<PAGE> 1
SECURITIES EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Act of
1934 for the quarterly period ended March 31, 2000.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934.
Commission file No. 333-3954
IMC MORTGAGE COMPANY
--------------------------------------------------
(Exact name of issuer as specified in its Charter)
Florida 59-3350574
------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification number)
5901 E. FOWLER AVENUE
TAMPA, FLORIDA 33617
----------------------------------------
(Address of Principal Executive Offices)
Issuer's telephone number, including area code: (813) 984-8801
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing for the past 90 days. Yes [X] No [ ]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
Title of each Class: Outstanding at May 12, 2000
- -------------------------------------- ---------------------------
Common Stock, par value $.01 per share 34,157,380
<PAGE> 2
IMC MORTGAGE COMPANY AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION Page
----
Item 1. Financial Statements
Consolidated Balance Sheets as of
March 31, 2000 and December 31, 1999 1
Consolidated Statements of Operations
for the three months ended March 31, 2000
and March 31, 1999 2
Consolidated Statements of Cash Flows
for the three months ended March 31, 2000
and March 31, 1999 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 23
Item 2. Changes in Securities 24
Item 3. Defaults Upon Senior Securities 24
Item 4. Submission of Matters to a Vote of Security Holders 24
Item 5. Other Information 24
Item 6. Exhibits and Reports on Form 8-K 24
<PAGE> 3
IMC MORTGAGE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 2000 1999
----------- ------------
(Unaudited)
<S> <C> <C>
Cash and cash equivalents (See Note 1) $ 44,644 $ 54,318
Accrued interest receivable 2,146 5,798
Accounts receivable 10,485 30,884
Mortgage loans held for sale, net 89,330 377,494
Interest-only and residual certificates 145,798 161,372
Other assets 9,144 11,560
--------- ---------
Total assets $ 301,547 $ 641,426
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Liabilities:
Warehouse finance facilities $ 107,198 $ 419,743
Term debt 262,202 272,373
Notes payable 13,105 12,974
Accounts payable and accrued liabilities 14,517 11,308
Accrued interest payable 12,150 12,204
--------- ---------
Total liabilities 409,172 728,602
--------- ---------
Commitments and contingencies (Note 6)
Redeemable preferred stock (redeemable at
maturity at $100 per share and, under certain
circumstances, upon a change in control) 41,017 40,280
--------- ---------
Stockholders' deficit:
Common stock, par value $.01 per share; 50,000,000
authorized; 34,157,380 shares issued and outstanding 342 342
Additional paid-in capital 251,937 251,937
Accumulated deficit (400,921) (379,735)
--------- ---------
Total stockholders' deficit (148,642) (127,456)
--------- ---------
Total liabilities and stockholders' deficit $ 301,547 $ 641,426
========= =========
</TABLE>
See accompanying notes to Consolidated Financial Statements
1
<PAGE> 4
IMC MORTGAGE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
--------------------------------
2000 1999
------------ -------------
<S> <C> <C>
Revenues:
Gain on sales of loans $ 3,941 $ 18,111
------------ ------------
Warehouse interest income 3,568 20,629
Warehouse interest expense (3,430) (14,474)
------------ ------------
Net warehouse interest income 138 6,155
------------ ------------
Servicing fees -- 13,172
Other 716 7,645
------------ ------------
Total servicing fees and other 716 20,817
------------ ------------
Total revenues 4,795 45,083
------------ ------------
Expenses:
Compensation and benefits 469 29,350
Selling, general and administrative 7,782 23,425
Other interest expense 3,489 8,884
Market valuation adjustment 8,603 --
Interest expense - Greenwich Funds 4,551 7,880
------------ ------------
Total expenses 24,894 69,539
------------ ------------
Loss before provision for income taxes (20,099) (24,456)
Provision for income taxes 350 4,286
------------ ------------
Net loss $ (20,449) $ (28,742)
============ ============
Net loss per common share:
Basic $ (0.62) $ (0.86)
============ ============
Diluted $ (0.62) $ (0.86)
============ ============
Weighted average number of shares outstanding:
Basic 34,157,380 34,221,718
Diluted 34,157,380 34,221,718
</TABLE>
See accompanying notes to Consolidated Financial Statements
2
<PAGE> 5
IMC MORTGAGE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
-------------------------
2000 1999
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (20,449) $ (28,742)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Interest expense - Greenwich Funds -- 5,500
Depreciation and amortization -- 7,220
Other 131 63
Net change in operating assets and liabilities:
Decrease in mortgages loans held for sale, net 288,164 197,990
Decrease in accrued interest receivable 3,652 1,167
Decrease in interest-only and residual certificates 15,574 23,008
Decrease (increase) in other assets 2,416 (1,550)
Decrease (increase) in accounts receivable 20,399 (4,214)
Decrease in income tax receivable -- 4,144
(Decrease) increase in accrued interest payable (54) 2,371
Increase (decrease) in accounts payable and accrued liabilities 3,209 (2,570)
--------- ---------
Net cash provided by operating activities 313,042 204,387
--------- ---------
Investing activities:
Investment in joint venture -- (556)
Purchase of property, furniture, fixtures, and equipment -- (336)
--------- ---------
Net cash used in investing activities -- (892)
--------- ---------
Financing activities:
Net repayments on warehouse facilities (312,545) (190,870)
Term debt borrowings -- 4,126
Term debt repayments (10,171) (12,726)
--------- ---------
Net cash used in financing activities (322,716) (199,470)
--------- ---------
Net increase (decrease) in cash and cash equivalents (9,674) 4,025
Cash and cash equivalents, beginning of period 54,318 15,454
--------- ---------
Cash and cash equivalents, end of period $ 44,644 $ 19,479
========= =========
Supplemental disclosure cash flow information:
Cash paid during the period for interest $ 11,524 $ 22,817
========= =========
Cash paid during the period for taxes $ 66 $ 142
========= =========
</TABLE>
See accompanying notes to Consolidated Financial Statements
3
<PAGE> 6
IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION:
Prior to November 15, 1999, IMC Mortgage Company and its wholly-owned
subsidiaries (the "Company" or "IMC") purchased and originated mortgage
loans made to borrowers who may not have otherwise qualified for
conventional loans for the purpose of securitization and whole loan sale.
Prior to 1999, the Company typically securitized these mortgages into the
form of a Real Estate Mortgage Investment Conduit ("REMIC") or owner
trust. During 1999 and the three months ended March 31, 2000, the Company
sold loans on a whole loan sale basis.
The accompanying consolidated financial statements include the accounts
of the Company and its wholly owned subsidiaries. All intercompany
transactions have been eliminated in the accompanying consolidated
financial statements.
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been
included. Operating results for the interim periods are not necessarily
indicative of financial results for the full year. These unaudited
condensed consolidated financial statements should be read in conjunction
with the audited consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1999. The year-end balance sheet data was derived from
audited financial statements, but does not include all disclosures
required by generally accepted accounting principles.
Since November 15, 1999, substantially all the Company's cash and cash
equivalents have been restricted by escrow agreements on behalf of
certain creditors or pursuant to the second amended and restated
intercreditor agreements described in the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1999 and Note 3 of Notes to
Consolidated Financial Statements included therein.
Certain reclassifications have been made to the presentations to conform
to current period presentations.
SALE OF CERTAIN ASSETS TO CITIFINANCIAL MORTGAGE COMPANY
As described in the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1999, on November 15, 1999 the Company sold its
mortgage servicing rights related to mortgage loans which had been
securitized, its mortgage loan origination business and real property
consisting of its Tampa, Florida headquarters building and its leased
facilities at its Ft. Washington, Pennsylvania, Cherry Hill, New Jersey
and Cincinnati, Ohio office locations to CitiFinancial Mortgage Company
("CitiFinancial Mortgage"), an indirectly
4
<PAGE> 7
IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
wholly-owned subsidiary of Citigroup Inc.
After the sale of assets to CitiFinancial Mortgage, the Company has
essentially no ongoing operating business, but will continue to own
assets consisting primarily of cash, accounts receivable, mortgage loans
held for sale, interest-only and residual certificates and other assets
that are pledged as collateral for the warehouse finance facilities and
term debt. The assets remaining after the sale of assets to CitiFinancial
Mortgage will be either held or sold by the Company to attempt to realize
the maximum value for these assets and to repay its obligations,
including the warehouse finance facilities and term debt.
There can be no assurance that the Company will be able to maximize the
value of its remaining assets and have adequate proceeds and resources to
satisfy its creditors and provide any value to the Company's shareholders
or that the Company will not seek bankruptcy protection in the future.
2. RECENT ACCOUNTING PRONOUNCEMENTS:
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133 "Accounting
for Derivative Instruments and Hedging Activities" ("SFAS 133"), which
was amended by SFAS No. 137 "Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of FASB Statement No.
133." SFAS 133, as amended, is effective for all fiscal quarters of all
fiscal years beginning after June 15, 2000 (January 1, 2001 for the
Company). SFAS 133 requires that all derivative instruments be recorded
on the balance sheet at their fair value. Changes in the fair value of
derivatives are recorded each period in current earnings or other
comprehensive income, depending on whether a derivative was designated as
part of a hedge transaction and, if it is, the type of hedge transaction.
For fair-value hedge transactions designed to hedge changes in the fair
value of an asset, liability or firm commitment, changes in the fair
value of the derivative instrument will generally be offset in the income
statement by changes in the hedged item's fair value. The ineffective
portion of hedges will be recognized in current-period earnings. The
Company has no present plans to engage in hedging activities and does not
anticipate that the adoption of SFAS 133 will have a material impact on
the Company's statement of operations or balance sheet.
3. EARNINGS PER SHARE:
In February 1997, the FASB issued SFAS No. 128 "Earnings per Share"
("SFAS 128"), which became effective for the Company for reporting
periods ending after December 15, 1997. Under the provisions of SFAS 128,
basic earnings per share is determined by dividing net income (loss),
adjusted for preferred stock dividends, by the weighted average number of
shares outstanding. Diluted earnings per share, as defined by SFAS 128,
is computed assuming all dilutive potential common shares were issued.
5
<PAGE> 8
IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
Amounts used in the determination of basic and diluted earnings per share
are shown in the table below:
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
-------------------------------
2000 1999
------------ ------------
(in thousands, except share data)
<S> <C> <C>
Net loss $ (20,449) $ (28,742)
Less accretion of preferred stock (737) (737)
------------ ------------
Net loss available to common stockholders $ (21,186) $ (29,479)
============ ============
Weighted average common shares outstanding 34,157,380 34,221,718
============ ============
</TABLE>
For the three months ended March 31, 2000 and 1999, there were no
adjustments for stock warrants, stock options, contingently issuable
shares and convertible preferred stock in computing the diluted weighted
average number of shares outstanding as their effect was antidilutive.
4. WAREHOUSE FINANCE FACILITIES, TERM DEBT AND NOTES PAYABLE:
Warehouse Finance Facilities and Term Debt
As described in the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1999, on November 15, 1999 the Company
consummated the sale of its mortgage loan servicing business,
substantially all of its mortgage loan origination business and certain
other assets to CitiFinancial Mortgage. Simultaneously, the Company
entered into second amended and restated intercreditor agreements with
Paine Webber Real Estate Securities, Inc. ("Paine Webber"), Bear Stearns
Home Equity Trust ("Bear Stearns"), and Aspen Funding Corp. and German
American Capital Corporation, subsidiaries of Deutsche Bank of North
American Holding Corp ("DMG") (collectively, the "Significant Lenders")
and Greenwich Street Capital Partners II, L.P. and certain of its
affiliates (the "Greenwich Funds").
Under these agreements, the lenders agreed to keep their respective
facilities in place so long as the obligations owed to those lenders are
repaid in accordance with the terms of these agreements and certain
events of default as described in these agreements do not occur. Each of
the Significant Lenders and the Greenwich Funds has indicated that they
will not make any additional advances under their facilities.
In addition, the second amended and restated intercreditor agreements
described above provide a mechanism for the Company's principal secured
creditors who are parties to the intercreditor agreements to release to
the Company for its working capital needs a portion of the monthly
receipts from the interest-only and residual certificates serving as
collateral for those lenders' loans.
6
<PAGE> 9
IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
At March 31, 2000, the Company had no available credit facilities from
the Significant Lenders, the Greenwich Funds or any other source. At
March 31, 2000, the amount of warehouse finance facilities which remained
outstanding from previously available warehouse finance facilities was as
follows:
Warehouse Finance Facilities March 31, 2000
---------------------------- --------------
(in thousands)
Bear Stearns $ 68,612
DMG 27,367
Paine Webber 11,219
---------
$ 107,198
=========
Outstanding borrowings under the Company's warehouse financing
facilities bear interest at rates ranging from LIBOR (5.82% at March 31,
2000) plus 0.75% to LIBOR plus 2.00%, and are collateralized by, among
other assets, mortgage loans held for sale. Upon the sale of these
mortgage loans, the proceeds are used to pay down the borrowings under
these warehouse finance facilities.
At March 31, 2000, the amount of term debt which remained outstanding
from previously available term debt credit facilities was as follows:
Term Debt March 31, 2000
--------- --------------
(in thousands)
Paine Webber- residual credit facility $ 112,367
Greenwich Funds- credit facility acquired
from BankBoston N.A. 80,714
Greenwich Funds-standby revolving
credit facility 38,000
DMG-residual credit facility 27,639
Other 3,482
----------
$ 262,202
==========
Outstanding borrowings under the Company's residual credit facilities
with Paine Webber and DMG bear interest at LIBOR plus 3.00%, and are
collateralized by, among other assets, the Company's interest in certain
interest-only and residual certificates. Upon receipt of cash from the
interest-only and residual certificates, the proceeds are used for the
Company's working capital needs, in accordance with the second amended
and restated intercreditor agreements and to pay down the residual
credit facilities.
Credit facilities previously provided by BankBoston N.A. ("BankBoston")
matured and the
7
<PAGE> 10
IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
Company was unable to repay its outstanding borrowings under these
facilities. The Greenwich Funds acquired, at a discount, from BankBoston
its interest in the credit facilities. These credit facilities bear
interest at 9.75%, and are collateralized by interest-only and residual
certificates and certain other assets of the Company.
The Company entered into an agreement for a $38.0 million standby
revolving credit facility with certain of the Greenwich Funds (the
"Greenwich Loan Agreement"). The facility was originally available to
provide working capital for a period of up to 90 days and was not repaid
when matured. The standby credit facility accrues interest at 22% per
annum, and is collateralized by interest-only and residual certificates
and certain other assets of the Company.
At March 31, 2000, the Company also had outstanding a $3.5 million credit
facility with a financial institution which bears interest at 10% per
annum. The credit facility provides for repayment of principal and
interest over 36 months, through October 2001.
Interest expense - Greenwich Funds of $4.6 million and $7.9 million
included in the accompanying Consolidated Statement of Operations for the
three months ended March 31, 2000 and 1999, respectively, consist of
interest charges related to the Greenwich Loan Agreement and the credit
facilities that the Greenwich Funds purchased from BankBoston. Interest
expense - Greenwich Funds for the three months ended March 31, 1999 also
includes amortization of commitment fees and the value attributable to
the Class C preferred stock issued and the additional preferred stock
issuable to the Greenwich Funds in exchange for its loan under the terms
of the Greenwich Loan Agreement. (See the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1999 and Note 4 "Redeemable
Preferred Stock" of Notes to Consolidated Financial Statements included
therein.)
NOTES PAYABLE
At March 31, 2000, $13.1 million was outstanding under notes payable to
two individuals related to an acquisition of a company completed by IMC
in 1997. These notes matured on July 10, 1999. Since maturity and until
paid in full, these notes bear interest at prime (9.0% at March 31,
2000) plus 5% per annum. On November 11, 1999, the Company and certain
other parties entered into an intercreditor agreement with the
individuals holding such notes. Under that agreement, the holders of
those notes agreed to forebear any collection actions so long as the
Company repays the obligations owed to these lenders according to an
agreed-upon plan and no event of default occurs.
8
<PAGE> 11
IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
5. INTEREST-ONLY AND RESIDUAL CERTIFICATES
Activity in interest-only and residual certificates consisted of the
following:
For the three months ended
March 31,
--------------------------
2000 1999
---------- -----------
(in thousands)
Balance, January 1 $ 161,372 $ 468,841
Increases 6,664 --
Cash receipts (13,635) (23,008)
Market valuation adjustment (8,603) --
--------- ---------
Balance, March 31 $ 145,798 $ 445,833
========= =========
The Company adjusted its loss curve assumptions during 1999. The loss
curve assumption used by the Company at March 31, 2000 and December 31,
1999 to approximate the timing of losses over the life of the securitized
loans gradually increases from zero in the first six months to 375 basis
points after 36 months. See the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1999 and Note 10 "Interest-Only and
Residual Certificates" of Notes to Consolidated Financial Statements
included therein.
On January 27, 2000, the Company sold mortgage loans with a principal
balance of approximately $265 million to EMC Mortgage Corporation
("EMC"), an affiliate of Bear Stearns. The loans, which were sold on a
service released basis, were securitized by EMC. The Company received
consideration in the form of cash and an interest-only and residual
certificate, at an estimated fair value of $6.7 million, representing a
subordinated interest in the proceeds of the securitization by EMC.
6. COMMITMENTS AND CONTINGENCIES
LEGAL PROCEEDINGS
The Company is party to various legal proceedings arising out of the
conduct of its business. The Company has accrued certain amounts to
defend various legal proceedings and such amounts are included in
accounts payable and accrued liabilities in the accompanying
Consolidated Balance Sheet at March 31, 2000 and December 31,1999.
Management believes that amounts accrued for defense in connection with
these matters are adequate and ultimate resolution of these matters will
not have a material adverse effect on the consolidated financial
condition or results of operations of the Company.
The Company is a defendant in a lawsuit pending in the United States
District Court, District of Maryland, brought by the two principals and
sole shareholders of Central Money Mortgage, Inc. ("CMM"), the assets of
which were acquired by the Company in August, 1997, pursuant to the terms
of an Asset Purchase Agreement ("Agreement") for $11.0 million in stock
of the Company. Additionally, the plaintiffs were to be employed by
Central Money Mortgage
9
<PAGE> 12
IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
(IMC), Inc., a subsidiary formed to continue the business of CMM, for a
term of five years. A Registration Rights Agreement, executed at the time
of the closing, required the Company to prepare and file a Short Form
Registration Statement within twenty days after the closing providing the
plaintiffs with the ability to sell approximately half of the shares
received pursuant to the Agreement. Promptly after the closing, the
Company prepared a draft Registration Statement intending to fulfill that
obligation, but it was subsequently advised by its outside securities
counsel that doing so would create substantial difficulties and adversely
affect the registration of a potential debt offering which was in
progress.
As it was not feasible for the Company to register the stock as agreed,
the parties ultimately agreed that if the value of the shares which were
to have been registered was less on August 19, 1998 (the date the stock
could be sold under Rule 144 without being registered), than it was at
the closing date one year earlier, the Company would give the plaintiffs
sufficient additional shares so that the total value of shares which were
to have been registered would, when added to the value of the additional
shares (all valued twelve months after closing), be equal to the value of
the shares which were to have been registered which they had received at
closing. Therefore, on August 20, 1998, the Company issued 96,790
additional shares to the plaintiffs.
The Company's stock, which was selling at $12.87 per share on August 20,
1998, fell dramatically thereafter. If the plaintiffs had sold their
shares in August 1998 when they received the additional shares, they
would have sustained no loss as a result of the Company's inability to
register the shares as originally agreed. However, they failed to do so
and are now seeking damages in this action.
The plaintiffs' multi-count complaint alleges federal securities fraud,
Maryland securities fraud and common law fraud and contends that at the
time of the execution of the Agreement and the Registration Rights
Agreement the Company never intended to register the shares and only
promised to do so in order to induce the plaintiffs to surrender their
company. They claim both punitive and compensatory damages. In a separate
count the plaintiffs allege that the failure to register the shares
constituted a breach of contract. The plaintiffs' employment was
terminated in July, 1999 (the Company contends, with cause), and in an
additional count the plaintiffs are seeking to recover the balance of the
payments which would be due under their employment contracts which
amounts to approximately $1.2 million.
The case is in discovery, but based on the facts that have been developed
to date and consultation with legal counsel, management believes there is
little or no evidence to support the plaintiffs' allegations of fraud and
that it is probable those counts of the complaint can be successfully
defended. Regarding the issue as to whether the Company's failure to
register the shares was a breach of the Registration Rights Agreement, it
is the Company's position that the subsequent agreement providing for the
issuance of additional shares to the plaintiffs, which was consummated on
August 20, 1998, constitutes an accord and satisfaction and any damages
sustained by the plaintiffs were as a result of their decision to retain
their stock rather than selling it. It appears this issue, as well as
whether the plaintiffs were terminated with cause as contended by the
Company or without cause as alleged by the plaintiffs, will ultimately be
decided at trial. Management intends to defend such action vigorously.
10
<PAGE> 13
IMC MORTGAGE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
On October 18, 1999, Fidelity Federal Bank FSB ("Fidelity") sued the
Company and the Company's subsidiary, CoreWest Banc ("CoreWest"), for
approximately $4.1 million claiming a failure of CoreWest to perform
certain obligations under the terms of a Master Loan Purchase Agreement
between CoreWest and Fidelity. Fidelity settled its claims with the
Company in March 2000 for less than 10% of the claim.
On November 12, 1999, the Company's shareholders approved the sale of
certain assets to CitiFinancial Mortgage. While the majority of all votes
entitled to be cast voted in favor of the transaction, there were a
limited number of shareholders who exercised their dissenter's rights.
Because it will be unclear for several years whether there are any assets
available for distribution to holders of IMC common stock, the Company
has taken the position that the fair value of the IMC common stock is
negligible and that no payment should be made. The Company had made an
offer to purchase the IMC common stock of the dissenting shareholders
based on the trading price of the Company's common stock at the time of
the approval by the Company's shareholders of the sale of assets to
CitiFinancial Mortgage, which in certain instances was rejected. The
Company has filed an action in a court of competent jurisdiction in
Florida requesting that the fair value of IMC common stock be determined.
The Court shall also determine whether each dissenting shareholder, as to
whom the Company requests the court to make such determination, is
entitled to receive payment for their shares.
11
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following information should be read in conjunction with the consolidated
financial statements and notes included in Item 1 of this Quarterly Report, and
the financial statements and the notes thereto and Management's Discussion and
Analysis of Financial Condition and Results of Operations included in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1999. The following management's discussion and analysis of the Company's
financial condition and results of operations contains "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995, which involve risks and uncertainties. You can identify forward looking
statements by the use of such words as "expect", "estimate", "intend",
"project", budget", "forecast", "anticipate", "plan" and similar expressions.
Forward looking statements include all statements regarding IMC's expected
financial position, results of operations, cash flows, financing plans, business
strategies, capital and other expenditures, plans and objectives of management
and markets for stock. All forward looking statements involve risks and
uncertainties. Factors that might affect such forward looking statements
include, among other things, overall economic and business conditions, early
termination of the second amended and restated intercreditor agreements or the
standstill periods relating to certain of IMC's creditors, increase in
prepayment speeds, delinquency, loss and default rates of mortgage loans owned
by IMC or constituting a portion of a securitized pool of loans in which the
Company holds a residual or interest-only certificate, rapid fluctuation in
interest rates, risks related to not hedging against loss of value of IMC's
mortgage loan inventory, IMC's success in achieving value in selling its
remaining assets and in realizing the value of its interest-only and residual
certificates, effects of litigation, representation and warranty claims on
previous sales of loans, market forces affecting the price of IMC's common stock
and other uncertainties associated with IMC's financial difficulties and other
transactions described herein, and other risks identified in IMC Mortgage
Company's Securities and Exchange Commission filings.
SALE OF ASSETS TO CITIFINANCIAL MORTGAGE COMPANY
As described in the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1999, on November 15, 1999 the Company sold its mortgage
servicing rights related to mortgage loans which had been securitized, its
mortgage loan origination business and real property consisting of its Tampa,
Florida headquarters building and its leased facilities at its Ft. Washington,
Pennsylvania, Cherry Hill, New Jersey and Cincinnati, Ohio office locations to
CitiFinancial Mortgage Company ("CitiFinancial Mortgage"), an indirectly
wholly-owned subsidiary of Citigroup Inc. for $96 million in cash and an
additional $4 million over the next two years if certain conditions are met.
After the sale of assets to CitiFinancial Mortgage, the Company has essentially
no ongoing operating business, but will continue to own assets consisting
primarily of cash, accounts receivable, mortgage loans held for sale,
interest-only and residual certificates and other assets that are pledged as
collateral for the warehouse finance facilities and term debt. The assets
remaining after the sale of assets to CitiFinancial Mortgage will be either held
or sold by the Company to attempt to realize the maximum value for these assets
and repay its obligations, including the warehouse finance facilities and term
debt.
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There can be no assurance that the Company will be able to maximize the value of
its remaining assets and have adequate proceeds and resources to satisfy its
creditors and provide any value to the Company's shareholders or that the
Company will not seek bankruptcy protection in the future.
GENERAL
The Company was a specialized consumer finance company engaged in purchasing,
originating, servicing and selling home equity loans secured primarily by first
liens on one-to-four family residential properties. The Company focused on
lending to individuals whose borrowings needs were generally not being served by
traditional financial institutions due to such individuals' impaired credit
profiles and other factors. Loan proceeds typically were used by such
individuals to consolidate debt, to refinance debt, to finance home
improvements, to pay educational expenses and for a variety of other uses. By
focusing on individuals with impaired credit profiles and providing prompt
responses to their borrowing requests, the Company was able to charge higher
interest rates for its loan products than typically were charged by conventional
mortgage lenders.
RESULTS OF OPERATIONS
Three Months Ended March 31, 2000 Compared to Three Months Ended March 31, 1999.
Net loss for the three months ended March 31, 2000 was $20.4 million,
representing a decrease of $8.3 million or 28.9% from net loss of $28.7 million
for the three months ended March 31, 1999. The decrease in net loss resulted
principally from a $28.9 million or 98.4% decrease in compensation and benefits
to $0.5 million for the three months ended March 31, 2000 from $29.4 million for
the three months ended March 31, 1999 and a $15.6 million or 66.8% decrease in
selling, general and administrative expenses to $7.8 million for the three
months ended March 31, 2000 from $23.4 million for the three months ended March
31, 1999. Also contributing to the decrease in net loss was a $5.4 million or
60.7% decrease in other interest expense to $3.5 million for the three months
ended March 31, 2000 from $8.9 million for the three months ended March 31, 1999
and a $3.3 million or 42.2% decrease in interest expense - Greenwich Funds to
$4.6 million for the three months ended March 31, 2000 from $7.9 million for the
three months ended March 31, 1999.
The decrease in net loss was partially offset by a decrease in gain on sale of
loans of $14.2 million or 78.2% to $3.9 million for the three months ended March
31, 2000 from $18.1 million for the three months ended March 31, 1999 and a
$13.2 million or 100.0% decrease in servicing fees to $0 for the three months
ended March 31, 2000 from $13.2 million for the three months ended March 31,
1999. The decrease in net loss was also offset by a $8.6 million market
valuation adjustment in the value of the Company's interest-only and residual
certificates, a $6.0 million or 97.8% decrease in net warehouse interest income
to $0.1 million for the three months ended March 31, 2000 from $6.2 million for
the three months ended March 31, 1999, and a $6.9 million or 90.6% decrease in
other revenues to $0.7 million for the three months ended March 31, 2000 from
$7.6 million for the three months ended March 31, 1999.
Net loss before taxes was increased by a provision for income taxes of $0.4
million for the three months ended March 31, 2000 compared to a provision for
income taxes of $4.3 million for the three months ended March 31, 1999. No
income tax benefit has been applied to the net loss for the three months ended
March 31, 2000, as the Company determined it cannot be assured that the income
tax benefit could be realized in the future.
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REVENUES
The following table sets forth information regarding components of the Company's
revenues for the three months ended March 31, 2000 and 1999:
For the Three Months
Ended March 31,
-------------------------------
2000 (in thousands) 1999
---------- ----------
Gain on sales of loans $ 3,941 $ 18,111
---------- ----------
Warehouse interest income 3,568 20,629
Warehouse interest expense (3,430) (14,474)
---------- ----------
Net warehouse interest income 138 6,155
---------- ----------
Servicing fees --- 13,172
Other 716 7,645
---------- ----------
Total revenues $ 4,795 $ 45,083
========== ==========
Gain on Sales of Loans. For the three months ended March 31, 2000, gain on
sales of loans decreased to $3.9 million from $18.1 million for the three
months ended March 31, 1999, a decrease of 78.2%. During the three months ended
March 31, 2000 and March 31, 1999, no mortgage loans were securitized. Mortgage
loans sold in the whole loan market decreased by approximately $210 million, a
decrease of approximately 40.9%, to approximately $303 million for the three
months ended March 31, 2000 from approximately $513 million for the three
months ended March 31, 1999. The total volume of loans produced decreased by
100.0% to $0 for the three months ended March 31, 2000 as compared with a total
volume of approximately $353 million for the three months ended March 31, 1999.
On November 15, 1999, the Company sold substantially all of its mortgage loan
origination business to CitiFinancial Mortgage.
Net Warehouse Interest Income. Net warehouse interest income decreased to $0.1
million for the three months ended March 31, 2000 from $6.2 million for the
three months ended March 31, 1999, a decrease of 97.8%. The decrease in net
warehouse interest income was primarily due to a decrease in the average balance
of mortgage loans held for sale.
Servicing Fees. Servicing fees decreased to $0 for the three months ended March
31, 2000 from $13.2 million for the three months ended March 31, 1999, due to
the sale of the Company's servicing portfolio to CitiFinancial Mortgage on
November 15, 1999.
Other. Other revenues, consisting principally of prepayment penalties from
borrowers who prepay the outstanding balance of their mortgage, decreased to
$0.7 million for the three months ended March 31, 2000 from $7.6 million in
three months ended March 31, 1999, a decrease of 90.6%, due primarily to the
sale of the Company's servicing portfolio to CitiFinancial Mortgage on November
15, 1999. Subsequent to November 15, 1999, the Company collects prepayment
penalties only on mortgage loans held for sale.
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<PAGE> 17
EXPENSES
The following table sets forth information regarding components of the Company's
expenses for the three months ended March 31, 2000 and 1999:
For the Three Months
Ended March 31,
-------------------------------
2000 (in thousands) 1999
----------- ------------
Compensation and benefits $ 469 $ 29,350
Selling, general and administrative 7,782 23,425
Other interest expense 3,489 8,884
Market valuation adjustment 8,603 --
Interest expense - Greenwich Funds 4,551 7,880
----------- ------------
Total expenses $ 24,894 $ 69,539
=========== ============
Compensation and benefits decreased by $28.9 million or 98.4% to $0.5 million
for the three months ended March 31, 2000 from $29.4 million for the three
months ended March 31, 1999, due to the disposal of the Company's eight
operating subsidiaries during 1999 and the sale of the Company's mortgage
servicing rights and loan origination business to CitiFinancial Mortgage on
November 15, 1999, which resulted in the elimination of substantially all
remaining IMC employees on November 15, 1999. (See the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1999 and Note 6 "Disposal
of Assets" of Notes to Consolidated Financial Statements included therein.)
Selling, general and administrative expenses decreased by $15.6 million or
66.8% to $7.8 million for the three months ended March 31, 2000 from $23.4
million for the three months ended March 31, 1999 principally due to a decrease
in operating costs and amortization expense related to mortgage servicing
rights and goodwill as a result of the disposal of the Company's eight
operating subsidiaries in 1999 and the sale of the Company's mortgage loan
servicing business and substantially all the Company's mortgage loan
origination business to CitiFinancial Mortgage on November 15, 1999, offset by
an increase in the amount accrued to defend various legal proceedings against
the Company (see Note 6 "Commitments and Contingencies" of Notes to
Consolidated Financial Statements included herein).
Other interest expense decreased by $5.4 million or 60.7% to $3.5 million for
the three months ended March 31, 2000 from $8.9 million for the three months
ended March 31, 1999 principally as a result of decreased interest expense due
to decreased interest-only and residual borrowings.
Interest expense - Greenwich Funds decreased by $3.3 million or 42.2% to $4.6
million for the three months ended March 31, 2000 from $7.9 million for the
three months ended March 31, 1999. Interest expense - Greenwich Funds represents
interest charges associated with the Greenwich Loan and the credit facilities
the Greenwich Funds purchased from BankBoston. For the three months ended March
31, 1999, interest expense - Greenwich Funds also included amortization of
commitment fees and the value attributable to the Class C preferred stock issued
in connection with the Greenwich Loan Agreement and preferred stock issuable to
the Greenwich Funds under the terms of the Greenwich Loan Agreement. See the
Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999
and Note 3 "Warehouse Finance Facilities, Term Debt and Notes Payable" and Note
4 "Redeemable Preferred Stock" of Notes to Consolidated Financial Statements
included therein.
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<PAGE> 18
Market valuation adjustment of $8.6 million represents a decrease in the fair
market value of the Company's interest-only and residual certificates for the
three months ended March 31, 2000.
The provision for income taxes for the three months ended March 31, 2000 was
approximately $0.4 million which differed from the federal tax rate of 35%
primarily due to state income taxes, the non-deductibility for tax purposes of a
portion of interest expense - Greenwich Funds, and a full valuation allowance
established against the deferred tax asset.
FINANCIAL CONDITION
March 31, 2000 Compared to December 31, 1999
Mortgage loans held for sale, net, at March 31, 2000 were $89.3 million, a
decrease of $288.2 million or 76.3% from mortgage loans held for sale of $377.5
million at December 31, 1999. This decrease resulted primarily from the sale of
mortgage loans as the Company attempts to sell its remaining mortgage loans held
for sale and pay down its warehouse finance facilities. Borrowings under
warehouse financing facilities at March 31, 2000 decreased $312.5 million, or
74.5%, to $107.2 million from borrowings under warehouse financing facilities of
$419.7 million at December 31, 1999 due primarily to the repayment of warehouse
finance facilities as the mortgage loans are sold. Included in mortgages held
for sale, net, at March 31, 2000 and December 31, 1999 was a valuation allowance
of $19.0 million and $37.5 million, respectively, representing the amount by
which cost exceeds market value on mortgage loans held for sale.
Accounts receivable decreased $20.4 million or 66.1% from $30.9 million at
December 31, 1999 to $10.5 million at March 31, 2000, primarily due to receipt
of principal and interest collections related to mortgage loans held for sale
remitted to the Company by the servicer of the loans.
Interest-only and residual certificates at March 31, 2000 were $145.8 million,
representing a decrease of $15.6 million or 9.7% from interest-only and residual
certificates of $161.4 million at December 31, 1999. The decrease in
interest-only and residual certificates resulted from the receipt of cash from
the interest-only and residual certificates and a $8.6 million market valuation
adjustment representing the decrease in the fair market value of the
interest-only and residual certificates. The decrease in interest-only and
residual certificates was partially offset by the receipt of a residual
certificate, with an estimated fair value of $6.7 million, representing a
subordinated interest in the proceeds from a sale of whole loans, which were
securitized (see Note 5 "Interest-Only and Residual Certificates" of Notes to
Consolidated Financial Statements included herein).
Term debt at March 31, 2000 was $262.2 million, representing a decrease of $10.2
million or 3.7% from term debt of $272.4 million at December 31, 1999. This
decrease was primarily a result of repayment of certain amounts of term debt
from cash flows received from interest-only and residual certificates as
provided in the intercreditor agreements.
Accounts payable and accrued liabilities increased $3.2 million or 28.4% from
$11.3 million at December 31, 1999 to $14.5 million at March 31, 2000 primarily
due to an increase in the amount accrued to defend various legal proceedings
against the Company (see Note 6 "Commitments and Contingencies" of Notes to
Consolidated Financial Statements included herein).
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<PAGE> 19
Stockholders' deficit as of March 31, 2000 was $148.6 million, an increase of
$21.2 million over stockholders' deficit of $127.5 million at December 31, 1999.
Stockholders deficit increased for the three months ended March 31, 2000
primarily as a result of a net loss of $20.4 million.
LIQUIDITY AND CAPITAL RESOURCES
During the three months ended March 31, 2000, the Company used its cash flow
from the sale of loans through whole loan sales, net interest income and
interest-only and residual certificates to meet its working capital needs. The
Company's cash requirements during the three months ended March 31, 2000
included payment of principal and interest costs on borrowings, and operating
expenses.
Since November 15, 1999, substantially all the Company's cash and cash
equivalents are restricted by escrow agreements on behalf of certain creditors
or pursuant to the second amended and restated intercreditor agreements
described in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1999 and Note 3 of Notes to Consolidated Financial Statements
included
therein.
The Company typically has operated, and expects to continue to operate, on a
negative operating cash flow basis. During the three months ended March 31,
2000, the Company received cash flows from operating activities of $313.0
million, an increase of $108.7 million from cash flows provided by operating
activities of $204.4 million during the three months ended March 31, 1999.
During the three months ended March 31, 2000, cash flows used by the Company in
financing activities were $322.7 million, an increase of $123.2 million from
cash flows used in financing activities of $199.5 million during the three
months ended March 31, 1999. The cash flows received from operating activities
relate primarily to the sale of mortgage loans held for sale. The cash flows
used in financing activities related primarily to the repayment of principal on
finance facilities borrowings.
Warehouse Finance Facilities and Term Debt
As described in the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1999, on November 15, 1999 the Company consummated the sale
of its mortgage loan servicing business and substantially all of its mortgage
loan origination business to CitiFinancial Mortgage. Simultaneously, the Company
entered into second amended and restated intercreditor agreements with Paine
Webber Real Estate Securities, Inc. ("Paine Webber"), Bear Stearns Home Equity
Trust ("Bear Stearns"), and Aspen Funding Corp. and German American Capital
Corporation, subsidiaries of Deutsche Bank of North American Holding Corp
("DMG") (collectively, the "Significant Lenders") and Greenwich Street Capital
Partners II, L.P. and certain of its affiliates (the "Greenwich Funds").
Under these agreements, the lenders agreed to keep their respective facilities
in place so long as the obligations owed to those lenders are repaid in
accordance with the terms of these agreements and certain events of default as
described in these agreements do not occur. Each of the Significant Lenders and
the Greenwich Funds has indicated that they will not make any additional
advances under their facilities.
In addition, the second amended and restated intercreditor agreements described
above provide a mechanism for the Company's principal secured creditors who are
parties to the intercreditor
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<PAGE> 20
agreements to release to the Company for its working capital needs a portion of
the monthly receipts from the interest-only and residual certificates serving as
collateral for those lenders' loans.
At March 31, 2000, the Company had no available credit facilities from the
Significant Lenders, the Greenwich Funds or any other source. At March 31, 2000,
the amount of warehouse finance facilities which remained outstanding from
previously available warehouse finance facilities was as follows:
Warehouse Finance Facilities March 31, 2000
---------------------------- --------------
(in thousands)
Bear Stearns $ 68,612
DMG 27,367
Paine Webber 11,219
-------------
$ 107,198
=============
Outstanding borrowings under the Company's warehouse financing facilities bear
interest at rates ranging from LIBOR (5.82% at March 31, 2000) plus 0.75% to
LIBOR plus 2.00%, and are collateralized by, among other assets, mortgage loans
held for sale. Upon the sale of these mortgage loans, the proceeds are used to
pay down the borrowings under these warehouse finance facilities.
At March 31, 2000, the amount of term debt which remained outstanding from
previously available term debt credit facilities was as follows:
Term Debt March 31, 2000
--------- --------------
(in thousands)
Paine Webber- residual credit facility $ 112,367
Greenwich Funds- credit facility acquired
from BankBoston N.A. 80,714
Greenwich Funds-standby revolving
credit facility 38,000
DMG- residual credit facility 27,639
Other 3,482
-------------
$ 262,202
=============
Outstanding borrowings under the Company's residual credit facilities with Paine
Webber and DMG bear interest at LIBOR plus 3.00%, and are collateralized by,
among other assets, the Company's interest in certain interest-only and residual
certificates. Upon receipt of cash from the interest-only and residual
certificates, the proceeds are used for the Company's working capital needs, in
accordance with the second amended and restated intercreditor agreements and to
pay down the residual credit facilities.
Credit facilities previously provided by BankBoston N.A. ("BankBoston") matured
and the Company was unable to repay its outstanding borrowings under these
facilities. The Greenwich Funds acquired, at a discount, from BankBoston its
interest in the credit facilities. These credit facilities bear interest at
9.75%, and are collateralized by interest-only and residual certificates and
certain other assets of the Company.
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<PAGE> 21
The Company entered into an agreement for a $38.0 million standby revolving
credit facility with certain of the Greenwich Funds (the "Greenwich Loan
Agreement"). The facility was originally available to provide working capital
for a period of up to 90 days and was not repaid when matured. The standby
credit facility accrues interest at 22% per annum, and is collateralized by
interest-only and residual certificates and certain other assets of the Company.
At March 31, 2000, the Company also had outstanding a $3.5 million credit
facility with a financial institution which bears interest at 10% per annum. The
credit facility provides for repayment of principal and interest over 36 months,
through October 2001.
Notes Payable
At March 31, 2000, $13.1 million was outstanding under notes payable to two
individuals related to an acquisition of a company completed by IMC in 1997.
These notes matured on July 10, 1999. Since maturity and until paid in full,
these notes bear interest at prime plus 5% per annum. On November 11, 1999, the
Company and certain other parties entered into an intercreditor agreement with
the individuals holding such notes. Under that agreement, the holders of those
notes agreed to forebear any collection actions so long as the Company repays
the obligations owed to these lenders according to an agreed-upon plan and no
event of default occurs.
RISK MANAGEMENT
Since October 1, 1998 the Company has used a discount rate of 16% to present
value the difference (spread) between (i) interest earned on the portion of the
loans sold and (ii) interest paid to investors with related costs over the
expected life of the loans, including expected losses, foreclosure expenses and
a normal servicing fee. Based on market volatility in the asset-backed markets
and the widening of the spreads demanded by asset-backed investors since
September 1998 to acquire newly issued asset-backed securities, there can be no
assurance that discount rates utilized by the Company in the future to present
value the spread described above will not change, particularly if the spreads
demanded by asset-backed investors to acquire newly issued asset-backed
securities continues to increase. An increase in the discount rates used to
present value the spread described above of 1%, 3% or 5% would result in a
corresponding decrease in the value of the interest-only and residual
certificates at March 31, 2000 of approximately 3%, 9% and 14% respectively. A
decrease in the discount rates used to present value the spread described above
of 1%, 3% or 5% would result in an increase in the value of the interest-only
and residual certificate at March 31, 2000 of 3%, 11% and 19%, respectively.
INFLATION
Inflation historically has had no material effect on the Company's results of
operations. Inflation can have an effect on interest rates, which normally
increase during periods of high inflation and decrease during periods of low
inflation.
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<PAGE> 22
Profitability may be directly affected by the level and fluctuation in
interest rates, which affect the Company's ability to earn a spread between
interest received on its loans and the costs of its borrowings. The results of
operations of the Company are likely to be adversely affected during any period
of unexpected or rapid changes in interest rates. Additionally, to the extent
interest-only and residual certificates have been capitalized on the books of
the Company, higher than anticipated rates of loan prepayments or losses could
require the Company to write down the value of such interest-only and residual
certificates which could have a material adverse effect on the Company's
results of operations and financial condition. Conversely, lower than
anticipated rates of loan prepayments or lower losses could require the Company
to increase the value of interest-only and residual certificates, which could
have a favorable effect on the Company's results of operations and financial
condition. Fluctuating interest rates also may affect the net interest income
earned by the Company from the difference between the yield to the Company on
loans held pending sales and the interest paid by the Company for funds
borrowed under the Company's warehouse facilities. In addition, inverse or
flattened interest yield curves could have an adverse impact on the
profitability of the Company because the loans pooled and sold by the Company
have long-term rates, while the senior interests in the related securitization
trusts are priced on the basis of intermediate term rates. The Company does not
engage in hedging activities, which could result in substantial losses in the
value of the Company's mortgage loans held for sale without an offsetting gain.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 133 "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"), which was amended by SFAS No.
137 "Accounting for Derivative Instruments and Hedging Activities - Deferral of
the Effective Date of FASB Statement No. 133". SFAS 133, as amended, is
effective for all fiscal quarters of all fiscal years beginning after June 15,
2000 (January 1, 2001 for the Company). SFAS 133 requires that all derivative
instruments be recorded on the balance sheet at their fair value. Changes in the
fair value of derivatives are recorded each period in current earnings or other
comprehensive income, depending on whether a derivative was designated as part
of a hedge transaction and, if it is, the type of hedge transaction. For
fair-value hedge transactions designed to hedge changes in the fair value of an
asset, liability or firm commitment, changes in the fair value of the derivative
instrument will generally be offset in the income statement by changes in the
hedged item's fair value. The ineffective portion of hedges will be recognized
in current-period earnings. The Company has no present plans to engage in
hedging activities and does not anticipate that the adoption of SFAS 133 will
have a material impact on the Company's statement of operations or balance
sheet.
YEAR 2000
The year 2000 (Y2K) problem was the result of computer programs being written
using two digits rather than four to define the applicable year. Thus year 1999
was represented by the number "99" in many software applications.
The Company to date has experienced no material Y2K compliance issues and does
not anticipate any material Y2K compliance issues in the future.
The foregoing assessment of the impact of the Y2K problem on the Company is
based on management's best estimates at the present time and, although not
expected to, could change
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<PAGE> 23
substantially. The assessment is based upon several assumptions as to future
events. There can be no guarantee that these estimates will prove accurate, and
the actual results could differ from those estimated if these assumptions prove
inaccurate.
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<PAGE> 24
PART II. OTHER INFORMATION
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<PAGE> 25
PART II. OTHER INFORMATION
Item 1. Legal Proceedings -
The Company is party to various legal proceedings arising out of the conduct of
its business. The Company has accrued certain amounts to defend various legal
proceedings and such amounts are included in accrued liabilities in the
accompanying Consolidated Balance Sheet at March 31, 2000. Management believes
that amounts accrued for defense in connection with these matters are adequate
and ultimate resolution of these matters will not have a material adverse effect
on the consolidated financial condition or results of operations of the Company.
The Company is a defendant in a law suit pending in the United States District
Court, District of Maryland, brought by the two principals and sole shareholders
of Central Money Mortgage, Inc. ("CMM"), the assets of which were acquired by
the Company in August, 1997, pursuant to the terms of an Asset Purchase
Agreement ("Agreement") for $11.0 million in stock of the Company. Additionally,
the plaintiffs were to be employed by Central Money Mortgage (IMC), Inc., a
subsidiary formed to continue the business of CMM for a tern of five years. A
Registration Rights Agreement, executed at the time of the closing, required the
Company to prepare and file a Short Form Registration Statement within twenty
days after the closing providing the plaintiffs with the ability to sell
approximately half of the shares received pursuant to the Agreement. Promptly
after the closing, the Company prepared a draft Registration Statement intending
to fulfill that obligation, but it was subsequently advised by its outside
securities counsel that doing so would create substantial difficulties and
adversely affect the registration of a potential debt offering which was in
progress.
As it was not feasible for the Company to register the stock as agreed, the
parties ultimately agreed that if the value of the shares which were to have
been registered was less on August 19, 1998 (the date the stock could be sold
under Rule 144 without being registered), than it was at the closing date one
year earlier, the Company would give the plaintiffs sufficient additional shares
so that the total value of shares which were to have been registered would, when
added to the value of the additional shares (all valued twelve months after
closing), be equal to the value of the shares which were to have been registered
which they had received at closing. Therefore, on August 20, 1998, the Company
issued 96,790 additional shares to the plaintiffs.
The Company's stock, which was selling at $12.87 per share on August 20, 1998,
fell dramatically thereafter. If the plaintiffs had sold their shares in August
1998 when they received the additional shares, they would have sustained no loss
as a result of the Company's inability to register the shares as originally
agreed. However, they failed to do so and are now seeking damages in this
action.
The plaintiffs' multi-count complaint alleges federal securities fraud, Maryland
securities fraud and common law fraud and contends that at the time of the
execution of the Agreement and the Registration Rights Agreement the Company
never intended to register the shares and only promised to do so in order to
induce the plaintiffs to surrender their company. They claim both punitive and
compensatory damages. In a separate count the plaintiffs allege that the failure
to register the shares constituted a breach of contract. The plaintiffs'
employment was terminated in July, 1999 (the Company contends, with cause), and
in an additional count the plaintiffs are seeking to recover the balance of the
payments which would be due under their employment contracts which amounts to
approximately $1.2 million.
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<PAGE> 26
The case is in discovery but based on the facts that have been developed to
date, and consultation with legal counsel, management believes there is little
or no evidence to support the plaintiffs' allegations of fraud and it is
probable that those counts of the complaint can be successfully defended. The
Company conceded that the failure to register the shares is in fact a breach of
the Registration Rights Agreement; however, it is the Company's position that
the subsequent agreement providing for the issuance of additional shares to the
plaintiffs, which was consummated on August 20, 1998, constitutes an accord and
satisfaction and any damages sustained by the plaintiffs were as a result of
their decision to retain their stock rather than selling it. It appears this
issue, as well as whether the plaintiffs were terminated with cause as contended
by the Company, or without cause as alleged by the plaintiffs, will ultimately
be decided at trial. Management intends to defend such action vigorously.
On October 18, 1999, Fidelity Federal Bank FSB ("Fidelity") sued the Company and
the Company's subsidiary, CoreWest Banc ("CoreWest"), for approximately $4.1
million claiming a failure of CoreWest to perform certain obligations under the
terms of a Master Loan Purchase Agreement between CoreWest and Fidelity.
Fidelity settled its claims with the Company in March 2000 for less than 10% of
the claim.
On November 12, 1999, the Company's shareholders approved the sale of certain
assets to CitiFinancial Mortgage. While the majority of all votes entitled to be
cast voted in favor of the transaction, there were a limited number of
shareholders who exercised their dissenter's rights. Because it will be unclear
for several years whether there are any assets available for distribution to
holders of IMC common stock, the Company has taken the position that the fair
value of the IMC common stock is negligible and that no payment should be made.
The Company had made an offer to purchase the IMC common stock of the dissenting
shareholders based on the trading price of the Company's common stock at the
time of the approval by the Company's shareholders of the sale of assets to
CitiFinancial Mortgage, which in certain instances was rejected. The Company has
filed an action in a court of competent jurisdiction in Florida requesting that
the fair value of IMC common stock be determined. The Court shall also determine
whether each dissenting shareholder, as to whom the Company requests the court
to make such determination, is entitled to receive payment for their shares.
Item 2. Changes in Securities - None
Item 3. Defaults Upon Senior Securities -
At March 31, 2000, the Company was not in compliance with certain
financial covenants related to its credit facilities with Paine Webber
Real Estate Securities, Inc., Bear Stearns Home Equity Trust, and
Aspen Funding Corp. and German American Capital Corporation,
subsidiaries of Deutsche Bank of North America Holding Corp.
(collectively, the "Significant Lenders"). As described in Note 4
"Warehouse Finance Facilities, Term Debt and Notes Payable" to the
Consolidated Financial Statements included herein, the Company entered
into a second amended and restated intercreditor agreements with the
Significant Lenders which provide for the Significant Lenders to
"stand-still" and keep outstanding balances under their facilities in
place, subject to certain conditions, as the Company repays the
obligations owed to these lenders according to an agreed upon plan.
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K -
A. Exhibits
27 - Financial Data Schedule (for SEC use only)
99 - Report of Independent Certified Public Accountants
B. Reports on Form 8-K - None
24
<PAGE> 27
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: May 15, 2000 IMC MORTGAGE COMPANY
By: /s/ Dennis J. Pitocco
-------------------------------------------
Dennis J. Pitocco, Chief Executive Officer,
President, Chief Operating Officer,
Chief Financial Officer and Director
25
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF IMC MORTGAGE COMPANY FOR THE THREE MONTHS ENDED
MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 44,644
<SECURITIES> 0
<RECEIVABLES> 12,631
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 301,547
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
41,017
<COMMON> 342
<OTHER-SE> (400,921)
<TOTAL-LIABILITY-AND-EQUITY> 301,547
<SALES> 3,941
<TOTAL-REVENUES> 4,795
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 32,934
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,470
<INCOME-PRETAX> (20,099)
<INCOME-TAX> 350
<INCOME-CONTINUING> (20,499)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (20,449)
<EPS-BASIC> (0.62)
<EPS-DILUTED> (0.62)
</TABLE>
<PAGE> 1
Exhibit 99
Report of Independent Certified Public Accountants
To the Stockholders of
IMC Mortgage Company and Subsidiaries
We have reviewed the accompanying consolidated balance sheet of IMC Mortgage
Company and Subsidiaries as of March 31, 2000, and the related statements of
operations and cash flows for the three months ended March 31, 2000 and 1999.
These financial statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institution of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements for them to be in conformity
with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of December 31, 1999, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the year then ended (not presented herein) and in our report dated
March 24, 2000, we expressed an unqualified opinion with an explanatory
paragraph for a going concern on those consolidated financial statements. In our
opinion, the information set forth in the accompanying consolidated balance
sheets as of December 31, 1999, is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been derived.
/s/ Grant Thornton L.L.P.
- -------------------------
Tampa, Florida
May 10, 2000
