/ Morgan Payne Director March 30, 2001
-------------------------------------
Morgan Payne
/s/ Alexander P. Zechella Director March 30, 2001
-------------------------------------
Alexander P. Zechella
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INDEX TO FINANCIAL STATEMENTS
Independent Auditors' Report................................................................ F-1
Consolidated Balance Sheets of Intrepid Capital Corporation and
Subsidiaries as of December 31, 2000 and 1999............................................... F-2
Consolidated Statements of Operations of Intrepid Capital
Corporation and Subsidiaries for the Years Ended December 31,
2000 and 1999............................................................................... F-3
Consolidated Statements of Stockholders' Equity of Intrepid Capital
Corporation and Subsidiaries for the Years Ended December 31,
2000 and 1999................................................................................ F-4
Consolidated Statements of Cash Flows of Intrepid Capital
Corporation and Subsidiaries for the Years Ended December 31,
2000 and 1999................................................................................ F-5
Notes to Consolidated Financial Statements................................................... F-6
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INTREPID CAPITAL CORPORATION - 10KSB - Annual Report DRAFT
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Intrepid Capital Corporation
We have audited the accompanying consolidated balance sheets of Intrepid Capital
Corporation and subsidiaries as of December 31, 2000 and 1999, 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
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 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, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Intrepid Capital Corporation and subsidiaries as of December 31, 2000 and 1999,
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.
KPMG LLP
Jacksonville, Florida
March 27, 2001
F-1
23
INTREPID CAPITAL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2000 and 1999
2000 1999
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 474,544 1,094,700
Investments, at fair value 59,999 461,210
Accounts receivable, net of allowance
for doubtful accounts of $58,074 in 1999 470,800 246,702
Inventories 69,348 107,860
Prepaid and other assets (note 5) 251,694 142,848
----------- -----------
Total current assets 1,326,385 2,053,320
Equipment and leasehold improvements, net of accumulated
depreciation of $171,648 in 2000 and $111,122 in 1999 467,263 388,222
Goodwill, less accumulated amortization of $145,955
in 2000 and $71,622 in 1999 969,044 1,043,377
Other assets (note 5) 1,192 45,973
----------- -----------
Total assets $ 2,763,884 3,530,892
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 213,148 149,442
Accrued expenses 274,123 388,956
Securities sold, not yet purchased -- 2,555
Current portion of notes payable (note 3) 327,778 133,333
Other 108,832 123,978
----------- -----------
Total current liabilities 923,881 798,264
Notes payable, less current portion (note 3) 547,222 916,667
Minority interest in consolidated subsidiary 122,464 --
----------- -----------
Total liabilities 1,593,567 1,714,931
----------- -----------
Stockholders' equity:
Common stock, $.01 par value. Authorized 15,000,000 shares;
issued 2,318,996 and 2,215,525 shares at December 31, 2000
and 1999, respectively 23,190 22,155
Treasury stock, at cost - 1,000 shares (3,669) (3,669)
Additional paid-in capital 2,687,227 2,481,320
Accumulated deficit (1,536,431) (683,845)
----------- -----------
Total stockholders' equity 1,170,317 1,815,961
----------- -----------
$ 2,763,884 3,530,892
=========== ===========
Commitments (note 6)
See accompanying notes to consolidated financial statements.
F-2
24
INTREPID CAPITAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended December 31, 2000 and 1999
2000 1999
----------- -----------
Revenues:
Commissions $ 1,779,596 1,711,110
Asset management fees (note 5) 696,575 864,852
Investment banking revenues 510,968 109,110
Net trading profits (losses) 153,362 (60,970)
Resinous material sales 1,912,584 1,744,218
Dividend and interest income 63,602 83,726
Other 39,238 40,441
----------- -----------
Total revenues 5,155,925 4,492,487
----------- -----------
Expenses:
Salaries and employee benefits 2,793,736 2,640,868
Brokerage and clearing 362,461 506,623
Cost of resinous material sales 1,028,736 850,104
Advertising and marketing 261,914 278,116
Professional and regulatory fees 442,376 402,457
Occupancy and maintenance (note 6) 447,868 239,803
Provision for doubtful accounts -- 58,074
Depreciation and amortization 198,903 137,270
Interest expense 91,585 57,312
Other 398,714 351,067
----------- -----------
Total expenses 6,026,293 5,521,694
----------- -----------
Loss before income taxes and minority interest (870,368) (1,029,207)
Income tax benefit (note 4) (140,246) (365,435)
----------- -----------
Loss before minority interest (730,122) (663,772)
Minority interest (122,464) --
----------- -----------
Net loss $ (852,586) (663,772)
=========== ===========
Basic net loss per share $ (0.38) (0.30)
=========== ===========
Weighted average shares outstanding 2,218,051 2,214,585
=========== ===========
See accompanying notes to consolidated financial statements.
F-3
25
INTREPID CAPITAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended December 31, 2000 and 1999
ADDITIONAL
COMMON TREASURY PAID-IN ACCUMULATED
STOCK STOCK CAPITAL DEFICIT TOTAL
-------- -------- ---------- ------------ -----------
Balance at December 31, 1998 $ 22,155 -- 2,481,320 (20,073) 2,483,402
Purchase of treasury stock, at cost -- (3,669) -- -- (3,669)
Net loss -- -- -- (663,772) (663,772)
-------- ------- ---------- ----------- -----------
Balance at December 31, 1999 22,155 (3,669) 2,481,320 (683,845) 1,815,961
Common stock issued to acquire Sears
Thompson Investment Group, Inc. 322 -- 64,064 -- 64,386
Common stock issued in private placements 713 -- 141,843 -- 142,556
Net loss -- -- -- (852,586) (852,586)
-------- ------- ---------- ----------- -----------
Balance at December 31, 2000 $ 23,190 (3,669) 2,687,227 (1,536,431) 1,170,317
======== ======= ========== =========== ===========
See accompanying notes to consolidated financial statements.
F-4
26
INTREPID CAPITAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 2000 and 1999
2000 1999
----------- -----------
Cash flows from operating activities:
Net loss $ (852,586) (663,772)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 198,903 137,270
Minority interest 122,464 --
Provision for doubtful accounts -- 58,074
Sales of investments, net 552,018 145,292
Net trading (profits) losses (153,362) 60,970
Deferred tax expense (benefit) 40,674 (601,308)
Change in assets and liabilities:
Accounts receivable (218,025) (109,758)
Inventories 38,512 32,428
Prepaid and other assets (96,863) (50,051)
Accounts payable and accrued expenses (51,974) (835,827)
Other liabilities (15,146) (26,776)
----------- -----------
Net cash used in operating activities (435,385) (1,853,458)
----------- -----------
Cash flows from investing activities:
Purchase of property, plant, and equipment (180,556) (273,904)
Proceeds from sale of land -- 1,800,000
Acquisition of ACEFS, net of cash acquired -- 43,294
Acquisition of Sears Thompson, net of cash acquired 28,229 --
----------- -----------
Net cash (used in) provided by investing activities (152,327) 1,569,390
----------- -----------
Cash flows from financing activities:
Proceeds from notes payable -- 1,000,000
Principal payments on notes payable (175,000) (545,749)
Proceeds from issuance of common stock 142,556 --
Purchase of treasury stock -- (3,669)
----------- -----------
Net cash (used in) provided by financing activities (32,444) 450,582
----------- -----------
Net (decrease) increase in cash and cash equivalents (620,156) 166,514
Cash and cash equivalents at beginning of year 1,094,700 928,186
----------- -----------
Cash and cash equivalents at end of year $ 474,544 1,094,700
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 96,034 45,863
=========== ===========
Cash paid during the year for income taxes $ 10,450 389,500
=========== ===========
Supplemental disclosure of non-cash transactions:
Common stock issued to acquire Sears Thompson Investment
Group, Inc. $ 64,386 --
=========== ===========
Notes payable to acquire Allen C. Ewing Financial Services, Inc. $ -- 350,000
=========== ===========
See accompanying notes to consolidated financial statements.
F-5
27
INTREPID CAPITAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OPERATIONS
(A) ORGANIZATION
Intrepid Capital Corporation (the Company) was formed on April
3, 1998 for the purpose of becoming a full service investment
management and consulting business. On December 16, 1998 as
part of a simultaneous merger and reorganization, the Company
acquired all the outstanding shares of Enviroq Corporation
(Enviroq), Intrepid Capital Management (ICM) and Capital
Research Corporation (CRC) through a series of stock-for-stock
and stock-for-cash exchanges with the former shareholders of
each entity. The Company is located in Jacksonville Beach,
Florida and conducts its business through its three wholly
owned subsidiaries.
ICM provides investment consulting and investment management
to individuals and corporations. ICM has received authority to
act as an investment manager in several states to meet the
needs of its customers, the majority of which are located in
the southeastern United States.
CRC was a registered broker-dealer with the Securities and
Exchange Commission (SEC) and a member of the National
Association of Securities Dealers, Inc. (NASD) and the
Securities Investor Protection Corporation (SIPC). In a
transaction effective on August 1, 1999, the Company acquired
all the outstanding stock of Allen C. Ewing Financial
Services, Inc. (ACEFS). Primarily all of ACEFS' operations
were conducted through its wholly owned subsidiary, Allen C.
Ewing & Co., a registered broker-dealer with the SEC and a
member of NASD and the SIPC. Concurrent with that transaction,
the Company contributed the assets and liabilities of ACEFS to
CRC.
Subsequent to the acquisition, the operations of CRC and ACEFS
were conducted through the merged entity under the name of
Allen C. Ewing & Co. (Ewing), which retained its registered
broker-dealer status. Effective December 31, 1999, CRC was no
longer a registered broker-dealer.
Enviroq conducts its operations through Sprayroq, Inc.
(Sprayroq), a 50% owned subsidiary. Sprayroq is engaged in
development, commercialization, manufacture and marketing of
spray-applied resinous materials and in the treatment of
municipal wastewater.
(B) PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the
accounts of the Company and its subsidiaries ICM, Ewing and
Enviroq. The ACEFS and Sears Thompson acquisitions are
included from the date of acquisition forward in accordance
with purchase accounting.
F-6
28
INTREPID CAPITAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
All significant intercompany balances and transactions have
been eliminated in consolidation. The Company, through its
ownership in Enviroq, controls the operations and activities
of Sprayroq. Minority interest is recognized for 50% of
Sprayroq's equity.
(C) COMMISSION REVENUE
Commissions are earned on securities transactions with a
clearing broker-dealer initiated on behalf of customers.
Additional commissions are also earned on sales of mutual fund
shares and variable annuities and are received directly from
the related fund or issuer. All commission revenue is
recognized as income when earned. Included within accounts
receivable are amounts due from National Financial Services,
LLC, the Company's clearing broker-dealer, which represent
monies earned but not yet received from this entity.
(D) ASSET MANAGEMENT FEES
The Company earns an asset management fee from each of its
customers based on the outstanding balance of assets under
management. The fee is calculated quarterly based on a
percentage (usually 1% annually) of the individual customer's
account balance at the beginning of the period. All customers
are billed on the first day of the quarter and the Company
earns this fee ratably such that by the end of the reporting
period no deferred income remains.
(E) INVESTMENT BANKING REVENUE
Investment banking revenues are earned by providing advisory
services to clients on corporate finance matters, including
mergers and acquisitions and the issuance of public stock.
Investment banking revenues are recognized when earned, which
generally coincides with closing of the underlying
transaction.
(F) RESINOUS MATERIAL SALES
Resinous material sales represent sales of spray-applied
resinous materials and related equipment by Sprayroq. Resinous
material sales are recorded when earned, which coincides with
shipment, or the rendering of related services.
(G) CASH AND CASH EQUIVALENTS
Any financial instruments which have an original maturity of
ninety days or less when purchased are considered cash
equivalents.
F-7
29
INTREPID CAPITAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
(H) INVENTORIES
Inventories consist of raw material and supplies needed for
the operations of Sprayroq. Such amounts are valued at the
lower of cost or market using the first-in, first-out method.
(I) INVESTMENTS
Investments consist of debt and equity securities, which are
bought and held principally for the purpose of being sold in
the near term. Also included in investments is the Company's
investment in Intrepid Capital, L.P. of which the Company
serves as the general partner. The Company has classified all
investments as trading securities. Trading securities are
recorded at fair value based on the last sale or bid price
reported by national securities exchanges. Trading security
transactions are recorded on the trade date. Unrealized
holding gains and losses are included in net trading profits
or losses. Dividends and interest income are recognized when
earned.
(J) EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements are carried at cost, less
accumulated depreciation. Depreciation is calculated
principally on the straight-line method over the estimated
useful lives, or lease term, of the underlying assets, which
range from three to ten years. Significant additions or
improvements extending the useful life are capitalized, while
normal maintenance and repairs are charged to expense as
incurred. The Company reviews its equipment and leasehold
improvements for impairment whenever events or changes in
circumstances indicate that the carrying value of an asset may
not be recoverable.
(K) INCOME TAXES
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences
between the financial statement carrying amount of existing
assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered
or settled. The effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period
that includes the enactment date.
(L) GOODWILL
Goodwill consists of excess purchase price over net tangible
assets and identifiable intangible assets associated with
purchase acquisitions. Goodwill is amortized over the period
estimated to benefit from the acquired assets which is 15
years. Management assesses the recoverability of goodwill
based on the cash flows from the operations of the acquired
entity.
F-8
30
INTREPID CAPITAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
(M) EARNINGS PER SHARE
Net loss per share of common stock is computed based upon the
weighted average number of common shares and share equivalents
outstanding during the year. Stock warrants and convertible
instruments, when dilutive, are included as share equivalents.
For the years ended December 31, 2000 and 1999, the Company
had no dilutive common stock equivalents.
(N) ESTIMATES
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
of America requires the Company's 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.
(O) COMPREHENSIVE INCOME
No differences between total comprehensive loss and net loss
existed in the financial statements reported for the years
ended December 31, 2000 and 1999.
(2) ACQUISITIONS
Effective November 30, 2000, the Company acquired all of the
outstanding stock of Sears Thompson Investment Group, Inc. (Sears
Thompson), a Jacksonville, Florida based broker-dealer for 32,193
shares of the Company's common stock, valued at $2.00 per share,
resulting in a total purchase price of $64,386. The purchase price was
fully allocated to the fair value of the net assets acquired.
Subsequent to the acquisition, the Company contributed the assets and
liabilities of Sears Thompson to Ewing. The transaction was accounted
for as a purchase for accounting and reporting purposes, with the
operations of Sears Thompson being included in the Company's
consolidated financial statements from the date of acquisition.
Effective August 1, 1999, the Company acquired all of the outstanding
stock of ACEFS, a Jacksonville, Florida based provider of securities
brokerage and investment banking services for cash of $950,000 and
three promissory notes in the principal amount of $350,000. Legal and
other direct costs of the acquisition amounted to $72,477. The Company
financed the cash with funds borrowed from a bank. The acquisition was
accounted for as a purchase for accounting and reporting purposes.
Assets with a fair value of $1,712,272 were acquired and liabilities
with a fair value of $380,817 were assumed in the acquisition. Goodwill
of $41,022 was recorded and is being amortized on a straight-line basis
over 15 years. The operating results of ACEFS are included in the
Company's consolidated financial statements from the date of
acquisition.
F-9
31
INTREPID CAPITAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
The following unaudited pro forma financial information presents the
consolidated results of operations as if the purchases of Sears
Thompson and ACEFS had occurred on January 1, 1999. Pro forma total
revenues would have been $5.5 million and $6.1 million in 2000 and
1999, respectively. Pro forma net loss would have been ($828,359) and
($638,080) in 2000 and 1999, respectively. Pro forma net loss per share
would have been ($0.37) and ($0.28) in 2000 and 1999, respectively.
(3) NOTES PAYABLE
The notes payable at December 31, 2000 and 1999 consist of the
following:
2000 1999
---------- ----------
Note payable to bank, with $100,000 of principal due on January 31,
2001 and then equal monthly installments of principal plus
interest through maturity on January 31, 2004, interest at prime
rate plus 1% (10.5% at December 31, 2000),
guaranteed by an officer of the Company $ 600,000 700,000
Subordinated convertible promissory notes payable to the former
shareholders of ACEFS, interest only due quarterly at 8%,
unsecured, principal payments due
annually through maturity on December 31, 2003 275,000 350,000
---------- ----------
875,000 1,050,000
Less current portion 327,778 133,333
---------- ----------
$ 547,222 916,667
========== ==========
The subordinated convertible promissory notes are convertible, at the
option of the holders, into common stock of the Company at any time
after August 1, 2000. The number of shares to be issued upon conversion
is determined by dividing the aggregate principal amount outstanding,
including accrued and unpaid interest, by $4.00.
Principal maturities on the notes payable are as follows:
YEAR ENDING
DECEMBER 31, AMOUNT
------------ --------
2001 $327,778
2002 266,667
2003 266,667
2004 13,888
--------
$875,000
========
F-10
32
INTREPID CAPITAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
The Company considers the carrying value of its notes payable to be a
reasonable estimation of their fair value based on the current market
rates available for debt of the same remaining maturities.
(4) STOCK WARRANT
In 1998, pursuant to the terms of a consulting agreement, the Company
issued a warrant to Broadland Capital Partners, L.P. (Broadland), an
affiliate of one of the Company's directors. The warrant entitles
Broadland to purchase up to 150,000 shares of the Company's common
stock at $.75 per share, subject to certain vesting requirements and
conditions to exercise. The warrant has not been exercised as of
December 31, 2000.
(5) INCOME TAXES
Income tax benefit attributable to loss from continuing operations was
$140,246 and $365,435 for the years ended December 31, 2000 and 1999,
respectively, and differed from the amounts computed by applying the
U.S. Federal income tax rate of 34% to loss before income taxes as a
result of the following:
2000 1999
---------- ----------
Tax at the statutory federal rate $ (295,925) (349,930)
Goodwill amortization 25,273 24,433
Life insurance premiums 26,005 --
State tax benefit 3,924 (37,242)
Change in valuation allowance 137,719 --
Other (37,242) (2,696)
---------- ----------
$ (140,246) (365,435)
========== ==========
Included in prepaid and other assets as of December 31, 2000 and 1999,
on the accompanying consolidated balance sheets is $176,263 and
$88,627, respectively, of current income taxes receivable.
F-11
33
INTREPID CAPITAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
Income tax benefit attributable to income from continuing operations
consists of:
CURRENT DEFERRED TOTAL
--------- -------- --------
Year ended December 31, 2000:
U.S. Federal $(180,920) 34,729 (146,191)
State -- 5,945 5,945
--------- -------- --------
$(180,920) 40,674 (140,246)
========= ======== ========
Year ended December 31, 1999:
U.S. Federal $ 196,534 (505,542) (309,008)
State 39,339 (95,766) (56,427)
--------- -------- --------
$ 235,873 (601,308) (365,435)
========= ======== ========
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and deferred tax liabilities as of
December 31 are presented below:
2000 1999
---------- ----------
Deferred tax assets:
Net unrealized losses on investments $ 35,453 16,745
Deferred compensation 28,799 --
Net operating loss carryforward 74,562 --
Allowance for doubtful accounts -- 22,068
Accrued expenses -- 2,956
---------- ----------
Total gross deferred tax assets 138,814 41,769
Deferred tax liabilities:
Property, plant and equipment (1,095) (1,095)
---------- ----------
Total deferred tax liabilities (1,095) (1,095)
---------- ----------
Net deferred tax assets before valuation allowance 137,719 40,674
Deferred tax asset valuation allowance (137,719) --
---------- ----------
Net deferred tax assets $ -- 40,674
========== ==========
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all
of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of
future taxable income during the periods in which those temporary
differences become deductible. Management considers the scheduled
reversal of deferred tax liabilities, projected future taxable income,
and tax planning strategies in making this assessment. Based upon
projections for future taxable income over the periods which the
deferred tax assets are deductible, management does not believe it is
more likely than not the Company will realize the benefits of these
deductible differences and, accordingly, has provided for a valuation
allowance of $63,157.
F-12
34
INTREPID CAPITAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
(6) RELATED PARTY TRANSACTIONS
The Company performs certain asset management functions for Intrepid
Capital, L.P. and during 2000 and 1999, received $36,857 and $57,142,
respectively, for such services.
(7) COMMITMENTS
The Company has entered into lease agreements for office space which
expire in 2009. Leases are accounted for as operating leases with
rental payments recorded on a straight-line basis over the term of the
lease regardless of when payments are due. The future minimum rental
obligations under the leases are as follows:
YEAR ENDING
DECEMBER 31, AMOUNT
------------ ----------
2001 $ 266,112
2002 237,268
2003 244,614
2004 251,928
2005 149,609
Thereafter 604,609
----------
$1,754,140
==========
Rent expense for the years ended December 31, 2000 and 1999 was
$291,356 and $95,845, respectively.
Ewing is subject to the Securities and Exchange Commission's Net
Capital Rule (Rule 15c3-1) which requires the maintenance of minimum
net capital and requires that the ratio of aggregate indebtedness to
net capital, both as defined, shall not exceed 15 to 1. The SEC is
empowered to restrict Ewing's business activities should its aggregate
indebtedness to net capital ratio exceed 15 to 1. At December 31, 2000,
Ewing had net capital of $303,556, which was $53,556 in excess of its
required capital of $250,000. At the same date, Ewing's ratio of
aggregate indebtedness to net capital was 0.47 to 1.0. Accordingly,
Ewing was in compliance with the net capital requirements.
Subsequent to December 31, 2000, Ewing's required minimum net capital
has been reduced from $250,000 to $50,000 as a result of operational
changes that include the curtailment of Ewing's market making activity.
F-13
35
INTREPID CAPITAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
(8) SEGMENTS
During 2000 and 1999, the Company operated in two principal segments,
investment advisory services and broker-dealer services which includes
investment banking revenues. Enviroq constitutes a separate segment.
The Company assesses and measures operating performance based upon the
net income derived from each of its operating segments, exclusive of
the impact of corporate expenses. The revenues and net income for each
of the reportable segments are summarized as follows for the years
ended December 31, 2000 and 1999:
2000 1999
---------- ----------
Revenues:
Investment advisory services segment $ 715,259 813,207
Broker-dealer services segment 2,442,140 2,085,042
Enviroq 1,917,410 1,771,250
Corporate 374,117 (18,311)
Intersegment revenues (293,001) (158,701)
---------- ----------
$5,155,925 4,492,487
========== ==========
Net (loss) income:
Investment advisory services segment $ (222,458) (311,563)
Broker-dealer services segment (1,387) 62,423
Enviroq (140,754) 56,102
Corporate (487,987) (470,734)
---------- ----------
$ (852,586) (663,772)
========== ==========
During 2000 and 1999, a significant portion of the Company's resinous
materials sales included within the Enviroq segment was to one customer
which accounted for 52% and 69% respectively of total resinous material
sales. For 2000, a single client of ICM provided approximately 23% of
ICM's revenues, with the next largest client providing less than 13%.
The total assets for each of the reportable segments are summarized as
follows as of December 31, 2000 and 1999. Non segment assets consist
primarily of cash, certain investments and other assets, which are
recorded at the parent company level.
2000 1999
---------- ----------
Assets:
Investment advisory services segment $ 131,655 256,129
Broker-dealer services segment 573,747 1,340,988
Enviroq 1,403,626 1,511,440
Other 654,856 422,335
---------- ----------
$2,763,884 3,530,892
========== ==========
F-14
36
EXHIBIT INDEX
Exhibit No. Description of Exhibit
----------- ----------------------
2.1 Share Purchase Agreement dated as of August 4, 1999, among
Intrepid Capital Corporation, Benjamin C. Bishop, Jr., Charles
E. Harris, Synagen Capital Partners, Inc. and Arnold A.
Heggestad (incorporated by reference to Exhibit 2 to the
Registrant's Form 8-K filed August 18, 1999).
3.1 Certificate of Incorporation of the Registrant (incorporated
by reference to Exhibit 3.(A) to the Registrant's Form S-4
filed November 6, 1998, Registration No. 333-66859).
3.2 Bylaws of the Registrant (incorporated by reference to Exhibit
3.(B) to the Registrant's Form S-4 filed November 6, 1998,
Registration No. 333-66859).
9.1 Form of Voting Agreement (incorporated by reference to Exhibit
9 to the Registrant's Form S-4 filed November 6, 1998,
Registration No. 333-66859).
10.1 Form of Employment Agreement between Intrepid Capital
Corporation and William J. Long (incorporated by reference to
Exhibit 10.(A) to the Registrant's Form S-4 filed November 6,
1998, Registration No. 333-66859).
10.2 Form of Employment Agreement between Intrepid Capital
Corporation and Forrest Travis (incorporated by reference to
Exhibit 10.(B) to the Registrant's Form S-4 filed November 6,
1998, Registration No. 333-66859).
10.3 Form of Employment Agreement between Intrepid Capital
Corporation and Mark F. Travis (incorporated by reference to
Exhibit 10.(C) to the Registrant's Form S-4 filed November 6,
1998, Registration No. 333-66859).
10.4 Incentive Stock Option Plan of Intrepid Capital Corporation
(incorporated by reference to Exhibit 10.(D) to the
Registrant's Form S-4 filed November 6, 1998, Registration No.
333-66859).
10.5 Non-Employee Directors' Stock Option Plan of Intrepid Capital
Corporation (incorporated by reference to Exhibit 10.(E) to
the Registrant's Form S-4 filed November 6, 1998, Registration
No. 333-66859).
10.6 Form of Non-Negotiable Convertible Promissory Note between
Intrepid Capital Corporation and Synagen Capital Partners,
Inc. (incorporated by reference to Exhibit 10.1 to the
Registrant's Form 8-K filed August 18, 1999).
10.7 Form of Non-Negotiable Convertible Promissory Note between
Intrepid Capital Corporation and Benjamin C. Bishop, Jr.
(incorporated by reference to Exhibit 10.2 to the Registrant's
Form 8-K filed August 18, 1999).
10.8 Form of Non-Negotiable Convertible Promissory Note between
Intrepid Capital Corporation and Arnold A. Heggestad
(incorporated by reference to Exhibit 10.3 to the Registrant's
Form 8-K filed August 18, 1999).
37
10.9 Form of Employment Agreement between Intrepid Capital
Corporation and Benjamin C. Bishop, Jr. (incorporated by
reference to Exhibit 10.4 to the Registrant's Form 8-K filed
August 18, 1999).
21.1 List of Subsidiaries.
24.1 Power of Attorney relating to this Form 10-KSB is set forth on
the signature page of this Form 10-KSB.