<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to ______________.
Commission File Number 2-67676
C.M. CORP.
(Exact name of registrant as specified in its charter)
Delaware 59-1995931
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
311 Park Place Boulevard, Suite 500, Clearwater, Florida 34619
(Address of principal executive offices)
(813) 791-2111
(Telephone Number)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
-------
Number of shares outstanding of the registrant's common stock as of
July 31, 1996:
Class Outstanding as of July 31, 1996
Common Stock, $1 par value 1,000 shares
Page 1 of 17
Exhibit Index Located on Page 15
<PAGE> 2
C.M. CORP.
INDEX
Page Number
-----------
Part I - Financial Information
Item 1. Financial Statements
Condensed Balance Sheets -
June 30, 1996 and December 31, 1995 3
Condensed Statements of Operations - Three and Six
Months Ended June 30, 1996 and 1995 4
Condensed Statements of Cash Flows - Six
Months Ended June 30, 1996 and 1995 5
Notes to Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of
the of the Results of Operations and Financial
Condition 11
Item 3. Defaults Upon Senior Securities 13
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K 14
<PAGE> 3
C.M. CORP.
----------
CONDENSED BALANCE SHEETS
------------------------
(Unaudited)
(Dollars in Thousands)
June 30, December 31,
1996 1995
---------- ------------
ASSETS
------
RESTRICTED CASH ............................. $ 513 $ 521
ACCRUED INTEREST RECEIVABLE ................. 25 29
INVESTMENT IN RESIDENTIAL MORTGAGE LOANS, net 1,088 1,196
REAL ESTATE OWNED ........................... 35 --
------- -------
$ 1,661 $ 1,746
======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
LIABILITIES:
Payable to U.S. Home Mortgage Corporation ... $ 1,364 $ 1,364
Accrued interest and other liabilities ...... 267 268
Long-term debt, in default .................. 3,498 3,562
------- -------
Total liabilities ..................... 5,129 5,194
------- -------
STOCKHOLDER'S EQUITY:
Common stock, $1 par value .................. 1 1
Capital in excess of par value .............. 1,718 1,718
Retained deficit ............................ (5,187) (5,167)
------- -------
Total stockholder's equity ............ (3,468) (3,448)
------- -------
$ 1,661 $ 1,746
======= =======
The accompanying notes are an integral part of these balance sheets.
<PAGE> 4
C.M. CORP.
----------
CONDENSED STATEMENTS OF OPERATIONS
----------------------------------
(Dollars in Thousands)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
1996 1995 1996 1995
------- ------- ------- ------
REVENUES:
Interest ................. $ 82 $ 95 $ 161 $ 199
----- ----- ----- -----
EXPENSES:
Interest ................. 107 123 214 250
Other .................... 2 2 4 5
Provision (benefit) for
losses on loans
and real estate owned . (34) 32 (37) 138
----- ----- ----- -----
75 157 181 393
----- ----- ----- -----
NET INCOME (LOSS) ............ $ 7 $ (62) $ (20) $ (194)
===== ===== ======== =======
The accompanying notes are an integral part of these statements.
<PAGE> 5
C.M. CORP.
----------
CONDENSED STATEMENTS OF CASH FLOWS
----------------------------------
(Dollars in Thousands)
(Unaudited)
Six Months Ended
June 30,
---------------------
1996 1995
--------- ---------
Net Cash Used By Operating Activities ............ $ (52) $ (17)
----- -----
Cash Flows From Investing Activities:
Proceeds from investments in
residential mortgage loans .................. 108 337
----- -----
Net cash provided by investing activities ..... 108 337
----- -----
Cash Flows From Financing Activities:
Repayment of long-term debt ................... (64) (327)
----- ------
Net cash used by financing activities ......... (64) (327)
----- ------
Net Decrease In Cash ............................. (8) (7)
Cash At Beginning of Period ...................... 521 543
----- -----
Cash At End of Period ............................ $ 513 $ 536
===== =====
Supplemental Disclosure:
Interest Paid ................................. $ 216 $ 255
===== =====
The accompanying notes are an integral part of these statements.
<PAGE> 6
C.M. CORP.
----------
NOTES TO CONDENSED FINANCIAL STATEMENTS
---------------------------------------
(Dollars in Thousands)
(Unaudited)
Note 1 - The accompanying unaudited condensed financial statements
have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and note
disclosures normally included in annual financial statements
prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to those rules
and regulations. Although C.M. Corp. ("Company") believes that
the disclosures made are adequate to make the information
presented not misleading, it is suggested that these condensed
financial statements be read in conjunction with the unaudited
financial statements and notes thereto included in the Company's
latest annual report on Form 10-K. The Company did not have the
cash funds to pay the costs and expenses of an audit by
independent certified public accountants of its financial
statements included in such annual report and, accordingly, those
statements are unaudited.
The accompanying unaudited condensed financial statements have
been prepared in accordance with generally accepted accounting
principles applicable to a going concern, which contemplate,
among other things, realization of assets and payment of
liabilities in the normal course of business, and do not purport
to reflect any adjustments relating to the actions, if any, that
may be taken by the Trustee resulting from the Events of Default
as described in Note 2.
In the opinion of the Company, subject to the matter discussed in
the preceding paragraph, the accompanying condensed financial
statements contain all adjustments (all of which were normal and
recurring) necessary to present fairly the financial position as
of June 30, 1996 and December 31, 1995, and its results of
operations for the three-month and six-month periods ended June
30, 1996 and 1995 and the statements of cash flows for the
six-month periods ended June 30, 1996 and 1995.
Note 2 - In accordance with the terms of an indenture, dated as of July 15,
1980, between the Company and The First National Bank of Chicago,
as amended and supplemented ("Indenture"), the Company issued,
in 1980 and 1981, conventional mortgage-backed bonds with original
principal balances of $100,000 ("Bonds") of which $3,498 in
principal amount is outstanding at June 30, 1996. The Company
secured the Bonds pursuant to an investment in a significant number
of conventional residential mortgage loans with high loan-to-value
ratios that are located primarily in energy-related areas which in
the mid 1980's experienced a sharp decline in real estate values
and high foreclosure rates. In 1987, the costs and losses
associated with the repossession, maintenance and resale of
foreclosed properties increased due to depressed resale values
in these areas which, in turn, accelerated claims against
available blanket mortgage insurance coverage. During 1987,
the Company projected that, based on its accelerated claim
experience, it would exhaust the blanket mortgage insurance
<PAGE> 7
Note 2 - coverage for the conventional mortgage loan pools securing the
(cont'd) Bonds and such coverage was exhausted during 1988. As a result
of the exhaustion of the blanket mortgage insurance coverage
for the mortgage pools, losses have been and will be incurred
by the Company that previously were reimbursed by the mortgage
insurer.
The Company establishes reserves for losses on loans and real
estate owned which reflect an estimate of the losses that will be
incurred in connection with its investment loans and foreclosed
properties. These reserves are based on management's best estimate
of amounts that will not be reimbursed under insurance policies
using current and historical information. These estimates may
change due to economic and other conditions, the resulting effect
of which will be recognized in the period of change.
The following summarizes valuation reserves for the six months
ended June 30, 1996 and 1995.
Real Estate
Investments Owned
----------- -----------
Balance at December 31, 1994 .... $ 1,544 $ 165
Provision for losses ............ 53 85
Write-offs ...................... (31) (63)
Reclassification ................ (22) 22
------- -------
Balance at June 30, 1995 ........ $ 1,544 $ 209
======= =======
Balance at December 31, 1995 .... $ 1,544 $ --
Recovery of losses .............. (14) (23)
Write-offs ...................... (8) 2
Reclassification ................ (22) 22
------- -------
Balance at June 30, 1996 ........ $ 1,500 $ 1
======= =======
The Company does not have, nor expect to have, any significant
assets other than the mortgage loans, reserve funds and primary
mortgage insurance policies pledged as collateral for each series
of Bonds. Accordingly, its ability to pay the principal and
interest on the Bonds when due depends on the ongoing cash flow and
any liquidation proceeds to be generated by the pledged loans and
the funds available from the reserve funds and coverage under the
primary mortgage insurance policies. Substantially all of the
pledged mortgage loans are insured by private mortgage insurance
coverage for mortgagor payment defaults down to approximately 72%
of the original value of the underlying properties on the date of
origination of the loans.
Under the terms of the Indenture, the Company agreed to provide the
Trustee with the periodic reports filed with the Securities and
Exchange Commission ("SEC") and to provide an annual statement to
the bondholders. The Company does not have, nor does it expect to
have, the cash funds to pay for the costs and expenses of (a) the
<PAGE> 8
Note 2 - annual audit of its financial statements required to be included
(cont'd.) in the annual report (cont'd.) filed with the SEC or (b) the annual
statement to be provided to the bondholders. Accordingly,
the financial statements included in the Company's latest annual
report and those included in the Company's annual reports filed
with the SEC since 1991 are unaudited and the Company did not and
no longer intends to provide annual statements to the bondholders
which results in non-compliance with a covenant under the
Indenture, permitting the Trustee or holders of 25% of the Bonds
to accelerate their maturity.
The remaining Series A and Series B Bonds have maturities of July
31, and August 31, 2000, respectively. On May 28, 1992, the Trustee
notified the Company that an Event of Default (as defined in the
Indenture) and a default have occurred under Section 6.01(4) and
Section 6.01(2), respectively, of the Indenture. The Trustee
declared the outstanding principal balance of all of the remaining
Bonds issued under the Indenture to be immediately due and payable.
Accordingly, pursuant to Section 12.02(a) of the Indenture, the
Company will no longer redeem any of the Bonds.
As part of the Trustee's annual report to bondholders, dated July
14, 1992, the Trustee notified the bondholders of the notices to
the Company on May 28, 1992 relating to the Event of Default and
default under the Indenture and acceleration of all amounts due on
the remaining Bonds. In addition, the Trustee enclosed a special
report, dated July 2, 1993, ("July Report") with its 1993 annual
report to the bondholders summarizing, among other things, the
remedies available under the Indenture and the actions taken and
proposed to be taken by the Trustee relating to the Events of
Default. The Trustee informed the bondholders in the July Report
that it had retained AM&G Financial Services, Inc. (now known as
First Security Capital Markets and hereinafter referred to as
"FSCM") in the last half of 1992 to review and analyze the
collateral securing the Bonds. The July Report concludes that (a)
the proceeds from the liquidation of the collateral would not be
sufficient to pay either series of Bonds in full and (b) the
projected future cash flows from the collateral will also result in
a shortfall in repayment of principal for both series of Bonds.
Subsequently, the Trustee mailed another special report, dated
December 3, 1993 ("December Report"), to the bondholders to update
the July Report and advise the bondholders of the course of action
that had been elected by the Trustee. As part of the December
Report, FSCM analyzed the collateral, including the reserve funds,
using more current information as of August 30, 1993 to determine
the economic value to the bondholders of immediately liquidating
the collateral and distributing the proceeds from the liquidation
to the bondholders, compared to the value of holding the collateral
intact over the remaining life of the Bonds and using the income
stream generated from the collateral to pay the Bonds.
Based on this analysis and after considering the additional costs
and risks to maintain the trust estate intact, the Trustee also
stated in the December Report that ". . . the Trustee has determined
not to hold the Trust Estate, but rather to liquidate the Trust
<PAGE> 9
Note 2 - Estate and distribute the proceeds to the Bondholders" and the
(cont'd.) Indenture will be terminated.
The Trustee informed the bondholders in the Trustee's 1994 annual
report to bond-holders, dated July 15, 1994, that FSCM
subsequently obtained appraised values and/or brokers' estimated
values for all the properties securing the mortgage loans.
Based on those values, the Trustee stated that, due to the
depreciation in the value of the properties to a greater
extent than was assumed previously, such depreciation in value is
likely to have a significant effect on the bondholders' ultimate
recovery of their investment in the Bonds.
The Trustee issued a special report, dated October 7, 1994, of the
final findings of FSCM in which the Trustee stated their intent to
hold the collateral for the present and review periodically this
decision with FSCM. As part of the Trustee's annual reports to
bondholders for 1996 (dated July 15, 1996) and 1995 (dated July 15,
1995), the Trustee stated in both reports it was not aware of any
material change in the assumptions or market conditions used in
their decision in October 1994 to hold the collateral for the
present.
The Trustee requested reimbursement from the Company for costs of
legal counsel and FSCM's collateral evaluation services relating to
the Events of Default and for trust administration services of the
Trustee. The Company does not have, nor does it expect to have, the
cash funds to reimburse the Trustee for these costs. The Trustee
may, in certain instances, apply moneys from the reserve funds or
from the sale of the pledged collateral to the payment of expenses
incurred and advances made by the Trustee pursuant to Section 7.07
of the Indenture. As of June 30, 1996, the Trustee withdrew on a
cumulative basis $98 from the reserve fund for the Series A Bonds
and the same amount of $98 from the reserve fund for the Series B
Bonds for these costs.
Thus far, the Company has made timely payments due to the
bondholders under the terms of the Indenture. However, the Company
believes that the exhaustion of the blanket mortgage insurance
coverage for the Bonds issued by the Company, the anticipated
withdrawal by the Trustee for additional expenses and advances for
its trust administration services and for expenses and costs of the
Events of Default, a continuation of the high costs and losses
associated with foreclosures on pledged loans and the application
by the Company of certain proceeds from insurance claims, principal
prepayments and foreclosures to payment of interest on the Bonds
rather than to redemptions or prepayments of principal on the Bonds
will in the future cause a deficiency in cash flows available for
the payments due on the related Bonds and the eventual depletion of
the cash reserve funds. Such an event would cause the Company to be
unable to meet its normal debt service requirements under the
Indenture. The Company agrees with the Trustee that the proceeds
from any sale of the remaining collateral by the Trustee will be
insufficient to pay the Bonds in full. Accordingly, holders of
Bonds would receive less than the principal amounts due on their
Bonds.
<PAGE> 10
Note 2 - U.S. Home Mortgage Corporation ("Mortgage"), as servicer, is not
(cont'd.) obligated to advance delinquent payments due on the pledged
mortgage loans unless it reasonably believes that such advances
will ultimately be recoverable from mortgage insurance proceeds.
On March 27, 1991, Mortgage, as servicer, advised the Company
that it will not advance delinquent mortgage loan payments due to
the uncertainty of the recoverability of such advances. As a
result, the Trustee withdrew a portion of the reserve funds on
March 28, 1991 and March 30, 1992 to make the required interest
payments on the Series B Bonds. In addition to the withdrawals
from the reserve funds by the Trustee for bond administration
costs and expenses, the anticipated cash flow deficiencies
to meet future debt service requirements will also result in
further withdrawals from each of the reserve funds for both series
of Bonds until these funds are eventually exhausted. As of June
30, 1996, the remaining balance in each of the two cash
reserve funds separately securing the Series A and B Bonds
outstanding on that date was approximately $257 and $211,
respectively.
<PAGE> 11
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations -
Interest revenues and expenses decreased during the six month
period ended June 30, 1996 compared to the same period in 1995 due,
primarily, to a reduction in the outstanding principal balances
of the mortgage loans and long-term debt. The reductions in the
outstanding principal balances of the mortgage loans and
long-term debt are due to principal repayments of the mortgage
loans, resulting in a corresponding retirement of the related
long-term debt. The Company's provision for losses on loans and
real estate owned decreased during the three and six month
periods ended June 30, 1996 as compared to the same periods in
1995 due primarily to a reduction in the losses for delinquent
loans and foreclosed properties. In addition, the Company's
interest expense obligations on the Bonds exceed the interest
revenues earned on the underlying pledged loans. The Company's
profitability will continue to be adversely impacted by future
foreclosures, the inadequacy of mortgage insurance coverage on
loans which are not now delinquent and the costs and expenses
relating to the Events of Default along with interest expense
exceeding interest revenues.
Financial Condition and Liquidity -
At June 30, 1996, the Company had outstanding approximately $3.5
million of mortgage-backed bonds ("Bonds") issued under two series
of publicly held debt. On May 28, 1992, the Trustee for the Bonds
notified the Company that an Event of Default (as defined in
the Indenture) had occurred and declared the outstanding principal
balance of all of the remaining Bonds issued under the Indenture
to be immediately due and payable. The Company does not have, nor
expect to have, any significant assets other than the mortgage
loans, reserve funds and primary mortgage insurance policies
pledged as collateral for each remaining series of Bonds.
Accordingly, the Company's ability to pay the principal and
interest on the Bonds when due depends on the ongoing cash flows
and any liquidation proceeds generated by the pledged loans and
the funds available from the reserve funds and coverage under the
primary mortgage insurance policies.
Thus far, the Company has made timely payments due to the
bondholders under the terms of the Indenture. However, the Company
believes that the exhaustion of the blanket mortgage insurance
coverage for the Bonds issued by the Company, the anticipated
withdrawal by the Trustee to pay for its trust administration
services and for the expenses and costs of the Events of Default,
a continuation of the high costs and losses associated with
foreclosures on pledged loans and the application by the Company
of certain proceeds from insurance claims, principal prepayments
and foreclosures to payment of interest on the Bonds rather than
<PAGE> 12
to redemptions or prepayments of principal on the Bonds will in the
future cause a deficiency in cash flows a vailable for the
payments due on the related Bonds and the eventual depletion of the
cash reserve funds. Such an event would cause the Company to be
unable to meet its normal debt service requirements under the
Indenture. The Company agrees with the Trustee that any sale of
the remaining collateral by the Trustee will be insufficient to
pay the Bonds in full. Accordingly, holders of Bonds would receive
less than the principal amounts due on their Bonds.
For additional information, see "Note 2 of Notes to
Condensed Financial Statements".
Item 3. Defaults Upon Senior Securities.
The remaining Series A and Series B Bonds ($3.5 million outstanding
at June 30, 1996) have stated maturities of July 31, and August
31, 2000, respectively. On May 28, 1992, the Trustee notified the
Company that an Event of Default (as defined in the Indenture) had
occurred and declared the outstanding principal balance of all of
the remaining Bonds issued under the Indenture to be immediately
due and payable.
For additional information, see "Note 2 of Notes to Condensed
Financial Statements."
<PAGE> 13
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 11 - Computation of Income (Loss) Per Common Share.
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
No Current Report on Form 8-K was filed by the Company
during the three months ended June 30, 1996.
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
C.M. CORP.
(Registrant)
Date: August 13, 1996 /s/ James R. Petty
-------------------------------------
(James R. Petty)
President and Chief Executive Officer
(principal executive officer)
Date: August 13, 1996 /s/ Ronald C. McCabe
--------------------------------------
(Ronald C. McCabe)
Senior Vice President and Chief
Accounting Officer (principal
accounting officer)
<PAGE> 14
INDEX OF EXHIBITS
Exhibit Page
Number Number
11 Computation of Income (Loss) Per Common Share 16
27 Financial Data Schedule 17
<PAGE> 15
EXHIBIT 11
(Unaudited)
C.M. CORP.
----------
INCOME (LOSS) PER COMMON SHARE FOR THE CONDENSED STATEMENTS OF OPERATIONS
-------------------------------------------------------------------------
(Dollars in Thousands, Except Per Share Data)
Three Months Ended Six Months Ended
------------------ ----------------
June 30, June 30,
1996 1995 1996 1995
------- ------ ------ -------
Net income (loss) $ 7 $ (62) $ (20) $ (194)
====== ====== ======= =======
Total common shares 1,000 1,000 1,000 1,000
====== ====== ======= =======
Income (loss) per common share $ 7 $ (62) $ (20) $ (194)
====== ====== ======= =======
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule Contains Summary Financial Information Extracted From
The Condensed Financial Statements As Of June 30, 1996 And For The
Six Months Then Ended And Is Qualified In Its Entirety By Reference
To Such Financial Statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 513
<SECURITIES> 0
<RECEIVABLES> 1,113
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,661
<CURRENT-LIABILITIES> 1,631
<BONDS> 3,498
0
0
<COMMON> 1
<OTHER-SE> (3,469)
<TOTAL-LIABILITY-AND-EQUITY> 1,661
<SALES> 0
<TOTAL-REVENUES> 161
<CGS> 0
<TOTAL-COSTS> 4
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (37)
<INTEREST-EXPENSE> 214
<INCOME-PRETAX> (20)
<INCOME-TAX> 0
<INCOME-CONTINUING> (20)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (20)
<EPS-PRIMARY> (20)
<EPS-DILUTED> (20)
</TABLE>
