SECURITIES AND EXCHANGE COMMISSION
FORM S-2
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
M Corp
(Exact name of registrant as specified in its charter)
Montana 81-0268769
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
110 Second Street South, Great Falls, Montana, 59405, telephone number:
(406) 727-2600
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
Jerry K. Mohland; 110 Second Street South, Great Falls, Montana, 59405,
telephone number: (406) 727-2600
(Name, address, including zip code, and telephone number, including area
code, of agent for service)
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check this box.
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item
11(a)(1) of this Form, check the following box. X
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering.
If this Form is post-effective amendment filed pursuant to Rule 462 (c)
under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering.
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box.
CALCULATION OF REGISTRATION FEE
Proposed Proposed
Title of Each Maximum Maximum Amount of
Class of Securities Amount to be offering price aggregate Registration
to be Registered Registered per unit offering price Fee
One Dollar Par
Value 539,179 Shares $2.00 $1,078,358 $318.12
Common Stock
Note: Specific details relating to the fee calculation shall be furnished in
notes to the table, including references to provisions of Rule 457 relied
upon, if the basis of the calculation is not otherwise evident from the
information presented in the table. If the filing fee is calculated pursuant
to Rule 457(o) under the Securities Act, only the title of the class of
securities to be registered, the proposed maximum aggregate offering price
for that class of securities and the amount of registration fee need to
appear in the Calculation of Registration Fee table. Any difference between
the dollar amount of securities registered for such offering and the dollar
amount of securities sold may be carried forward on a future registration
statement pursuant to Rule 429 under the Securities Act.
_____________________________________________
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY YO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A)
OF THE 1933 ACT OR UNTIL THE RGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY
DETERMIINE.
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M Corp
CROSS-REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS
OF INFORMATION REQUIRED BY ITEMS OF PART I OF FORM S-2
Form S-2 Item and Caption Location in Prospectus
1 Forepart of the Registration Statement Outside Front Cover Page
and Outside Front Cover Page of
Prospectus
2 Inside Front and Outside Back Inside Front and Outside Back Cover
Cover Pages of Prospectus Pages; Available Information;
Documents Incorporated by Reference
3 Summary Information, Risk Factors Prospectus Summary; Risk Factors
and Ratio of Earnings To Fixed
Charges
4 Use of Proceeds Use of Proceeds
5 Determination of Offering Price Authority, Determination of
Offering Price and Other Matters
6 Dilution Dilution
7 Selling Security Holders Selling Security Holders
8 Plan of Distribution Shareholder's Right to Purchase
9 Description of Securities to be Description of Securities to be
Registered Offered and Other Matters To
Consider
10 Interests of Named Experts and
Counsel Not Applicable
11 Information with Respect to the
Registrant Documents Incorporated by Reference
12 Incorporation of Certain Information Documents Incorporated by Reference
by Reference
13 Disclosure of Commission Position on Indemnification of Directors
Indemnification for Securities Act
Liabilities
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PROSPECTUS
539,179 SHARES
M CORP
COMMON STOCK
____________________
All of the 539,179 shares of Common Stock of M Corp (the "Company") offered
hereby are being offered by the Company only to existing shareholders of the
Company pursuant to nontransferable rights to purchase granted to the
Company's shareholders. Each shareholder of record of the Company on September
30, 1998 has been granted the nontransferable right to purchase one share of
the Company's Common Stock for each two shares held by the shareholder on
September 30, 1998 at the purchase price of $2.00 per share cash. If any
shareholder does not properly and timely exercise his right to purchase the
Company's Common Stock on or before December 28, 1998, said shareholder's
right to purchase shall expire on December 29, 1998 and the shares of Common
Stock authorized to be purchased by the shareholder will not be offered to
the public or to any other person. See Shareholder's Right To Purchase on
page 7 of this Prospectus.
___________________
The Common Stock offered hereby is speculative and involves various degrees of
risk and other considerations which an investor should consider. See Risk
Factors and Other Investment Considerations commencing on page 4 of this
Prospectus.
None of the Common Stock offered hereby will be offered through underwriters
and all such Common Stock is being offered solely by the Company. Expenses of
this offering, which are not expected to exceed $2,000, will be paid by the
Company. No commissions commissions will be paid in connection with this
offering.
___________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
___________________________________________________________________________
Underwriting
Price to Discounts and Proceeds to
Shareholders Commissions Company(1)
Per Share.............. $2.00 $0.00 $2.00
Total.................$1,078,358 $0.00 $1,078,358
____________________________________________________________________________
(1) Before deducting estimated aggregate expenses for the offering of $2,000
payable by the Company.
The date of this Prospectus is November __, 1998.
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company can be inspected and
copied at the public reference facilities maintained by the Commission at
450 Fifth Street, N.W., Washington, D. C. 20549. Copies of such material can
be obtained from the Public Reference Section of the Commission, 450 Fifth
Street, N. W., Washington, D. C. 20549 at prescribed rates.
This Prospectus constitutes part of a registration statement on Form S-2
(the "Registration Statement") filed by the Company with the Commission
under the Securities Act of 1933, as amended (the "Securities Act"). This
Prospectus omits certain of the information contained in the Registration
Statement and the exhibits thereto, in accordance with the rules and
regulations of the Commission. For further information concerning the
Company and the Common Stock offered hereby, reference is made to the
Registration Statement and the exhibits filed therewith, which may be
inspected without charge at the office of the Commission at 450 Fifth Street,
N. W., Washington, D. C. 20549 and copies of which may be obtained from the
Commission at prescribed rates.
The Commission maintains a WEB site that contains reports, proxy and
information statements and other information regarding the Company which the
Company files electronically with the Commission. The address of the
Commission's WEB site is http://www.sec.gov.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed by the Company with the Commission pursuant to
the Exchange Act are incorporated by reference into this Prospectus: (1) the
Company's Annual Report on Form 10-KSB for the Year Ended December 31, 1997;
(2) the Company's Annual Report to shareholders for the year ended December
31, 1997; (3) the Company's Quarterly Report on Form 10-QSB for the Quarter
ended March 31, 1998; (4) the Company's Quarterly Report on Form 10-QSB
for the Quarter ended June 30, 1998; and (5) the Company's Quarterly Report
on Form 10-QSB for the Quarter ended September 30, 1998.
A copy of the Company's Annual Report on Form 10-KSB for the Year Ended
December 31, 1997, a copy of the Company's Annual Report to shareholders for
the year ended December 31, 1997 and a copy of the Company's Quarterly Report
on Form 10-QSB for the Quarter ended September 30, 1998 accompany this
Prospectus.
The Company will provide, without charge, to each beneficial owner, upon the
written request of such beneficial owner, a copy of any of the documents
incorporated by reference herein, except for the exhibits to such
documents. Requests should be directed to: Secretary, M Corp, 110 Second
Street South, P. O. Box 2249, Great Falls, Montana 59403 (406-727-2600).
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements and the notes thereto
appearing elsewhere or included with this Prospectus. Except as otherwise
noted herein, M Corp, a Montana corporation, and its wholly and
majority-owned subsidiaries are collectively referred to herein as the
"Company".
Shareholders and investors, should carefully consider the information set
forth under the heading "Risk Factors and Other Investment Considerations"
beginning on page 4 of this Prospectus.
The Company is a Montana corporation primarily involved through subsidiaries
in the title insurance and title insurance agency businesses and in the
ownership and rental of properties. Substantially all of the Company's
operations are conducted within the State of Montana.
The Company has granted to each shareholder of record on September 30, 1998,
the nontransferable right to purchase one share of the Company's One Dollar
($1.00) Par Value Common Stock for each two shares held by the shareholder
on September 30, 1998 at the cash purchase price of Two Dollars ($2.00) per
share cash. A maximum of 539,179 shares could be issued by the Company
pursuant to this offering.
The net proceeds from the sale of the Common Stock will be used to fund the
Company's operations.
The Company's Common Stock is not traded on any securities exchange. To the
Company's knowledge, neither bid nor asked quotations for the Company's
Common Stock have appeared in any established quotation system during the
past several years, nor are such quotations reported in any newspapers, nor
are records kept of any quotations by the National Quotation Bureau, Inc. No
public market exists for the Company's Common Stock and the Company believes
that the issuance of shares offered hereby will not, in and of itself, result
in a public market for the Company's Common Stock.
Selected Financial Information
(Thousands of Dollars-Except Per Share Amounts)
Nine Months
Year Ended December 31, Ended September 30,
1997 1996 1995 1994 1993 1998 1997
Earnings Statement
Total Net Revenues $9,085 $3,275 $2,870 $4,283 $3,560 $3,771 $8,203
Net Earnings 4,073 838 799 1,446 1,023 1,281 3,656
Dividends Per Share .25 .10 .10 .00 .00 .00 .00
Balance Sheet (at end of period)
Total Assets 26,821 24,085 20,121 19,043 13,180 25,672 24,703
Total Current
Assets 17,261 12,364 11,079 10,459 7,853 18,430 16,616
Stockholders'
Equity 20,802 17,289 14,786 13,483 9,951 20,937 18,694
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The principal executive offices of the Company and the Company's telephone
number are:
M Corp
110 Second Street South
P. O. Box 2249
Great Falls, MT. 59403
(406) 727-2600
RISK FACTORS AND OTHER INVESTMENT CONSIDERATIONS
The securities offered hereby involve various degrees of risk and other
investment considerations. In analyzing this offering, all shareholders and
prospective investors should carefully consider, among other factors, the
following risk factors and other investment considerations.
The Company's Common Stock is not traded on any securities exchange. To the
Company's knowledge, neither bid nor asked quotations for the Company's Common
Stock have appeared in any established quotation system during the past
several years, nor are such quotations reported in any newspapers, nor
are records kept of any quotations by the National Quotation Bureau, Inc. No
public market exists for the Company's Common Stock and the Company believes
that the issuance of shares offered hereby will not, in and of itself, result
in a public market for the Company's Common Stock. Therefore, investors may
experience difficulty in disposing of shares of the Company's Common Stock.
The 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 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. Substantially all of the
Company's consolidated retained earnings at December 31, 1997 were subject to
such restrictions. At December 31, 1997, on an unconsolidated basis, M Corp
had an accumulated deficit of $13,211,731.
A limited amount of dividends have been declared and paid by the Company in
the past and there are no assurances as to what the Company's Board of
Directors may do pertaining to the declaration of dividends in the future.
Even if all or none of the shares are purchased by existing shareholders
pursuant to the right to purchase pursuant to this offering, the current
controlling shareholder of the Company will continue to be in control of the
Company. The controlling shareholder group of the Company has advised the
Company that it will fully exercise the Right To Purchase.
Shareholders who do not fully exercise their Right to Purchase will, upon
completion of the offering, own a smaller proportional interest in the
Company than if they fully exercise their Right to Purchase. In addition, an
immediate dilution of the net book value per share will be experienced
by all shareholders as a result of the offering because the purchase price
of $2.00 per share is less than the book value per share of the Company's
common stock. If the rights to purchase had been fully exercised by all
shareholders as of December 31, 1997, then the per share net book value of
the Company's common stock as of December 31, 1997 would have decreased
from $19.29 to $13.53.
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Although the Company does not currently intend to issue any options or
warrants, there are no assurances that options or warrants will not be
issued in the future. If options or warrants are issued in the future,
a possible dilution in the interest of shareholders in the Company could
result.
Shareholders should be aware that the controlling shareholder group of the
Company owns 90.2 percent of the Company's outstanding Common Stock and
because less than 10 percent of the Company's outstanding Common Stock is
held by shareholders unaffiliated with the controlling shareholder group,
the Company may go private in the future. However, the Company's Board of
Directors has not considered going private as of the date of this Prospectus.
Montana Business Corporation Law provides for appraisal rights for
shareholders to obtain fair value for their shares in the event of a
reorganization or similar transaction whereby the Company would become
a private company.
There is intense competition in the title insurance and title insurance
agency businesses, which are businesses engaged in by FMTIC, and there can be
no assurances that the Company will be profitable in those lines of
businesses in the future.
Changes in the manner in which local government officials maintain records
could have an adverse impact on the value of the Company's assets, including
but not limited to, its title plants, and such changes could significantly
increase competition and adversely affect the Company's earnings.
Changes in federal and/or state laws and/or regulations, such as allowing
banking entities to operate in the title insurance business, could
significantly increase competition and adversely affect the Company's
earnings.
There is a great degree of risk inherent in the title insurance and title
insurance agency businesses and claims made upon the Company could have a
material adverse effect on the Company in the future.
There are no assurances that any or all of the shares offered hereby will
be sold. The controlling shareholder group of the Company has advised the
Company that it will fully exercise the Right To Purchase.
The Company's operations are located primarily within the State of Montana
and any factors which adversely affect the economy within the State of
Montana will adversely affect the Company's businesses and operations.
FMTIC has been notified of a possible claim by the United States Department
of Justice regarding the alleged real estate settlement procedures of an
unrelated party alleged to be FMTIC's agent. FMTIC believes the possible
claim is without merit and that applicable statutes of limitations may bar
such claim. In the event litigation is filed, FMTIC would defend its
position.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Common Stock offered
hereby are estimated to be approximately $1,076,000 after deducting estimated
offering expenses and assuming all shareholders elect to exercise their right
to purchase. The Company plans to use the net proceeds to fund the
Company's operations. The Company may make temporary investments in interest
bearing deposits, including certificates of deposit, money market accounts,
comparable short-term investments or government obligations.
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AUTHORITY, DETERMINATION OF OFFERING PRICE AND OTHER MATTERS
The authority to grant to each shareholder of record of the Company the
Right to Purchase one additional share of the Company's $1.00 par value
common stock for each two shares of the Company's $1.00 par value
common stock held by the shareholder of record at the purchase price of
Two Dollars ($2.00) per share cash was approved by a majority of shareholders
unaffiliated with the Company's controlling shareholder group and voting on
the matter at the Company's annual meeting of shareholders held on
December 9, 1997. As a consequence, shareholders other than the controlling
shareholder group of the Company approved and authorized the rights to
purchase referred to herein.
Pursuant to the authority granted to it by a majority vote of shareholders,
the Board of Directors of the Company has granted to each shareholder of
record on September 30, 1998, the Right to Purchase one share of the
Company's $1.00 Par Value common stock for each two shares of the Company's
$1.00 Par Value common stock held of record by the shareholder on September
30, 1998 at the purchase price of $2.00 per share cash. No rights to purchase
the Company's common stock have been granted to any other persons and no
shares of the Company's common stock will be offered, sold or issued to any
person other than the Company's shareholders of record as of September 30,
1998. The Company's Common Stock is not traded on any securities exchange.
To the Company's knowledge, neither bid nor asked quotations for the
Company's Common Stock have appeared in any established quotation system
during the past several years, nor are such quotations reported in any
newspapers, nor are records kept of any quotations by the National Quotation
Bureau, Inc. No public market exists for the Company's Common Stock and the
Company believes that the issuance of shares offered hereby will not, in and
of itself, result in a public market for the Company's Common Stock.
DILUTION
Other than options granted and exercised, the Company has not sold or
otherwise issued any shares of its Common Stock to any officer, director,
promoter or any other person during the past five years. The Company issued
options for the purchase of 211,000 shares of the Company's Common Stock
at the exercise price of $5.00 per share which options have been exercised.
Although the Company does not currently intend to issue any additional
options or warrants, there are no assurances that additional options or
warrants will not be issued in the future. If additional options or warrants
are issued in the future, a possible further dilution in the interest of
shareholders in the Company could result.
The right to purchase the Company's Common Stock has been granted only to
beneficial shareholders of record of the Company as of September 30, 1998,
and no additional or any other rights to purchase have been granted to any
other person.
As of September 30, 1998, the net tangible book value of the Company on a
consolidated basis was $20,937,201 or $19.42 per share. Net tangible book
value per share represents total tangible assets, less total liabilities,
divided by the number of sharesof Common Stock outstanding. After the pro
forma adjustments to give effect to the receipt by the Company of the
estimated proceeds from the sale of 539,179 shares of Common Stock
offered hereby and after deducting the estimated offering expenses, the
pro forma as adjusted net tangible book value of the Company as of September
30, 1998 would have been
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$13.61 per share. This represents an immediate decrease in net tangible book
value of $5.81 per share to the existing shareholders of the Company and an
immediate increase of $11.61 per share to those shareholders purchasing
the shares of Common Stock pursuant to their right to purchase and as
offered hereby.
SELLING SECURITY HOLDERS
None of the Common Stock offered hereby will be offered for the account of
any existing shareholder. All of the Common Stock offered hereby will be
issued from the Company's authorized but previously unissued Common Stock.
UNDERWRITING
None of the Common Stock offered hereby will be offered through underwriters
and all such Common Stock is being offered solely by the Company. No
commissions will be paid in connection with this offering.
SHAREHOLDER'S RIGHT TO PURCHASE
All of the 539,179 shares of Common Stock of the Company offered hereby are
being offered by the Company only to existing shareholders of record of the
Company pursuant to nontransferable rights to purchase granted to the
Company's shareholders. Each shareholder of record of the Company on
September 30, 1998 has been granted the nontransferable right to purchase
one share of the Company's Common Stock for each two shares held of record
by the shareholder on September 30, 1998 at the purchase price of $2.00 per
share cash. If any shareholder does not properly and timely exercise his
right to purchase the Company's Common Stock on or before the close of
business on December 28, 1998, said shareholder's right to purchase shall
expire on December 29, 1998 and the shares of Common Stock authorized to be
purchased by the shareholder will not be offered to the public or to any
other person.
All of the Common Stock offered hereby will be issued by the Company from
authorized but previously unissued Common Stock. There will be no brokers
fees or commissions paid by the Company. The Company will pay expenses
pertaining to this offering which expenses are not expected to exceed $2,000.
Each of the Company's shareholders of record as of September 30, 1998 is
provided contemporaneously herewith, with a form of Exercise Of Right To
Purchase with which to notify the Company of the shareholder's election to
exercise his or her Right To Purchase. The signed Exercise Of Right To
Purchase form must be accompanied with the shareholder's check, bank
draft or money order in the correct amount and both must be received by the
Company on or before 5:00 P. M. Great Falls, Montana time on Monday, December
28, 1998. A shareholder may exercise all or a portion of his or her Right
To Purchase, subject to a minimum of ten dollars ($10.00) per order or the
shareholder's maximum allowed purchase, whichever is less. The Company will
not accept currency in payment of the shareholder's order nor will the
Company accept any orders for more shares than the shareholder's Right To
Purchase of one share for each existing two shares owned of record as of
September 30, 1998. Where two or more persons are reflected on the Company's
records as the shareholders of record, the Right To Purchase may be
exercised by one of such persons, however, all shares of Common Stock issued
by the Company pursuant to this offering will be issued in the names of the
shareholders of record as reflected on the Company's records. After receipt
by the Company of a properly executed form of Exercise of Right
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To Purchase and payment for the shares purchased thereby, the Exercise Of
Right To Purchase may not be withdrawn, modified or canceled without the
consent of the Company.
DESCRIPTION OF SECURITIES TO BE OFFERED AND OTHER MATTERS TO CONSIDER
The Company is authorized to issue 5,000,000 shares of $1.00 par value
Common Stock. As of September 30, 1998, there were 3,262,004 shares issued
of which 1,078,358 shares are outstanding and the remainder of which are held
by the Company as treasury shares. The Company has no other securities
issued or outstanding.
Each share of Common Stock is entitled to one vote on each matter submitted
to the shareholders with cumulative voting rights in the election of
directors. The shares of Common Stock are fully paid and non-assessable and
do not have preemptive rights. In the event of liquidation, dissolution or
winding up of the Company, the holders of Common Stock are entitled to share
ratably in all assets remaining after payment of liabilities. The Company
does not have any plans to liquidate the Company or to sell a material
amount of assets of the Company or to make any changes in management of the
Company or in the Board of Directors. Shareholders should be aware that the
controlling shareholder group of the Company owns 90.2 percent of the
Company's outstanding Common Stock and because less than 10 percent of the
Company's outstanding Common Stock is held by shareholders unaffiliated
with the controlling shareholder group, the Company may go private in the
future. The Montana Business Corporation Act provides for appraisal rights
for shareholders to obtain fair value for their shares in the event of a
reorganization or similar transaction whereby the Company would become a
private company. The holders of Common Stock are entitled to receive
ratably such dividends, if any, as may be declared from time to
time by the Board of Directors out of funds legally available therefor.
A limited amount of dividends have been declared and paid by the Company
in the past and there is no assurance as what the Board of Directors may
do pertaining to the declaration of dividends in the future.
The Company's Common Stock is not traded on any securities exchange. To the
Company's knowledge, neither bid nor asked quotations for the Company's
Common Stock have appeared in any established quotation system during
the past several years, nor are such quotations reported in any newspapers,
nor are records kept of any quotations by the National Quotation Bureau,
Inc. No public market exists for the Company's Common Stock and the Company
believes that the issuance of shares offered hereby will not, in and of
itself, result in a public market for the Company's Common Stock. Therefore,
investors may experience difficulty in finding a buyer for the Company's
Common Stock.
The 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 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.
Substantially all of the Company's consolidated retained earnings at
December 31, 1997 were subject to such restrictions. At December 31, 1997,
on an unconsolidated basis, M Corp had an accumulated deficit of $13,211,731.
A limited amount of dividends have been declared and paid by the Company in
the past and there are no assurances as what the Board of Directors of the
Company may do pertaining to the declaration of dividends in the future.
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FINANCIAL AND OTHER INFORMATION
Included with this Prospectus are a copy of the Company's Annual Report on
Form 10-KSB for the Year Ended December 31, 1997, a copy of the Company's
Annual Report to Shareholders for the year ended December 31, 1997 and
a copy of the Company's Quarterly Report on Form 10-QSB for the Quarter
Ended September 30, 1998.
Following are condensed, unaudited and unconsolidated financial statements
of M Corp, the parent company alone. The condensed, unaudited and
unconsolidated financial statements of M Corp should be read in conjunction
with the audited consolidated financial statements and notes thereto
contained in the Company's Annual Report to shareholders for the year ended
December 31, 1997 which are included with this Prospectus.
Condensed Balance Sheet-September 30, 1998 and December 31, 1997
1998 1997
Assets
Cash $ 6,128 $ 36,446
Investments in Subsidiaries, at Cost 3,822,787 3,814,917
Other 102,291 134,757
Total Assets $ 3,931,206 $ 3,986,120
Liabilities and Stockholders' Equity
Accounts Payable and Accrued Liabilities $ 423,553 $ 523,629
Accunulated Deficit (13,166,569) (13,211,731)
Other Equity 16,674,222 16,674,222
Total Liabilities and Stockholders' Equity $ 3,931,206 $ 3,986,120
Condensed Statements of Earnings-
Nine Months Ended September 30, 1998 and Year Ended December 31, 1997
Charges to Subsidiaries $ 99,000 $ 132,000
Other Income 97 5,759
Expenses (22,935) (18,809)
Income Before Income Taxes 76,162 118,950
Income Taxes 31,000 44,500
Net Income $ 45,162 $ 74,450
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Condensed Statements of Cash Flows-
Nine Months Ended September 30, 1998 and Year Ended December 31, 1997
Cash Flows From Operating Activities
Net Income $ 45,162 $ 74,450
Adjustments to Reconcile Net Income to Cash
Provided by Operations- 58,144 17,426
Income Taxes Paid in Cash (25,000) (41,650)
Net Cash Provided by Operating Activities 78,306 50,226
Cash Flows From Investing Activities
Cash Purchase of Equipment (632) -
Cash Purchases of Subsidiaries (7,870) (1,692,026)
Net Cash (Used) by Investing Activities (8,502) (1,692,026)
Cash Flows From Financing Activities
Distributions to Shareholders (270,152) (11,277)
Net Advances From Affiliates 170,030 491,050
Issuance of Common Stock - 1,055,000
Net Cash Provided (Used) by Financing Activities (100,122) 1,534,773
Net (Decrease) in Cash (30,318) (107,027)
Cash-Beginning of Period 36,446 143,473
Cash-End of Period $ 6,128 $ 36,446
INDEMNIFICATION OF DIRECTORS
The Company's Restated Articles Of Incorporation contains the following
Article VII: "No director of the Corporation shall be personally liable to
the Corporation or its shareholders for monetary damages for breach of
fiduciary duty as a director; provided, however, that this provision shall
not eliminate or limit the liability of a Director to the extent provided
by applicable law (a) for a breach of the Director's duty of loyalty to the
Corporation or its shareholders, (b) for acts or omissions that constitute
willful misconduct, recklessness, or a knowing violation of law, (c) under
35-1-409 of the Montana Code Annotated, (d) for a transaction from which the
Director derives an improper personal benefit, or (e) for any act or
omission occurring prior to the effective date of this Article VII. No
amendment or repeal of this Article VII shall apply to or have any effect
on the liability or alleged liability of any Director of the Corporation for
or with respect to any any acts or omissions of such Director occurring
prior to such amendment or repeal."
Insofar as indemnification for liabilities under the Securities Act may be
permitted directors, officers or persons controlling the Company pursuant
to the foregoing provisions, the Company understands that in the opinion
of the Commission such indemnification is against public policy as
expressed in the Securities Act and therefore is unenforceable.
10
<PAGE>
PROSPECTUS
M CORP
539,179 SHARES
COMMON STOCK
____________________
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in
this Prospectus in connection with the offering covered by this Prospectus,
If given or made, any such information or representations must not be relied
upon as having been authorized by the Company. This Prospectus does not
constitute an offer to sell, or a solicitation of an offer to buy,
any securities offered thereby in any jurisdiction to any person to whom it
is unlawful to make such an offer or solicitation in such jurisdiction.
Neither the delivery of this Prospectus nor any sale made hereunder shall,
under any circumstances, create any implication that there has been no
change in the affairs of the Company or that information contained herein is
correct as of any time subsequent to the date hereof.
____________________
TABLE OF CONTENTS
Page
Available Information 2
Incorporation of Certain
Information by Reference 2
Prospectus Summary 3
Risk Factors and Other Investment Considerations 4
Use of Proceeds 5
Determination of Offering Price
and Other Matters 6
Dilution 6
Selling Security Holders 7
Underwriting 7
Shareholder's Right To Purchase 7
Description of Securities to be Offered
and Other Matters To Consider 8
Financial and Other Information 9
Indemnification of Directors 10
11
<PAGE>
M Corp
Part II. Information Not Required in Prospectus
Item 14. Other Expenses of Issuance and Distribution.
The Company expects to incur costs and expenses in the total estimated
amount of $2,000 in connection with the issuance of the shares, estimated
as follows:
Registration Fees $ 318.12
Printing, Postage and Mailing 1,681.88
Estimated Total $2,000.00
Item 15. Indemnification of Directors and Officers.
Section 35-1-452 of the Montana Code Annotated provides that a corporation
may indemnify its directors for reasonable expenses incurred in a proceeding
if the director (1) conducted himself in good faith, (2) he reasonably
believed that his conduct was in the corporation's best interests or not
opposed to the corporation's best interests, and (3) in the case of a
criminal proceeding, he had no reasonable cause to believe his conduct was
unlawful.
As permitted by Section 35-1-216, Montana Code Annotated, the Company's
Restated Articles Of Incorporation contains provisions indemnifying the
Company's directors. Article VII of the Company's Restated Articles Of
Incorporation states as follows: "No director of the Corporation shall
be personally liable to the Corporation or its shareholders for monetary
damages for breach of fiduciary duty as a director; provided, however, that
this provision shall not eliminate or limit the liability of a Director to
the extent provided by applicable law (a) for a breach of the Director's
duty of loyalty to the Corporation or its shareholders, (b) for acts or
omissions that constitute willful misconduct, recklessness, or a knowing
violation of law, (c) under 35-1-409 of the Montana Code Annotated, (d) for
a transaction from which the Director derives an improper personal benefit,
or (e) for any act or omission occurring prior to the effective date of this
Article VII. No amendment or repeal of this Article VII shall apply to or
have any effect on the liability or alleged liability of any Director of the
Corporation for or with respect to any acts or omissions of such Director
occurring prior to such amendment or repeal."
Item 16. Exhibits
Exhibit
Number Description
4 Reprint of Article VI of the Company's Restated Articles of
Incorporation pertaining to authorized capital stock
13 Annual Report on Form 10-KSB for the Year Ended
December 31, 1997
13.1 Annual Report to Shareholders for the Year Ended
December 31, 1997
13.2 Quarterly Report on Form 10-QSB for the Quarter Ended
September 30, 1998
99 Form of Exercise Of Right To Purchase
12
<PAGE>
Item 17. Undertakings
(e) Incorporated annual and quarterly reports.
The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person and to whom the prospectus is
sent or given, the latest annual report to security holders that is
incorporated by reference in the prospectus and furnished pursuant to and
meeting the requirements of Rule 14a-3 or Rule 14c-3 under the Securities
Exchange Act of 1934; and, where interim financial information required to be
presented by Article 3 or Regulation S-X are not set forth in the prospectus,
to deliver, or cause to be delivered to each person to whom the prospectus is
sent or given, the latest quarterly report that is specifically incorporated
by reference in the prospectus to provide such interim financial information.
(h) Request for acceleration of effective date or filing of registration
statement on Form S-8.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant understands that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment
by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
13
<PAGE>
M Corp
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-2 and has duly caused this registration
statement to signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Great Falls, State of Montana on November 9, 1998.
M Corp
(Registrant)
s./ S. M. McCann
S. M. McCann
Its President
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in capacities and on the
dates indicated.
Date: November 9, 1998 s./ S. M. McCann
S. M. McCann,
Principal Executive and Financial Officer,
Director
Date: Nivember 9, 1998 s./ Jerry K. Mohland
Jerry K. Mohland,
Principal accountant
Date: November 9, 1998 s./ R. Bruce Robson
R. Bruce Robson,
Director
14
<PAGE>
M Corp
Form S-2
Exhibit 4
Article VI of the Company's Restated Articles Of Incorporation pertaining to
capital stock provides as follows:
"The capital stock of this corporation is five million (5,000,000) shares of
common stock of the par value of One Dollar ($1.00) per share, amounting in
the aggregate to Five Million Dollars ($5,000,000).
On the date of adoption of these restated Articles of Incorporation,
3,051,004 shares of the 5,000,000 shares of authorized common stock have
previously been issued and 1,948,996 shares of the 5,000,000 shares of
authorized common stock have not previously been issued. "
15
<PAGE>
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
For the fiscal year ended December 31, 1997
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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 $9,085,465.
State the aggregate market value of the voting and non-voting common equity
held by non-affiliates computed by reference to the price at which the common
equity was sold, or the average bid and asked price of such common equity, 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, 1998, 108,268 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.
1,078,358 shares $1.00 value common stock are outstanding as of February
28, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
If the following documents are incorporated by reference, briefly describe
them and identify the part of the form 10-KSB (e.g., Part I, Part II, etc.)
into which the documents are incorporated: (1) any annual report to security
holders: (2) any proxy or information statement; and (3) any prospectus
filed pursuant to Rule 424(b) or (c) of the Securities Act of 1933
("Securities Act"). The listed documents should be clearly described for
identification.
DOCUMENTS FORM 10-KSB REFERENCE
Annual Report to Shareholders for Part I, Items 1 and 2
the year ended December 31, 1997. 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
12 and 14 (Pages 16 and 18, respectively) of the Notes to Consolidated
Financial Statements in Exhibit 13, the Annual Report to Shareholders for the
year ended December 31, 1997 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
13 (Page 17) of the Notes to Consolidated Financial Statements in Exhibit 13,
the Annual Report to Shareholders for the year ended December 31, 1997, 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 2002, 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 15 of Exhibit 13, the Annual Report
to Shareholders for the year ended December 31, 1997 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 1997 a meeting of security holders was held at
which the Company's entire Board of Directors was elected. The Company's
security holders also authorized the Board of Directors to grant to each
shareholder of record of the Company, and only each shareholder of record of
the Company, the nontransferable right to purchase one additional share of
the Company's common stock for each two shares of the Company's common
stock held by the shareholder of record at the purchase price of two dollars
per share cash, 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 1997.
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 19, Pages 1 and 2 and Pages 3 to 18,
respectively, of Exhibit 13, the Annual Report to Shareholders for the year
ended December 31, 1997, 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 1998 annual meeting of
shareholders or until their successors are elected and qualify.
NAME, AGE, AND YEAR ELECTED DIRECTOR POSITION
R. Bruce Robson, 56, 1994 Director
G. Robert Crotty, Jr., 70, 1995 Director
S. M. McCann, 34, 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 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)
beginning 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 1997, 1996 and 1995. No officer or director of the
Company or the Company's consolidated subsidaries received total cash
compensation in excess of $100,000 for 1997, 1996 or 1995.
Summary Compensation Table
Name and Calender Total Cash
Principal Position Year Compensation
S. M. McCann 1997 $ 0
President, Director 1996 $ 0
1995 $ 0
The Company does not have any compensatory stock appreciation rights plans
or compensatory stock option plans. 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. 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 were
exercised during 1997. The Company has not adopted a formal plan for the
compensation of directors. During 1997 the Company and its consolidated
subsidiaries paid a total of $950 to directors of the Company and the
Company's consolidated subsidiaries.
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, 1998.
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 FDC, Inc. 57,217 5.3%
Value Common 110 Second Street South
Stock Great Falls, MT 59403
$1.00 Par Jefferson Management Co. 211,000 19.6%
Value Common 110 Second Street South
Stock Great Falls, MT 59403
$1.00 Par Anne Marie and Paul J. 970,078 (1) 90.0%
Value Common McCann Family Members
P.O. Box 2249
Great Falls, MT 59403
(1) See Note (1) on the following page.
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
(1) Includes the 700,341 shares owned by GNI, Inc., of which company members
of the Anne Marie and Paul J. McCann family own, directly or indirectly, over
50% of the outstanding stock, 57,217 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, 211,000 shares owned by Jefferson
Management Co., of which company members of the Anne Marie and Paul J. McCann
family own directly or indirectly over 50% of the outstanding stock and
1,520 shares owned outright by members of the Anne Marie and Paul J. McCann
family. S.M. McCann is the record owner of 400 shares of stock of the Company.
Paul J. McCann disclaims beneficial ownership in any shares of stock not
directly owned of record by him. Anne Marie McCann disclaims beneficial
ownership in any shares of stock not directly owned of record by her. Neither
Anne Marie McCann nor Paul J. McCann own of record any shares of stock of the
Company.
(b) Security Ownership of Management
The following table sets forth as of February 28, 1998, 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 400 (1) --
All Directors and Officers
as a Group 410 (1) --
(1) See Note (1) item 11(a) beginning at the top of this 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.
III-3
5.
<PAGE>
M CORP
ITEM 12.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions between the Company (and its consolidated subsidiaries) and
related persons are disclosed in Note 11 (Page 16) of the Notes to
Consolidated Financial Statements in Exhibit 13, the Annual Report to
Shareholders for the year ended December 31, 1997 which description is
incorporated herein by reference. The total compensation paid to members of
Anne Marie and Paul J. McCann's family was $94,395 for the year 1997 and
$105,225 for the year 1996.
III-4
6.
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, 1997.
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, 1997.
IV-1
7.
<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 27, 1998 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 27,
1998.
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
8.
<PAGE>
M CORP
ANNUAL REPORT
1997
<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-two 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. 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 14 (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 15 (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 $74,691 (4.6%) in 1997
as compared with 1996 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 $224,846 (50.1%) in 1997 as compared with 1996 due
primarily to an increase in interest-bearing deposits.
Rent revenues increased $16,085 (2.8%) in 1997 as compared with 1996.
The increase in rent revenues in 1997 as compared with 1996 was due
primarily to a decrease in vacancies.
1
<PAGE>
M CORP
AND CONSOLIDATED SUBSIDIARIES
ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - Continued
During 1997 the Company recognized a gain on the merger of Security Bancorp
with and into WesterFed Financial Corporation in the amount of $5,351,471, a
non-recurring event, which was the primary reason other income increased
$5,495,072 (863.7%) in 1997 as compared with 1996. Pursuant to the terms of
the merger the Company received cash in the amount of the gain recognized
and approximately 275,000 shares of WesterFed Financial Corporation common
stock. The gain recognized on the merger transaction was the primary reason
for the increase in other income in 1997 as compared with 1996 and is also
the primary reason for the increase in net income in 1997 as compared with
1996.
Salaries and other personnel costs increased $8,240 (.9%) in 1997 as compared
with 1996 due primarily to an increase in salary rates and an increase in the
number of personnel employed in the Company's title insurance operations.
The provision for depreciation increased $6,078 (5.2%) in 1997 as compared
with 1996 due primarily to the acquisition of additional furniture and
equipment during 1997. Other general and administrative expenses increased
$345,367 (39.4%) in 1997 as compared with 1996. During 1997 the Company made
contributions of appreciated assets to a private foundation in the total fair
value amount of approximately $525,000. The contributions resulted in an
income tax benefit to the Company in the amount of approximately $203,000.
Income tax expense increased $1,940,450 (532.2%) in 1997 as compared with
1996 due primarily to the increase in pre-tax income.
The Company is considering acquisitions which would deplete the Company's
available cash and thus affect the liquidity of the Company.
2
<PAGE>
M CORP
AND CONSOLIDATED SUBSIDIARIES
FINANCIAL REPORT
DECEMBER 31, 1997
CONTENTS
PAGE
AUDITOR'S REPORT 4
CONSOLIDATED FINANCIAL STATEMENTS
Balance Sheets as of December 31, 1997 and 1996 5-6
Statements of Income
for the Years Ended
December 31, 1997 and 1996 7
Statements of Stockholders' Equity
for the Years Ended
December 31, 1997 and 1996 8
Statements of Cash Flows for the Years
Ended December 31, 1997 and 1996 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 and retained earnings 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 20, 1998
Great Falls, Montana
4
<PAGE>
M CORP
AND CONSOLIDATED SUBSIDIARIES
BALANCE SHEETS
DECEMBER 31, 1997 and 1996
ASSETS 1997 1996
Current Assets
Cash (Note 2) $15,186,576 $ 9,617,085
Investment Securities (Note 3) 2,032,576 2,690,620
Trade Accounts Receivable, Less
Allowance for Doubtful Accounts of
$8,000 in 1997 and $12,500 in 1996 3,521 27,892
Current Portion of Long-Term
Receivable (Note 7) 2,026 1,854
Prepaid Expenses 26,900 -
Income Tax Prepayments 9,309 26,359
Total Current Assets 17,260,908 12,363,810
Other Assets
Noncurrent Investments (Note 3) 105,000 105,000
Other Investments (Note 3) 8,417,116 10,337,419
Note Receivable, Excluding
Current Portion (Note 7) 9,440 11,464
Total Other Assets 8,531,556 10,453,883
Investments In Property, Plant and
Equipment, at Cost (Notes 1 and 14)
Buildings 2,145,001 2,266,306
Furniture, Fixtures and Equipment 475,194 443,410
2,620,195 2,709,716
Less Accumulated Depreciation (1,877,462) (1,754,261)
742,733 955,455
Title Plants 201,113 216,715
Land 84,527 94,714
Net Property, Plant and Equipment 1,028,373 1,266,884
$26,820,837 $24,084,577
See Notes to Consolidated Financial Statements.
5
<PAGE>
M CORP
AND CONSOLIDATED SUBSIDIARIES
BALANCE SHEETS
DECEMBER 31, 1997 and 1996
1997 1996
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable $ 115,633 $ 112,062
Accrued Liabilities (Note 4) 131,470 123,773
Dividends Payable 289,414 30,599
Deferred Income Taxes (Notes 1 and 6) 280,200 405,000
Total Current Liabilities 816,717 671,434
Provision for Estimated Title and
Escrow Losses (Note 8) 1,005,612 1,069,768
Minority Interests in Consolidated
Subsidiaries 2,292,081 2,229,026
Deferred Income Taxes (Notes 1 and 6) 1,847,400 2,760,400
Excess of Fair Value of Net Assets Acquired
Over Cost (Note 1) 56,855 65,075
5,201,948 6,124,269
Commitments (Note 9)
Stockholders' Equity (Notes 1 and 13)
Common Stock, $1.00 Par Value,
5,000,000 shares authorized,
3,252,004 shares issued in 1997 and
3,051,004 shares issued in 1996, at Par 3,262,004 3,051,004
Capital Surplus 15,778,562 9,934,562
Retained Earnings (Note 10) 1,185,494 2,382,380
Add: Unrealized Gains on Investments (Note 3) 2,942,456 4,287,272
Less: Cost of Common Shares in Treasury
2,183,646 Shares in 1997 and 1996 (2,366,344) (2,366,344)
Total Stockholders' Equity 20,802,172 17,288,874
$26,820,837 $24,084,577
See Notes to Consolidated Financial Statements.
6
<PAGE>
M CORP
AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997 and 1996
1997 1996
Revenue
Title Insurance Premiums and Related Fees $ 1,697,859 $ 1,623,168
Interest 673,841 448,995
Rent 582,492 566,407
Other (Note 5) 6,131,273 636,201
9,085,465 3,274,771
Operating Expenses
Salaries and Other Personnel Costs 938,314 930,074
Depreciation 123,202 117,124
Rent 35,284 37,210
Title and Escrow Losses 15,049 13,966
Interest - 1,823
Other General and Administrative Expenses 1,221,713 876,346
2,333,562 1,976,543
Operating Income 6,751,903 1,298,228
Minority Share of Consolidated Subsidiaries
Net (Income) (373,696) (95,854)
Income Before Income Taxes 6,378,207 1,202,374
Income Taxes (Note 6) (2,305,000) (364,550)
Net Income $4,073,207 $ 837,824
See Notes to Consolidated Financial Statements.
7
<PAGE>
M CORP
AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997 and 1996
<TABLE>
Net
Unrealized
Common Capital Retained Gains On Treasury
Stock Surplus Earnings Investments Stock Total
<S> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1996 $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
Recapitalization (Note 14) 5,000,000 (5,000,000) -
Net Income 4,073,207 4,073,207
Dividends Paid (270,093) (270,093)
Exercise of Stock Options 211,000 844,000 1,055,000
Change in Net Unrealized
Gains On Investments (1,344,816) (1,344,816)
Balances, December 31,
1997 $3,262,004 $15,778,562 $1,185,494 $2,942,456 $(2,366,344) $20,802,172
</TABLE>
See Notes to Consolidated Financial Statements.
8
<PAGE>
M CORP
AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 and 1996
INCREASE (DECREASE) IN CASH
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash Received From Customers $ 2,352,199 $ 2,193,209
Cash Paid to Suppliers and Employees (1,771,166) (1,706,698)
Interest and Dividends Received in Cash 951,942 813,138
Cash Proceeds From Sales of Noncurrent Assets 6,994 10,522
Interest Paid in Cash - (1,823)
Income Taxes Paid in Cash (2,287,950) (398,842)
Net Cash Provided (Used) By Operating Activities (747,981) 909,506
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash Received on Principal of Notes Receivable 1,852 107,825
Cash Purchases of Minority Interests (6,335) (2,425)
Capital Expenditures Paid in Cash (31,785) (18,254)
Cash Received on Dispositions of
Current Investments 68,213 389,242
Cash Received on Dispositions of
Noncurrent Investments 5,351,471 -
Cash Purchases of Current Investments (109,666) (208,204)
Net Cash Provided By Investing Activities 5,273,750 268,184
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash Received From Affiliates - 306,878
Dividends Paid in Cash (11,278) -
Issuance Of Common Stock For Cash 1,055,000 -
Net Cash Provided By Financing Activities 1,043,722 306,878
NET INCREASE IN CASH 5,569,491 1,484,568
CASH - BEGINNING OF YEAR 9,617,085 8,132,517
CASH - END OF YEAR $15,186,576 $ 9,617,085
(Continued)
9
<PAGE>
M CORP
AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CASH FLOWS - Continued
FOR THE YEARS ENDED DECEMBER 31, 1997 and 1996
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED
BY OPERATING ACTIVITIES
1997 1996
Net Income $ 4,073,207 $ 837,824
Adjustments to Reconcile Net Income
to Net Cash Provided By Operating Activities:
Depreciation 123,202 117,124
Provision for Doubtful Account Receivable (3,825) (4,926)
Minority Share of Consolidated Subsidiaries
Net Income 373,696 95,854
Amortization of Deferred Credit (8,220) (8,220)
Net Book Value of Assets Sold 6,994 10,522
Contribution in Kind 116,875 27,877
Realized (Gains) on Dispositions
of Investments (5,395,369) (152,251)
Unrealized (Gain) on Current Assets - (244)
Changes in Operating Assets and Liabilities
(Increase) Decrease in Accounts Receivable 28,197 (12,077)
(Increase) Decrease in Prepaid Expenses (26,900) 33,700
(Increase) Decrease in Income Tax Prepayments 17,050 43,216
(Decrease) in Payables and Accrued
Liabilities (52,888) (1,385)
(Increase) in Deferred Income Taxes - (17,000)
(Decrease) in Income Taxes Payable - (60,508)
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES $ (747,981) $ 909,506
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) Income Taxes
The Company follows the practice of recording deferred income taxes resulting
from timing differences between financial reporting and income tax reporting.
The Company does not provide for deferred income taxes resulting from the
undistributed earnings of 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.
11
<PAGE>
M CORP
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
(f) 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 1997 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, 1997, cash balances totaling
$12,407,136 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:
1997 1996
Current Assets
Cost $ 1,374,728 $ 1,724,198
Gross Unrealized Holding Gains 673,389 984,375
Gross Unrealized Holding Losses (15,541) (17,953)
Fair Value $ 2,032,576 $ 2,690,620
12
<PAGE>
M CORP
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
3.INVESTMENT SECURITIES AND OTHER INVESTMENTS - Continued
1997 1996
Other (Noncurrent) Assets
Cost $ 3,623,505 $ 3,305,560
Gross Unrealized Holding Gains 4,793,611 7,031,859
Fair Value $ 8,417,116 $10,337,419
Realized gains and losses are determined on the basis of specific
identification. During 1997 and 1996, sales proceeds and gross realized gains
and losses were as follows:
1997 1996
Sales Proceeds $ 5,419,622 $ 389,242
Gross Realized Losses $ - $ 228
Gross Realized Gains $ 5,395,368 $ 152,480
An unrealized gain in the amount of $243 is included in the Company's
statement of income for 1996.
Stockholders' equity at December 31, 1997 has been increased by $2,942,456
which is the difference between the total net unrealized gain at December 31,
1997 and deferred income taxes and minority interests in the net unrealized
gain. Other noncurrent investments totaling $105,000 at December 31, 1997
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.
4. ACCRUED LIABILITIES
Accrued liabilities consist of the following at December 31,:
1997 1996
Property Taxes $ 50,635 $ 49,389
Compensation 36,638 41,328
Payroll Taxes 16,037 7,089
Other 26,160 25,967
$ 131,470 $ 123,773
13
<PAGE>
M CORP
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
5. OTHER INCOME
Other income consists of the following:
1997 1996
Dividends $ 278,101 $ 364,144
Gain on Sales of Securities 5,395,368 152,252
Amortization of Deferred Credit 8,220 8,220
Gain on Contribution in Kind 408,125 97,498
Other 41,459 14,087
$ 6,131,273 $ 636,201
6. INCOME TAXES
Income tax expense consists of the following:
1997 1996
Federal and State Income Taxes
Currently Payable $ 2,305,000 $ 381,550
Deferred - (17,000)
$ 2,305,000 $ 364,550
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:
1997 1996
Computed "Expected" Tax Expense $ 2,168,600 $ 408,800
Purchase Accounting Adjustments (4,600) (4,600)
Tax Exempt Income (2,300) (400)
Special Dividends Received Deduction (65,000) (95,100)
Minority Share of Consolidated
Subsidiaries Income 127,100 29,500
Contribution At Fair Value (138,800) (33,100)
State Income Taxes 187,900 39,600
Other 32,100 19,850
$ 2,305,000 $ 364,500
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:
1997 1996
Installment sales recognized for
financial reporting purposes
but not income tax purposes $ (2,100) $ (2,600)
Allowance for doubtful accounts 2,700 4,100
Excess of income tax depreciation
over financial reporting
depreciation (13,500) (14,400)
Unrealized Gains on Investments (2,221,600) (3,259,400)
Excess of financial reporting
reserves for title and escrow
losses over income tax reporting
for title and escrow losses 106,900 106,900
$(2,127,600) $(3,165,400)
The amounts of deferred tax assets and liabilities as of December 31, are
as follows:
1997 1996
Deferred tax asset, net of
valuation allowance of $0 in
1997 and 1996 $ - $ -
Deferred tax liabilty $ 2,127,600 $ 3,165,400
15
<PAGE>
M CORP
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
7. NOTE RECEIVABLE
Note receivable has resulted from the sale of certain assets and are
summarized as follows as of December 31:
1997 1996
9% Contract For Deed, due in monthly
installments of $248 including interest
until September, 2002 $ 11,466 $ 13,318
Less Current Portion of Long-Term Receivables 2,026 1,854
Long-Term Notes Receivable $ 9,440 $ 11,464
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 $11,466.
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 2002. Rental expense for
office space for the years ended December 31, 1997 and 1996, was $32,030 and
$30,840, respectively. Annual rental commitments for the ensuing calendar
years are as follows:
1998 1999 2000 2001 2002
$37,200 $38,400 $35,400 $32,400 $32,400
16
<PAGE>
M CORP
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
10. 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, 1997, substantially all retained earnings
were subject to such restrictions. At December 31, 1997, FMTIC's statutory
capital and surplus as regars policyholders amounted to $9,621,572.
11. 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, 1997.
During 1997, consolidated subsidiaries of the Company contributed assets
in kind with a fair market value and a cost basis of $525,000 and $116,875,
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 approximate amount of $203,000. During 1996,
consolidated subsidiaries of the Company 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 approximate amount of $51,000. Outstanding
options to purchase 211,000 shares of the Company's common stock at the
exercise price of five dollars per share were exercised during 1997 by a
company controlled by the majority holders of the Company.
12. 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
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.
13. RECAPITALIZATION
During 1997, the Company adopted a plan whereby portion of retained earnings
was capitalized as capital surplus. Adoption of the plan had no effect on
total stockholders' equity.
17
<PAGE>
M CORP
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
14. 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, 1997, for the ensuing calendar years
are as follows:
1998 1999
$ 73,920 $ 77,280
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>
14. 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, 1997
Commercial Building
Helena, Montana 1966 $ 23,037 $ 320,294 $ 343,331 $ 305,338 $ --
Apartment Complex
Polson, Montana 1983 23,037 275,850 298,887 274,180 $ --
Apartment Complex
Great Falls, Montana 1974 10,252 217,243 227,495 217,243 $ --
Rental Units Var. 1,500 1,183,814 1,184,907 467,845 $ --
Buildings Occupied
By the Company and
Miscellaneous
Properties Var. 27,108 147,800 174,908 146,119 $ --
$ 84,527 $2,145,001 $2,229,528 $1,410,725 $ --
December 31, 1996:
Commercial Building
Helena, Montana 1966 $ 25,000 $ 321,568 $ 346,568 $ 296,868 $ --
Apartment Complex
Polson, Montana 1983 25,000 275,992 300,992 252,490 $ --
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. 32,089 147,944 180,033 135,803 $ --
$ 94,714 $2,266,306 $2,361,020 $1,316,830 $ --
</TABLE>
19
<PAGE>
M CORP
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -Continued
<TABLE>
<CAPTION>
15. 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, 1997
Financial Holding
Company $ 4,344,275 $ 3,716,728 $11,914,807 $ 1,833 $ -
Title Insurance
Operations 4,158,698 2,638,113 14,109,761 36,970 31,785
Rental Properties 582,492 397,062 796,269 84,399 -
Consolidated $ 9,085,465 $ 6,751,903 $26,820,837 $ 123,202 31,785
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 $ 1,289,228 $24,084,577 $ 117,124 $ 18,254
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 to all shareholders except
those shareholders affiliated with the control group. A dividend of $.25
per share was declared on December 31, 1997, payable to shareholder's of
record on December 31, 1997, to be paid on or before March 15, 1998. M Corp
itself, without including the accounts of subsidiary companies, had only
$36,446 cash available at December 31, 1997 with which to pay dividends.
There are approximately 775 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>
U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X]QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1998
[ ]TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from to
Commission file number 0-1008
M CORP
(Exact name of small business issuer as specified in its charter)
Montana 81-0268769
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
128 Second Street South, Great Falls, Montana 59405
(Address of principal executive offices)
(406) 727-2600
(Issuer's telephone number)
Not Applicable
(Former name, former address and former fiscal year, if changed since last
report)
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 X No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution
of securities under a plan confirmed by a court. Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
Class Outstanding at September 30, 1998
$1.00 Par Value Common Stock 1,078,358 Shares
Transitional Small Business Disclosure Format (Check One): Yes ; No X
<PAGE>
M CORP
INDEX
Page Number
PART I
Condensed Consolidated Financial Statements:
Balance Sheet -
September 30, 1998 2
Statements of Income and Comprehensive Income -
Three Months and Nine Months Ended
September 30, 1998 and 1997 3
Statements of Cash Flows -
Nine Months Ended September 30, 1998 and 1997 4
Notes to Consolidated Financial Statements 5
Management's Discussion and Analysis of the
Consolidated Statements of Income 6
PART II
Other Information 7
Signatures 8
1
<PAGE>
M CORP
CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1998
ASSETS
Current Assets
Cash $ 16,454,780
Marketable Securities, at Fair Value 1,815,400
Receivables - Net 152,257
Income Tax Prepayments 7,610
Total Current Assets 18,430,047
Marketable Securities and
Other Investments, at Fair Value 6,242,847
Property, Plant and Equipment, Net 999,468
TOTAL ASSETS $ 25,672,362
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable and Accrued Liabilities $ 267,440
Deferred Income Taxes 135,100
Total Current Liabilities 402,540
Provision for Estimated Title and
Escrow Losses 993,928
Minority Interests 2,302,903
Excess of Fair Value of Net Assets
Acquired Over Cost 50,690
Deferred Income Taxes 985,100
STOCKHOLDERS' EQUITY
Common Stock - $1.00 Par Value,
5,000,000 shares authorized,
3,262,004 shares issued 3,262,004
Capital Surplus 15,778,562
Retained Earnings 2,466,052
Accumulated Other Comprehensive Income 1,796,927
Treasury Stock, at Cost (2,366,344)
Total Stockholders' Equity 20,937,201
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 25,672,362
See Notes to Consolidated Financial Statements
2
<PAGE>
M CORP
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
For The Three For The Nine
Months Ended Months Ended
September 30, September 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Operating Revenues $1,391,425 $ 877,848 $3,771,440 $8,203,433
Operating Expenses
Salaries and Payroll
Costs 249,986 210,905 687,432 593,904
Other Expenses 216,904 199,166 1,148,455 1,151,298
466,890 410,071 1,835,887 1,745,202
Operating Income 924,535 467,777 1,935,553 6,458,231
Minority Portion of
Income) Loss (48,507) 17,117 (134,995) (352,480)
Income Before Income
Taxes 876,028 484,894 1,800,558 6,105,751
Income Tax Expense (315,000) (200,000) (520,000) (2,450,000)
Net Income 561,028 284,894 1,280,558 3,655,751
Other Comprehensive Income (Loss)
Increase (Decrease) in
Unrealized Holding Gains,
Net of Income Taxes (953,106) 56,720 (1,145,529) (2,250,655)
Comprehensive Income (Loss) $ (392,078) $ 341,614 $ 135,029 $1,405,096
</TABLE>
See Notes To Consolidated Financial Statements
3
<PAGE>
M CORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Nine
Months Ended
September 30,
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES
Net Cash Provided (Used) By
Operating Activities $ 799,099 $ (371,156)
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds From Sales and Redemptions
of Property, Plant and Equipment 13,905 6,994
Capital Expenditures Paid in Cash (63,401) (31,784)
Cash Received on Principal of
Notes Receivable 11,466 1,372
Cash Purchases of Minority Interests (8,551) (711)
Cash Used for Purchases of Marketable
Securities Available for Sale (76,462) (521,953)
Cash Received on Disposition of Marketable
Securities Available For Sale 592,148 5,383,074
Net Cash Provided By Investing
Activities 469,105 4,836,992
NET INCREASE IN CASH 1,268,204 4,465,836
CASH - BEGINNING OF PERIOD 15,186,576 9,617,085
CASH - END OF PERIOD $16,454,780 $14,082,921
See Notes to Consolidated Financial Statements
4
<PAGE>
M CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
In the opinion of management, all adjustments necessary (consisting of
only normal recurring accruals) have been made to the unaudited financial
statements to present fairly the financial position as of September 30, 1998
and the results of the Company's operations for the three months and nine
months ended September 30, 1998 and 1997 and cash flows for the nine months
ended September 30, 1998 and 1997.
The results of operations for the three months and nine months ended
September 30, 1998 and 1997 are not indicative of the results to be expected
for the full year.
The consolidated financial statements include the accounts of the
Company, its wholly owned subsidiaries and its majority owned subsidiaries.
All significant intercompany transactions and balances have been eliminated
in consolidation.
Lines of Business -
The Company is engaged in the title insurance agency business and in
the ownership and rental of properties.
GNI, Inc. owns approximately 65% of the Company's issued and outstanding
common stock.
The Company adopted the provisions of Statement of Financial
Accounting Standards No. 115 (SFAS No. 115) effective January 1, 1994. The
Company has classified its investments, both current and noncurrent, in debt
and equity securities as Available-For-Sale, in accordance with the various
classifications of securities contained in SFAS No. 115.
In accordance with SFAS No. 115, the Company's portfolios, current and
noncurrent, of Available-For-Sale investments are carried at fair value in
the Company's balance sheet at September 30, 1998.
The net unrealized holding gain at September 30, 1998, net of the estimated
income tax effects and minority interests in the unrealized holding gains,
is included in Accumulated Other Comprehensive Income at September 30, 1998
in accordance with the provisions of Financial Accounting Standards No. 130.
5
<PAGE>
M CORP
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE INCOME STATEMENT
SEPTEMBER 30, 1998
A summary of the period to period changes in items included in the
statements of income is shown below.
COMPARISON OF
THREE MONTHS NINE MONTHS
ENDED ENDED
September 30, September 30,
1998 AND 1997 1998 AND 1997
INCREASES (DECREASES)
Revenues $513,577 58.5% $(4,431,993) (54.2%)
Expenses 56,819 13.9% 90,685 5.2%
Net Income 276,134 96.9% (2,375,193) (64.9%)
Revenues decreased $4,431,993 in the first nine months of 1998 as compared
with the first nine months of 1997 due primarily to the gain recognized by
the Company on the merger of Security Bancorp with and into WesterFed
Financial Corporation which was completed during the first quarter of 1997.
The Company recognized a gain on the merger during 1997 in the pretax amount
of approximately $5,351,000. During the first nine months of 1998 the Company
recognized gains on the disposition of investments in the pretax amount of
$368,939. During the first nine months of 1998 the Company recognized a gain
on the contribution of assets in kind to a charitable organization in the
amount of $417,420 as compared with a similar gain in the amount of $408,000
recognized during the first nine months of 1997. The gains recognized during
the first nine months of 1997 were the primary reason for the decrease in
revenues and the decrease in net income in the first nine months of 1998
as compared with the first nine months of 1997. Operating expenses increased
$90,685 (5.2%) in the first nine months of 1998 as compared with the first
nine months of 1997 due primarily to increases in payroll and payroll costs
associated with the Company's title insurance agency business. The provision
for income tax expense decreased $1,930,000 (78.8%) in the first nine months
of 1998 as compared with the first nine months of 1997 due to to the decrease
in pretax income.
6
<PAGE>
M CORP
PART II
OTHER INFORMATION
SEPTEMBER 30, 1998
ITEM 1 LEGAL PROCEEDINGS
None
ITEM 2 CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On September 9, 1998 a meeting of shareholders was held at which
the Company's entire Board of Directors was elected. Directors
elected to the Board were G. Robert Crotty, Jr., R. Bruce Robson
and Sheila M. McCann. 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 1998.
ITEM 5 OTHER INFORMATION
None
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
None
7
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
M CORP
Registrant
Date: October 30, 1998 s/K. King
K. King,
Assistant Secretary-Treasurer
Date: October 30, 1998 s/Jerry K. Mohland
Jerry K. Mohland,
Accountant
8
<PAGE>
M Corp
Form S-2
Exhibit 99
Form of Exercise Of Right To Purchase
16
<PAGE>
EXERCISE OF RIGHT TO PURCHASE
(To be executed by the registered owner to purchase Common Stock of M Corp)
Expiration Date: December 28, 1998 at 5:00 P. M. Great Falls, MT. Time
Minimum Order: $10.00 or $2.00 per share for each share owned of record on
September 30, 1998, whichever is less.
M Corp
110 Second Street South
P. O. Box 2249
Great Falls, MT 59403
Pursuant to that certain Prospectus dated November __, 1998, the undersigned
shareholder of record of M Corp hereby irrevocably elects to purchase _______
__ shares of Common Stock of M Corp and encloses payment therefor at the rate
of $2.00 per share in the total amount of $________, in the form of a check,
money order or bank draft. The undersigned further requests that a
certificate for the shares of Common Stock hereby purchased be issued in the
names of the shareholders of record as reflected on the records of M Corp and
mailed to the address shown below.
It is understood that this Exercise Of Right To Purchase will be accepted in
accordance with, and subject to, the terms and conditions described in that
certain Prospectus dated November __, 1998, receipt of which is hereby
acknowledged at least 48 hours prior to the return of this Exercise Of Right
To Purchase to M Corp.
To be effective this Exercise Of Right To Purchase along with payment for all
shares purchased must actually be received by M Corp no later than 5:00 P. M.
Great Falls, Montana time on December 28, 1998, otherwise this Exercise Of
Right To Purchase and all rights to purchase will expire and be of no further
force or effect.
The undersigned agrees that after receipt of this Exercise Of Right To
Purchase by M Corp, this Exercise Of Right To Purchase may not be withdrawn,
modified or canceled without the consent of M Corp.
______________________________________
(Name of Shareholder of Record)
______________________________________
(Address)
______________________________________
(Address)
______________________________________
(Social Security or Tax I. D. Number)
______________________________________
(Telephone Number)
17
<PAGE>
