U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
XX ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 0-1008
M CORP
(Name of small business issuer in its charter)
Montana
(State or other jurisdiction of
incorporation or organization)
81-0268769
(I.R.S. Employer Identification Number)
110 Second Street South, Great Falls, Montana 59405
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (406) 727-2600
Securities registered under Section 12(b) of the Exchange Act:
Title of Each Class
NONE
Name of Each Exchange On Which Registered
N/A
Securities registered under Section 12(g) of the Exchange Act:
Common Stock $1.00 Par Value
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes XX No
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-KSB or any amendment to this Form 10-KSB.
State issuer's revenues for its most recent fiscal year $3,274,771.
State the aggregate market value of the voting stock held by
nonaffiliates of the registrant. The aggregate market value shall be
computed by reference to the price at which the stock was sold, or the
average bid and asked prices of such stock, as of a specified date within
the past 60 days. (See definition of affiliate in Rule 12b-2 of the
Exchange Act). As of February 28, 1997, 110,360 shares held by
nonaffiliates were outstanding. The registrant's stock is not traded on any
securities exchange. To registrant's knowledge, neither bid nor asked
quotations for registrant's stock have appeared in any established quotation
system during the past sixty business days. To registrant's knowledge,
neither bid nor asked quotations for registrant's stock are reported in any
newspapers nor are records kept of any quotations by the National Quotation
Bureau, Inc. There exists no public market for registrant's stock.
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date.
867,358 shares $1.00 value common stock are outstanding as of February
28, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
DOCUMENTS FORM 10-KSB REFERENCE
Annual Report to Shareholders for Part I, Items 1 and 2
the year ended December 31, 1996. Part II, Items 5, 6 and 7
Part III, Item 12
Part IV, Item 13
Transitional Small Business Disclosure Format (check one): Yes ; No X .
<PAGE>
M CORP
PART I
ITEM 1. DESCRIPTION OF BUSINESS
A description of the Company's business is set forth on Page 1 and in Notes
14 and 17 (Pages 16 and 20, respectively) of the Notes to Consolidated
Financial Statements in Exhibit 13, the Annual Report to Shareholders for the
year ended December 31, 1996 which description is incorporated herein by
reference.
The Company has no foreign operations.
ITEM 2. DESCRIPTION OF PROPERTY
A description of the Company's properties is set forth on Page 1 and in Note
16 (Page 18) of the Notes to Consolidated Financial Statements in Exhibit 13,
the Annual Report to Shareholders for the year ended December 31, 1996, which
description is incorporated herein by reference.
In addition to the properties owned by the Company, office space is leased
for the Company's title insurance agency operations in Billings and Forsyth,
Montana. The lease for office space in Billings expires in 1997, but may be
terminated upon six (6) months notice. The lease for the office space in
Forsyth expires in 2000. See Note 9 - Commitments, of the Notes to
Consolidated Financial Statements on Page 16 of Exhibit 13, the Annual Report
to Shareholders for the year ended December 31, 1996 which note is
incorporated herein by reference.
ITEM 3. LEGAL PROCEEDINGS
No legal proceedings presently pending by or against M Corp and its
consolidated subsidiaries are described herein as management believes that
the outcome of such litigation should not have a material adverse effect on
the financial position of the Company and its subsidiaries taken as a whole.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of 1996 a meeting of security holders was held at
which the Company's entire Board of Directors was elected. The Company's
shareholders also authorized the Board of Directors to select an independent
certified public accounting firm to audit the Company's financial statements
for 1996.
I-1
1.
<PAGE>
M CORP
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS;
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION; AND
ITEM 7. FINANCIAL STATEMENTS
Items 5, 6 and 7 are set forth on Page 21, Pages 1 and 2 and Pages 3 to 20,
respectively, of Exhibit 13, the Annual Report to Shareholders for the year
ended December 31, 1996, which report is incorporated herein by reference.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no disagreements concerning accounting principles or
practices or financial statement disclosures between the Company and the
Company's independent auditor during the two most recent years.
II-1
2.
<PAGE>
M CORP
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16 (a) OF THE EXCHANGE ACT.
The following are the directors and executive officers of the Company. All
directors and officers serve as such until the 1997 annual meeting of
shareholders or until their successors are elected and qualify.
NAME, AGE, AND YEAR ELECTED DIRECTOR POSITION
R. Bruce Robson, 55, 1994 Director
G. Robert Crotty, Jr., 69, 1995 Director
S. M. McCann, 33, 1994 Director,
President
R. Bruce Robson is a director and secretary-treasurer of Medical Information
Processing Systems, Inc. and a director of TSI, Inc., a subsidiary of the
Company.
G. Robert Crotty, Jr., an attorney at law, is a director of TSI, Inc.
S. M. McCann, an attorney at law, is a director of GNI, Inc. (the Company's
parent company), UAC, Inc. and Diversified Realty, Inc., subsidiaries of the
Company.
Family Relationships
S. M. McCann is a daughter of Anne Marie and Paul J. McCann (see item 11(a)
on the following page). There are no other family relationships among the
directors and officers listed above and there are no arrangements or
understandings pursuant to which any of them were elected as directors or
officers.
Business Experience of Executive Officers
R. Bruce Robson has been a Director of the Company since February, 1994. Mr.
Robson is the Data Processing Manager, Sletten Construction Co., Great Falls,
Montana.
G. Robert Crotty, Jr. is an attorney at law and a partner in the law firm of
Graybill, Ostrem & Crotty in Great Falls, Montana.
S. M. McCann is an attorney at law and an investor in San Luis Obispo,
California.
Based solely on its review of reports of persons subject to Section 16 of the
Securities and Exchange Act, the Company believes that required reports were
filed in a timely manner disclosing transactions involving the Company's
common stock.
III-1
3.
<PAGE>
M CORP
ITEM 10. EXECUTIVE COMPENSATION
Summary Compensation Table. The following table lists the cash compensation
paid by the Company and the Company's consolidated subsidaries to the
Company's President for 1996, 1995 and 1994. No officer or director of the
Company or the Company's consolidated subsidaries received total cash
compensation in excess of $100,000 for 1996, 1995 or 1994.
Summary Compensation Table
Name and Calender Total Cash
Principal Position Year Compensation
S. M. McCann 1996 $ 0
President, Director 1995 $ 0
1994 $ 250
The Company does not have any compensatory stock appreciation rights plans
or compensatory stock option palns. During 1996, the Company's Board of
Directors granted S. M. McCann the option to purchase 36,000 shares of the
Company's unissued common stock at the exercise price of five dollars per
share. Also during 1996, the Company's Board of Directors granted Paul J.
McCann the option to purchase 175,000 shares of the Company's unissued common
stock at the exercise price of five dollars per share. The options are
classified as non-statutory stock options. The options expire on September 1,
2003. The Company has not adopted a formal plan for the compensation of
directors. During 1996 the Company and its consolidated subsidiaries paid a
total of $200 to directors of the Company and the Company's consolidated
subsidaries.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Security Ownership of Certain Beneficial Owners
Set forth below is certain information concerning persons who are known by
the Company to own beneficially more than 5% of the Company's voting shares
on February 28, 1997.
Amount and
Nature
Title of Name and Address of of Beneficial Percent
Class Beneficial Owner Ownership of Class
$1.00 Par GNI, Inc. 700,341 64.9%
Value Common 110 Second Street South
Stock Great Falls, MT 59403
$1.00 Par Anne Marie and Paul J. 967,998 (1) 89.8%
Value Common McCann Family Members
P.O. Box 2249
Great Falls, MT 59403
(1) Includes the 700,341 shares owned by GNI, Inc., of which firm members of
the Anne Marie and Paul J. McCann family own, directly or indirectly, over
50% of the outstanding stock, 55,137 shares owned by FDC, Inc., of which
company members of the Anne Marie and Paul J. McCann family own directly or
indirectly over 50% of the outstanding stock, 1,520 shares owned outright by
members of the Anne Marie and Paul J. McCann family. and options to acquire
211,000 shares of the Company's unissued common stock. Neither Anne Marie
McCann nor Paul J. McCann directly own of record any shares of stock of the
Company. Anne Marie and Paul J. McCann each disclaim beneficial interest in
any shares of stock not owned of record directly by them.
III-2
4.
<PAGE>
M CORP
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT -
Continued
(a) Security Ownership of Certain Beneficial Owners - Continued
S.M. McCann is the record owner of 400 shares of stock of the Company and
holds an option to acquire 36,000 shares of the Company's unissued common
stock. Paul J. McCann holds an option to acquire 175,000 shares of the
Company's unissued common stock. Paul J. McCann disclaims beneficial
ownership in any shares of stock not owned of record by him. Anne Marie
McCann disclaims beneficial ownership in any shares of stock not owned of
record by her. Neither Anne marie McCann nor Paul J. McCann directly own
of record any shares of stock of the Company.
(b) Security Ownership of Management
The following table sets forth as of February 28, 1997, information
concerning the beneficial ownership of the Company's common stock by each
director, each executive officer named in the Company's Summary Compensation
Table and by all directors and executive officers of the Company as a group:
Amount and Nature
Name of Beneficial Owner of Beneficial Ownership Percent
R. Bruce Robson 10 --
G. Robert Crotty, Jr. -- --
S.M. McCann 36,400 (1 3.4%
All Directors and Officers
as a Group 36,410 (1) 3.4%
(1) See Note (1) item 11(a) beginning on the preceding page.
(c) Changes In Control
The Company knows of no contractual arrangements which may at a
subsequent date result in a change in control of the Company.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions between the Company (and its consolidated subsidiaries) and
related persons are disclosed in Note 13 (Page 17) of the Notes to
Consolidated Financial Statements in Exhibit 13, the Annual Report to
Shareholders for the year ended December 31, 1996 which description is
incorporated herein by reference. During 1996, the Company and its
consolidated subsidiaries compensated members oif Paul J. McCann's family
the total amount of $105,225. During 1995, the Company and its consolidated
subsidiaries compensated members of Paul J. McCann's family the total
amount of $40,754.
III-3
5.
<PAGE>
M CORP
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
No. 13 - M Corp Annual Report to Shareholders for the year ended
December 31, 1996.
No. 22 - Subsidiaries of the Registrant.
No. 27 - Financial Data Schedule
(b) Reports on Form 8-K
No current reports on Form 8-K were filed by the Company during
the three months ended December 31, 1996.
IV-1
6.
<PAGE>
M CORP
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant has caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
M CORP
Date: February 28, 1997 By: s/S. M. McCann
S. M. McCann, President
In accordance with the Exchange Act, this report has been
signed below by the following persons on behalf of the
Registrant and in the capacities indicated on February 28,
1997.
Chairman of the Board,
President,
Principal Executive
and Financial Officer s/S. M. McCann
S. M. McCann
Director s/R. Bruce Robson
R. Bruce Robson
Principal Accountant s/Jerry K. Mohland
Jerry K. Mohland
IV-2
7.
<PAGE>
M CORP
ANNUAL REPORT
1996
<PAGE>
M CORP
AND CONSOLIDATED SUBSIDIARIES
ANNUAL REPORT
DESCRIPTION AND LINES OF BUSINESS
M Corp (sometimes referred to herein as the "Company") was incorporated in
1958 and operates as a financial holding company. The Company, through its
wholly or majority-owned subsidiaries is engaged in the title insurance
business and the ownership and rental of real properties.
Title Insurance - First Montana Title Insurance Company (FMTIC, a wholly-
owned subsidiary of TSI, Inc., a ninety-one percent owned subsidiary of the
Company) was organized in 1958. FMTIC issues title insurance policies through
its subsidiaries within the State of Montana only.
Real Estate Investments - The Company, through its wholly or majority-owned
subsidiaries owns rental properties in Montana and Florida. The Company's
rental properties include one commercial building, two apartment complexes
with a total of thirty-two units and several one to four unit residential
properties. The Company's investments in real estate are set forth in Note 16
(Investments In Real Estate) of the Notes to Consolidated Financial
Statements.
The Company operates in a competitive business environment and the Company is
not dependent upon one or a few major customers. Information concerning the
Company's industry segments is set forth in Note 17 (Information on Segments
of Business) of the Notes to Consolidated Financial Statements.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Title insurance premiums and related fees increased $159,268 (10.8%) in 1996
as compared with 1995 due primarily to an increase in the real estate
economies within which the Company operates. The Company believes that the
increase in the real estate economies within which the Company operates was
due in part to decreased mortgage interest rates.
Interest revenues increased $47,014 (11.7%) in 1996 as compared with 1995 due
primarily to an increase in interest rates and an increase in amounts
maintained by the Company in interest-bearing deposits.
1
<PAGE>
M CORP
AND CONSOLIDATED SUBSIDIARIES
ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - Continued
Rent revenues increased $11,935 (2.2%) in 1996 as compared with 1995. The
increase in rent revenues in 1996 as compared with 1995 was due primarily to
a decrease in vacancies.
During 1995 the Company sold a parcel of real property at a net gain of
$47,239. No such gains or losses were realized in 1996.
Other income increased $233,573 (58.0%) in 1996 as compared with 1995. During
1996 the Company realized a net gain on the sales of investments in the
amount of $152,252 whereas during 1995 the Company realized a net loss on
the sales of investments in the amount of $3,783.
Salaries and other personnel costs increased $149,612 (19.2%) in 1996 as
compared with 1995 due primarily to an increase in salary rates and increase
in the number of personnel employed in the Company's title insurance
operations. The provision for depreciation decreased $25,251 (17.7%) in 1996
as compared with 1995 due primarily to certain assets being fully depreciated
in 1996 and 1995. Other general and administrative expenses increased
$151,833 (21.0%) in 1996 as compared with 1995. During 1996, the Company's
consolidated subsidiaries contributed assets in kind to a charitable
foundation with a fair market value of $125,375. Income tax expense increased
$62,550 (20.7%) in 1996 as compared with 1995 due primarily to the increase
in pre-tax income.
The company is involved in examining and investigating investment
opportunities available to the Company which could result in the investment
of substantial cash and which would affect the liquidity of the Company.
The Company knows of no existing trends, demands or commitments that could
result in a material adverse change in the Company's liquidity. The Company
knows of no material unfavorable trends in the Company's capital resources.
2
<PAGE>
M CORP
AND CONSOLIDATED SUBSIDIARIES
FINANCIAL REPORT
DECEMBER 31, 1996
CONTENTS
PAGE
AUDITOR'S REPORT 4
CONSOLIDATED FINANCIAL STATEMENTS
Balance Sheets as of December 31, 1996 and 1995 5-6
Statements of Income
for the Years Ended
December 31, 1996 and 1995 7
Statements of Stockholders' Equity
for the Years Ended
December 31, 1996 and 1995 8
Statements of Cash Flows for the Years
Ended December 31, 1996 and 1995 9-10
Notes to Consolidated Financial Statements 11-20
OTHER INFORMATION 21
3
<PAGE>
Report of Independent Auditors
To The Board of Directors
M Corp
Great Falls, MT 59405
We have audited the accompanying consolidated balance sheets of M Corp
and consolidated subsidiaries as of December 31, 1996 and 1995 and the
related consolidated statements income, stockholders' equity and cash flows
for the years then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of M Corp and consolidated subsidiaries as of December 31, 1996 and 1995 and
the consolidated results of their operations and their consolidated cash
flows for the years then ended, in conformity with generally accepted
accounting principles.
DWYER & KEITH, CPA's, P.C.
March 21, 1997
Great Falls, Montana
4
<PAGE>
M CORP
AND CONSOLIDATED SUBSIDIARIES
BALANCE SHEETS
DECEMBER 31, 1996 and 1995
ASSETS 1996 1995
Current Assets
Cash (Note 2) $ 9,617,085 $ 8,132,517
Investment Securities (Note 3) 2,690,620 2,517,006
Trade Accounts Receivable, Less Allowance
for Doubtful Accounts of $12,500 in 1996
and 1995 27,892 15,815
Current Portion of Long-Term
Receivables (Note 7) 1,854 3,946
Prepaid Expenses - 33,700
Income Tax Prepayments 26,359 69,575
Due From Related Parties - 306,878
Total Current Assets 12,363,810 11,079,437
Other Assets
Noncurrent Investments (Note 3) 105,000 105,000
Other Investments (Note 3) 10,337,419 7,448,091
Notes Receivable, Excluding
Current Portion (Note 7) 11,464 112,271
Total Other Assets 10,453,883 7,665,362
Investments In Property, Plant and
Equipment, at Cost (Notes 1 and 16)
Buildings 2,221,606 2,221,606
Furniture, Fixtures and Equipment 443,410 451,659
2,660,016 2,673,265
Less Accumulated Depreciation (1,754,261) (1,658,118)
905,755 1,015,147
Title Plants 216,715 216,715
Land 144,414 144,414
Net Property, Plant and Equipment 1,266,884 1,376,276
$24,084,577 $20,121,075
See Notes to Consolidated Financial Statements.
5
<PAGE>
M CORP
AND CONSOLIDATED SUBSIDIARIES
BALANCE SHEETS
DECEMBER 31, 1996 and 1995
1996 1995
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable $ 112,062 $ 72,381
Accrued Liabilities (Note 4) 123,773 109,589
Dividends Payable 30,599 16,310
Income Taxes Payable - 60,508
Deferred Income Taxes (Notes 1 and 6) 405,000 317,500
Total Current Liabilities 671,434 576,288
Provision for Estimated Title and
Escrow Losses (Note 8) 1,069,768 1,128,030
Minority Interests in Consolidated
Subsidiaries 2,229,026 1,963,847
Deferred Income Taxes (Notes 1 and 6) 2,760,400 1,583,700
Excess of Fair Value of Net Assets Acquired
Over Cost (Note 1) 65,075 73,295
6,124,269 4,758,872
Commitments (Note 9)
Stockholders' Equity (Notes 1 and 15)
Common Stock, $1.00 Par Value,
5,000,000 shares authorized,
867,358 shares outstanding 3,051,004 3,051,004
Additional Paid-In Capital 9,934,562 9,934,562
Retained Earnings (Note 11) 2,382,380 1,555,833
Add: Unrealized Gains on Investments (Note 3) 4,287,272 2,610,860
Less: Cost of Common Shares in Treasury
2,183,646 Shares in 1996 and 1995 (2,366,344) (2,366,344)
Total Stockholders' Equity 17,288,874 14,785,915
$24,084,577 $20,121,075
See Notes to Consolidated Financial Statements.
6
<PAGE>
M CORP
AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1996 and 1995
1996 1995
Revenue
Title Insurance Premiums and Related Fees $1,623,168 $1,463,900
Interest 448,995 401,981
Rent 566,407 554,472
Net Gain on Sale of Properties - 47,239
Other (Note 5) 636,201 402,628
3,274,771 2,870,220
Operating Expenses
Salaries and Other Personnel Costs 930,074 780,462
Depreciation 117,124 142,375
Rent 37,210 35,455
Title and Escrow Losses 13,966 -
Interest 1,823 -
Other General and Administrative Expenses 876,346 724,513
1,976,543 1,682,805
Operating Income 1,298,228 1,187,415
Minority Share of Consolidated Subsidiaries
Net (Income) (95,854) (86,867)
Income Before Income Taxes 1,202,374 1,100,548
Income Taxes (Note 6) (364,550) (302,000)
Net Income $ 837,824 $ 798,548
EARNINGS PER COMMON SHARE (Note 1)
NET INCOME PER SHARE $ .97 $ .92
See Notes to Consolidated Financial Statements.
7
<PAGE>
M CORP
AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
Net
Additional Unrealized
Common Paid-In Retained Gains On Treasury
Stock Capital Earnings Investments Stock Total
<S> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1995,
As Previously Reported $3,051,004 $1,934,562 $8,768,845 $2,091,177 $(2,363,022) $13,482,566
Recapitalization (Note 15) 8,000,000 (8,000,000) -
Balances, January 1, 1995,
As Restated 3,051,004 9,934,562 768,845 2,091,177 (2,363,022) 13,482,566
Net Income 798,548 798,548
Dividends Paid (11,560) (11,560)
Change in Net Unrealized
Gains On Investments 519,683 519,683
Purchase of Treasury Stock (3,322) (3,322)
Balances, December 31,
1995 3,051,004 9,934,562 1,555,833 2,610,860 (2,366,344) 14,785,915
Net Income 837,824 837,824
Dividends Paid (11,277) (11,277)
Change in Net Unrealized
Gains On Investments 1,676,412 1,676,412
Balances, December 31,
1996 $3,051,004 $9,934,562 $2,382,380 $4,287,272 $(2,366,344) $17,288,874
</TABLE>
See Notes to Consolidated Financial Statements.
8
<PAGE>
M CORP
AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 and 1995
INCREASE (DECREASE) IN CASH
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash Received From Customers $ 2,193,209 $ 2,136,494
Cash Paid to Suppliers and Employees (1,706,698) (1,613,955)
Interest and Dividends Received in Cash 813,138 741,330
Cash Proceeds From Sales of Noncurrent Assets 10,522 93,762
Interest Paid in Cash (1,823) -
Income Taxes Paid in Cash (398,842) (1,022,511)
Net Cash Provided By Operating Activities 909,506 335,120
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash Received on Principal of Notes Receivable 107,825 3,702
Cash Purchases of Minority Interests (2,425) (2,055)
Capital Expenditures Paid in Cash (18,254) (29,961)
Cash Received on Disposition of
Current Investments 389,242 100,472
Cash Purchases of Current Investments (208,204) (42,766)
Net Cash Provided By Investing Activities 268,184 29,392
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash Received From Affiliates 306,878 -
Dividends Paid in Cash - (11,569)
Cash Purchases of Treasury Stock (3,322)
Net Cash Provided (Used) By Financing Activities 306,878 (14,891)
NET INCREASE IN CASH 1,484,568 349,621
CASH - BEGINNING OF YEAR 8,132,517 7,782,896
CASH - END OF YEAR $ 9,617,085 $ 8,132,517
(Continued)
9
<PAGE>
M CORP
AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CASH FLOWS - Continued
FOR THE YEARS ENDED DECEMBER 31, 1996 and 1995
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED
BY OPERATING ACTIVITIES
1996 1995
Net Income $ 837,824 $ 798,548
Adjustments to Reconcile Net Income
to Net Cash Provided By Operating Activities:
Depreciation 117,124 142,375
Provision for Doubtful Account Receivable (4,926) -
Minority Share of Consolidated Subsidiaries
Net Income 95,854 86,867
Amortization of Deferred Credit (8,220) (8,220)
Net Book Value of Assets Sold 10,522 46,523
Contribution in Kind 27,877 -
Realized (Gains) Losses on Dispositions of
Current Investments (152,251) 3,783
Changes in Operating Assets and Liabilities
(Increase) Decrease in Accounts Receivable (12,077) 59,510
Decrease in Prepaid Expenses 33,700 9,500
(Increase) Decrease in Income Tax Prepayments 43,216) (69,575)
(Decrease) in Payables and Accrued
Liabilities (1,385) (81,255)
(Increase) in Deferred Income Taxes (17,000) (1,000)
(Decrease) in Income Taxes Payable (60,508) (651,936)
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 909,506 $ 335,120
See Notes to Consolidated Financial Statements.
10
<PAGE>
M CORP
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly and majority owned subsidiaries. All significant intercompany
transactions and balances have been eliminated in consolidation.
(b) Title Insurance Income and Related Fees
The Company follows the practice of recording title insurance premiums as
income upon the issuance of the title insurance policy or the collection of
payment for the title insurance preliminary commitment, whichever occurs
first. All other fees and charges are recognized as income upon the rendering
of services.
(c) Excess of Fair Value of Net Assets of Acquired Subsidiaries Over
Cost
The excess of fair value of the net assets of acquired subsidiaries over cost
is amortized over a twenty year period using the straight-line method.
(d) Depreciation and Amortization
Property, plant and equipment is comprised of furniture and fixtures,
buildings, title plants and land. Furniture and fixtures are carried at cost.
Depreciation is computed over recovery periods of three to ten years using
declining balance methods with a mid-quarter convention.
Buildings and building improvements are carried at cost. Depreciation is
computed over recovery periods of ten to twenty-seven and one-half years
using the straight line method with a mid-month convention.
Title plants and land are carried at cost and are not depreciated.
(e) Earnings Per Share
The computation of earnings per share in the accompanying statements is based
on the weighted average number of shares outstanding (867,358 shares in 1996
and 867,725 shares in 1995). The assumed exercise of outstanding stock
options does not result in material dilution.
(f) Income Taxes
The Company follows the practice of recording deferred income taxes resulting
from timing differences between financial reporting and income tax reporting.
11
<PAGE>
M CORP
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
(f) Income Taxes - Continued
The Company does not provide for deferred income taxes resulting from the
undistributed earnings of wholly owned subsidiary companies included in the
consolidated statements of income because the companies file consolidated
federal income tax returns and therefore any dividends paid to the Company
are nontaxable. Investment tax credits are recorded as a reduction of the
provision for federal income taxes in the year utilized.
(g) Fiduciary Assets and Liabilities
The assets and liabilities of the escrows administered by the Company are not
included in the consolidated balance sheet.
(h) Policy of Cash Equivalents
For purposes of the statements of cash flows, cash equivalents include time
deposits, certificates of deposit and money market accounts, all with
original maturities of three months or less.
(i) Reclassifications
Certain reclassifications have been made to the prior year amounts to make
them comparable to the 1996 presentation. These changes had no impact on
previously reported results of operations or shareholders' equity.
2. CASH BALANCES
The Company maintains accounts with various financial institutions and stock
brokerage firms. Cash balances are insured up to $100,000 by either the
Securities Investor Protection Corporation ("SIPC") or the Federal Deposit
Insurance Corporation ("FDIC"). At December 31, 1996, cash balances totalling
$7,036,364 were uninsured by either the SIPC or the FDIC.
3. INVESTMENT SECURITIES AND OTHER INVESTMENTS
The Company adopted Statement of Financial Accounting Standards No. 115
("SFAS No. 115"), "Accounting For Investments in Certain Debt and Equity
Securities" effective January 1, 1994. In accordance with SFAS No. 115, the
Company has classified all of its current and other investments as available
for sale. On the following page is a summary of the Company's investments,
all of which consist of equity securities:
12
<PAGE>
M CORP
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
3. INVESTMENT SECURITIES AND OTHER INVESTMENTS - Continued
1996 1995
Current Assets
Cost $ 1,724,198 $ 1,752,741
Gross Unrealized Holding Gains 984,375 780,871
Gross Unrealized Holding Losses (17,953) (16,606)
Fair Value $ 2,690,620 $ 2,517,006
Other (Noncurrent) Assets
Cost $ 3,305,560 $ 3,333,437
Gross Unrealized Holding Gains 7,031,859 4,114,654
Fair Value $10,337,419 $ 7,448,091
Realized gains and losses are determined on the basis of specific
identification. During 1996 and 1995, sales proceeds and gross realized gains
and losses were as follows:
1996 1995
Sales Proceeds $ 389,242 $ 100,472
Gross Realized Losses $ 228 $ 19,586
Gross Realized Gains $ 152,480 $ 15,803
An unrealized gain in the amount of $243 is included in the Company's
statement of income for 1996.
Stockholders' equity at December 31, 1996 has been increased by $4,287,272
which is the difference between the total net unrealized gain at December 31,
1996 and deferred income taxes and minority interests in the net unrealized
gain. At December 31, 1996, the Company owned approximately twenty-four
percent of the issued and outstanding common stock of Security Bancorp
("Security"). The Company's investment in Security is classified as an other
noncurrent investment. In February, 1997, the shareholders of Security
approved ad agreement and plan of merger whereby Security was merged with and
into WesterFed Financial Corporation ("WesterFed") which has its home office
in Missoula, Montana. Pursuant to the merger, in March, 1997, the Company's
consolidated subsidiaries received approximately 289,500 shares of WesterFed
plus cash in the amount of approximately $5,632,000 in exchange for all of
its holdings in Security. Other noncurrent investments totaling $105,000 at
December 31, 1996 consist of certificates of deposit which are on deposit
with the State of Montana Commissioner of Insurance and are restricted as to
use by law.
13
<PAGE>
M CORP
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
4. ACCRUED LIABILITIES
Accrued liabilities consist of the following at December 31,:
1996 1995
Property Taxes $ 49,389 $ 45,147
Compensation 41,328 32,397
Payroll Taxes 7,089 7,944
Other 25,967 24,101
$ 123,773 $ 109,589
5. OTHER INCOME
Other income consists of the following:
1996 1995
Dividends $ 364,144 $ 339,349
Gain (Loss) on Sales of Securities 152,252 (3,783)
Amortization of Deferred Credit 8,220 8,220
Gain on Contribution in Kind 97,498 -
Other 14,087 58,842
$ 636,021 $ 402,628
6. INCOME TAXES
Income tax expense consists of the following:
1996 1995
Federal and State Income Taxes
Currently Payable $ 381,550 $ 303,000
Deferred (17,000) (1,000)
$ 364,550 $ 302,000
The income tax expense reflected in the financial statements differs from the
amounts that would normally be expected by applying the U.S. Federal income
tax rates to income before income taxes. The reasons for the differences are
as follows:
1996 1995
Computed "Expected" Tax Expense $ 408,800 $ 374,200
Purchase Accounting Adjustments (4,600) (4,400)
Tax Exempt Income (400) (6,400)
Special Dividends Received Deduction (95,100) (88,400)
Minority Share of Consolidated
Subsidiaries Income 29,500 29,500
State Income Taxes 39,600 (4,200)
Other 16,350 1,700
$ 364,550 $ 302,000
14
<PAGE>
M CORP
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
6. INCOME TAXES - Continued
Deferred income taxes result from timing differences in the recognition of
income and expense for tax and financial reporting purposes. The sources and
tax effects of these timing differences are as follows:
1996 1995
Installment sales recognized for
financial reporting purposes
but not income tax purposes $ (2,600) $ (21,600)
Allowance for doubtful accounts 4,100 5,900
Excess of income tax depreciation
over financial reporting
depreciation (14,400) (14,200)
Unrealized Gains on Investments (3,259,400) (1,988,200)
Excess of financial reporting
reserves for title and escrow
losses over income tax reporting
for title and escrow losses 106,900 106,900
$(3,165,400) $(1,911,200)
The amounts of deferred tax assets and liabilities as of December 31, are
as follows:
1996 1995
Deferred tax asset, net of
valuation allowance of $0 in
1996 and 1995 $ - $ -
Deferred tax liabilty $ 3,165,400 $ 1,911,200
15
<PAGE>
M CORP
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
7. NOTE RECEIVABLE
Notes receivable have resulted from the sale of certain assets and are
summarized as follows as of December 31:
1996 1995
14.9% Note Receivable, due in monthly
installments of $1,492,
including interest, until June, 1998 $ - $ 106,124
9% Contract For Deed, due in monthly
installments of $248 including interest
until September, 2002 13,318 15,019
Allowance for doubtful notes receivable - (4,926)
13,318 116,217
Less Current Portion of Long-Term Receivables 1,854 3,946
Long-Term Notes Receivable $ 11,464 $ 112,271
The above receivable is secured by property, the sale of which resulted in
the receivable. In the event the receivables becomes uncollectible and the
underlying collateral is completely worthless, the Company would incur a loss
in the total amount of $13,318.
8. PROVISION FOR ESTIMATED TITLE AND ESCROW LOSSES
The Company's subsidiary, First Montana Title Insurance Company (FMTIC,wholly-
owned by TSI, Inc.) issues title insurance policies in the State of Montana.
The terms of policies issued are indefinite and premiums are not refundable.
FMTIC is a party to various lawsuits wherein, among other things, plaintiffs
generally claim defects in insured titles, unreported liens or improper
practices. FMTIC is also required under many of its policies issued to
provide defense for its insureds in litigation founded upon alleged defects
or other matters insured against by the policy. Such litigation and claims
are normal occurrences within the title insurance industry. In accordance
with generally accepted accounting practices, FMTIC has established a
provision for estimated title and escrow losses which appears on the
consolidated balance sheets under the same title. FMTIC has established the
provision for estimated losses on (1) claims known to FMTIC and (2) claims
unknown to FMTIC but incurred upon issuance of policies as well as for
estimated external settlement expenses to be incurred. The provision has been
reduced for estimated recoveries.
9. COMMITMENTS
The Company and its subsidiaries are obligated under various lease agreements
for office space expiring at various dates through 2000. Rental expense for
office space for the years ended December 31, 1996 and 1995, was $30,840 and
16
<PAGE>
M CORP
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
9. COMMITMENTS - Continued
and $30,340, respectively. Annual rental commitments for the ensuing calendar
years are as follows:
1997 1998 1999 2000
$30,840 $ 7,200 $ 7,200 $ 3,000
10. STOCK OPTIONS
During 1996, the Company'ds Board of Directors granted options for the
purchase of 211,000 shares of the Company's unissued common stock at the
exercise price of five dollars per share. No compensation cost has been
charged to operations for 1996 or 1995. None of the options have been
exercised. The options expire in September, 2003.
11. DIVIDEND RESTRICTIONS
M Corp, the parent company, depends in part upon cash dividends from its
subsidiaries for the funding of its cash requirements. Dividends paid by
First Montana Title Insurance Company (FMTIC), the parent company's lower
tier subsidiary, are restricted by statutes of the State of Montana. FMTIC
is required to obtain regulatory approval before making any dividend
distributions. At December 31, 1996, substantially all consolidated retained
earnings were subject to such restrictions.
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in estimating
its fair value disclosure for financial instruments. The carrying amount
reported in the balance sheet for cash, accounts receivable and due from
related parties approximate those assets' fair value. Fair values for
investment securities, noncurrent investments and other investments are
based on quoted market prices. The Company believes that the fair value of
its contract receivable approximates carrying value due to the credit risk
involved.
13. RELATED PARTY TRANSACTIONS
During 1996, a company affiliated with the Company through common
stockholders repaid the Company $108,834 which had been advanced to the
affiliated company. During 1996, the Company's parent company, GNI, Inc.,
repaid the Company $198,044 which had been advanced to it. No affiliated
unconsolidated companies are indebted to the Company at December 31, 1996.
During 1996, the Company and its consolidated subsidiaries contributed assets
in kind with a fair market value and a cost basis of $125,375 and $27,877,
respectively, to a charitable foundation established by a controlling
shareholder of the Company. The contribution in kind resulted in an income
tax benefit to the Company in the the approximate amount of $51,000.
14. NATURE OF OPERATIONS, RISKS AND UNCERTAINTIES
The Company is engaged in the title insurance business within the state of
Montana, in the title insurance agency business in Yellowstone, Rosebud and
17
<PAGE>
M CORP
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
14.NATURE OF OPERATIONS, RISKS AND UNCERTAINTIES - Continued
Cascade Counties, Montana and in the ownership and rental of properties
located primarily in Montana. The Company's primary business, based on
revenues, is title insurance.
The process of preparing financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions
that affect the reported amounts of certain types of assets, liabilities,
revenues and expenses. Such estimates primarily relate to unsettled
transactions and events as of the date of the financial statements. Actual
results could differ from those estimates.
15. RECAPITALIZATION
During 1996, the Company adopted a plan whereby a portion of retained
earnings was capitalized as paid in capital. Adoption of the plan had no
effect on total stockholders' equity or the collective or individual rights
of stockholders. The financial statements for 1995 have been restated to
reflect the reclassification.
16. INVESTMENTS IN REAL ESTATE
The Company is the lessor of property under operating leases expiring in
various years through 2001. Minimum future rentals to be received on non-
cancelable leases as of December 31, 1996, for the ensuing calendar years
are as follows:
1997 1998 1999 2000 2001
$121,461 $ 53,795 $ 55,947 $ 58,186 $ 14,687
The consolidated statements of income do not contain any contingent rental
income. The Company's investments in real estate are shown in detail on the
following page.
18
<PAGE>
M CORP
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
<TABLE>
<CAPTION>
16. INVESTMENTS IN REAL ESTATE
GROSS AMOUNT CARRIED
DATE ON BALANCE SHEET ACCUMULATED AMOUNT OF
DESCRIPTION ACQUIRED LAND BUILDINGS TOTAL DEPRECIATION ENCUMBRANCE
<S> <C> <C> <C> <C> <C> <C>
December 31, 1996
Commercial Building
Helena, Montana 1966 $ 49,700 $ 296,868 $ 346,568 $ 296,868 $ --
Apartment Complex
Polson, Montana 1983 50,000 263,566 313,566 254,614 $ --
Apartment Complex
Great Falls, Montana 1974 11,125 217,243 228,368 217,243 $ --
Rental Units Var. 1,500 1,303,559 1,305,059 414,426 $ --
Buildings Occupied
By the Company and
Miscellaneous
Properties Var. 32,089 135,370 167,459 133,679 $ --
$ 144,414 $2,216,606 $2,361,020 $1,316,830 $ --
December 31, 1995:
Commercial Building
Helena, Montana 1966 $ 49,700 $ 296,868 $ 346,568 $ 296,868 $ --
Apartment Complex
Polson, Montana 1983 50,000 263,566 313,566 231,936 $ --
Apartment Complex
Great Falls, Montana 1974 11,125 217,243 228,368 217,243 $ --
Rental Units Var. 1,500 1,303,559 1,305,059 352,785 $ --
Buildings Occupied
By the Company and
Miscellaneous
Properties Var. 32,089 140,370 172,459 124,351 $ --
$ 144,414 $2,221,606 $2,366,020 $1,223,183 $ --
</TABLE>
19
<PAGE>
M CORP
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -Continued
<TABLE>
<CAPTION>
17. INFORMATION ON SEGMENTS OF BUSINESS
The Company is engaged primarily in the title insurance business and the
ownership and rental of properties. Through its subsidiaries, the Company
owns title plants in three Montana counties and issues title insurance
policies, through its subsidiaries, within the State of Montana. The Company
(through wholly and majority owned subsidiaries) owns property in Helena,
Butte, Billings, Polson, and Great Falls, Montana, and in Clearwater, Florida.
Sales to Operating Total Depreciation Capital
Outside Concerns Profit (Loss) Assets (Net) Expense Expenditures
<S> <C> <C> <C> <C> <C>
Year Ended
December 31, 1996
Financial Holding
Company $ 618,449 $ 437,334 $10,192,799 $ 4,974 $ -
Title Insurance
Operations 2,089,915 658,242 12,878,312 32,879 18,254
Rental Properties 566,407 202,652 1,013,466 79,271 -
Consolidated $ 3,274,771 $ 1,298,228 $24,084,577 $ 117,124 18,254
Year Ended
December 31, 1995
Financial Holding
Company $ 337,040 $ 335,759 $ 8,838,602 $ 15,117 $ 13,398
Title Insurance
Operations 1,978,708 547,640 10,176,105 42,410 15,224
Rental Properties 554,472 304,016 1,106,368 84,848 1,339
Consolidated $ 2,870,220 $ 1,187,415 $20,121,075 $ 142,375 $ 29,961
20
<PAGE>
M CORP
AND CONSOLIDATED SUBSIDIARIES
DIRECTORS AND OFFICERS
NAME OCCUPATION
S. M. McCann Attorney at Law, Business Owner,
Director and Investor
President San Luis Obispo, California
R. Bruce Robson Data Processing Manager,
Director Sletten Construction Co.
Great Falls, Montana
G. Robert Crotty, Jr. Attorney at Law,
Director Graybill, Ostrem & Crotty
Great Falls, Montana
MARKET INFORMATION
The Company's common stock is not traded on any securities exchange, nor
are there records kept of any quotations by securities dealers or the
National Quotation Bureau, Inc. To the best knowledge of the Company, bid
and asked quotations for the Company's common stock are not reported in any
newspapers.
Dividends of $.10 per share were paid in 1996 and 1995 to all shareholders
except those shareholders affiliated with the control group.
There are approximately 800 holders of record of the Company's common
stock.
A copy of the Form 10-KSB Annual Report may be obtained upon written
request to the Company.
M Corp
P.O. Box 2249
110 Second Street South
Great Falls, MT 59403-2249
21
<PAGE>
</TABLE>
M CORP
EXHIBIT #22
SUBSIDIARIES
Percentage
Voting
Securities
State of Owned By
Name Of Company Organization Registrant
First Montana Development Company
(Inactive) Montana 100.0
Century Title Company (Inactive) Montana 100.0
Century Title Insurance Company
(Inactive) Montana 100.0
Diversified Realty, Inc. Montana 83.9
TSI, Inc. Montana 90.9
UAC, Inc. Delaware (1)
TSI Business Systems, Inc. Montana (2)
TSI Leasing, Inc. Montana (2)
First Mortgage Investors, Inc.
(Inactive) North Dakota (3)
First Montana Title Company of
Great Falls Montana (4)
First Montana Title Insurance
Company Montana (2)
First Montana Title Company of
Billings Montana (5)
First Montana Title Company of
Forsyth Montana (5)
Consulting Associates, Inc. Montana (4)
(1) Owned 86.9% by TSI, Inc.
(2) Owned 100% by TSI, Inc.
(3) Owned 70% by UAC, Inc.
(4) Owned 100% by UAC, Inc.
(5) Owned 100% by First Montana Title Insurance Company
TSI, Inc. and Diversified Realty, Inc., are each registered under the
Exchange Act and each files its own Form 10-KSB pursuant to that act.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 9617085
<SECURITIES> 2690620
<RECEIVABLES> 29746
<ALLOWANCES> 12500
<INVENTORY> 0
<CURRENT-ASSETS> 12363810
<PP&E> 3021145
<DEPRECIATION> 1754261
<TOTAL-ASSETS> 24084577
<CURRENT-LIABILITIES> 671434
<BONDS> 0
0
0
<COMMON> 3051004
<OTHER-SE> 14237870
<TOTAL-LIABILITY-AND-EQUITY> 24084577
<SALES> 0
<TOTAL-REVENUES> 3274771
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1974720
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1823
<INCOME-PRETAX> 1202374
<INCOME-TAX> 364550
<INCOME-CONTINUING> 837824
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 837824
<EPS-PRIMARY> .97
<EPS-DILUTED> .97
</TABLE>
