<PAGE> 1
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, 1998
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 33759
(Address of principal executive offices, including zip code)
(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, 1998:
Class Outstanding as of April 30, 1997
- ------------------------------ --------------------------------
Common Stock, $1 par value 1,000 shares
Page 1 of 16
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, 1998 and December 31, 1997 3
Condensed Statements of Operations - Three
Months Ended March 31, 1998 and 1997 4
Condensed Statements of Cash Flows - Three
Months Ended March 31, 1998 and 1997 5
Notes to Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis
of the Results of Operations and Financial
Condition 11
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,
1998 1997
---------- ------------
<TABLE>
<CAPTION>
ASSETS
<S> <C> <C>
RESTRICTED CASH .................................. $ 43 $ 43
REAL ESTATE OWNED ................................ 7 7
------- -------
$ 50 $ 50
======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES:
Payable to U.S. Home Mortgage Corporation ........ $ 1,584 $ 1,584
Long-term debt, in default ....................... 525 525
------- -------
Total liabilities .................... 2,109 2,109
------- -------
STOCKHOLDER'S EQUITY:
Common stock, $1 par value ....................... 1 1
Capital in excess of par value ................... 1,718 1,718
Retained deficit ................................. (3,778) (3,778)
------- -------
Total stockholder's equity ........... (2,059) (2,059)
------- -------
$ 50 $ 50
======= =======
</TABLE>
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,
1998 1997
--------- --------
<TABLE>
<CAPTION>
REVENUES:
<S> <C> <C>
Interest .................................. $-- $30
Gain on sale of loans ..................... -- 65
--- ---
-- 95
--- ---
EXPENSES:
Interest .................................. -- 83
Other ..................................... -- 1
--- ---
-- 84
--- ---
NET INCOME .................................... $-- $11
=== ===
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 5
C.M. CORP.
CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------
1998 1997
---- --------
<S> <C> <C>
Net Cash Used By Operating Activities .......... $-- $ (11)
----- -------
Cash Flows From Investing Activities:
Proceeds from investments in
residential mortgage loans ............ -- 2,374
Decrease in restricted cash ............. -- 508
----- -------
Net cash provided by investing
activities ............................ -- 2,882
----- -------
Cash Flows From Financing Activities:
Repayment of long-term debt ............. -- (2,871)
----- -------
Net cash used by financing
activities ............................ -- (2,871)
----- -------
Net Change In Cash ............................. -- --
Cash At Beginning of Period .................... -- --
----- -------
Cash At End of Period .......................... $-- $ --
===== =======
Supplemental Disclosure:
Interest Paid ........................... $-- $ 129
===== =======
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 6
C.M. CORP.
----------
NOTES TO CONDENSED FINANCIAL STATEMENTS
---------------------------------------
(Dollars in Thousands)
(Unaudited)
(1) BASIS OF PRESENTATION:
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. However, during the first quarter
of 1997, the Company sold substantially all of its mortgage loans
and paid off a significant portion of its long-term debt and plans
to cease operations in 1998 (See Notes 2, 4 and 5).
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 March 31, 1998 and December 31, 1997, and its results of
operations and the statements of cash flows for the three-month
periods ended March 31, 1998 and 1997.
(2) INVESTMENT IN RESIDENTIAL MORTGAGE LOANS:
On February 7, 1997, the Company sold substantially all of its
remaining mortgage loans with an outstanding principal balance of
$2,366 on the date of purchase for an above par purchase price to
an unaffiliated investor and realized a gain on such sale of $65
(See Note 5).
<PAGE> 7
(3) VALUATION RESERVES:
The following summarizes valuation reserves for losses on
investment in residential mortgage loans and real estate owned for
the three months ended March 31, 1998 and 1997.
<TABLE>
<CAPTION>
Real Estate
Investments Owned
----------- ------------
<S> <C> <C>
Balance at December 31, 1996 $ 22 $ -
------- -----
Balance at September 30, 1997 $ 22 $ -
======= =====
Balance at December 31, 1997 $ - $ -
------- -----
Balance at March 31, 1998 $ - $ -
======= =====
</TABLE>
(4) LONG-TERM DEBT:
In accordance with the terms of an indenture ("Indenture"), dated
as of July 15, 1980, between the Company and The First National
Bank of Chicago ("Trustee"), as amended and supplemented, the
Company issued, in 1980 and 1981, conventional mortgage-backed
bonds with original principal balances of $100,000 ("Bonds"). As a
result of the sale on February 7, 1997 of substantially all of the
mortgage loans pledged to secure the Bonds, the Trustee paid
principal on the Bonds in the amount of $2,871 during the first
quarter of 1997 (See Note 5).
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 were 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
1988, the Company exhausted the blanket mortgage insurance
coverage to cover foreclosure losses on the conventional mortgage
loan pools securing the Bonds. As a result of the exhaustion of
the blanket mortgage insurance coverage for the mortgage pools,
losses have been and may be incurred by the Company that
previously were reimbursed by the mortgage insurer.
<PAGE> 8
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 did 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 resulted in non-compliance with a covenant under the
Indenture, permitting the Trustee or holders of 25% of the Bonds
to accelerate their maturity.
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
(consisting of the Series A and Series B Bonds) to be immediately
due and payable. Accordingly, pursuant to Section 12.02(a) of the
Indenture, the Company ceased the redemption of any of the
remaining Bonds.
From 1992 through 1996, the Trustee issued various reports to the
bondholders, from time to time, 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 a report issued
to the bondholders in 1994 that the unaffiliated collateral
evaluation service retained by the Trustee to review and analyze
the collateral securing the Bonds concluded there was a
significant depreciation in the value of the properties securing
the mortgage loans and such depreciation in value was likely to
have a significant affect on the bondholders' ultimate recovery of
their investment in the Bonds. The Trustee also stated in that
report their intent to hold the collateral for the present and
this decision was reconfirmed in subsequent reports issued to the
bondholders in 1995 and 1996.
The Trustee requested reimbursement from the Company for costs of
legal counsel and the collateral evaluation service 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. Under the
terms of the Indenture, 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. As of March 31, 1998, the Trustee
withdrew on a cumulative basis $109 from the reserve fund for the
Series A Bonds and the same amount of $109 from the reserve fund
for the Series B Bonds for these costs.
<PAGE> 9
Prior to and including the payment made on March 28, 1997 to the
Series B bondholders from the sale of the mortgage securing such
series, the Company had made timely payments due to the
bondholders under the terms of the Indenture. However, the Company
believed 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 under the terms of the Indenture 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 would 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. In addition, at the end of 1996, the Bonds had a
stated maturity within the next 4 years in the year 2000 and there
was a significant shortfall in the principal balance and weighted
average interest rate earned on the pledged loans compared to the
corresponding interest rates paid on the Bonds. Such events would
cause the Company at some future date to be unable to meet its
debt service requirements under the Indenture and holders of Bonds
would receive less than the principal amounts due on their Bonds.
At the end of 1996, substantially all of the remaining mortgage
loans were current and had good recent payment histories. In order
to minimize the eventual losses to the bondholders, and based on
the highest bid the Company obtained from an investor to purchase
these loans at an above par purchase price, the Trustee agreed
with the Company that it was in the best interest of the
bondholders to sell the loans and distribute the liquidated
collateral to them.
U.S. Home Mortgage Corporation ("Mortgage"), as servicer, was not
obligated to advance delinquent payments due on the pledged
mortgage loans unless it reasonably believed that such advances
would ultimately be recoverable from mortgage insurance proceeds.
During 1991, Mortgage, as servicer, advised the Company that it
would not advance delinquent mortgage loan payments due to the
uncertainty of the recoverability of such advances. As a result,
the Trustee withdrew once each in 1991 and 1992 a portion of the
reserve funds to make the required interest payments on the Series
B Bonds and to make such payments on the Series A Bonds in 1996.
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 would have also resulted in further withdrawals from
each of the reserve funds for both series of Bonds until these
funds were eventually exhausted. The cash reserve funds for the
Series A and Series B Bonds were substantially depleted from the
principal payments paid on these Bonds during the first quarter of
1997. At March 31, 1998, funds on deposit with the Trustee,
including the remaining cash reserve funds, totaled $43.
<PAGE> 10
(5) LOAN SALE AND BOND PREPAYMENT:
At the end of 1996, the Company obtained bids from unaffiliated
investors/brokers to purchase the remaining loans pledged to
secure the Bonds since most of these loans were current and had
good recent payment histories. The Company requested the consent
of the Trustee to sell the loans to the investor with the highest
bid of 102.75% offering to purchase all of the loans which were
not in foreclosure.
As part of the Special Reports the Trustee sent to the Series A
bondholders (dated February 28, 1997) and to the Series B
bondholders (dated March 28, 1997), the Trustee stated in those
reports that prior to granting their consent to this proposed
sale, the Trustee requested its mortgage banking affiliate,
experienced in the sale of residential mortgage loans, to review
the process by which the Company obtained the bids to determine if
it was likely to have resulted in receipt of bids fairly
reflecting the market for such loans and assess the fairness of
the bid. The Trustee also stated in these reports that this
affiliate concluded that the bid solicitation process employed by
the Company was appropriate and that the accepted bid was fair.
Accordingly, the Trustee exercised its rights under Section 6.04
of the Indenture and consented to the sale.
On February 7, 1997, the Company sold, without recourse, all of
its mortgage loans to this investor except for one loan pledged to
secure the Series B Bonds which was in the process of foreclosure.
During February and March, 1997, the Trustee used the proceeds
from this sale together with payments collected on these loans
prior to the sale and funds from the respective cash reserve funds
to pay the Series A Bonds in full and to make a principal
prepayment of $1,642 on the Series B Bonds. At March 31, 1998, the
outstanding principal balance of the Series B Bonds was $525.
The Company does not have, nor expect to have, any assets
available to make further payments on the Series B Bonds other
than the remaining cash funds on deposit with the Trustee and the
one remaining foreclosed mortgage loan in the process of
liquidation with an outstanding principal balance of $36 and
estimated net realizable value of $7. The Trustee stated in the
Special Report (dated March 28, 1997) sent to the Series B
bondholders that the Trustee expects, and the Company agrees, the
proceeds from the liquidation of this loan will not be sufficient
to repay the remaining principal of the Series B Bonds in full.
The Trustee further stated in this report that, due to such
insufficiency, there will be no further payments of interest on
the Series B Bonds. Based on this statement by the Trustee, the
Company ceased accruing interest expense payable on the
outstanding Series B Bonds. Therefore, at March 31, 1998, the
outstanding bond principal balance of $525 and interest accruing
on the Series B Bonds is substantially not recoverable and is
expected to result in a loss to the holders of the Series B Bonds.
<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 three month
period ended March 31, 1998 compared to the same period in 1997
due, primarily, to a reduction in the outstanding principal
balances of the mortgage loans and long-term debt from the sale
of substantially all of the mortgage loans and the principal
prepayment of a significant portion of the related long-term
debt from such sale proceeds during the first quarter of 1997.
In addition, the Company realized a gain from the sale of these
loans.
As of March 31, 1998, the Company's only earning asset is the
cash reserve funds on deposit in a short-term money market
account with the Trustee.
Financial Condition and Liquidity -
At March 31, 1998, the Company had outstanding approximately
$525,300 of mortgage-backed bonds ("Bonds") remaining from the
issuance, under the terms of an indenture ("Indenture"), of its
Series B Bonds. On May 28, 1992, as a result of non-compliance
with a covenant under the Indenture, the Trustee for the Bonds
(consisting of the Series A and Series B Bonds) notified the
Company that an Event of Default had occurred and declared the
outstanding principal balance of the Bonds issued under the
Indenture to be immediately due and payable.
On February 7, 1997, the Company sold, without recourse, and
with the consent of the Trustee, all of its mortgage loans at
an above par purchase price to an unaffiliated investor except
for one loan in default and pledged to secure the Series B
Bonds which has been subsequently foreclosed and is awaiting
liquidation. During February and March, 1997, the Trustee used
the proceeds from this sale together with payments collected on
these loans prior to the sale and funds from the respective
cash reserve funds to pay the Series A Bonds in full and to
make a principal prepayment of $1,642,200 on the Series B
Bonds.
<PAGE> 12
The Company does not have, nor expect to have, any assets
available to make further payments on the Series B Bonds other
than the remaining cash funds on deposit with the Trustee of
$43,300 and the one remaining foreclosed mortgage loan in the
process of liquidation with an outstanding principal balance of
$36,100 and an estimated net realizable value of $7,000. The
Trustee expects, and the Company agrees, that the proceeds from
the liquidation of this loan will not be sufficient to repay
the remaining principal of the Series B Bonds in full. The
Trustee also informed the Series B bondholders that, due to
such insufficiency, there will be no further payments of
interest on the Series B Bonds. Therefore, at March 31, 1998,
the outstanding bond principal balance of $525,300 and interest
accruing on the Series B Bonds is substantially not recoverable
and is expected to result in a loss to the holders of the
Series B Bonds.
In addition, the Company does not have the funds to repay the
payable of $1,584,000 to U.S. Home Mortgage Corporation.
For additional information, see "Notes 2, 4 and 5 of Notes to
Condensed Financial Statements."
Item 3. Defaults Upon Senior Securities.
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 "Notes 2, 4 and 5 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 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 March 31, 1998.
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 13, 1998 /s/ James R. Petty
------------------------------
(James R. Petty)
President and Chief Executive
Officer (principal executive
officer)
Date: May 13, 1998 /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 Per Common Share 15
27 Financial Data Schedule 16
<PAGE> 15
EXHIBIT 11
(Unaudited)
C.M. CORP.
----------
INCOME PER COMMON SHARE
-----------------------
FOR THE CONDENSED STATEMENTS OF OPERATIONS
------------------------------------------
(Dollars in Thousands, Except Per Share Data)
Three Months Ended
March 31,
-----------------------
1998 1997
------- -------
Net income ............................... $ -- $ 11
======= ======
Total common shares ...................... 1,000 1,000
======= ======
Income per common share .................. $ -- $ 11
======= ======
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule Contains Summary Financial Information Extracted From The
Condensed Financial Statements As Of March 31, 1998 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-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 43
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 7
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 50
<CURRENT-LIABILITIES> 1,584
<BONDS> 525
0
0
<COMMON> 1
<OTHER-SE> (2,060)
<TOTAL-LIABILITY-AND-EQUITY> 50
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
