<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 September 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 October
31, 1996:
Class Outstanding as of October 31, 1996
- ----------------------------- -------------------------------------
Common Stock, $1 par value 1,000 shares
Page 1 of 17
Exhibit Index Located on Page 15
<PAGE> 2
INDEX
Page Number
Part I - Financial Information
Item 1. Financial Statements
Condensed Balance Sheets -
September 30, 1996 and December 31, 1995 3
Condensed Statements of Operations - Three
and Nine Months Ended September 30, 1996
and 1995 4
Condensed Statements of Cash Flows - Nine
Months Ended September 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)
September 30, December 31,
1996 1995
-------------- -----------
ASSETS
------
RESTRICTED CASH .................................. $ 552 $ 521
ACCRUED INTEREST RECEIVABLE ...................... 24 29
INVESTMENT IN RESIDENTIAL MORTGAGE LOANS, net .... 912 1,196
------- -------
$ 1,488 $ 1,746
======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
LIABILITIES:
Payable to U.S. Home Mortgage Corporation ........ $ 1,364 $ 1,364
Accrued interest and other liabilities ........... 266 268
Long-term debt, in default ....................... 3,396 3,562
------- -------
Total liabilities .................... 5,026 5,194
------- -------
STOCKHOLDER'S EQUITY:
Common stock, $1 par value ....................... 1 1
Capital in excess of par value ................... 1,718 1,718
Retained deficit ................................. (5,257) (5,167)
------- -------
Total stockholder's equity ........... (3,538) (3,448)
------- -------
$ 1,488 $ 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 Nine Months Ended
September 30, September 30,
------------------ -----------------
1996 1995 1996 1995
------ ------ ------ -----
REVENUES:
Interest ............................. $ 76 $ 89 $ 237 $ 288
----- ----- ----- -----
EXPENSES:
Interest ............................. 106 118 320 368
Other ................................ 18 20 22 25
Provision (benefit) for losses on
loans and real estate owned ..... 22 10 (15) 148
----- ----- ----- -----
146 148 327 541
----- ----- ----- -----
NET LOSS ................................ $ (70) $ (59) $ (90) $(253)
===== ===== ===== =====
The accompanying notes are an integral part of these statements.
<PAGE> 5
C.M. CORP.
CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
Nine Months Ended
September 30,
-------------------
1996 1995
------- -------
Net Cash Used By Operating Activities ....... $ (87) $ (44)
----- -----
Cash Flows From Investing Activities:
Proceeds from investments in
residential mortgage loans ........... 284 550
----- -----
Net cash provided by investing
activities ........................... 284 550
----- -----
Cash Flows From Financing Activities:
Repayment of long-term debt .......... (166) (433)
----- -----
Net cash used by financing
activities ........................... (166) (433)
----- -----
Net Increase In Cash ........................ 31 73
Cash At Beginning of Period ................. 521 543
----- -----
Cash At End of Period ....................... $ 552 $ 616
===== =====
Supplemental Disclosure:
Interest Paid ........................ $ 322 $ 373
===== =====
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 repor 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 September 30, 1996 and
December 31, 1995, and its results of operations for the
three-month and nine-month periods ended September 30, 1996
and 1995 and the statements of cash flows for the nine-month
periods ended September 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 $3,396 in principal amount is
outstanding at September 30, 1996. The Company secured
the Bonds pursuant to an investment in a significant number
of conventional residential mortgage loans with high
<PAGE> 7
Note 2 - loan-to-value ratios that are located primarily in
(cont'd.) 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 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 nine months
ended September 30, 1996 and 1995.
Real Estate
Investments Owned
----------- -----------
Balance at December 31, 1994 ............. $ 1,544 $ 165
Provision for losses ..................... 53 95
Write-offs ............................... (31) (141)
Reclassification ......................... (22) 22
------- -------
Balance at September 30, 1995 ............ $ 1,544 $ 141
======= =======
Balance at December 31, 1995 ............. $ 1,544 $ --
Provision for (recovery of) losses ....... 8 (23)
Write-offs ............................... (8) 1
Reclassification ......................... (22) 22
------- -------
Balance at September 30, 1996 ............ $ 1,522 $ --
======= =======
<PAGE> 8
Note 2 - The Company does not have, nor expect to have, any
(cont'd.) 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.
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
<PAGE> 9
Note 2 - of Default. The Trustee informed the bondholders in the July
(cont'd.) 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.
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 ofFSCM 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.
<PAGE> 10
Note 2 - The Trustee requested reimbursement from the Company for
(cont'd.) 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 September 30, 1996,
the Trustee withdrew on a cumulative basis $106 from the
reserve fund for the Series A Bonds and the same amount of
$106 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> 11
Note 2 - U.S. Home Mortgage Corporation ("Mortgage"), as servicer,
(cont'd.) 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 and on August 28, 1996 to
make such payments on the Series A 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 September 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 $249 and $206, respectively.
<PAGE> 12
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 and
nine month periods ended September 30, 1996 compared to the
same periods 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 nine month period ended September 30, 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.
Financial Condition and Liquidity -
At September 30, 1996, the Company had outstanding
approximately $3.4 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.
<PAGE> 13
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> 14
Item 3. Defaults Upon Senior Securities.
The remaining Series A and Series B Bonds ($3.4 million
outstanding at September 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> 15
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 11 - Computation of 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 September 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: November 8, 1996 /s/ James R. Petty
-------------------
(James R. Petty)
President and Chief Executive Officer
(principal executive officer)
Date: November 8, 1996 /s/ Ronald C. McCabe
---------------------
(Ronald C. McCabe)
Senior Vice President and Chief
Accounting Officer
(principal accounting officer)
<PAGE> 16
INDEX OF EXHIBITS
Exhibit Page
Number Number
------- ------
11 Computation of Loss Per Common Share 17
27 Financial Data Schedule 18
<PAGE> 17
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 Nine Months Ended
September 30, September 30,
------------------------ --------------------
1996 1995 1996 1995
-------- -------- -------- -------
Net loss ................... $ (70) $ (59) $ (90) $ (253)
======= ======= ======= =======
Total common shares ........ 1,000 1,000 1,000 1,000
======= ======= ======= =======
Loss per common share ...... $ (70) $ (59) $ (90) $ (253)
======= ======= ======= =======
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule Contains Summary Financial Information Extracted From
The Condensed Financial Statements As Of September 30, 1996 And For The
Nine Months Then Ended And Is Qualified In Its Entirety By Reference
To Such Financial Statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 552
<SECURITIES> 0
<RECEIVABLES> 936
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1488
<CURRENT-LIABILITIES> 1630
<BONDS> 3396
0
0
<COMMON> 1
<OTHER-SE> (3539)
<TOTAL-LIABILITY-AND-EQUITY> 1488
<SALES> 0
<TOTAL-REVENUES> 237
<CGS> 0
<TOTAL-COSTS> 22
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (15)
<INTEREST-EXPENSE> 320
<INCOME-PRETAX> (90)
<INCOME-TAX> 0
<INCOME-CONTINUING> (90)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (90)
<EPS-PRIMARY> (90)
<EPS-DILUTED> (90)
</TABLE>