<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 March 31, 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 April
30, 1996:
Class Outstanding as of April 30, 1996
- - --------------------------- -------------------------------------
Common Stock, $1 par value 1,000 shares
Page 1 of 15
Exhibit Index Located on Page 14
<PAGE> 2
C.M. CORP.
INDEX
Page Number
Part I - Financial Information
Item 1. Financial Statements
Condensed Balance Sheets -
March 31, 1996 and December 31, 1995 3
Condensed Statements of Operations - Three
Months Ended March 31, 1996 and 1995 4
Condensed Statements of Cash Flows - Three
Months Ended March 31, 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 10
Item 3. Defaults Upon Senior Securities 12
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K 13
<PAGE> 3
C.M. CORP.
CONDENSED BALANCE SHEETS
(Unaudited)
(Dollars in Thousands)
March 31, December 31,
1996 1995
-------------- ------------
ASSETS
------
RESTRICTED CASH $ 571 $ 521
ACCRUED INTEREST RECEIVABLE 24 29
INVESTMENT IN RESIDENTIAL MORTGAGE LOANS, net 1,090 1,196
REAL ESTATE OWNED 34 -
-------- --------
$ 1,719 $ 1,746
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
LIABILITIES:
Payable to U.S. Home Mortgage Corporation $ 1,364 $ 1,364
Accrued interest and other liabilities 268 268
Long-term debt, in default 3,562 3,562
-------- --------
Total liabilities 5,194 5,194
-------- --------
STOCKHOLDER'S EQUITY:
Common stock, $1 par value 1 1
Capital in excess of par value 1,718 1,718
Retained deficit (5,194) (5,167)
-------- --------
Total stockholder's equity (3,475) (3,448)
-------- --------
$ 1,719 $ 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
March 31,
-----------------------------
1996 1995
----------- -------------
REVENUES:
Interest $ 79 $ 104
------- -------
EXPENSES:
Interest 107 127
Other 2 3
Provision (recovery) of losses on loans
and real estate owned (3) 106
------- -------
106 236
------- -------
NET LOSS $ (27) $ (132)
======= =======
The accompanying notes are an integral part of these statements.
<PAGE> 5
C.M. CORP.
CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
Three Months Ended
March 31,
----------------------------
1996 1995
------------ ------------
Net Cash Used By Operating Activities $ (56) $ (66)
-------- --------
Cash Flows From Investing Activities:
Proceeds from investments in residential
mortgage loans 106 177
-------- --------
Net cash provided by investing activities 106 177
-------- --------
Cash Flows From Financing Activities:
Repayment of long-term debt - (102)
-------- --------
Net cash used by financing activities - (102)
-------- --------
Net Increase In Cash 50 9
Cash At Beginning of Period 521 543
-------- --------
Cash At End of Period $ 571 $ 552
======== ========
Supplemental Disclosure:
Interest Paid $ 107 $ 128
======== ========
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.
In the opinion of the Company, the accompanying condensed
financial statements contain all adjustments (all of which
were normal and recurring) necessary to present fairly the
financial position as of March 31, 1996 and December 31,
1995, and its results of operations and cash flows for the
three-month periods ended March 31, 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 $3,562 in principal amount is outstanding at March 31,
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 coverage for the conventional mortgage loan
pools securing the 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 invest-
<PAGE> 7
Note 2 - ment loans and foreclosed properties. These reserves are based
(cont'd) 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 three
months ended March 31, 1996 and 1995.
Real Estate
Investments Owned
----------- ------------
Balance at December 31, 1994 $ 1,544 $ 165
Provision of losses 31 75
Write-offs (31) (63)
Reclassification (22) 22
------- -------
Balance at March 31, 1995 $ 1,522 $ 199
======= =======
Balance at December 31, 1995 $ 1,544 $ -
Provision (recovery) of losses 7 (10)
Write-offs (7) -
Reclassification (22) 22
------- ------
Balance at March 31, 1996 $ 1,522 $ 12
======= ======
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 annual audit of its
financial statements required to be included in the annual
report 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.
<PAGE> 8
Note 2 - The remaining Series A and Series B Bonds have maturities of
(cont'd.) 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 Estate and distribute the
proceeds to the Bondholders" and the Indenture will be
terminated.
<PAGE> 9
Note 2 - The Trustee informed the bondholders in the Trustee's 1994
(cont'd) 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 1995 annual report to bondholders, dated July 15,
1995, the Trustee stated 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 March 31, 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
<PAGE> 10
Note 2 - Company agrees with the Trustee that the proceeds from any
(cont'd.) 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.
U.S. Home Mortgage Corporation ("Mortgage"), as servicer, is
not 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 March 31, 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 $255 and $209, respectively.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations -
Interest revenues and expenses decreased during the three month
period ended March 31, 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 months ended March 31, 1996 as compared to the
same period 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.
<PAGE> 11
Financial Condition and Liquidity -
At March 31, 1996, the Company had outstanding approximately
$3.6 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 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 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".
<PAGE> 12
Item 3. Defaults Upon Senior Securities.
The remaining Series A and Series B Bonds ($3.6 million
outstanding at March 31, 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 Loss Per Common Share.
(b) Reports on Form 8-K
No Current Report on Form 8-K was filed by the Company
during the three months ended March 31, 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: May 14, 1996 /s/ James R. Petty
-------------------
(James R. Petty)
President and Chief Executive Officer
(principal executive officer)
Date: May 14, 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 Loss Per Common Share 15
27 Financial Data Schedule 16
<PAGE> 15
EXHIBIT 11
(Unaudited)
C.M. CORP.
LOSS PER COMMON SHARE FOR THE CONDENSED STATEMENTS OF OPERATIONS
(Dollars in Thousands, Except Per Share Data)
Three Months Ended
March 31,
1996 1995
----------- -----------
Net loss $ (27) $ (132)
====== ======
Total common shares 1,000 1,000
====== ======
Loss per common share $ (27) $ (132)
====== ======
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule Contains Summary Financial Information Extracted From The
Condensed Financial Statements As Of March 31, 1996 And For The Three
Months Then Ended And Is Qualified In Its Entirety By Reference To Such
Financial Statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 571
<SECURITIES> 0
<RECEIVABLES> 1,114
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,719
<CURRENT-LIABILITIES> 1,632
<BONDS> 3,562
1
0
<COMMON> 0
<OTHER-SE> (3,476)
<TOTAL-LIABILITY-AND-EQUITY> 1,719
<SALES> 09
<TOTAL-REVENUES> 79
<CGS> 0
<TOTAL-COSTS> 2
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (3)
<INTEREST-EXPENSE> 107
<INCOME-PRETAX> (27)
<INCOME-TAX> 0
<INCOME-CONTINUING> (27)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (27)
<EPS-PRIMARY> (27)
<EPS-DILUTED> (27)
</TABLE>
