UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2002
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)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
-----------------------------------------------
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 [ ]
As of February 28, 2002, there were 3,350,183 shares of Common Stock,
$0.01 par value per share, outstanding, and 1,000 shares of Common Stock issued
and held in treasury.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
INTREPID CAPITAL CORPORATION AND SUBSIDIARIES
INDEX TO FORM 10-QSB
FOR THE QUARTER ENDED MARCH 31, 2002
PART I - FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
Consolidated Balance Sheets of Intrepid Capital Corporation and Subsidiaries
as of March 31, 2002 and December 31, 2001............................................... 3
Consolidated Statements of Operations of Intrepid Capital Corporation and
Subsidiaries for the Three Months Ended March 31, 2002 and 2001.......................... 4
Consolidated Statements of Cash Flows of Intrepid Capital Corporation and Subsidiaries
for the Three Months Ended March 31, 2002 and 2001....................................... 5
Notes to Consolidated Financial Statements............................................... 6-10
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Acquisitions.............................................................................. 11
Discontinued Operations................................................................... 11
Liquidity and Capital Resources........................................................... 11-12
Results of Operations..................................................................... 12-14
PART II - OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS..................................................................... 14
ITEM 2 CHANGES IN SECURITIES AND USE OF PROCEEDS............................................. 14
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................................... 14-15
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K...................................................... 15
SIGNATURES..................................................................................... 16
2
ITEM 1. FINANCIAL INFORMATION
INTREPID CAPITAL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, 2002 and December 31, 2001
(unaudited)
ASSETS 2002 2001
----------- ----------
Current assets:
Cash and cash equivalents $ 1,471,444 641,577
Investments, at fair value 93,414 81,935
Accounts receivable 2,294,263 130,504
Prepaid and other assets 377,613 164,859
----------- ----------
Total current assets 4,236,734 1,018,875
Notes receivable 323,919 323,919
Equipment and leasehold improvements, net of accumulated
depreciation of $250,131 in 2002 and $218,174 in 2001 410,265 360,348
Deferred tax assets 58,224 --
Intangible assets, less accumulated amortization of $29,412
in 2002 and $7,131 in 2001 4,467,732 4,490,013
----------- ----------
Total assets $ 9,496,874 6,193,155
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 527,059 209,984
Accrued expenses 892,964 651,865
Current portion of notes payable 1,650,000 3,725,000
Taxes payable 423,819 --
Other 176,386 196,380
----------- ----------
Total current liabilities 3,670,228 4,783,229
Pension plan obligation 214,449 214,989
Notes payable, less current portion 100,000 100,000
----------- ----------
Total liabilities 3,984,677 5,098,218
----------- ----------
Stockholders' equity:
Preferred stock, Class A, $.01 par value. Authorized 5,000,000
shares; issued 1,166,666 at March 31, 2002 3,500,000 --
Common stock, $.01 par value. Authorized 15,000,000 shares;
issued 3,350,183 at March 31, 2002 and December 31, 2001 33,502 33,502
Treasury stock, at cost - 1,000 shares (3,669) (3,669)
Additional paid-in capital 3,616,915 3,616,915
Accumulated deficit (1,634,551) (2,551,811)
----------- ----------
Total stockholders' equity 5,512,197 1,094,937
----------- ----------
$ 9,496,874 6,193,155
=========== ==========
See accompanying notes to consolidated financial statements.
3
INTREPID CAPITAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
Three Months ended March 31, 2002 and 2001
(unaudited)
2002 2001
---------- ----------
Revenues:
Asset management fees $ 833,479 219,693
Investment banking revenues 3,054,306 101,889
Commissions 327,729 353,685
Net trading profits 7,599 2,272
Dividend and interest income 16,478 12,764
Other 24,547 10,902
---------- ----------
Total revenues 4,264,138 701,205
---------- ----------
Expenses:
Salaries and employee benefits 1,974,826 612,158
Brokerage and clearing 62,522 70,295
Advertising and marketing 120,537 37,382
Professional and regulatory fees 437,217 52,554
Occupancy and maintenance 143,183 91,496
Depreciation and amortization 54,238 21,649
Interest expense 51,295 18,351
Other 137,465 70,386
---------- ----------
Total expenses 2,981,283 974,271
---------- ----------
Income (loss) from continuing operations before income taxes 1,282,855 (273,066)
Income tax expense 365,595 --
---------- ----------
Income (loss) from continuing operations 917,260 (273,066)
Discontinued operations - loss from discontinued operations -- (64,554)
---------- ----------
Net income (loss) $ 917,260 (337,620)
========== ==========
Basic income (loss) per share from continuing operations $ 0.27 (0.12)
Basic income (loss) per share from discontinued operations -- (0.03)
---------- ----------
Basic net income (loss) per share $ 0.27 (0.15)
========== ==========
Diluted income (loss) per share from continuing operations $ 0.20 (0.12)
Diluted income (loss) per share from discontinued operations -- (0.03)
---------- ----------
Diluted net income (loss) per share $ 0.20 (0.15)
========== ==========
Basic weighted average shares outstanding 3,349,183 2,318,996
========== ==========
Diluted weighted average shares outstanding 4,675,354 2,318,996
========== ==========
See accompanying notes to consolidated financial statements.
4
INTREPID CAPITAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Three months ended March 31, 2002 and 2001
(unaudited)
2002 2001
----------- --------
Cash flows from operating activities:
Net income (loss) $ 917,260 (337,620)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization 54,238 21,649
(Purchases) sales of investments, net (3,880) 7,056
Net trading profits (7,599) (2,272)
Deferred tax benefit (58,224) --
Change in assets and liabilities:
Accounts receivable (2,163,759) 14,725
Prepaid and other assets (212,754) (12,362)
Accounts payable and accrued expenses 558,174 69,882
Taxes payable 423,819 --
Pension obligation (540) --
Other liabilities (19,994) 5,534
Discontinued operations - working capital changes -- 176,750
----------- --------
Net cash used in operating activities (513,259) (56,658)
----------- --------
Cash flows from investing activities -
purchase of equipment (81,874) (5,491)
----------- --------
Cash flows from financing activities:
Proceeds from notes payable 1,500,000 --
Principal payments on notes payable (75,000) (127,778)
----------- --------
Net cash provided by (used in) financing activities 1,425,000 (127,778)
----------- --------
Net increase (decrease) in cash and cash equivalents 829,867 (189,927)
Cash and cash equivalents at beginning of period 641,577 419,616
----------- --------
Cash and cash equivalents at end of period $ 1,471,444 229,689
=========== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 5,792 11,860
=========== ========
Supplemental disclosure of non-cash transactions:
Preferred Stock issued to AJG upon conversion of AJG Note $ 3,500,000 --
=========== ========
See accompanying notes to consolidated financial statements.
5
INTREPID CAPITAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2002
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OPERATIONS
(A) ORGANIZATION AND BASIS OF PRESENTATION
Intrepid Capital Corporation (the "Company"), incorporated in
1998, is a Florida-based financial services holding company
that conducts its business through its three wholly owned
subsidiaries: Intrepid Capital Management, Inc. ("ICM"), The
Investment Counsel Company ("ICC") and Allen C. Ewing & Co.
("Ewing").
ICM, a registered investment advisor, manages equity,
fixed-income, and balanced portfolios for public and private
companies, labor unions, endowments, foundations, and high
net worth individuals and families. 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.
Ewing is 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 December 31, 2001, the Company
acquired all of the outstanding stock of ICC Investment
Advisors, Inc., the operations of which are conducted through
its wholly-owned subsidiary, ICC. ICC, a registered
investment advisor, manages equity, fixed-income, and
balanced portfolios for public and private companies, labor
unions, endowments, foundations, and high net worth
individuals and families. ICC has received authority to act
as an investment manager in several states to meet the needs
of its customers throughout the United States.
In a transaction effective October 30, 2001, the Company
discontinued its resinous material operations formerly
conducted through Enviroq Corporation ("Enviroq") by selling
all of the issued and outstanding capital stock of Sprayroq,
Inc., Enviroq's 50% owned subsidiary. Enviroq remains a
wholly-owned subsidiary of the Company to hold the promissory
notes received in connection with the sale, but conducts no
operations currently, as its operations consisted solely of
its investment in Sprayroq, Inc.
The interim financial information included herein is
unaudited. Certain information and footnote disclosures
normally included in the financial statements have been
condensed or omitted pursuant to the rules and regulations of
the SEC. The Company believes that the disclosures made
herein are adequate to make the information presented not
misleading. These financial statements should be read in
conjunction with the financial statements and related notes
contained in the Company's Annual Report on Form 10-KSB filed
with the SEC on April 1, 2002. Except as indicated herein,
there have been no significant changes from the financial
data published in the Company's Annual Report. In the opinion
of management, such unaudited information reflects all
adjustments, consisting of normal recurring accruals,
necessary for fair presentation of the unaudited information.
The results of operations for the three months ended March
31, 2002 are not necessarily indicative of the results that
may be expected for the full year.
6
INTREPID CAPITAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2002
(B) PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include
the accounts of the Company and its subsidiaries ICM, ICC,
Ewing and Enviroq. Results of operations of acquired
companies are included from the date of acquisition forward
in accordance with purchase accounting. All significant
intercompany balances and transactions have been eliminated
in consolidation.
(C) INTANGIBLE ASSETS
Intangible assets consists of goodwill and separately
identifiable intangible assets.
Goodwill consists of excess purchase price over net tangible
assets and identifiable intangible assets acquired in
purchase acquisitions. Goodwill has historically been
amortized over the period estimated to benefit from the
acquired assets, which is 15 years. The Company adopted
Statement of Financial Accounting Standards No. 141,
"Business Combinations" (FAS 141) effective July 1, 2001 and
Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets" (FAS 142) effective
January 1, 2002. Accordingly, goodwill is no longer amortized
effective January 1, 2002.
Identifiable intangible assets acquired in purchase
acquisitions are separately identified in accordance with FAS
141. Identifiable intangible assets have finite lives and are
amortized on a straight line basis over the estimated useful
lives of the identifiable intangible assets, which is 10
years.
Management assesses the recoverability of goodwill and
identifiable intangible assets whenever events or
circumstances indicate they may be impaired. Additionally,
with the adoption of FAS 142, goodwill will be tested for
impairment at least annually. Management expects to complete
the Company's initial impairment test by June 30, 2002.
(D) EARNINGS PER SHARE
Net income per share of common stock is computed based upon
the weighted average number of common shares and share
equivalents outstanding during the period. Stock warrants and
convertible instruments, when dilutive, are included as share
equivalents. Diluted earnings per share for the three months
ended March 31, 2002 assumes dilutive warrants and
convertible instruments to purchase shares of common stock
have been exercised using the treasury stock method.
(E) COMPREHENSIVE INCOME
No differences between total comprehensive income and net
income existed in the financial statements reported for the
three months ended March 31, 2002 and 2001.
7
INTREPID CAPITAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2002
(2) ACQUISITIONS
On March 27, 2002, the Company entered into an agreement to acquire
100% of the common stock of First Bank of Jacksonville. The
consummation of the acquisition, which is subject to approval by the
shareholders of First Bank of Jacksonville and to the satisfaction of
customary regulatory approvals, is expected to occur during the third
quarter of 2002.
The following unaudited pro forma financial information presents the
consolidated results of operations as if the purchase of ICC had
occurred on January 1, 2001. Pro forma total revenues would have been
$1,202,866 for the three months ended March 31, 2001. Pro forma net
loss would have been ($351,558) for the three months ended March 31,
2001. Pro forma basic and diluted net loss per share would have been
($0.11) for the three months ended March 31, 2001.
(3) RELATED PARTY TRANSACTIONS
The Company performs certain asset management functions for Intrepid
Capital, L.P and during the three months ended March 31, 2002 and
2001, received $18,075 and $10,277, respectively, for such services.
(4) INTANGIBLE ASSETS
The Company has identifiable intangible assets which are attributable
to the estimated fair value of acquired investment management
contracts and customer relationships and have been allocated to the
asset management segment. Identifiable intangible assets amounted to
$891,224, net of accumulated amortization of $22,281 at March 31,
2002. Amortization expense was $22,281 for the three months ended
March 31, 2002 and the Company estimates the annual aggregate
amortization expense for this year and each of the five succeeding
fiscal years to be approximately $89,000.
There were no changes in the carrying amount of goodwill during the
three months ended March 31, 2002. Goodwill for each of the reportable
segments is summarized as follows as of March 31, 2002:
Asset management segment $3,564,898
Broker-dealer services segment 33,891
----------
$3,598,789
Prior to the Company's adoption of FAS 142, goodwill was amortized.
The following table summarizes and presents adjusted net loss to
exclude amortization expense recognized for the three months ended
March 31, 2002 and 2001:
2002 2001
-------- --------
Reported net income (loss) $917,260 (337,620)
Add back goodwill amortization -- 18,583
-------- --------
Adjusted net (loss) $917,260 (319,037)
======== ========
8
INTREPID CAPITAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2002
Basic net income (loss) per share
Reported net income (loss) per share $0.27 (0.15)
Goodwill amortization adjustment -- 0.01
----- -----
Adjusted basic net (loss) per share $0.27 (0.14)
===== =====
Diluted net income (loss) per share
Reported diluted income (loss) per share $0.20 (0.15)
Goodwill amortization adjustment -- 0.01
----- -----
Adjusted diluted net (loss) per share $0.20 (0.14)
===== =====
(5) NOTES PAYABLE
The notes payable at March 31, 2002 and December 31, 2001 consist of
the following:
2002 2001
---------- ---------
Note payable to bank, principal due on or before August 31, 2002,
interest at LIBOR plus 2.50% (4.5% at March 31, 2002) $1,500,000 --
Note payable to AJG Financial Services, Inc., converted into
shares of the Company's Convertible Class A Preferred Stock -- 3,500,000
Subordinated convertible promissory notes payable to
former shareholders of Ewing 200,000 200,000
Note payable to First Florida Capital 50,000 50,000
Line of credit payable to a bank -- 75,000
---------- ---------
1,750,000 3,825,000
Less current portion 1,650,000 3,725,000
---------- ---------
$ 100,000 100,000
========== =========
On March 29, 2002, the note payable to AJG Financial Services, Inc.
("AJG") was converted into 1,166,666 shares of the Company's
Convertible Class A Preferred Stock. The Company's Convertible Class A
Preferred Stock issued to AJG is a cumulative pay-in-kind preferred
stock with a par value of $0.01 and a stated value of $3.00 per share,
and each share is convertible into one share of the Company's common
stock. Dividends are to be paid semi-annually in cash or Convertible
Class A Preferred Stock at an annual rate of 5%.
9
INTREPID CAPITAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2002
(6) SEGMENTS
During 2002 and 2001, the Company operated in two principal segments,
asset management and broker-dealer services which includes investment
banking revenues. The operations of Enviroq formerly constituted a
separate operating segment which have been reclassified as
discontinued operations. The Company assesses and measures operating
performance based upon the net income (loss) derived from each of its
operating segments, exclusive of the impact of corporate expenses.
The revenues and net income (loss) for each of the reportable segments
are summarized as follows for the three months ended March 31, 2002
and 2001:
2002 2001
----------- --------
Revenues:
Asset management segment $ 840,563 222,414
Broker-dealer services segment 3,416,429 478,170
Corporate 67,146 69,594
Intersegment revenues (60,000) (68,973)
----------- --------
$ 4,264,138 701,205
=========== ========
Net income (loss) from continuing operations:
Asset management segment $ (98,740) (37,500)
Broker-dealer services segment 1,052,765 (58,919)
Corporate (36,765) (176,647)
----------- --------
$ 917,260 (273,066)
=========== ========
The total assets for each of the reportable segments are summarized as
follows as of March 31, 2002 and 2001. Non segment assets consist
primarily of cash, certain investments and other assets, which are
recorded at the parent company level.
2002 2001
---------- ---------
Assets:
Asset management segment $4,778,405 136,280
Broker-dealer services segment 3,756,286 509,279
Discontinued operations -- 1,273,721
Other 962,183 296,907
---------- ---------
$9,496,874 2,216,187
========== =========
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
As provided by the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995, the Company cautions that statements in this Quarterly
Report on Form 10-QSB that are forward-looking statements represent
management's belief and assumptions based on currently available information.
Forward-looking statements can be identified by the use of words such as
"believes", "intends", "may", "should", "anticipates", "expected", "estimated",
"projected" or comparable terminology, or by discussion of strategies or
trends. Although the Company believes the expectations reflected in such
forward-looking statements are reasonable, it cannot give any assurances that
these expectations will prove to be correct. Such statements, by their nature,
involve substantial risks and uncertainties that could significantly impact
expected results, and actual future results could differ materially from those
described in such forward-looking statements. While it is not possible to
identify all factors, the Company continues to face many risks and
uncertainties. Among the factors that could cause actual future results to
differ materially are the risks and uncertainties discussed in this Quarterly
Report on Form 10-QSB and those described from time to time in the Company's
other filings with the SEC and the risk that the underlying assumptions made by
management in this Quarterly Report on Form 10-QSB are not, in fact, correct.
Should one or more of these risks materialize (or the consequences of such a
development worsen), or should the underlying assumptions prove incorrect,
actual results could differ materially from those forecasted or expected. The
Company disclaims any intention or obligation to update or revise any
forward-looking statement whether as a result of new information, future events
or otherwise.
Acquisitions
On December 31, 2001, the Company acquired 100% of the outstanding
capital stock of ICC and has accounted for this transaction under the purchase
method of accounting. The Company expects the acquisition to significantly
enhance its asset management segment in many areas including improved
distribution capabilities, increased asset management revenues, and increase
efficiencies through economies of scale
On March 27, 2002, the Company entered into an agreement to acquire
100% of the common stock of First Bank of Jacksonville. The consummation of the
acquisition, which is subject to approval by the shareholders of First Bank of
Jacksonville and to the satisfaction of customary regulatory approvals, is
expected to occur during the third quarter of 2002.
Discontinued Operations
On October 30, 2001, the Company sold its ownership of Sprayroq, Inc.,
Enviroq's 50% owned subsidiary. Enviroq's operations consisted solely of its
investment in Sprayroq, Inc., and the Company has reported its operations as
discontinued for all periods presented. Enviroq conducts no operations
currently, but remains a wholly-owned subsidiary of the Company to hold the
interest bearing promissory notes received in connection with the sale.
Revenues from Enviroq were $118,876 for the three months ended March
31, 2001. The loss from discontinued operations for Enviroq was $64,554 for the
three months ended March 31, 2001.
Liquidity and Capital Resources
The Company's current assets consist generally of cash, money market
funds and accounts receivable. The Company has financed its operations with
funds provided by stockholder capital, proceeds from notes payable, and the
disposal of Sprayroq. The Company has developed and is
11
implementing a growth strategy plan that includes both internal growth and
external growth through acquisitions.
In connection with the acquisition of ICC, the Company financed the
cash portion of the transaction through a loan from AJG, a Delaware corporation
and wholly-owned subsidiary of Arthur J. Gallagher & Co., a publicly-traded
Delaware corporation (NYSE: AJG), pursuant to the terms and conditions of an
Investment Agreement, a Convertible Note Agreement, a Convertible Note, an
Option Agreement, a Registration Rights Agreement and a Standstill Agreement,
each dated as of December 31, 2001 between the Company and AJG (collectively,
the "Loan Documents"). Pursuant to the Loan Documents and the exhibits thereto,
among other things, AJG loaned the Company $3,500,000 to finance the cash
portion of the transaction, as well as the costs and expenses associated with
the acquisition and for the Company's working capital needs. In exchange, the
Company issued a convertible promissory note in favor of AJG which was due on
or before April 30, 2002, bearing interest at 5% per annum, and could be
converted on or prior to maturity into Class A Cumulative Convertible
Pay-In-Kind Preferred Stock of the Company. On March 29, 2002, the loan was
converted into 1,166,666 shares of the Company's Class A Cumulative Convertible
Pay-In-Kind Preferred Stock.
The Company believes the acquisition of ICC provides the Company a
much broader distribution platform for asset management services and will allow
the Company to consolidate back-office asset management functions and that its
new strategic partnership with AJG provides additional capital for future
strategic opportunities.
The Company was awarded a contract with the Federal Deposit Insurance
Corporation ("FDIC") to manage the loan asset portfolio of Hamilton Bank, N.A.,
a national bank located in Miami, Florida, for which the FDIC is acting as
receiver (the "FDIC contract"). The Company expects the FDIC contract to
continue through June 2002 and expects to contract in a revised arrangement
from that point until the loan asset portfolio of Hamilton Bank, N.A. is fully
liquidated. The Company believes that its broker-dealer services segment will
continue to generate substantial high-margin investment banking revenues during
the remainder of 2002 based on the FDIC contract and other existing contracts
in place.
For the three months ended March 31, 2002, net cash used in operating
activities was $513,259, primarily attributable to the Company's net income for
the period offset by significant increases in accounts receivable as a result
of the FDIC contract. Net cash used in investing activities was $81,874, which
is primarily due to the purchase of equipment. Net cash provided by financing
activities was $1,425,000, which is primarily due to proceeds from notes
payable.
The Company, through its subsidiary Ewing, is subject to the net
capital requirements of the SEC, the NASD and other regulatory authorities. At
March 31, 2002, Ewing's regulatory net capital was $1,074,138, which is
$909,494 in excess of its minimum net capital requirement of $164,644.
Results of Operations
If the purchase of ICC had occurred on January 1, 2001, the
consolidated results of operations would have reflected pro forma total
revenues of $1,202,866 and pro forma net loss of ($351,558) for the three
months ended March 31, 2001.
Three Months Ended March 31, 2002 Compared to the Three Months Ended
March 31, 2001
Total revenues were $4,264,138 for the three months ended March 31,
2001, compared to $701,205 for the three months ended March 31, 2001,
representing a 508.1% increase.
12
Asset management fees increased $613,786, or 279.4%, to $833,479.
Asset management fees represent revenue earned by ICM and ICC for investment
advisory services. The fees earned are generally a function of the overall fee
rate charged to each account and the 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 $458.4
million at December 31, 2001, compared to $105.3 million at December 31, 2000.
The increase in asset management fees for the three months ended March 31, 2002
relates primarily to the increase in AUM as a result of the acquisition of ICC
in December 2001. AUM was $475.5 million at March 31, 2002, compared to $84.6
million at March 31, 2001. The net increase in AUM during the three months
ended March 31, 2002 is primarily attributable to the addition of new clients
and to investment performance during the period.
Investment banking revenues increased $2,952,417, or 2,897.7%, to
$3,054,306. 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 underlying transaction. The increase
is primarily attributable to the FDIC contract which accounts for approximately
98% of total investment banking revenue for the period.
Commissions decreased $25,956, or 7.3%, to $327,729. Commissions
represent revenue earned by Ewing from securities transactions conducted on
behalf of customers, including sales of mutual fund shares and variable
annuities. The decrease is primarily attributable to decreased transaction
volume as a result of the termination of several independent registered
representatives during December 2001 and to volatile market conditions.
Net trading profits increased $5,327, or 234.5%, to $7,599. Net
trading profits consist of realized and unrealized gains from the Company's
investment in trading securities, which includes an investment in Intrepid
Capital, L.P. The increase is primarily attributable to the performance of
assets invested in Intrepid Capital, L.P.
Dividend and interest income increased $3,714, or 29.1%, to $16,478.
The increase is primarily attributable to an increase in interest received from
the higher average cash balances invested in money markets.
Total expenses were $2,981,284 for the three months ended March 31,
2002, compared to $974,271 for the three months ended March 31, 2001,
representing a 206.0% increase.
Salaries and employee benefits increased $1,362,668, or 222.6%, to
$1,974,826. Salaries and employee benefits represent fixed salaries,
commissions paid on securities transactions and investment banking revenues,
temporary staffing costs, and other related employee benefits. The increase is
primarily attributable to the acquisition of ICC and to temporary staffing
costs associated with the FDIC contract.
Brokerage and clearing expenses decreased $7,773, or 11.1%, to
$62,522. Brokerage and clearing expenses represent the securities transaction
and other costs paid to the clearing broker-dealer, and are related to
commission revenue earned by Ewing. The net decrease is primarily attributable
to decreased transaction volume.
Advertising and marketing expenses increased $83,155, or 222.4%, to
$120,537. The increase is primarily attributable to the acquisition of ICC and
an increase in ICM's advertising and marketing expenses associated with a new
advertising and marketing campaign aimed to attract prospective clients and to
inform them of ICM's excellent investment performance.
13
Professional and regulatory expenses increased $384,663, or 731.9%, to
$437,217. The increase is primarily attributable to the legal and other costs
associated with the FDIC contract.
Occupancy and maintenance expenses increased $51,687, or 56.5%, to
$143,183. The increase is primarily attributable to the acquisition of ICC in
December 2001.
Interest expense increased $32,944, or 179.5%, to $51,295. The
increase is primarily attributable to interest on the AJG note prior to its
conversion into shares of the Company's Class A Cumulative Convertible
Pay-In-Kind Preferred Stock.
Other expenses increased $67,080, or 95.3%, to $137,466. The increase
is primarily attributable to the acquisition of ICC in December 2001.
Income tax expense was $365,595. Total tax expense was $506,069 and
was adjusted by the change in valuation allowance of $140,475, which is
primarily attributable to the Company's net operating loss carryforward. The
effective tax rate for the three months ended March 31, 2002 was 28.50%
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no legal proceedings pending, or to the Company's knowledge,
threatened against the Company or any of its subsidiaries.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On March 29, 2002, the Company issued 1,166,666 shares of its Class A
Cumulative Convertible Pay-In-Kind Preferred Stock (the "Class A Preferred
Stock") to AJG in conversion of a convertible promissory note issued by the
Company in favor of AJG in the aggregate principal amount of $3,500,000 (the
"Note"). The Class A Preferred Stock issued to AJG is a cumulative pay-in-kind
preferred stock with a par value of $0.01 and a stated value of $3.00 per
share. Each share of Class A Preferred Stock is convertible into one share of
the Company's common stock. Dividends are to be paid semi-annually at an annual
rate of 5% and can be paid in cash or by the issuance of additional shares of
Class A Preferred Stock.
The Class A Preferred Stock issued to AJG upon the conversion of the
Note was issued without registration under the Securities Act of 1933, as
amended, in reliance upon the exemption from registration provided in Section
4(2) thereof. The Company based such reliance upon factual representations made
to the Company by AJG as to its investment intent and sophistication, among
other things.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Stockholders on March 13, 2002
(the "Annual Meeting"). Eight directors, Benjamin C. Bishop, Jr., Dr. Arnold A.
Heggestad, David R. Long, Morgan Q. Payne, Mark P. Strauch, Forrest Travis,
Mark F. Travis and Alexander P. Zechella, were elected at the Annual Meeting to
serve until the 2003 Annual Meeting of Stockholders and until their successors
are elected and qualified. 2,552,190 votes were cast "for", no shares were
withheld and 997,993 shares were broker non-votes in connection with the
election of Mr. Bishop. 2,552,190 votes were cast "for", no shares were
withheld and 997,993 shares were broker non-votes in connection with the
election of Mr. Heggestad. 2,552,190 votes were cast "for", no shares were
withheld and 997,993 shares were broker non-votes in connection with the
election of Mr. Long. 2,552,190 votes were cast "for", no shares were withheld
and 997,993 shares were broker non-
14
votes in connection with the election of Mr. Payne. 2,552,190 votes were cast
"for", no shares were withheld and 997,993 shares were broker non-votes in
connection with the election of Mr. Strauch. 2,552,190 votes were cast "for",
no shares were withheld and 997,993 shares were broker non-votes in connection
with the election of Forrest Travis. 2,552,190 votes were cast "for", no shares
were withheld and 997,993 shares were broker non-votes in connection with the
election of Mark F. Travis. 2,552,190 votes were cast "for", no shares were
withheld and 997,993 shares were broker non-votes in connection with the
election of Mr. Zechella.
The stockholders also voted at the Annual Meeting to amend and restate
the Company's Certificate of Incorporation to increase the number of authorized
shares of common stock thereunder, to authorize preferred stock of the Company
and to provide for the Class A Preferred Stock. 2,552,190 votes were cast
"for", no votes were cast "against", no shares abstained from voting on and
997,993 shares were broker non-votes in connection with the proposal to amend
and restate the Company's Certificate of Incorporation.
The stockholders also voted at the Annual Meeting to increase the
number of shares of the Company's common stock available for issuance under the
Company's Incentive Stock Option Plan from 100,000 to 650,000 shares. 2,552,190
votes were cast "for", no votes were cast "against", no shares abstained from
voting on and 997,993 shares were broker non-votes in connection with the
proposal to increase the number of shares of the Company's common stock
available for issuance under the Company's Incentive Stock Option Plan.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
None.
(b) Reports on Form 8-K:
On January 15, 2002, the Company filed a Current Report on Form 8-K
dated December 31, 2001 reporting the acquisition of all of the
outstanding capital stock of ICC Investment Advisors, Inc. An
amendment to such Current Report was filed on March 18, 2002 to amend
Item 7 of such Current Report and to attach the financial statements
required by Item 7 of Form 8-K.
On January 24, 2002, ICAP filed a Current Report on Form 8-K dated
January 15, 2002 incorporating by reference a news release issued by
the Company regarding the contract with the Federal Deposit Insurance
Corporation ("FDIC") to manage the loan asset portfolio of Hamilton
Bank, N.A., a national bank located in Miami, Florida, for which the
FDIC is acting as receiver.
15
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.
INTREPID CAPITAL CORPORATION
By /s/ Forrest Travis
--------------------------------------------------
Forrest Travis, President and
Chief Executive Officer
Dated: May 13, 2002
By /s/ Michael J. Wallace
-------------------------------------------------
Michael J. Wallace, Chief
Financial Officer
Dated: May 13, 2002
16