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, 2001
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)
(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, 2001 were
$3,306,144.
As of February 28, 2002, there were 3,350,183 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, 2002, as based on the average closing bid and ask
prices, was approximately $1,692,405.
Transitional Small Business Disclosure Format (check one): Yes [ ]
No [X]
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 on April 3, 1998 for
the purpose of becoming a leading provider of financial services including asset
management and consulting services. ICAP is located in Jacksonville Beach,
Florida and conducts its business through its wholly owned subsidiaries,
Intrepid Capital Management ("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, ICAP acquired all of the
outstanding stock of ICC Investment Advisors, Inc., a Florida corporation, 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, ICAP 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 ICAP 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.
Subsequent to December 31, 2001, ICAP 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 the satisfaction of customary regulatory
approvals, is expected to occur during the second or third quarter of 2002. 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 asset
management, investment banking, brokerage and other financial services.
Currently, the principal business of ICAP is the operation of its wholly owned
subsidiaries, ICM, ICC and Ewing.
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ASSET MANAGEMENT
ICM and ICC are registered investment advisors under the Investment
Advisors Act of 1940, as amended (the "Investment Advisors Act"), operating with
clients throughout the United States. ICAP's asset management strategy is to
capitalize on growth opportunities for asset management services in the
institutional, for-profit corporate, non-profit corporate and private client
markets. ICM and ICC manage assets across a diverse range of investment styles,
asset classes and client types, with significant participation in both the debt
and equity markets. ICM and ICC are responsible for developing and implementing
their own investment philosophy. ICAP seeks to grow by expanding the
capabilities of its asset management services, increasing and focusing its
marketing efforts and selectively expanding its distribution channels. As of
December 31, 2001, ICM and ICC had $89.4 million and $370 million, respectively,
of assets under management for their clients.
Factors Affecting Investment Managers.
Revenues in the 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 of the industry have increased
steadily, primarily due to increased rates of return, client retention, client
acquisition, asset removals and asset additions.
BROKER-DEALER SERVICES
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's securities brokerage business is conducted, on a fully
disclosed basis, through National Financial Services, LLC ("NFS"). 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.
Factors Affecting Broker-Dealers
Revenues in the brokerage industry are 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.
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 with easy
access to a broad range of financial information.
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ICAP Business Strategy
ICAP intends to grow its business by leveraging its competitive asset
management, investment banking and securities brokerage service strengths
through ICM, ICC and Ewing, including ICM's and ICC'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 and ICC's history of serving this segment and
their 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
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.
3
Capitalizing on Strategic Acquisitions and 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 with firms providing
asset management, investment banking, brokerage and other financial services.
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 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.
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 SEC. 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 advisor", as such term is defined in
the Investment Advisors Act and various state advisors acts. ICAP, therefore, is
not required to be registered under the Investment Advisors Act or any state
advisors 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.
4
ICAP believes that it, including all subsidiaries, is currently in
compliance with all state and federal regulations, and its most recent audit met
all applicable regulatory requirements. ICAP also has in place an ongoing
internal compliance program supported by regulators, external consultants,
accountants and attorneys.
ICM and ICC
ICM and ICC are incorporated under, and required to be in compliance
with, the corporate laws of the State of Florida. Because ICM and ICC are
engaged in the business of providing investment advisory services to a number of
clients, ICM and ICC are registered under the Investment Advisors Act and under
applicable state investment advisors acts. All registrations, reporting,
maintenance of books and records and compliance procedures required by the
foregoing laws and regulations are maintained independently by ICM and ICC. ICM
and ICC are 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 they are each a "fiduciary" under ERISA with respect to
their respective clients.
The laws and regulations applicable to ICM and ICC and their operations
generally grant supervisory agencies and bodies' broad administrative powers,
including the power to limit or restrict them from carrying on their business in
the event that they fail 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 engaging in business for
specified periods of time, revocation of registration as an investment advisor,
censures and fines.
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.
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.
5
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 $50,000 at December 31, 2001. 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
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.
Employees
As of December 31, 2001, ICAP and its subsidiaries employed 38 persons.
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.
ICC maintains an office at 255 South Orange Avenue, Suite 900, Orlando,
Florida 32801, occupying approximately 4,000 square feet under a lease that
expires in August 2002.
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.
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 2001.
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.
6
Fiscal Year 2001 Low Bid High Bid Low Asked High Asked
---------------- ----- ----- ----- -----
First Quarter $1.38 $2.50 $1.75 $3.50
Second Quarter 1.10 1.55 1.40 1.80
Third Quarter 1.00 1.40 1.20 1.60
Fourth Quarter 1.00 1.35 1.50 1.68
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
As of December 31, 2001, there were 3,350,183 shares of ICAP Common
Stock outstanding, 1,000 shares held in treasury and 320 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.
On December 31, 2001, ICAP, ICC Investment Advisors, Inc. and the
shareholders of ICC Investment Advisors, Inc. (the "ICC Shareholders") entered
into and consummated a Share Purchase Agreement, which agreement was filed as
Exhibit 2.1 to ICAP's Current Report on Form 8-K filed on January 15, 2002 (the
"Share Purchase Agreement"). Pursuant to the terms and conditions of the Share
Purchase Agreement, ICAP purchased all of the outstanding capital stock of ICC
Investment Advisors, Inc., which is the sole shareholder of ICC. In connection
with the purchase, ICAP issued 1,000,000 shares of ICAP's common stock and
warrants to purchase up to an aggregate of 100,000 shares of ICAP's common
stock. The shares of ICAP common stock and the warrants issued in the
transaction were issued without registration under the Securities Act of 1933,
as amended, in reliance upon the exemption from registration provided in Section
4(2) thereof. ICAP based such reliance upon factual representations made to ICAP
by the ICC Shareholders as to the ICC Shareholders' investment intent and
sophistication, among other things.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Critical Accounting Policies and Estimates
The discussion and analysis of ICAP's financial condition and results
of operations are based on ICAP's consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements requires
us to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosures of contingent assets
and liabilities. We base these estimates on historical experience and on various
other assumptions that management believes are reasonable under the
circumstances; additionally we evaluate these results on an on-going basis.
Actual results may differ from these estimates under different assumptions or
conditions.
We believe the following critical accounting policies reflect
management's more significant judgments and estimates used in the preparation of
our consolidated financial statements:
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Revenue recognition - investment banking revenues. 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. Some investment banking services are provided under contractual
engagements which provide for payments to the Company that are contingent on the
consummation of a client transaction. In these engagements, investment banking
services are provided over an extended period of time. However, revenue related
to such engagements is not recognized until the revenue has been earned by
providing the services in the contract, the payments to be received are fixed or
determinable, and collectibility of the payments is reasonably assured, which
generally coincides with the closing of the underlying transaction. As a result,
the timing and amounts of investment banking revenues can vary significantly
from period to period.
Recoverability of goodwill and identifiable intangible assets. Goodwill
and identifiable intangible assets are carried at the lower of cost or fair
value. Whenever events or circumstances indicate that the carrying value of
goodwill or identifiable intangible assets may not be recoverable, the carrying
amount is compared to the undiscounted expected future cash flows of the related
business. If this comparison indicates that the asset is impaired, the amount of
the impairment is calculated using discounted expected future cash flows. If
management's estimate of the future cash flows differs from actual cash flows,
the recorded amount of goodwill or identifiable intangible assets could be
different than its fair value.
The accompanying consolidated financial statements of ICAP as of
December 31, 2001 and 2000 include the accounts of ICAP and its subsidiaries
ICM, ICC, Ewing and Enviroq. In accordance with purchase accounting, the
accounts of ICC are included from December 31, 2001, the date of acquisition.
Acquisitions
On December 31, 2001, ICAP acquired 100% of the outstanding capital
stock of ICC and has accounted for this transaction under the purchase method of
accounting. ICAP expects the acquisition to significantly enhance its asset
management segment in many areas including improved distribution capabilities,
increased asset management revenues, and increased efficiencies through
economies of scale. ICAP acquired the ICC capital stock in exchange for (i) cash
of $2,835,365, (ii) 1,000,000 shares of ICAP's common stock, with attached
warrants to purchase an additional 100,000 shares and (iii) the assumption of
all ICC liabilities. The common stock issued was valued at $0.94 per share, the
bid price on the date of acquisition, less a discount for certain restrictions
on the shares issued. The warrants issued carry an exercise price of $6.00 and a
term of six years. The underlying warrant shares are also restricted with an
implied volatility of zero. Therefore, no value has been separately attributed
to the warrants. ICAP financed the cash portion of the purchase by borrowing
$3,500,000 from AJG Financial Services, Inc.
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 of $64,386. The
acquisition was accounted for under the purchase method of accounting.
Discontinued Operations
On September 19, 2001, ICAP signed an agreement in principle with
Sprayroq of Ohio, Inc., an unrelated party, whereby Sprayroq of Ohio, Inc.
agreed to purchase all of the issued and outstanding capital stock of Sprayroq,
Enviroq's 50% owned subsidiary. Enviroq's operations consisted solely of its
investment in Sprayroq, and ICAP has reported its operations as discontinued for
all periods presented. Enviroq conducts no operations currently, but remains a
wholly-owned subsidiary of ICAP to hold the interest bearing promissory notes
received in connection with the sale.
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A loss on sale of discontinued operations of $566,000 was accrued
during the year ended December 31, 2001. Revenues from Enviroq were $1,230,402
and $1,917,410 for the years ended December 31, 2001 and 2000, respectively. The
loss from discontinued operations for Enviroq, including income tax expense, was
$31,620 and $20,754 for the years ended December 31, 2001 and 2000,
respectively.
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 disposal of Sprayroq, Inc. ICAP has been
implementing a growth strategy plan that includes both internal growth and
external growth through acquisitions.
ICAP consummated the sale of Sprayroq on October 30, 2001 and received
cash proceeds of $584,496 and two promissory notes in the aggregate principal
amount of $323,919. ICAP used proceeds from the sale to repay notes payable of
approximately $389,000 and advances from a shareholder of approximately
$183,000.
In connection with the acquisition of ICC, ICAP financed the cash
portion of the transaction through a loan from AJG Financial Services, Inc.
("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
ICAP and AJG (collectively, the "Loan Documents"). Pursuant to the Loan
Documents and the exhibits thereto, among other things, AJG loaned ICAP
$3,500,000 to finance the cash portion of the transaction, as well as the costs
and expenses associated with the Share Purchase and for ICAP's working capital
needs. In exchange, ICAP issued of a convertible promissory note in favor of AJG
due which is due on or before April 30, 2002, bears interest at 5% per annum,
and can be converted on or prior to maturity into Class A Cumulative Convertible
Pay-In-Kind Preferred Stock of ICAP. The loan was subsequently converted into
1,166,666 shares of ICAP's Class A Cumulative Convertible Pay-In-Kind Preferred
Stock on March 29, 2002.
For the year ended December 31, 2001, ICAP incurred significant
operating losses and negative cash flows from operations. ICAP believes the
acquisition of ICC provides ICAP a much broader distribution platform for asset
management services and will allow ICAP to consolidate back-office asset
management functions, that its broker-dealer services segment will generate
substantial high-margin investment banking revenues during 2002 based on
existing contracts in place and that its new strategic partnership with AJG
provides additional capital for future strategic opportunities. 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 2001, the net cash used in operating activities of $81,653 was
primarily attributable to the net loss. Net cash used in investing activities of
$2,521,386 was primarily due to the acquisition of ICC, partially offset by the
sale of discontinued operations. Net cash provided by financing activities of
$2,825,000 was attributable to the net proceeds from notes payable.
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, 2001, Ewing's regulatory net capital was $129,624, which is $79,624
in excess of its minimum net capital requirement of $50,000.
9
Results of Operations
Year Ended December 31, 2001 Compared to Year Ended December 31, 2000
Total revenues for 2001 were $3,306,144 compared to $3,238,515 for
2000, representing a 2.1% increase.
Commissions decreased $429,301, or 24.1%, to $1,350,295. Commissions
represent revenue earned by Ewing from securities transactions conducted on
behalf of clients, including sales of mutual fund shares and variable annuities.
The decrease is primarily attributable to decreased transaction volume as a
result of the negative and volatile market conditions.
Asset management fees increased $112,855, or 16.2%, to $809,430. 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 were $105.3 million,
$84.6 million, $79.3 million, and $74.1 million at December 31, 2000, March 31,
2001, June 30, 2001, and September 30, 2001, respectively, compared to $92.5
million, $84.5 million, $76.8 million, and $77.8 million at December 31, 1999,
March 31, 2000, June 30, 2000, and September 30, 2000, respectively. The
increase in asset management fees for 2001 relates directly to an increase in
the average fee rate per account for ICM. AUM increased during the fourth
quarter of 2001 to $458.4 million at December 31, 2001, compared to $105.3
million at December 31, 2000. The increase is primarily attributable to the
acquisition of ICC on December 31, 2001, which accounted for $369.0 million of
the increase.
Investment banking revenues increased $482,783, or 94.5%, to $993,751.
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 an increase in mortgage loan placement and merger and
acquisition services. A significant fee was earned in the fourth quarter of 2001
accounting for approximately 56% of total investment banking revenue for the
year.
Net trading profits decreased $137,611, or 89.7%, to $15,751. Net
trading profits consist of realized and unrealized gains from ICAP's investment
in trading securities, which includes an investment in Intrepid Capital, L.P.
The decrease is primarily attributable to lower exposure in trading securities
as a result of the elimination of Ewing's market making operations in December
2000.
Dividend and interest income decreased $30,137, or 47.4%, to $33,465.
The decrease is primarily attributable to a decrease in interest received from
lower average cash balances invested in money markets.
Other income increased $69,040, or 200.6%, to $103,452. The increase is
primarily attributable to a portfolio accounting service Ewing began providing
in December 2000.
Total expenses for 2001 were $3,975,688 compared to $4,231,780 for
2000, representing a 6.1% decrease.
Salaries and employee benefits decreased $25,923, or 1.1%, to
$2,381,449. Salaries and employee benefits represent fixed salaries, commissions
paid on securities transactions and investment banking revenues, and other
related employee benefits. The decrease is primarily attributable to decreased
commission expenses as a result of decreased securities transactions, with such
decrease partially offset by increased commission expenses as a result of
increased investment banking revenues.
10
Brokerage and clearing expenses decreased $97,150, or 26.8%, to
$265,311. 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. The decrease is primarily attributable to decreased
transaction volume as a result of the negative and volatile market conditions.
Advertising and marketing expenses increased $87,026, or 56.5%, to
$240,987. The increase is primarily attributable to an increase in ICM's
advertising and marketing expenses associated with a new advertising and
marketing campaign aimed to attract prospective clients and inform them of ICM's
excellent investment performance.
Professional and regulatory expenses decreased $130,227, or 31.0%, to
$289,344. The decrease is primarily attributable to the elimination of Ewing's
market making operations in December 2000.
Interest expense decreased $29,966, or 32.7%, to $61,619. The decrease
is primarily attributable to the reduction of notes payable during the year and
to reduced market interest rates on ICAP's variable rate bank note.
Other expenses decreased $37,152, or 11.8%, to $278,412 due to
decreased general and administrative expenses.
Expected Impact of Recently Announced Accounting Standards
In July 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 141, "Business Combinations" (FAS 141),
and Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets" (FAS 142). FAS 141, effective immediately, requires that the
purchase method of accounting be used for all business combinations initiated
after June 30, 2001 as well as all purchase method business combinations
completed after June 30, 2001. FAS 142, effective January 1, 2002, will require
that goodwill and intangible assets with indefinite useful lives no longer be
amortized but instead be tested for impairment at least annually. Furthermore,
under FAS 141, any goodwill and intangible assets determined to have indefinite
useful lives that are acquired in a purchase business combination completed
after June 30, 2001 will not be amortized. Goodwill and intangible assets
acquired in business combinations completed before July 1, 2001 will continue to
be amortized until the adoption of FAS 142, however FAS 141 will require, upon
adoption of FAS 142, that goodwill acquired in a prior purchase business
combination be evaluated and any necessary reclassifications be made in order to
conform to the new criteria in FAS 141 for recognition apart from goodwill. Any
impairment loss will be measured as of the date of the adoption and recognized
as a cumulative effect of a change in accounting principles in the first interim
period of 2002.
Under FAS 142, goodwill at December 31, 2001 will not be amortized
prospectively. Amortization of goodwill was $56,434 and $74,333 in 2001 and
2000, respectively, of which $53,699 and $71,598 was included in loss from
discontinued operations in 2001 and 2000, respectively.
ITEM 7. FINANCIAL STATEMENTS
The consolidated financial statements of ICAP as of December 31, 2001
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.
11
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. 70 August 1999 Director
Arnold A. Heggestad 58 August 1999 Director
David R. Long 50 March 2002 Director
Morgan Payne 58 September 1998 Director
Mark P. Strauch 46 March 2002 Director
Mark F. Travis 40 September 1998 Executive Vice President and Director
Forrest Travis 63 September 1998 President, Chief Executive Officer and
Director
Alexander P. Zechella 81 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.
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 Administration. Dr. Heggestad received
a bachelor's degree from the University of Maryland and masters and Ph.D. degree
from Michigan State University.
12
David R. Long has served as a director of ICAP since March 2002. Mr.
Long is President of AJG Financial Services, Inc. ("AJG"), a Delaware
corporation, and Vice President and Chief Investment Officer of Arthur J.
Gallagher & Co. ("Gallagher"), a New York Stock Exchange listed, Delaware
corporation that is the parent corporation of AJG. Prior to joining AJG in 1980,
Mr. Long worked at the Harris Trust and Savings Bank in Chicago, Illinois. Mr.
Long serves as a Director for Asset Alliance Corporation, WallStreetView.com,
Inc., Franklin Capital Group and Peachtree Franchise Finance, LLC. He is also
the Chairman on the Board of Directors of Chicago Equity Fund. Mr. Long
graduated from the University of Illinois with a Bachelor's of Business
Administration Degree in Finance and received his MBA from Northwestern
University.
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 P. Strauch has served as a director of ICAP since March 2002. Mr.
Strauch has been the Executive Vice-President of AJG since 1996 and is Corporate
Vice-President of Gallagher. Between 1989 and 2001, Mr. Strauch served as
Corporate Treasurer, and prior to that was the Corporate Tax Manager of
Gallagher, where he helped develop a tax advantaged investment portfolio unique
to the industry. Prior to joining Gallagher as an investment and tax analyst in
1981, Mr. Strauch worked at the Harris Trust and Savings Bank in Chicago,
Illinois. Mr. Strauch serves as a Director for Asset Alliance Corporation,
WallStreetView.com, Inc., US Energy Systems, Inc., Icor Brokerage, Globenet
Capital Corporation and Orbis Online, Inc. He is also Chairman of the Board of
Directors of Peachtree Franchise Finance, LLC. Mr. Strauch holds a Bachelor's
degree in Finance from the University of Illinois, a Masters in Management from
Northwestern University and a Masters of Science in Taxation from De Paul
University. He is also a member of the Association for Financial Professionals
and the Chicago Tax Club.
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 Capital Research Corporation. 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.
13
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, 2001,
2000 and 1999 to ICAP's Chief Executive Officer and to any other executive
officer whose total cash compensation exceeded $100,000.
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, 2001 $205,100 (1) -- -- -- -- -- --
President and 2000 $221,767 (1) -- -- -- -- -- --
Chief Executive Officer 1999 $218,701 (1) -- -- -- -- -- --
Mark F. Travis 2001 $195,100 (1) -- -- -- -- -- --
Executive Vice 2000 $175,855 (1) -- -- -- -- -- --
President 1999 $175,427 (1) -- -- -- -- -- --
--------------
(1) This amount includes ICAP's matching contributions to its 401(k) plan
for the benefit of Forrest Travis in the aggregate amount of $5,100,
$5,100 and $15,701 and for the benefit of Mark F. Travis in the
aggregate amount of $5,100, $5,100 and $14,807 for fiscal years 1999,
2000 and 2001, respectively.
Option/SAR Grants in Last Fiscal Year
During the fiscal year ended December 31, 2001, 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, 2001 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, 2001, 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.
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, 2001 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.
SHARES UNDER
EXERCISABLE
OPTIONS TOTAL SHARES
NAME AND ADDRESS SHARES OWNED(1) AND WARRANTS(2) BENEFICIALLY OWNED PERCENTAGE OWNED
----------------------------- ------------------- ------------------ ------------------ ----------------
AJG Financial Services, Inc.(5) -- 1,805,900 1,805,900 35.0%
The Gallagher Center
Two Pierce Place
Itasca Illinois 60143-3141
14
SHARES UNDER
EXERCISABLE
OPTIONS TOTAL SHARES
NAME AND ADDRESS SHARES OWNED(1) AND WARRANTS(2) BENEFICIALLY OWNED PERCENTAGE OWNED
----------------------------- ---------------- ---------------- ------------------ ----------------
Benjamin C. Bishop, Jr.(+)(3) -- 50,000 50,000 1.5%
3652 South Third Street,
Suite 200
Jacksonville Beach, Florida 32250
Davis M. Brock 177,464 17,746 195,210 5.8%
3652 South Third Street,
Suite 200
Jacksonville Beach, Florida 32250
Bryan A. Davis 177,464 17,746 195,210 5.8%
3652 South Third Street,
Suite 200
Jacksonville Beach, Florida 32250
Arnold A. Heggestad(+) -- -- -- --
3652 South Third Street,
Suite 200
Jacksonville Beach, Florida 32250
Morgan Q. Payne(+)(4) 41,250 100,000 141,250 4.1%
3652 South Third Street,
Suite 200
Jacksonville Beach, Florida 32250
Fred J. Shockley 407,601 40,760 448,361 13.2%
3652 South Third Street,
Suite 200
Jacksonville Beach, Florida 32250
A. Bronson Thayer 203,231 20,323 223,554 6.6%
3652 South Third Street,
Suite 200
Jacksonville Beach, Florida 32250
Forrest Travis(+++) 1,236,137 -- 1,236,137 36.9%
3652 South Third Street,
Suite 200
Jacksonville Beach, Florida 32250
Mark F. Travis(+++) 416,353 -- 416,353 12.4%
3652 South Third Street,
Suite 200
Jacksonville Beach, Florida 32250
Michael J. Wallace(++) 9,500 -- 9,500 (*)
3652 South Third Street,
Suite 200
Jacksonville Beach, Florida 32250
Alexander P. Zechella(+) 4,221 -- 4,221 (*)
3652 South Third Street,
Suite 200
Jacksonville Beach, Florida 32250
All directors and executive
officers as a group
(12 persons) 2,673,221 2,052,475 4,725,696 87.5%
(+) Director of ICAP
(++) Executive Officer of ICAP
(*) Less than 1%
--------------
(1) Beneficial ownership has been determined in accordance with Rule 13d-3
under the Securities Exchange Act of 1934. Unless otherwise noted, ICAP
believes that all persons named in the table have sole voting and
investment power with respect to all shares of Common Stock
beneficially owned by them.
(2) Includes shares which may be acquired by the exercise of stock options
and warrants granted by ICAP and exercisable within 60 days of December
31, 2001.
(3) On August 4, 1999, Mr. Bishop was issued a Non-Negotiable Convertible
Promissory Note in the aggregate principal amount of $200,000 that is
convertible into 50,000 shares of Common Stock, subject to adjustment
upon the occurrence of certain events.
(4) On December 16, 1998, Broadland Capital Partners, L.P., of which Mr.
Payne is general partner, was issued a warrant to purchase up to
100,000 shares of Common Stock, subject to vesting and to adjustment
upon the occurrence of certain events, at an exercise price of $.75 per
share.
(5) On December 31, 2001, AJG Financial Services, Inc. was issued an option
to purchase that number of shares of the Common Stock which would equal
51% of the aggregate issued and outstanding Common Stock on a fully
diluted basis, of which shares equaling 35.025% of the aggregate issued
and outstanding Common Stock on a fully-diluted basis is currently
vested, and the remainder of which vests at such time as AJG Financial
Services, Inc. makes an additional $4.5 million investment in ICAP. The
exercise price per share of Common Stock underlying the option is
currently $3.00 per share of Common Stock.
15
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
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, 2001 and 2000........................................................... F-2
Consolidated Statements of Operations of Intrepid Capital
Corporation and Subsidiaries for the Years Ended December 31,
2001 and 2000........................................................................................... F-3
Consolidated Statements of Stockholders' Equity of Intrepid Capital
Corporation and Subsidiaries for the Years Ended December 31,
2001 and 2000........................................................................................... F-4
Consolidated Statements of Cash Flows of Intrepid Capital
Corporation and Subsidiaries for the Years Ended December 31,
2001 and 2000........................................................................................... 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 Amended and Restated Certificate of Incorporation of the
Registrant.
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).
4.1 Form of Warrant Agreement dated as of December 31, 2001 by and
between Intrepid Capital Corporation and each of the
shareholders of ICC Investment Advisors, Inc. (incorporated by
reference to Exhibit 4.1 to the Registrant's Current Report on
Form 8-K, filed with the Commission on January 15, 2002.)
4.2 Option Agreement between Intrepid Capital Corporation and AJG
Financial Services, Inc. dated as of December 31, 2001
(incorporated by reference to Exhibit 4.2 to the Registrant's
Current Report on Form 8-K, filed with the Commission on
January 15, 2002).
16
10.1 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).
10.2 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).
10.3 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).
10.4 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).
10.5 Non-Competition and Confidentiality Agreement dated as of December 31,
2001 by and between Intrepid Capital Corporation and A. Bronson Thayer
(incorporated by reference to Exhibit 10.1 to the Registrant's Current
Report on Form 8-K, filed with the Commission on January 15, 2002).
10.6 Form of Registration Rights Agreement dated as of December 31, 2001 by
and between Intrepid Capital Corporation and each of Fred Shockley and
David Brock (incorporated by reference to Exhibit 10.2 to the
Registrant's Current Report on Form 8-K, filed with the Commission on
January 15, 2002).
10.7 Investment Agreement between Intrepid Capital Corporation and AJG
Financial Services, Inc. dated as of December 31, 2001 (incorporated by
reference to Exhibit 10.3 to the Registrant's Current Report on Form
8-K, filed with the Commission on January 15, 2002) (certain of the
schedules and Exhibits to the Investment Agreement have been omitted
from the Report pursuant to Item 601(b)(20 of Regulation S-B, and the
Company agrees to furnish copies of such omitted exhibits and schedules
supplementally to the Securities and Exchange Commission upon request).
10.8 Convertible Note Agreement between Intrepid Capital Corporation and AJG
Financial Services, Inc. dated as of December 31, 2001 (incorporated by
reference to Exhibit 10.4 to the Registrant's Current Report on Form
8-K, filed with the Commission on January 15, 2002).
10.9 Registration Rights Agreement between Intrepid Capital Corporation and
AJG Financial Services, Inc. dated as of December 31, 2001
(incorporated by reference to Exhibit 10.5 to the Registrant's Current
Report on Form 8-K, filed with the Commission on January 15, 2002)
10.10 Standstill Agreement between Intrepid Capital Corporation and AJG
Financial Services, Inc. dated as of December 31, 2001 (incorporated by
reference to Exhibit 10.6 to the Registrant's Current Report on Form
8-K, filed with the Commission on January 15, 2002)
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.
17
(c) Reports on Form 8-K:
On November 14, 2001, ICAP filed a Current Report on Form 8-K dated
October 30, 2001 reporting the disposition of all of the outstanding
capital stock of Sprayroq, Inc.
18
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 April 1, 2002.
INTREPID CAPITAL CORPORATION
By /s/ Forrest Travis
-----------------------------------------
Forrest Travis, President and
Chief Executive Officer
By /s/ Michael J. Wallace
-----------------------------------------
Michael J. Wallace, Chief
Financial 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 April 1, 2002
-------------------------------------
Forrest Travis
/s/ Mark F. Travis Executive Vice President and Director April 1, 2002
-------------------------------------
Mark F. Travis
/s/ Benjamin C. Bishop, Jr. Director April 1, 2002
-------------------------------------
Benjamin C. Bishop, Jr.
/s/ Arnold Heggestad Director April 1, 2002
-------------------------------------
Arnold Heggestad
/s/ David R. Long Director April 1, 2002
-------------------------------------
David R. Long
/s/ Morgan Payne Director April 1, 2002
-------------------------------------
Morgan Payne
/s/ Mark P. Strauch Director April 1, 2002
-------------------------------------
Mark P. Strauch
/s/ Alexander P. Zechella Director April 1, 2002
-------------------------------------
Alexander P. Zechella
19
INDEX TO FINANCIAL STATEMENTS
Independent Auditors' Report................................................................F-1
Consolidated Balance Sheets of Intrepid Capital Corporation and Subsidiaries as
of December 31, 2001 and 2000 F-2
Consolidated Statements of Operations of Intrepid Capital Corporation and Subsidiaries
for the Years Ended December 31, 2001 and 2000..............................................F-3
Consolidated Statements of Stockholders' Equity of Intrepid Capital Corporation
and Subsidiaries for the Years Ended December 31, 2001 and 2000.............................F-4
Consolidated Statements of Cash Flows of Intrepid Capital Corporation and Subsidiaries
for the Years Ended December 31, 2001 and 2000..............................................F-5
Notes to Consolidated Financial Statements..................................................F-6
20
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, 2001 and 2000, 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, 2001 and 2000,
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 February 22, 2002, except for note 5 as to which the date
is March 29, 2002
F-1
INTREPID CAPITAL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2001 and 2000
ASSETS 2001 2000
----------- ----------
Current assets:
Cash and cash equivalents $ 641,577 419,616
Investments, at fair value 81,935 59,999
Accounts receivable 130,504 83,629
Prepaid and other assets 164,859 271,347
Assets of discontinued operations (note 3) -- 1,528,187
----------- ----------
Total current assets 1,018,875 2,362,778
Notes receivable (note 3) 323,919 --
Equipment and leasehold improvements, net of accumulated
depreciation of $200,588 in 2001 and $137,470 in 2000 360,348 364,480
Intangible assets, less accumulated amortization of $6,477
in 2001 and $4,396 in 2000 (note 2) 4,490,013 36,626
----------- ----------
Total assets $ 6,193,155 2,763,884
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 209,984 105,117
Accrued expenses 651,865 223,313
Current portion of notes payable (note 5) 3,725,000 327,778
Other 196,380 108,832
Liabilities of discontinued operations (note 3) -- 281,305
----------- ----------
Total current liabilities 4,783,229 1,046,345
Pension plan obligation (note 4) 214,989 --
Notes payable, less current portion (note 5) 100,000 547,222
----------- ----------
Total liabilities 5,098,218 1,593,567
----------- ----------
Stockholders' equity:
Common stock, $.01 par value. Authorized 15,000,000 shares;
issued 3,350,183 and 2,318,996 shares at December 31, 2001
and 2000, respectively 33,502 23,190
Treasury stock, at cost - 1,000 shares (3,669) (3,669)
Additional paid-in capital 3,616,915 2,687,227
Accumulated deficit (2,551,811) (1,536,431)
----------- ----------
Total stockholders' equity 1,094,937 1,170,317
----------- ----------
$ 6,193,155 2,763,884
=========== ==========
Commitments (note 9)
See accompanying notes to consolidated financial statements.
F-2
INTREPID CAPITAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended December 31, 2001 and 2000
2001 2000
----------- ----------
Revenues:
Commissions $ 1,350,295 1,779,596
Asset management fees 809,430 696,575
Investment banking revenues 993,751 510,968
Net trading profits 15,751 153,362
Dividend and interest income 33,465 63,602
Other 103,452 34,412
----------- ----------
Total revenues 3,306,144 3,238,515
----------- ----------
Expenses:
Salaries and employee benefits 2,381,449 2,407,372
Brokerage and clearing 265,311 362,461
Advertising and marketing 240,987 153,961
Professional and regulatory fees 289,344 419,571
Occupancy and maintenance 372,500 369,681
Depreciation and amortization 86,066 111,585
Interest expense 61,619 91,585
Other 278,412 315,564
----------- ----------
Total expenses 3,975,688 4,231,780
----------- ----------
Loss from continuing operations before income taxes (669,544) (993,265)
Income tax benefit (note 7) (251,784) (161,433)
----------- ----------
Loss from continuing operations (417,760) (831,832)
Discontinued operations (note 3):
Loss from discontinued operations, including tax expense of $13,532
and $21,187 in 2001 and 2000, respectively (31,620) (20,754)
Loss on sale of discontinued operations, including tax expense of $238,252 (566,000) --
----------- ----------
Loss on discontinued operations (597,620) (20,754)
----------- ----------
Net loss $(1,015,380) (852,586)
=========== ==========
Basic loss per share from continuing operations $ (0.18) (0.37)
Basic loss per share from discontinued operations (0.01) (0.01)
Basic loss per share on sale of discontinued operations (0.24) --
----------- ----------
Basic net loss per share $ (0.43) (0.38)
=========== ==========
Weighted average shares outstanding 2,341,649 2,218,051
=========== ==========
See accompanying notes to consolidated financial statements.
F-3
INTREPID CAPITAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended December 31, 2001 and 2000
ADDITIONAL
COMMON TREASURY PAID-IN ACCUMULATED
STOCK STOCK CAPITAL DEFICIT TOTAL
------- ------ ---------- ---------- ----------
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. (note 2) 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
Common stock issued to Broadland
Capital, L.P. upon warrant exercise (note 6) 312 -- (312) -- --
Common stock and warrants issued
to acquire ICC (note 2) 10,000 -- 930,000 -- 940,000
Net loss -- -- -- (1,015,380) (1,015,380)
------- ------ ---------- ---------- ----------
Balance at December 31, 2001 $33,502 (3,669) 3,616,915 (2,551,811) 1,094,937
======= ====== ========== ========== ==========
See accompanying notes to consolidated financial statements.
F-4
INTREPID CAPITAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 2001 and 2000
2001 2000
----------- ----------
Cash flows from operating activities:
Net loss $(1,015,380) (852,586)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 86,066 111,585
Loss on sale of discontinued operation 566,000 --
(Purchases) sales of investments, net (6,185) 552,018
Net trading profits (15,751) (153,362)
Deferred tax expense (benefit) -- 40,674
Change in assets and liabilities:
Accounts receivable (18,502) (1,398)
Prepaid and other assets 154,975 (130,270)
Accounts payable and accrued expenses 368,561 (112,766)
Other liabilities 26,096 (15,146)
Discontinued operations - working capital changes (227,533) 4,293
----------- ----------
Net cash used in operating activities (81,653) (556,958)
----------- ----------
Cash flows from investing activities:
Purchase of equipment (6,824) (113,911)
Proceeds from sale of discontinued operations 584,496 --
Acquisition of ICC, net of cash acquired (3,099,058) --
Acquisition of Sears Thompson, net of cash acquired -- 28,229
----------- ----------
Net cash used in investing activities (2,521,386) (85,682)
----------- ----------
Cash flows from financing activities:
Proceeds from notes payable 3,500,000 --
Principal payments on notes payable (675,000) (175,000)
Proceeds from issuance of common stock -- 142,556
----------- ----------
Net cash provided by (used in) financing activities 2,825,000 (32,444)
----------- ----------
Net increase (decrease) in cash and cash equivalents 221,961 (675,084)
Cash and cash equivalents at beginning of year 419,616 1,094,700
----------- ----------
Cash and cash equivalents at end of year $ 641,577 419,616
=========== ==========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 56,524 96,034
=========== ==========
Cash paid during the year for income taxes $ -- 10,450
=========== ==========
Supplemental disclosure of non-cash transactions:
Receipt of notes receivable in connection with sale of discontinued operations $ 323,919 --
=========== ==========
Notes payable issued or assumed in ICC acquisition $ 125,000 --
=========== ==========
Common stock and warrants issued to acquire ICC $ 940,000 --
=========== ==========
Common stock issued to acquire Sears Thompson $ -- 64,386
=========== ==========
See accompanying notes to consolidated financial statements.
F-5
INTREPID CAPITAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001 and 2000
(1) ORGANIZATION AND 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 leading provider of financial
services including asset management and consulting services. The
Company is located in Jacksonville Beach, Florida and conducts its
business through its wholly owned subsidiaries, Intrepid Capital
Management (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.
(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.
F-6
INTREPID CAPITAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001 and 2000
(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
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) CASH AND CASH EQUIVALENTS
Any financial instruments which have an original maturity of
ninety days or less when purchased are considered cash
equivalents.
(G) INVESTMENTS
Investments consist of debt and equity securities, which are
bought and held principally for the purpose of being sold in the
near term, and 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.
Dividends and interest income are recognized when earned.
F-7
INTREPID CAPITAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001 and 2000
(H) 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 if shorter, 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.
(I) 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 amounts 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.
(J) 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 will not be amortized after
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 based over the estimated useful lives of the
identifiable intangible assets, which range from 7 to 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.
F-8
INTREPID CAPITAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001 and 2000
(K) EARNINGS PER SHARE
Basic loss per share of common stock is computed based upon the
weighted average number of common shares outstanding during the
year. Stock warrants and convertible instruments, when diluted,
are included as common stock equivalents to determine diluted
earnings per share. For the years ended December 31, 2001 and
2000, the Company had no diluted common stock equivalents.
(L) 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.
(M) PENSION PLAN OBLIGATION
The Company assumed a defined benefit pension plan obligation
through the acquisition of ICC. The obligation valued using a
discounted cash flow method based on the average annual increase
in CPI percentage, discount rate and the expected life of the
individual covered by the obligation.
(N) COMPREHENSIVE INCOME
No differences between total comprehensive loss and net loss
existed in the financial statements reported for the years ended
December 31, 2001 and 2000.
(O) STOCK OPTION PLAN
The Company applies the intrinsic value-based method of accounting
prescribed by Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) in accounting
for its fixed plan stock options. As such, compensation expense
would be recorded on the date of grant only if the current market
price of the underlying stock exceeded the exercise price.
Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" (FAS 123) established accounting and
disclosure requirements using a fair value-based method of
accounting for stock-based compensation plans. As allowed by FAS
123, the Company has elected to apply the intrinsic value-based
method of accounting described above, and has adopted the
disclosure requirements of FAS 123.
F-9
INTREPID CAPITAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001 and 2000
(2) 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.
The Company acquired the ICC capital stock in exchange for (i) cash of
$2,835,365, (ii) 1,000,000 shares of the Company's common stock, with
attached warrants to purchase an additional 100,000 shares and (iii) the
assumption of all ICC liabilities. The common stock issued was valued at
$0.94 per share, the bid price on the date of acquisition, less a
discount for certain restrictions on the shares issued. The warrants
issued carry an exercise price of $6.00 and a term of six years. The
underlying shares are also restricted with an implied volatility of zero.
Therefore, no value has been separately attributed to the warrants. The
aggregate purchase price consisted of the following:
Cash paid $2,835,365
Stock and stock warrants issued 940,000
Direct costs 330,017
----------
Total purchase price $4,105,382
==========
The following table summarizes the estimated fair values of the assets
acquired and liabilities assumed at the date of acquisition.
Current assets $ 93,184
Fixed assets 72,375
Intangible assets 4,456,122
-----------
Total assets acquired 4,621,681
-----------
Current liabilities (241,310)
Long term liabilities (274,989)
-----------
Total liabilities assumed (516,299)
Total purchase price $ 4,105,382
===========
Intangible assets consist of goodwill and separately identifiable
intangible assets with finite lives. Identifiable intangible assets are
attributable to the estimated fair value of acquired investment
management contracts and customer relationships and will be amortized
over their estimated useful lives which range from 7 to 10 years. The
Company has preliminarily estimated that the amount of identifiable
intangible assets is approximately $900,000, however, the Company will
continue to assess the fair value under the adoption of FAS 142 and as
other information becomes available to determine the final allocation of
purchase price.
F-10
INTREPID CAPITAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001 and 2000
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.
Subsequent to December 31, 2001, 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 the satisfaction of
customary regulatory approvals, is expected to occur during the second or
third quarter of 2002.
The following unaudited pro forma financial information presents the
consolidated results of operations as if the purchases of ICC and Sears
Thompson had occurred on January 1, 2000. Pro forma total revenues would
have been $5,284,348 and $5,882,503 in 2001 and 2000, respectively. Pro
forma net loss would have been ($1,406,583) and ($1,085,825) in 2001 and
2000, respectively. Pro forma net loss per share would have been ($0.42)
and ($0.33) in 2001 and 2000, respectively.
(3) DISCONTINUED OPERATIONS
On September 19, 2001, the Company signed an agreement in principle with
Sprayroq of Ohio, Inc., an unrelated party, whereby Sprayroq of Ohio,
Inc. agreed to purchase all of the issued and outstanding capital stock
of Sprayroq, Enviroq's 50% owned subsidiary. Enviroq's operations
consisted solely of its investment in Sprayroq, and the Company has
reported its operations as discontinued for all periods presented.
The sale of Sprayroq was completed on October 30, 2001 and the Company
received on that date its share of the purchase price which consisted of
cash in the amount of $584,496 and two promissory notes in the aggregate
principal amount of $323,919. The promissory notes bear interest at 7%
with interest payable annually and a single principle payment at
maturity. A loss on sale of discontinued operations of $621,042 was
recorded as follows:
Loss on sale of discontinued operations:
Proceeds
Cash $ 584,496
Notes 323,919
-----------
908,415
Net book value of assets of discontinued operations (1,106,163)
Accrued severance costs (130,000)
Income tax expense on taxable gain (238,252)
-----------
$ (566,000)
===========
F-11
INTREPID CAPITAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001 and 2000
(4) PENSION PLAN OBLIGATION
The Company assumed a defined benefit pension plan obligation through the
acquisition of ICC. The obligation is related to a non-qualified plan
which covers a former employee/stockholder of ICC. The benefit is
adjusted annually by the percentage increase in the Consumer Price Index
- All Urban Consumers (CPI) and is paid on a quarterly basis. Current
annual payments are approximately $19,000. The adjusted annual benefit is
not to exceed $25,000. There are no plan assets associated with this
pension plan obligation.
2001
--------
Acturial present value of benefit obligations:
Accumulated benefit obligation $214,989
========
Projected benefit obligation $214,989
========
The assumptions used to determine the actuarial present value of the
projected benefit obligation are as follows:
Average annual increase in CPI percentage 2.58%
Discount rate 8.00%
Expected life 19.5 years
(5) NOTES PAYABLE
The notes payable at December 31, 2001 and 2000 consist of the following:
2001 2000
------------- -------------
Note payable to AJG Financial Services, Inc., interest at 5%,
convertible into the Company's Convertible Class A
Preferred Stock, which occurred on March 29, 2002 $ 3,500,000 --
Subordinated convertible promissory notes payable to former
shareholders of Ewing, interest only due quarterly at 8%,
unsecured, principal payments due
annually through maturity on December 31, 2003 200,000 275,000
Note payable to First Florida Capital payable in a single installment
of principal plus interest on July 5, 2002,
interest at 6% 50,000 --
Line of credit payable in a single installment of principal plus
interest to be repaid on February 1, 2002, interest at 6% 75,000 --
F-12
INTREPID CAPITAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001 and 2000
Note payable with interest at prime rate plus 1% (10.5% at
December 31, 2000), repaid in full on October 30, 2001 -- 600,000
---------- -------
3,825,000 875,000
Less current portion 3,725,000 327,778
---------- -------
$ 100,000 547,222
========== =======
On March 29, 2002, the note payable to AJG Financial Services, Inc. (AJG)
was subsequently 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 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%.
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
------------ ------
2002 $ 3,725,000
2003 100,000
--------------
$ 3,825,000
=============
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.
F-13
INTREPID CAPITAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001 and 2000
(6) STOCKHOLDER'S EQUITY
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. Broadland exercised 50,000 shares during the year ended
December 31, 2001 using a cashless exercise option, which resulted in the
issuance of 31,250 shares. Broadland is entitled to exercise the
remaining 100,000 shares provided the conditions to exercise are
satisfied prior to the expiration of the warrant on December 16, 2004.
The company also granted AJG an option to purchase that number of shares
of the Company's common stock that, upon full exercise thereof and
subject to certain vesting requirements, would give AJG beneficial
ownership of 51% of the outstanding common stock on a fully-diluted
basis. The exercise price for shares of the Company's common stock
underlying the option, which expires on December 31, 2004 if it is not
previously exercised, is $3.00 per share, subject to adjustment upon the
occurrence of certain events. Of the shares of the Company's common stock
underlying the option, 43.75% of the shares vested upon the issuance of
the option, and the remaining 56.25% of the shares will vest at such time
as AJG makes an additional investment in the Company in accordance with
the terms of the investment agreement. The Company expects this
investment by AJG to be made in conjunction with the proposed acquisition
of First Bank (note 2). The underlying option shares are restricted with
an implied volatility of zero. Therefore, no value has been separately
attributed to the option. As of December 31, 2001, the option had
partially vested such that AJG could purchase up to 1,805,900 shares of
common stock.
(7) INCOME TAXES
Total income tax expense (benefit) for the years ended December 31 was
allocated as follows:
2001 2000
--------- --------
Loss from continuing operations $(251,784) (161,433)
Loss from discontinued operations 13,532 21,187
Loss on sale of discontinued operations 238,252 --
--------- --------
$ -- (140,246)
========= ========
Income tax benefit attributable to loss from continuing operations
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:
2001 2000
--------- --------
Tax benefit at the statutory federal rate $(227,645) (337,710)
Goodwill amortization 1,039 25,273
Life insurance premiums 30,085 26,005
State tax benefit (20,818) 3,924
Change in valuation allowance (35,399) 137,719
Other 954 (16,644)
--------- --------
$(251,784) (161,433)
========= ========
Included in prepaid and other assets as of December 31, 2000 on the
accompanying consolidated balance sheets is $176,263 of current income
taxes receivable.
F-14
INTREPID CAPITAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001 and 2000
Income tax benefit attributable to income from continuing operations
consists of:
CURRENT DEFERRED TOTAL
--------- -------- --------
Year ended December 31, 2001:
U.S. Federal $(230,966) -- (230,966)
State (20,818) -- (20,818)
--------- -------- --------
$(251,784) -- (251,784)
========= ======== ========
Year ended December 31, 2000:
U.S. Federal $(202,107) 34,729 (167,378)
State -- 5,945 5,945
--------- -------- --------
$(202,107) 40,674 (161,433)
========= ======== ========
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:
2001 2000
-------- --------
Deferred tax assets:
Net unrealized losses on investments $ 54 35,453
Deferred compensation 69,966 28,799
Net operating loss carryforward 19,520 74,562
-------- --------
Total gross deferred tax assets 89,540 138,814
Deferred tax liabilities - other (1,095) (1,095)
-------- --------
Net deferred tax assets before valuation allowance 88,445 137,719
Deferred tax asset valuation allowance (88,445) (137,719)
-------- --------
Net deferred tax assets $ -- --
======== ========
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.
(8) RELATED PARTY TRANSACTIONS
The Company performs certain asset management functions for Intrepid
Capital, L.P. and during 2001 and 2000, received $43,266 and $36,857,
respectively, for such services.
F-15
INTREPID CAPITAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001 and 2000
(9) COMMITMENTS
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
------------ -------------
2002 $ 307,449
2003 244,480
2004 251,789
2005 149,631
2006 149,985
Thereafter 465,480
--------------
$ 1,568,814
=============
Rent expense for the years ended December 31, 2001 and 2000 was $264,787
and $291,356, 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, 2001, Ewing had net
capital of $129,624, which was $79,624 in excess of its required capital
of $50,000. At the same date, Ewing's ratio of aggregate indebtedness to
net capital was 0.85 to 1.0. Accordingly, Ewing was in compliance with
the net capital requirements.
The option granted to AJG was 43.75% vested at December 31, 2001. The
remaining 56.25% of the shares will vest at such time as AJG makes an
additional investment in the Company in accordance with the terms of an
investment agreement.
(10) STOCK OPTION PLAN
In December 1998, the Company adopted an Incentive Stock Option Plan (the
ISO) pursuant to which the Company may grant stock options to officers
and key employees. The ISO originally authorized grants of options to
purchase up to 100,000 shares of authorized but unissued common stock.
Stock options are granted with an exercise price equal to, or above, the
stock's fair market value at the date of grant.
On December 28, 2001, stock options to purchase 270,000 shares were
issued, subject to stockholder approval of the additional authorized
options, none of which were exercisable. The options vest over a four
year period and have an exercise price of $1.375 and a term of ten
years. At December 31, 2001, there were 380,000 additional shares
available for grant under the ISO.
F-16
INTREPID CAPITAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001 and 2000
The per share weighted-average fair value of stock options granted on
December 28, 2001 was $0.95 using the Black-Scholes option-pricing model
with the following weighted average assumptions: expected dividend yield
0%, risk free interest rate of 6%, expected volatility 50%, and an
expected life of 10 years.
The Company applies APB 25 in accounting for the ISO and, accordingly, no
compensation cost has been recognized for its stock options in the
consolidated financial statements. Had the Company determined
compensation cost based on the fair value at the date of grant for its
stock options under SFAS 123, there would be no impact on net loss for
the year ended December 31, 2001 because the options were not issued
until the end of the year and did not vest immediately.
(11) SEGMENTS
During 2001 and 2000, 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 years ended December 31, 2001 and 2000:
2001 2000
----------- ----------
Revenues:
Asset management segment $ 824,838 715,259
Broker-dealer services segment 2,423,283 2,442,140
Corporate 438,274 430,078
Intersegment revenues (380,251) (348,962)
----------- ----------
$ 3,306,144 3,238,515
=========== ==========
Net (loss) income from continuing operations:
Asset management segment $ (255,004) (222,458)
Broker-dealer services segment 166,090 (1,387)
Corporate (273,804) (607,987)
----------- ----------
$ (362,718) (831,832)
=========== ==========
The total assets for each of the reportable segments are summarized as
follows as of December 31, 2001 and 2000. Non segment assets consist
primarily of cash, certain investments and other assets, which are
recorded at the parent company level.
2001 2000
---------- ---------
Assets:
Asset management segment $4,719,199 131,655
Broker-dealer services segment 343,446 573,747
Discontinued operations -- 1,528,187
Other 1,130,510 530,295
---------- ---------
$6,193,155 2,763,884
========== =========
F-17
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 Amended and Restated.
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).
4.1 Form of Warrant Agreement dated as of December 31, 2001 by and between Intrepid Capital Corporation and each of
the shareholders of ICC Investment Advisors, Inc. (incorporated by reference to Exhibit 4.1 to the Registrant's
Current Report on Form 8-K, filed with the Commission on January 15, 2002.)
4.2 Option Agreement between Intrepid Capital Corporation and AJG Financial Services, Inc. dated as of December 31,
2001 (incorporated by reference to Exhibit 4.2 to the Registrant's Current Report on Form 8-K, filed with the
Commission on January 15, 2002).
10.1 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).
10.2 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).
10.3 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).
10.4 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).
10.5 Non-Competition and Confidentiality Agreement dated as of December 31, 2001 by and between Intrepid Capital
Corporation and A. Bronson Thayer (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report
on Form 8-K, filled with the Commission on January 15, 2002).
10.6 Form of Registration Rights Agreement dated as of December 31, 2001 by and between Intrepid Capital Corporation
and each of Fred Shockley and David Brock (incorporated by reference to Exhibit 10.2 to the Registrant's Current
Report on Form 8-K, filled with the Commission on January 15, 2002).
10.7 Investment Agreement between Intrepid Capital Corporation and AJG Financial Services, Inc. dated as of December
31, 2001 (incorporated by reference to Exhibit 10.3 to the Registrant's Current Report on Form 8-K, filled with
the Commission on January 15, 2002) (certain of the schedules and Exhibits to the Investment Agreement have been
omitted from the Report pursuant to Item 601(b)(20 of Regulation S-B, and the Company agrees to furnish copies of
such omitted exhibits and schedules supplementally to the Securities and Exchange Commission upon request).
10.8 Convertible Note Agreement between Intrepid Capital Corporation and AJG Financial Services, Inc. dated as of
December 31, 2001 (incorporated by reference to Exhibit 10.4 to the Registrant's Current Report on Form 8-K,
filed with the Commission on January 15, 2002).
10.9 Registration Rights Agreement between Intrepid Capital Corporation and AJG Financial Services, Inc. dated as of
December 31, 2001 (incorporated by reference to Exhibit 10.5 to the Registrant's Current Report on Form 8-K,
filed with the Commission on January 15, 2002)
10.10 Standstill Agreement between Intrepid Capital Corporation and AJG Financial Services, Inc. dated as of December
31, 2001 (incorporated by reference to Exhibit 10.6 to the Registrant's Current Report on Form 8-K, filed with the
Commission on January 15, 2002)
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.