AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 18, 2002
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
(Amendment No. 1)
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): December 31, 2001
Intrepid Capital Corporation
(Exact name of registrant as specified in its charter)
Delaware 333-66859 59-3546446
(State or other (Commission File Number) (IRS Employer
jurisdiction of Identification
incorporation) Number)
3652 South Third Street, Suite 200, Jacksonville Beach, Florida 32250
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (904) 246-3433
NOT APPLICABLE
(Former name or former address, if changed since last report)
This Amendment No. 1 amends and supplements the Current Report on Form
8-K filed on January 15, 2002 (the "Original 8-K") by Intrepid Capital
Corporation (the "Company"). Capitalized terms used herein which are not
otherwise defined herein are used with the respective meanings ascribed to them
in the Original 8-K.
As previously reported, on December 31, 2001, the Company acquired all
of the outstanding capital stock of ICC Investment Advisors, Inc. ("ICC"). As of
the date of the filing of the Original 8-K, it was impractical for the Company
to provide the financial statements required by Form 8-K. In accordance with
General Instruction C. and Item 7 of Form 8-K, such financial statements are
being filed with this Amendment No.1.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Business Acquired. Included in this
Current Report are the balance sheets, statements of
operations, stockholders' deficit and cash flows of ICC for
the years ended December 31, 2000 and December 31, 1999,
together with the notes thereto, which have been audited by
the independent accounting firm of Babione, Kuehler & Caslow,
whose opinion thereon is included herein.
(b) Pro Forma Financial Information. Included in this Current
Report are the following unaudited pro forma financial
statements, together with the notes thereto (the "Unaudited
Pro Forma Consolidated Financial Statements"):
(i) Unaudited pro forma consolidated balance sheet as of
September 30, 2001.
(ii) Unaudited pro forma consolidated condensed statement
of operations for the nine months ended September 30,
2001.
(iii) Unaudited pro forma consolidated condensed statement
of operations for the year ended December 31, 2000.
(c) Exhibits. The following is a list of the Exhibits attached
hereto:
Exhibit 2.1 Share Purchase Agreement*
Exhibit 4.1 Form of Warrant Agreement*
Exhibit 4.2 Option Agreement*
Exhibit 4.3 Convertible Note*
Exhibit 10.1 Non-Competition and Confidentiality Agreement*
Exhibit 10.2 Form of Registration Rights Agreement*
Exhibit 10.3 Investment Agreement*
Exhibit 10.4 Convertible Note Agreement*
Exhibit 10.5 Registration Rights Agreement*
Exhibit 10.6 Standstill Agreement*
--------------------------
* - Previously filed.
[Signature Page Follows]
2
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
Intrepid Capital Corporation has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
INTREPID CAPITAL CORPORATION
By: /s/ Forrest Travis
-------------------------------------------
Forrest Travis, President and
Chief Executive Officer
Dated: March 18, 2002
3
INDEX TO FINANCIAL STATEMENTS
Page
----
Balance sheets, statements of operations, stockholders' deficit and cash flows of ICC for the years ended
December 31, 2000 and December 31, 1999, together with the notes thereto, which have been audited by the
independent accounting firm of Babione, Kuehler & Caslow, whose opinion thereon is included herein..............F-1
Unaudited pro forma consolidated balance sheet as of September 30, 2001........................................F-30
Unaudited pro forma condensed consolidated statements of operations for the
nine months ended September 30, 2001 and the year ended December 31, 2000.....................................F-31
Notes to the unaudited pro forma consolidated financial statements.............................................F-33
[BKC LOGO]
------------------------------
BABIONE, KUEHLER & CASLOW
------------------------------
CERTIFIED PUBLIC ACCOUNTANTS
Marcia S. Babione, CPA 4060 Edgewater Drive Members:
Mark A. Kuehler, CPA Orlando, FL 3280 American Institute of
Sharon Caslow, CPA (407) 291-6400 Certified Public Accountants
Fax (407) 291-6416 Florida Institute of
Certified Public Accounts
A Partnership Including
Professional Associations
Independent Auditors' Report
Board of Directors
The Investment Counsel Company
of the Southeast
Orlando, Florida
We have audited the accompanying balance sheet of The Investment Counsel Company
of the Southeast as of December 31, 2000, and the related statements of
operations, stockholders' deficit, and cash flows for the year 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 audit.
We conducted our audit 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 audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Investment Counsel Company
of the Southeast as of December 31, 2000, and the results of its operations and
its cash flows for the period then ended in conformity with accounting
principles generally accepted in the United States of America.
Our audit was conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying schedule of general and
administrative expenses is presented for purposes of additional analysis and is
not a required part of the basic financial statements. Such information has been
subjected to the auditing procedures applied in the audit of the basic financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the basic financial statements taken as a whole.
January 17, 2002
F-1
THE INVESTMENT COUNSEL COMPANY OF THE SOUTHEAST
Balance Sheet
December 31, 2000
ASSETS
Current assets:
Cash $119,469
Accounts receivable 40,048
Prepaid expenses and other current assets 8,196
--------
Total current assets 167,713
Property and equipment, net 115,105
Other assets:
Deposits and other assets 13,592
Deferred income taxes 72,634
--------
Total other assets 86,226
--------
Total assets $369,044
--------
The accompanying notes are an integral part of these financial statements.
F-2
THE INVESTMENT COUNSEL COMPANY OF THE SOUTHEAST
Balance Sheet (Continued)
December 31, 2000
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Line of credit $ 75,000
Accounts payable 62,550
Accrued expenses 39,008
Income tax payable 10,346
Current portion of long-term debt 19,550
Current portion of capital lease obligations 10,938
Current portion of pension plan obligation 1,552
---------
Total current liabilities 218,944
Long-term liabilities:
Long-term debt, less current portion 17,802
Capital lease obligations, less current portion 9,206
Pension plan obligations, less current portion 214,938
---------
Total long-term liabilities 241,946
---------
Total liabilities 460,890
Stockholders' deficit:
Common stock 1,200
Additional paid-in capital 63,233
Accumulated deficit (19,184)
Excess cost of corporate split-off (133,895)
Treasury stock, 200 shares at cost (3,200)
---------
Total stockholders' deficit (91,846)
---------
Total liabilities and stockholders' deficit $ 369,044
---------
The accompanying notes are an integral part of these financial statements.
F-3
THE INVESTMENT COUNSEL COMPANY OF THE SOUTHEAST
Statement of Operations
For the year ended December 31, 2000
Revenue:
Investment advisory fees $ 2,332,556
Interest and other income 691
-----------
Total revenue 2,333,247
Expenses:
General and administrative 2,288,446
Interest 26,569
-----------
Total expenses 2,315,015
-----------
Income from operations before income taxes 18,232
Income tax expense (11,576)
-----------
Net income $ 6,656
-----------
The accompanying notes are an integral part of these financial statements.
F-4
THE INVESTMENT COUNSEL COMPANY OF THE SOUTHEAST
Statement of Stockholders' Deficit
For the year ended December 31, 2000
Additional Excess Cost
Common Paid-in Accumulated of Corporate Treasury
Stock(1) Capital Deficit Split-off Stock Total
-------- ------- ------- --------- ----- -----
Balances at December 31, 1999 $1,200 $63,233 $(25,840) $(133,895) $(3,200) $(98,502)
2000 Net Income -- -- 6,656 -- -- 6,656
------ ------- -------- --------- ------- --------
Balances at December 31, 2000 $1,200 $63,233 $(19,184) $(133,895) $(3,200) $(91,846)
====== ======= ======== ========= ======= ========
(1) Common stock, $1 par value, 10,000 shares authorized: 1,200 shares
issued, 1,000 shares outstanding
The accompanying notes are an integral part of these financial statements.
F-5
THE INVESTMENT COUNSEL COMPANY OF THE SOUTHEAST
Statement of Cash Flows
For the year ended December 31, 2000
Cash flows from operating activities:
Net Income $ 6,656
Adjustments to reconcile net income to net cash provided by Operating
activities:
Depreciation and amortization 37,519
Deferred income taxes 1,230
(Increase) decrease in accounts receivable 323
(Increase) decrease in prepaid expenses 23,341
Increase (decrease) in accounts payable (25,347)
Increase (decrease) in accrued expenses (39,830)
Increase (decrease) in income tax payable 10,346
---------
Total adjustments 7,582
---------
Net cash provided by operating activities 14,238
---------
Cash flows from investing activities:
Cash payments for the purchase of property (4,424)
---------
Net cash used by investing activities (4,424)
---------
Cash flows from financing activities:
Principle payments on long-term debt (18,124)
Repayments on capital lease obligations (9,582)
Decrease in unfunded pension obligation (997)
---------
Net cash used by financing activities (28,703)
---------
Net decease in cash and equivalents (18,889)
Cash and equivalents, beginning of year 138,358
---------
Cash and equivalents, end of year $ 119,469
---------
The accompanying notes are an integral part of these financial statements.
F-6
THE INVESTMENT COUNSEL COMPANY OF THE SOUTHEAST
Statement of Cash Flows (Continued)
For the year ended December 31, 2000
Supplemental disclosures of cash flows information:
Cash paid during the period for:
Interest $ 26,678
--------
Property acquisitions:
Cost of property and equipment acquired $ 7,898
Capital lease obligations incurred (3,474)
--------
Cash paid to acquire property and equipment $ 4,424
--------
The accompanying notes are an integral part of these financial statements.
F-7
THE INVESTMENT COUNSEL COMPANY OF THE SOUTHEAST
Notes to Financial Statements
December 31, 2000
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of The Business
The Investment Counsel Company of the Southeast (the "Company") is a wholly
owned subsidiary of ICC Investment Advisors, Inc. (the "Parent"). The Company
manages investments for individuals, profit sharing plans, and municipalities.
The Company's clients are located across the country with a concentration in
Florida. The main office of the Company is located in Orlando, Florida. The
Company was formally a wholly owned subsidiary of ICC Capital, Inc. On April 30,
1998, the Company separated from ICC Capital, Inc. through a corporate
split-off.
Revenue Recognition
The Company charges fees, principally in advance, based on the market value of
assets managed. These amounts are recorded ratably over the service period.
Accounts Receivable
The Company's management believes that all accounts receivable are collectible;
therefore, no allowance for doubtful accounts has been established. In the
normal course of business, the Company extends unsecured credit to its
customers.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires 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.
Property and Equipment
Property and equipment is recorded at cost. Depreciation is computed using the
straight-line method over the estimated useful life of the asset, as follows:
Automobiles 5 years
Office equipment and furniture 5-7 years
Leasehold improvements are amortized over the shorter of the lease term or the
useful life of the asset.
Cash Equivalents
For purposes of the statements of cash flows, the Company considers cash
investments purchased with a maturity of three months or less to be cash
equivalents.
F-8
THE INVESTMENT COUNSEL COMPANY OF THE SOUTHEAST
Notes to Financial Statements (Continued)
December 31, 2000
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes
The Company follows FASB Statement No. 109, "Accounting for Income Taxes," which
requires an asset and liability approach to financial accounting for income
taxes. Deferred income tax assets and liabilities are computed annually for
differences between financial statement and tax basis of assets and liabilities
that will result in taxable or deductible amounts in the future. Valuation
allowances are established when necessary to reduce deferred tax assets to the
amount expected to be realized. Income tax expense is the tax payable or
refundable during the period plus or minus the changes during the period in
deferred tax assets and liabilities.
The Company files consolidated income tax returns with the Parent. The Company's
policy is to apply inter-corporate tax allocations using the "separate return
method". Liabilities and assets that result from this allocation are included in
the accompanying balance sheets.
NOTE 2 -- PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 2000:
Office equipment $ 79,582
Furniture and fixtures 26,073
Automobiles 86,557
Capital lease assets 96,399
Leasehold improvements 10,901
--------
299,512
Less: Accumulated deprecation (184,407)
--------
Property and equipment, net $115,105
========
Depreciation expense includes the amortization of capital lease assets. For the
year ended December 31, 2000, depreciation expense was $37,519.
NOTE 3 -- EMPLOYEE PROFIT SHARING PLAN
The Company has a defined contribution employee profit sharing plan with a
401(k) plan feature, which covers substantially all employees. The Company's
Board of Directors may elect to make contributions to a trust on behalf of the
Plan. Contributions for the year ended December 31, 2000, were $24,347.
NOTE 4 -- PENSION PLAN OBLIGATION
The Company has a non-qualified defined benefit pension plan covering a former
employee/stockholder. 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. The adjusted annual benefit is not to exceed $25,000. The
Company has no current funding for this obligation.
F-9
THE INVESTMENT COUNSEL COMPANY OF THE SOUTHEAST
Notes to Financial Statements (Continued)
December 31, 2000
NOTE 4 -- PENSION PLAN OBLIGATION (Continued)
December 31, 2000
-----------------
Actuarial present value of benefit obligations:
Accumulated benefit obligation $216,490
========
Projected benefit obligation $216,490
Plan assets at fair market value 0
--------
Projected benefit obligation in
excess of plan assets $216,490
========
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%
NOTE 5 -- LINE OF CREDIT
The Company has a $75,000 line of credit, which is personally guaranteed by the
shareholders of the Company. The total outstanding balance on this line of
credit was $75,000 at December 31, 2000. The line of credit is collateralized by
the accounts receivable of the Company, interest is due monthly at 1% over the
bank's prime lending rate. Originally due February 2000, the line of credit was
refinanced and is due February 2002.
NOTE 6 -- LONG-TERM DEBT
December 31, 2000
-----------------
Note payable to bank, due in monthly
installments of $559 including interest
at 9.05%, collateralized by an automobile,
due April, 2002 $ 8,314
Note payable to bank, due in monthly
installments of $611 including interest
at 7.9%, collateralized by an automobile,
due March, 2002 8,600
Note payable to bank, due in monthly
installments of $623 including interest
at 5.9%, collateralized by an automobile,
due November, 2003 20,438
--------
37,352
Less current portion (19,550)
--------
$ 17,802
========
F-10
THE INVESTMENT COUNSEL COMPANY OF THE SOUTHEAST
Notes to Financial Statements (Continued)
December 31, 2000
NOTE 6 -- LONG-TERM DEBT (Continued)
Maturities of long-term debt for the years following December 31, 2000, are as
follows:
2001 $19,550
2002 10,638
2003 7,164
-------
$37,352
=======
NOTE 7 -- LEASES
The Company is obligated under capital lease agreements for office furniture and
equipment. These leases expire through 2003. As of December 31, 2000, the total
amount of furniture and equipment recorded under capital leases is $96,399, and
the related accumulated amortization is $69,774.
Future minimum lease payments as of December 31, 2000, are as follows:
2001 $ 13,308
2002 9,126
2003 805
--------
Total future minimum lease payments 23,239
Amount representing interest (3,095)
--------
Present value of minimum lease payments 20,144
Less current portion (10,938)
--------
Long term portion $ 9,206
========
The Company also has several noncancellable operating leases for office
facilities and office equipment that expire over the next five years and
generally provide for purchase or renewal options.
Future minimum lease payments under noncancellable operating leases at December
31, 2000, are:
2001 $131,803
2002 86,561
2003 16,198
2004 16,198
2005 8,946
--------
Total minimum lease payments $259,706
========
Total rent expense under these operating lease obligations was $152,056 for the
year ended December 31, 2000.
F-11
THE INVESTMENT COUNSEL COMPANY OF THE SOUTHEAST
Notes to Financial Statements (Continued)
December 31, 2000
NOTE 8 -- INCOME TAXES
For the year ended December 31, 2000, income tax expense consists of the
following:
Current income tax expense
Federal $ 9,120
State 1,226
-------
10,346
Deferred income tax expense
Federal 676
State 554
-------
1,230
-------
Total income tax expense $11,576
=======
Income tax expense attributable to income was $11,576 for the year ended
December 31, 2000, and differed from the amounts computed by applying the U.S.
federal income tax rate of 35% to income before income taxes primarily due to
the deductible payments made on the non-qualified pension plan obligation,
accelerated depreciation methods for tax purposes, deductible state income taxes
and non-deductible entertainment and meals.
The tax effects of temporary differences that give rise to significant portions
of the deferred tax liabilities at December 31, 2000, are presented below:
Deferred tax liability (asset):
Property and equipment $ 10,919
Non-qualified defined benefit pension
obligation (83,553)
--------
$(72,634)
========
NOTE 9 -- FINANCIAL INSTRUMENTS
The Company maintains its cash at financial institutions. The balance, at times,
may exceed federally insured limits. At December 31, 2000, the Company exceeded
the insured limit by approximately $10,500.
NOTE 10 -- SUBSEQUENT EVENTS
Subsequent to the balance sheet date, in December 2001, the stockholders of the
Parent entered into an agreement to sell all of their capital stock to Intrepid
Capital Corporation.
F-12
SUPPLEMENTARY INFORMATION
F-13
THE INVESTMENT COUNSEL COMPANY OF THE SOUTHEAST
Schedule of General and Administrative Expenses
For the year ended December 31, 2000
Salaries $ 1,445,900
Travel and entertainment 63,396
Payroll taxes and employee benefits 184,655
Professional fees 17,297
Data processing 10,128
Office supplies and expenses 60,635
Office rent 145,654
Telephone 39,601
Depreciation and amortization 37,519
Insurance 27,013
Profit sharing contribution 24,347
Consulting 53,870
Marketing and promotion 40,799
Equipment rental 32,894
Dues and subscriptions 25,788
Repairs and maintenance 15,993
Taxes and licenses 15,469
Parking 21,554
Bad debt expense 1,890
Contributions 900
Postage and shipping 20,264
Miscellaneous 2,880
-------------
Total general and administrative expenses $ 2,288,446
=============
See Auditors' Report
F-14
[BKC LOGO]
----------------------------
BABIONE, KUEHLER & CASLOW
----------------------------
CERTIFIED PUBLIC ACCOUNTANTS
Marcia S. Babione, CPA 4060 Edgewater Drive Members:
Mark A. Kuehler, CPA Orlando, FL 3280 American Institute of
Sharon Caslow, CPA (407) 291-6400 Certified Public Accountants
Fax (407) 291-6416 Florida Institute of
Certified Public Accounts
A Partnership Including
Professional Associations
Independent Auditors' Report
Board of Directors
The Investment Counsel Company
of the Southeast
Orlando, Florida
We have audited the accompanying balance sheet of The Investment Counsel Company
of the Southeast as of December 31, 1999, and the related statements of
operations, stockholders' deficit, and cash flows for the year 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 audit.
We conducted our audit 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 audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Investment Counsel Company
of the Southeast as of December 31, 1999, and the results of its operations and
its cash flows for the period then ended in conformity with accounting
principles generally accepted in the United States of America.
Our audit was conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying schedule of general and
administrative expenses is presented for purposes of additional analysis and is
not a required part of the basic financial statements. Such information has been
subjected to the auditing procedures applied in the audit of the basic financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the basic financial statements taken as a whole.
January 17, 2002
F-15
THE INVESTMENT COUNSEL COMPANY OF THE SOUTHEAST
Balance Sheet
December 31, 1999
ASSETS
Current assets:
Cash $ 138,358
Accounts receivable 40,372
Prepaid expenses and other current assets 31,989
--------
Total current assets 210,719
Property and equipment, net 144,726
Other assets:
Deposits and other assets 13,139
Deferred income taxes 73,864
--------
Total other assets 87,003
--------
Total assets $442,448
========
The accompanying notes are an integral part of these financial statements.
F-16
THE INVESTMENT COUNSEL COMPANY OF THE SOUTHEAST
Balance Sheet (Continued)
December 31, 1999
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Line of credit $ 75,000
Accounts payable 87,898
Accrued expenses 78,838
Current portion of long-term debt 18,124
Current portion of capital lease obligations 8,555
Current portion of pension plan obligation 997
---------
Total current liabilities 269,412
Long-term liabilities:
Long-term debt, less current portion 37,352
Capital lease obligations, less current portion 17,696
Pension plan obligations, less current portion 216,490
---------
Total long-term liabilities 271,538
---------
Total liabilities 540,950
Stockholders' deficit:
Common stock 1,200
Additional paid-in capital 63,233
Accumulated deficit (25,840)
Excess cost of corporate split-off (133,895)
Treasury stock, 200 shares at cost (3,200)
---------
Total stockholders' deficit (98,502)
---------
Total liabilities and stockholders' deficit $ 442,448
---------
The accompanying notes are an integral part of these financial statements.
F-17
THE INVESTMENT COUNSEL COMPANY OF THE SOUTHEAST
Statement of Operations
For the year ended December 31, 1999
Revenue:
Investment advisory fees $ 2,726,345
Interest and other income 4,963
-----------
Total revenue 2,731,308
Expenses:
General and administrative 2,721,888
Interest 24,351
Loss on disposal of assets 15,629
-----------
Total expenses 2,761,868
-----------
Loss from operations before income taxes (30,560)
Income tax benefit 3,391
-----------
Net loss $ (27,169)
-----------
The accompanying notes are an integral part of these financial statements.
F-18
THE INVESTMENT COUNSEL COMPANY OF THE SOUTHEAST
Statement of Stockholders' Equity
For the year ended December 31, 1999
Additional Stock Excess Cost
Common Paid-in Accumulated Subscriptions of Corporate Treasury
Stock(1) Capital Deficit Receivable Split-off Stock Total
-------- ------- ----------- ------------- ------------ --------- ---------
Balances, as previously
reported, at December 31, 1998 $1,200 $63,233 $ 12,052 $(10,723) $ -- $(3,200) $ 62,562
Prior period adjustment -- -- (10,723) 10,723 (133,895) -- (133,895)
------ ------- -------- -------- --------- ------- ---------
Balances, restated,
at December 31, 1998 1,200 63,233 1,329 -- (133,895) (3,200) (71,333)
1999 net loss -- -- (27,169) -- -- -- (27,169)
------ ------- -------- -------- --------- ------- ---------
Balances at December 31, 1999 $1,200 $63,233 $(25,840) $ -- $(133,895) $(3,200) $ (98,502)
====== ======= ======== ======== ========= ======= =========
(1) Common stock, $1 par value, 10,000 shares authorized: 1,200 shares
issued, 1,000 shares outstanding
The accompanying notes are an integral part of these financial statements.
F-19
THE INVESTMENT COUNSEL COMPANY OF THE SOUTHEAST
Statement of Cash Flows
For the year ended December 31, 2000
Cash flows from operating activities:
Net Loss $ (27,169)
Adjustments to reconcile net income to net cash provided by Operating
activities:
Depreciation and amortization 36,944
Deferred income taxes (2,541)
Loss on disposal of property 15,629
(Increase) decrease in accounts receivable (4,712)
(Increase) decrease in prepaid expenses (5,721)
(Increase) decrease in other assets (8,491)
Increase (decrease) in accounts payable 57,655
Increase (decrease) in accrued expenses 4,460
Increase (decrease) in income tax payable (10,168)
---------
Total adjustments 83,055
---------
Net cash provided by operating activities 55,886
---------
Cash flows from investing activities:
Cash payments for the purchase of property (19,347)
---------
Net cash used by investing activities (19,347)
---------
Cash flows from financing activities:
Principle payments on long-term debt (17,907)
Repayments on capital lease obligations (16,099)
Decrease in unfunded pension obligation (494)
---------
Net cash used by financing activities (34,500)
---------
Net increase in cash and equivalents 2,039
Cash and equivalents, beginning of year 136,319
---------
Cash and equivalents, end of year $ 138,358
---------
The accompanying notes are an integral part of these financial statements.
F-20
THE INVESTMENT COUNSEL COMPANY OF THE SOUTHEAST
Statement of Cash Flows (Continued)
For the year ended December 31, 1999
Supplemental disclosures of cash flows information:
Cash paid during the period for:
Interest $ 24,021
--------
Supplemental disclosures of non-cash activities:
Property acquisitions:
Cost of property and equipment acquired $ 66,220
Capital lease obligations incurred (20,361)
Note payable (26,512)
--------
Cash paid to acquire property and equipment $ 19,347
--------
The accompanying notes are an integral part of these financial statements.
F-21
The Investment Counsel Company of the Southeast
Notes to Financial Statements
December 31, 1999
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of The Business
The Investment Counsel Company of the Southeast (the "Company") was a wholly
owned subsidiary of ICC Capital, Inc. On April 30, 1998, the Company was
separated from ICC Capital, Inc. through a corporate split-off. Subsequent to
the split-off, the Company became a wholly owned subsidiary of ICC Investment
Advisors, Inc. (the "Parent") The Company manages investments for individuals,
profit sharing plans, and municipalities. The Company's clients are located
across the country with a concentration in Florida. The main office of the
Company is located in Orlando, Florida.
Revenue Recognition
The Company charges fees, principally in advance, based on the market value of
assets managed. These amounts are recorded ratably over the service period.
Accounts Receivable
The Company's management believes that all accounts receivable are collectible;
therefore, no allowance for doubtful accounts has been established. In the
normal course of business, the Company extends unsecured credit to its
customers.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires 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.
Property and Equipment
Property and equipment is recorded at cost. Depreciation is computed using the
straight-line method over the estimated useful life of the asset, as follows:
Automobiles 5 years
Office equipment and furniture 5-7 years
Leasehold improvements are amortized over the shorter of the lease term or the
useful life of the asset.
Cash Equivalents
For purposes of the statements of cash flows, the Company considers cash
investments purchased with a maturity of three months or less to be cash
equivalents.
F-22
The Investment Counsel Company of the Southeast
Notes to Financial Statements (Continued)
December 31, 1999
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes
The Company follows FASB Statement No. 109, "Accounting for Income Taxes," which
requires an asset and liability approach to financial accounting for income
taxes. Deferred income tax assets and liabilities are computed annually for
differences between financial statement and tax basis of assets and liabilities
that will result in taxable or deductible amounts in the future. Valuation
allowances are established when necessary to reduce deferred tax assets to the
amount expected to be realized. Income tax expense is the tax payable or
refundable during the period plus or minus the changes during the period in
deferred tax assets and liabilities.
The Company files consolidated income tax returns with the Parent. The Company's
policy is to apply inter-corporate tax allocations using the "separate return
method". Liabilities and assets that result from this allocation are included in
the accompanying balance sheets.
NOTE 2 -- PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1999:
Office equipment $ 75,158
Furniture and fixtures 26,073
Automobiles 86,557
Capital lease assets 92,925
Leasehold improvements 10,901
--------
291,614
Less: Accumulated deprecation (146,888)
--------
Property and equipment, net $144,726
========
Depreciation expense includes the amortization of capital lease assets. For the
year ended December 31, 1999, depreciation expense was $36,944.
NOTE 3 -- EMPLOYEE PROFIT SHARING PLAN
The Company has a defined contribution employee profit sharing plan with a
401(k) plan feature, which covers substantially all employees. The Company's
Board of Directors may elect to make contributions to a trust on behalf of the
Plan. Contributions for the year ended December 31, 1999, were $62,374.
NOTE 4 -- PENSION PLAN OBLIGATION
The Company has a non-qualified defined benefit pension plan covering a former
employee/stockholder. 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. The adjusted annual benefit is not to exceed $25,000. The
Company has no current funding for this obligation.
F-23
The Investment Counsel Company of the Southeast
Notes to Financial Statements (Continued)
December 31, 1999
NOTE 4 -- PENSION PLAN OBLIGATION (Continued)
December 31, 1999
-----------------
Actuarial present value of benefit obligations:
Accumulated benefit obligation $217,487
========
Projected benefit obligation $217,487
Plan assets at fair market value 0
--------
Projected benefit obligation in
excess of plan assets $217,487
========
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%
NOTE 5 -- LINE OF CREDIT
The Company has a $75,000 line of credit, which is personally guaranteed by the
shareholders of the Company. The total outstanding balance on this line of
credit was $75,000 at December 31, 1999. The line of credit is collateralized by
the accounts receivable of the Company, interest is due monthly at 1% over the
bank's prime lending rate. Originally due February 2000, the line of credit was
refinanced and is due February 2002.
NOTE 6 -- LONG-TERM DEBT
December 31, 1999
-----------------
Note payable to bank, due in monthly
installments of $559 including interest
at 9.05%, collateralized by an automobile,
due April, 2002 $ 13,986
Note payable to bank, due in monthly
installments of $611 including interest
at 7.9%, collateralized by an automobile,
due March, 2002 14,978
Note payable to bank, due in monthly
installments of $623 including interest
at 5.9%, collateralized by an automobile,
due November, 2003 26,512
--------
55,476
Less current portion (18,124)
--------
$ 37,352
========
F-24
The Investment Counsel Company of the Southeast
Notes to Financial Statements (Continued)
December 31, 1999
NOTE 6 -- LONG-TERM DEBT (Continued)
Maturities of long-term debt for the years following December 31, 2000, are as
follows:
2000 $18,124
2001 19,550
2002 10,638
2003 7,164
-------
$55,476
=======
NOTE 7 -- LEASES
The Company is obligated under capital lease agreements for office furniture and
equipment. These leases expire through 2003. As of December 31, 1999, the total
amount of furniture and equipment recorded under capital leases is $92,925, and
the related accumulated amortization is $59,710.
Future minimum lease payments as of December 31, 1999, are as follows:
2000 $11,787
2001 11,787
2002 7,604
2004 806
-------
Total future minimum lease payments 31,984
Amount representing interest (5,733)
-------
Present value of minimum lease payments 26,251
Less current portion (8,555)
-------
Long term portion $17,696
=======
The Company also has several noncancellable operating leases for office
facilities and office equipment that expire over the next five years and
generally provide for purchase or renewal options.
Future minimum lease payments under noncancellable operating leases at December
31, 1999, are:
2000 $147,646
2001 112,332
2002 67,839
--------
Total minimum lease payments $327,817
========
Total rent expense under these operating lease obligations was $168,852 for the
year ended December 31, 1999.
F-25
The Investment Counsel Company of the Southeast
Notes to Financial Statements (Continued)
December 31, 1999
NOTE 8 -- INCOME TAXES
For the year ended December 31, 1999, income tax expense consists of the
following:
Current income tax expense (benefit)
Federal $ (849)
State 0
--
--------
(849)
Deferred income tax expense (benefit)
Federal (1,801)
State (741)
--------
(2,542)
--------
Total income tax expense (benefit) $ (3,391)
========
Income tax expense attributable to income was $3,391 for the year ended December
31, 1999, and differed from the amounts computed by applying the U.S. federal
income tax rate of 35% to income before income taxes primarily due to the
deductible payments made on the non-qualified pension plan obligation,
accelerated depreciation methods for tax purposes, deductible state income taxes
and non-deductible entertainment and meals.
The tax effects of temporary differences that give rise to significant portions
of the deferred tax liabilities at December 31, 1999, are presented below:
Deferred tax liability (asset):
Property and equipment $ 8,110
Non-qualified defined benefit pension
obligation (81,974)
--
---------
$ (73,864)
=========
NOTE 9 -- FINANCIAL INSTRUMENTS
The Company maintains its cash at financial institutions. The balance, at times,
may exceed federally insured limits. At December 31, 1999, the Company exceeded
the insured limit by approximately $20,900.
F-26
The Investment Counsel Company of the Southeast
Notes to Financial Statements (Continued)
December 31, 1999
NOTE 10 -- PRIOR PERIOD ADJUSTMENT
Subsequent to the issuance of the Company's financial statements as of December
31, 1998 and dated September 30, 1999, management discovered that the
non-qualified defined benefit pension plan obligation (See Note 4) assumed in
connection with the corporate split-off from the former parent was not recorded.
The present value of the obligation as of April 30, 1998 was $217,981. Accrual
of non-qualified pension plan benefits are not deductible for tax purposes until
paid. Therefore a deferred tax asset of $84,086 has been recorded. Upon
reevaluation of the reorganization, the effect of including this obligation, net
of the deferred tax asset, resulted in an excess cost of the corporate split-off
totaling $133,895.
During the year ended December 31, 1999, a change was made to the Company's
retained earnings to properly account for the balance of the stock subscription
receivable. This adjustment decreased retained earnings by $10,723 and decreased
stock subscription receivable by $10,723.
NOTE 11 -- SUBSEQUENT EVENTS
Subsequent to the balance sheet date, in December 2001, the stockholders of the
Parent entered into an agreement to sell all of their capital stock to Intrepid
Capital Corporation.
F-27
SUPPLEMENTARY INFORMATION
F-28
THE INVESTMENT COUNSEL COMPANY OF THE SOUTHEAST
Schedule of General and Administrative Expenses
For the year ended December 31, 1999
Salaries $ 1,827,093
Travel and entertainment 77,087
Payroll taxes and employee benefits 168,207
Professional fees 17,580
Data processing 20,113
Office supplies and expenses 71,741
Office rent 140,794
Telephone 37,786
Depreciation and amortization 36,944
Insurance 20,526
Profit sharing contribution 62,374
Consulting 52,109
Marketing and promotion 43,050
Equipment rental 33,737
Dues and subscriptions 30,698
Repairs and maintenance 16,305
Taxes and licenses 16,252
Parking 19,044
Contributions 2,105
Postage and shipping 26,240
Miscellaneous 2,103
-------------
Total general and administrative expenses $ 2,721,888
=============
See Auditors' Report
F-29
INTREPID CAPITAL CORPORATION AND SUBSIDIARIES
Pro Forma Consolidated Balance Sheet
September 30, 2001
(unaudited)
ICAP ICC PRO FORMA ADJUSTED
ASSETS HISTORICAL HISTORICAL ADJUSTMENTS CONSOLIDATED
----------- ----------- ----------- ------------
Current assets:
Cash and cash equivalents $ 217,993 29,403 356,951 (1) 604,347
Investments, at fair value 54,306 -- -- 54,306
Accounts receivable 69,439 40,936 -- 110,375
Prepaid and other assets 71,082 114,822 (81,978)(3) 103,926
Assets of discontinued operation 1,137,543 -- -- 1,137,543
----------- ----------- ---------- ----------
Total current assets 1,550,363 185,161 274,973 2,010,497
Equipment and leasehold improvements, net 306,854 87,671 -- 394,525
Goodwill and intangible assets, net 34,575 -- 4,347,845 (2) 4,382,420
----------- ----------- ---------- ----------
Total assets $ 1,891,792 272,832 4,622,818 6,787,442
=========== =========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 147,871 69,787 -- 217,658
Accrued expenses 372,919 22,251 -- 395,170
Current portion of notes payable 241,572 112,728 3,500,000 (1) 3,854,300
Advances from shareholder 287,110 -- -- 287,110
Other 119,654 4,390 -- 124,044
Liabilities of discontinued operation 229,128 -- -- 229,128
----------- ----------- ---------- ----------
Total current liabilities 1,398,254 209,156 3,500,000 5,107,410
Notes payable, less current portion 422,317 246,494 -- 668,811
Total liabilities 1,820,571 455,650 3,500,000 5,776,221
----------- ----------- ---------- ----------
Stockholders' equity:
Common stock 23,502 1,200 8,800 (4) 33,502
Treasury stock at cost (3,669) (52,359) 52,359 (4) (3,669)
Additional paid-in capital 2,686,915 (81,385) 1,011,385 (4) 3,616,915
Accumulated deficit (2,635,527) (50,274) 50,274 (4) (2,635,527)
----------- ----------- ---------- ----------
Total stockholders' equity 71,221 (182,818) 1,122,818 1,011,221
----------- ----------- ---------- ----------
$ 1,891,792 272,832 4,622,818 6,787,442
=========== =========== ========== ==========
See accompanying notes to pro forma consolidated financial statements.
F-30
INTREPID CAPITAL CORPORATION AND SUBSIDIARIES
Pro Forma Condensed Consolidated Statements of Operations
Nine month period ended September 30, 2001
(unaudited)
ICAP ICC PRO FORMA ADJUSTED
HISTORICAL HISTORICAL ADJUSTMENTS CONSOLIDATED
------------ ----------- ----------- -----------
Revenues:
Commissions $ 1,025,509 -- -- 1,025,509
Asset management fees 602,578 1,504,984 -- 2,107,562
Investment banking fees 341,386 -- -- 341,386
Net trading profits 3,246 -- -- 3,246
Dividend and interest income 24,366 57 -- 24,423
Other 47,867 2,189 -- 50,056
----------- ----------- ---------- -----------
Total revenues 2,044,952 1,507,230 -- 3,552,182
----------- ----------- ---------- -----------
Expenses:
Salaries and employee benefits 1,625,729 1,063,291 -- 2,689,020
Brokerage and clearing 199,888 -- -- 199,888
Advertising and marketing 173,283 79,115 -- 252,398
Professional and regulatory fees 212,376 115,726 -- 328,102
Occupancy and maintenance 272,263 163,670 -- 435,933
Depreciation and amortization 65,169 28,040 65,218(2) 158,427
Interest expense 52,334 25,178 131,250(5) 208,762
Other 197,999 76,875 -- 274,874
----------- ----------- ---------- -----------
Total expenses 2,799,041 1,551,895 196,468 4,547,404
----------- ----------- ---------- -----------
Loss from continuing operations before
income taxes (754,089) (44,665) (196,468) (995,222)
Income tax benefit -- (2,851) 2,851(6) --
----------- ----------- ---------- -----------
Loss from continuing operations (754,089) (41,814) (199,319) (995,222)
Discontinued operations (345,007) -- -- (345,007)
Net loss $(1,099,096) (41,814) (199,319) (1,340,229)
=========== =========== ========== ===========
Basic and diluted loss per share $ (0.47) (0.40)
========== ===========
Weighted average shares outstanding 2,336,510 3,336,510
========== ===========
See accompanying notes to pro forma consolidated financial statements.
F-31
INTREPID CAPITAL CORPORATION AND SUBSIDIARIES
Pro Forma Condensed Consolidated Statements of Operations
Year ended December 31, 2000
(unaudited)
ICAP ICC PRO FORMA ADJUSTED
HISTORICAL HISTORICAL ADJUSTMENTS CONSOLIDATED
----------- ---------- ---------- ------------
Revenues:
Securities commissions $ 1,779,596 -- -- 1,779,596
Asset management fees 696,575 2,332,556 -- 3,029,131
Investment banking fees 510,968 -- -- 510,968
Net trading profits 153,362 -- -- 153,362
Dividend and interest income 63,602 -- -- 63,602
Other 34,412 691 -- 35,103
----------- ----------- ---------- -----------
Total revenues 3,238,515 2,333,247 -- 5,571,762
----------- ----------- ---------- -----------
Expenses:
Salaries and employee benefits 2,407,372 1,654,902 -- 4,062,274
Brokerage and clearing 362,461 -- -- 362,461
Advertising and marketing 153,961 104,195 -- 258,156
Professional and regulatory fees 419,571 96,764 -- 516,335
Occupancy and maintenance 369,681 294,777 -- 664,458
Depreciation and amortization 111,585 37,519 86,957(2) 236,061
Interest expense 91,585 26,569 175,000(5) 293,154
Other 315,564 100,289 -- 415,853
----------- ----------- ---------- -----------
Total expenses 4,231,780 2,315,015 261,957 6,808,752
----------- ----------- ---------- -----------
(Loss) income from continuing operations
before income taxes (993,265) 18,232 (261,957) (1,236,990)
Income tax (benefit) expense (161,433) 11,576 (11,576)(6) (161,433)
----------- ----------- ---------- -----------
(Loss) income from continuing operations (831,832) 6,656 (250,381) (1,075,557)
Discontinued operations (20,754) -- -- (20,754)
Net (loss) income $ (852,586) 6,656 (250,381) (1,096,311)
=========== =========== ========== ===========
Basic and diluted loss per share $ (0.38) (0.34)
========== ===========
Weighted average shares outstanding 2,218,051 3,218,051
=========== ===========
See accompanying notes to pro forma consolidated financial statements.
F-32
INTREPID CAPITAL CORPORATION AND SUBSIDIARIES
Notes to Pro Forma Consolidated Financial Statements
The Unaudited Pro Forma Consolidated Financial Statements of the Company give
effect to the consummation of the acquisition of ICC. The pro forma adjustments
are based upon currently available information and upon certain assumptions that
the Company's management believes are reasonable. The acquisition has been
accounted for using the purchase method of accounting. The adjustments recorded
in the Unaudited Pro Forma Consolidated Financial Statements represent the
Company's preliminary determination of these adjustments based upon available
information. There can be no assurance that the actual adjustments will not
differ significantly from the pro forma adjustments reflected in the Unaudited
Pro Forma Consolidated Financial Statements. The Unaudited Pro Forma
Consolidated Financial Statements should be read in conjunction with the
historical consolidated financial statements of the Company and the related
notes thereto.
(1) The Unaudited Pro Forma Consolidated Financial Statements set forth the
pro forma balance sheet at September 30, 2001 and the pro forma
statements of operations for the nine month period ended September 30,
2001 and the year ended December 31, 2000. The statements of operations
reflect the effects of the acquisition as though the transactions had
occurred at the beginning of the periods presented, and the balance
sheet assumes the acquisition occurred at the balance sheet date
presented. On December 31, 2001, the Company acquired all of the
outstanding capital stock of ICC Investment Advisors, Inc ("ICC"). The
purchase price consists of (i) cash of $2,835,365, (ii) 1,000,000
shares of the Company's common stock valued at the bid price on the
date of acquisition, less a discount for certain restrictions on the
shares issued, (iii) warrants to purchase up to an aggregate of 100,000
shares of the Company's common stock, (iv) direct costs of $307,684 and
(v) the value of net liabilities assumed. The Company financed the
purchase by borrowing $3,500,000 from AJG Financial Services, Inc.
("AJG"). The acquisition will be accounted for under the purchase
method of accounting. The unaudited pro forma consolidated financial
statements do not reflect any cost savings or increased revenues
anticipated as a result of the acquisition.
(2) The Company is still identifying and measuring goodwill and
identifiable intangible assets. Goodwill and identifiable intangible
assets have been reflected for the excess of the estimated purchase
price over the fair value of the tangible assets acquired, as follows:
Cash paid $ 2,835,365
Stock and stock warrants issued 940,000
Direct costs 307,684
Fair value of liabilities assumed 455,650
-------------
Total purchase price 4,538,699
Less fair value of tangible assets acquired (190,854)
-------------
Goodwill and identifiable intangibles $ 4,347,845
=============
Identifiable intangible assets, subject to final identification and
measurement, are $869,569 and represent the estimated portion of the
purchase price attributable to net investment management fees arising
under contractual arrangements with ICC clients. Amortization is on a
straight line basis over 10 years, based on the estimated useful life
of the identifiable tangible assets. Statement of Financial Accounting
Standards No. 142, Goodwill and Other Intangible Assets ("SFAS 142"),
is effective for all business combinations accounted for under the
purchase method and for which the date of acquisition is July 1, 2001,
or later. Under SFAS 142, goodwill related to such acquisitions shall
not be amortized. Therefore, no adjustment has been made to reflect the
amortization of goodwill in the Pro Forma Condensed Consolidated
Statements of Operations.
F-33
INTREPID CAPITAL CORPORATION AND SUBSIDIARIES
Notes to Pro Forma Consolidated Financial Statements
(3) Adjust prepaid and other assets to their fair values.
(4) Eliminate the equity of ICC for consolidation of the Company and
increase equity of the Company by value of common stock and stock
warrants issued, or $940,000.
(5) Interest expense has been increased to reflect the effect of financing
the purchase with the debt borrowed from AJG at 5.00%.
(6) Eliminate income tax expense (benefit) of ICC for consolidation of the
Company.
F-34