UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
Or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 0-22271
CFI MORTGAGE INC.
(Exact Name of Small Business Issuer as specified in its charter)
Delaware
-------- 52-2023491
(State or Other jurisdiction of ----------
incorporation or organization) (I.R.S. Employer Identification No.)
631 U.S. Highway #1 Suite 309
-----------------------------
North Palm Beach, Florida 33408
------------------------- -----
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including
area code 561-842-0678
------------
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether Registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the pre-ceding 12 months (or for such shorter period that Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
3,826,412 shares, $01 par value, as of October 1, 1999
(Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date)
CFI MORTGAGE INC. AND SUBSIDIARY
SEPTEMBER 30, 1999
(Unaudited)
I N D E X
---------
Page No.
--------
Part I - Financial Information:
Item 1. Consolidated Financial Statements (Unaudited):
Balance Sheets
At September 30, 1999 and December 31, 1998 ................................ F-3
Statements of Operations
For the Nine Months and Three Months Ended
September 30, 1999 and 1998 ................................................ F-4
Statements of Cash Flows
For the Nine Months Ended
September 30, 1999 and 1998 ................................................ F-5 - F-6
Notes to Consolidated Financial Statements ................................. F-7 - F-13
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations .............................. F-?? - F-??
Part II - Other Information:
Item 3 Through Item 9 - Not Applicable ................................................F-13
Signatures ..........................................................................F-14
F-2
CFI MORTGAGE INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
A S S E T S
-----------
September 30, December 31,
1999 1998
------------- -----------
Current assets:
Cash $ 55,981 $ 2,371
State tax refund receivable -- 76,621
Prepaid expenses 11,532 53,658
Due from related parties 86,037 86,037
------------- -----------
Total current assets 153,550 218,687
Property and equipment, at cost, less accumulated
depreciation of $92,522 and $87,902, respectively 56,955 61,575
------------- -----------
$210,505 $ 280,262
============= ===========
LIABILITIES AND STOCKHOLDERS' CAPITAL DEFICIENCY
Liabilities not subject to compromise:
Current liabilities:
Accounts payable of subsidiary $ 1,539,341 $ 1,539,341
Loan payable - affiliated company 130,000 --
Accrued expenses and other current liabilities 181,141 --
------------ ------------
1,850,482 1,539,341
------------ ------------
Liabilities subject to compromise:
Current liabilities:
Unsecured liabilities 3,567 12,900
------------ ------------
Unsecured non-priority liabilities:
Accounts payable 948,933 948,933
Due to banks 6,686,000 6,686,000
Accrued expenses and other current liabilities 963,789 964,321
------------ ------------
Total unsecured non-priority liabilities 8,598,722 8,599,254
------------ ------------
15% Demand convertible debentures and accrued interest 256,037 --
------------ ------------
Total liabilities 10,708,808 10,151,495
------------ ------------
Stockholders' capital deficiency:
Common stock, $.01 par value
Authorized 20,000,000 shares
Issued and outstanding - 3,826,412
and 3,301,391, respectively 38,264 33,014
Preferred stock, $.01 par value
Authorized 10,000,000 shares
Issued and outstanding - 2,375
and 2,450, respectively 24 25
Additional paid-in capital 10,156,240 10,154,246
Accumulated deficit (20,692,831) (20,058,518)
------------ ----------
Total stockholders' capital deficiency (10,498,303) (9,871,233)
------------ ----------
$ 210,505 $ 280,262
============ ===========
See accompanying notes to financial statements.
F-3
CFI MORTGAGE INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Nine For the Three
Months Ended Months Ended
September 30, September 30,
-------------------------------- -------------------------------
1999 1998 1999 1998
----------- ------------ ----------- -----------
Revenues:
Commissions and fees $ 1,358 $ 9,612,493 $ -- $ 1,831,814
Interest -- 2,969,632 -- 847,915
----------- ------------ ----------- -----------
Total revenues 1,358 12,582,125 -- 2,679,729
----------- ------------ ----------- -----------
Expenses:
Selling 11,742 6,326,156 11,742 1,851,967
General and administrative 465,468 11,189,888 274,529 3,553,885
Interest 15,120 3,013,499 9,657 937,949
----------- ------------ ----------- -----------
Total expenses 492,330 20,529,543 295,928 6,343,801
----------- ------------ ----------- -----------
Loss from continuing operations (490,972) (7,947,418) (295,928) (3,664,072)
Gain on sale of subsidiary -- 536,664 -- 536,664
----------- ------------ ----------- -----------
Net loss ($ 490,972) ($ 7,410,754) ($ 295,928) ($3,127,408)
=========== ============ =========== ===========
Basic earnings per common share:
Net loss ($ 490,972) ($ 7,410,754) ($ 295,928) ($3,127,408)
Less: Preferred stock
dividends (136,100) (136,630) (56,460) (66,630)
Preferred stock
discount -- (300,000) -- (150,000)
----------- ------------ ----------- -----------
Net loss available to
common stockholders ($ 627,072) ($ 7,847,384) ($ 352,388) ($3,344,038)
=========== ============ =========== ===========
Weighted average shares 3,748,164 2,353,206 3,826,412 2,519,057
=========== ============ =========== ===========
Earnings per share - basic:
Net loss ($ .17) ($ 3.33) ($ .09) ($ 1.33)
=========== ============ =========== ===========
See accompanying notes to financial statements.
F-4
CFI MORTGAGE INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Nine
Months Ended
September 30,
-----------------------------------
1999 1998
--------- ------------
Cash flows from operating activities:
Net loss from continuing operations ($490,972) ($ 7,410,754)
--------- ------------
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 4,620 223,686
Interest accrued on stockholders loans and debentures 15,120 --
Provision for doubtful accounts and loan losses -- 1,114,034
(Increase) decrease in asset and liabilities:
State tax refund receivable 76,621 --
Interest receivable -- 212,783
Mortgage loans held for sale -- (10,180,189)
Other current assets -- 175,975
Miscellaneous receivables -- 38,555
Prepaid expenses 42,126 (1,636)
Deposits -- (14,341)
Accounts payable, accrued expenses
and other current liabilities 30,675 2,335,402
--------- ------------
Total adjustments 169,162 (6,095,731)
--------- ------------
Net cash used in operating activities (321,810) (13,506,485)
--------- ------------
Cash flows from investing activities:
Expenditures for property and equipment -- (275,871)
Payments of related party receivable 1,087
Disposal of subsidiary, net of cash received -- (388,200)
--------- ------------
Net cash used in investing activities -- (662,984)
--------- ------------
Cash flows from financing activities:
Proceeds from 15% demand convertible debentures 245,420 --
Conversion of debt into preferred stock -- (163,625)
Proceeds from issuance of preferred stock -- 1,000,000
Proceeds from related party payable -- 80,479
Loan payable - affiliated company 130,000 --
Warehouse borrowings -- 10,387,292
Cash overdraft -- (264,409)
Proceeds from long-term debt -- 1,961,156
Payments of long-term debt -- (403,590)
--------- ------------
Net cash provided by financing activities 375,420 12,597,303
--------- ------------
Net increase (decrease) in cash and cash equivalents 53,610 (1,572,166)
Cash and cash equivalents at beginning of period 2,371 1,705,216
--------- ------------
Cash and cash equivalents at end of period $ 55,981 $ 133,050
========= ============
See accompanying notes to financial statements.
F-5
CFI MORTGAGE INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Nine
Months Ended
September 30,
---------------------------------
1999 1998
-------- ----------
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period:
Income taxes $ -- $ --
======== ==========
Interest $ -- $3,420,978
======== ==========
Supplemental Schedules of Noncash Investing
and Financing Activities:
Accrued dividends on preferred stock $136,100 $ 136,630
======== ==========
Capital asset and lease obligation additions $ -- $ 330,064
======== ==========
See accompanying notes to financial statements.
F-6
CFI MORTGAGE INC. AND SUBSDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(Unaudited)
NOTE 1 - PETITION FOR RELIEF UNDER CHAPTER 11.
On March 10, 1999, CFI Mortgage Inc. ("CFI") commenced a
voluntary petition for relief under Chapter 11 of Title 11 of the
United States Code in the Southern District of Florida. On June 11,
1999, the bankruptcy court confirmed a plan of reorganization pur-suant
to which CFI was discharged from any debt that arose before the date of
confirmation. As a result of the confirmation of the Plan, CFI is no
longer threatened by any litigation, claims, and assessments which may
have existed as of December 31, 1998.
The Plan provides for an infusion of $800,000 by a lender
which is secured by CFI's assets. The lender has the option of
con-verting the loan to common stock of CFI at a rate to be determined
after the effective date of the Plan.
Each general creditor shall receive one share of common stock
for each dollar of debt in the reorganized CFI.
The preferred stockholder of Series "A" and "B" convertible
preferred stock shall receive 2 million shares of common stock in
exchange for the preferred stock in the reorganized CFI.
The Company's subsidiary, Direct Mortgage Partners, Inc. (DMP)
was not a party to the petition for relief under Chapter 11. Only debts
that were guaranteed by CFI and two other creditors shall be satisfied
by issuance of common stock for each dollar of debt in the reorganized
CFI. The aforementioned debts are included in the total unsecured
non-priority liabilities. As at September 30, 1999 and December 31,
1998 liabilities of DMP that are not guaranteed by CFI amounted to
$1,539,341, respectively.
On June 28, 1999, the Company's Amended Plan of Reorganization
was approved and subsequently confirmed on August 2, 1999. On September
15, 1999, the Company petitioned the court to extend the time necessary
to consummate the Plan of Reorganization. This request for an extension
was granted by the court until November 1, 1999.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES.
(a) Going Concern:
The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern. The
Company's ability to return to normal operations is totally dependent
on the success of its voluntary plan of reorganization and subsequent
additional capital infusion. If this plan is not successful or the
additional capital is not forthcoming or is insufficient, management
intends to move the Company into a Chapter 7 bankruptcy liquidation.
Such conditions raise substantial doubt about the Company's
ability to continue as a going concern. The consolidated financial
statements do not include any adjustments that might result from the
outcome of this uncertainty.
F-7
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES. (Continued)
(b) Basis of Presentation:
The accompanying unauditing financial statements have been
prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions for Form
10-QSB and Article 10 and Regulation S-B. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In
the opinion of management, the statements contain all adjustments
(consisting only of normal recurring accruals) necessary to present
fairly the financial position as of September 30, 1999 and the results
of operations for the nine and three months ended September 30, 1999
and 1998 and cash flows for the nine months ended September 30, 1999
and 1998. The results of operations for the nine and three months ended
September 30, 1999 and 1998 are not necessarily indicative of the
results to be expected for the full year.
The December 31, 1998 balance sheet has been derived from the
audited financial statements at that date included in the Company's
annual report on Form 10-KSB. These unaudited financial statements
should be read in conjunction with the financial statements and notes
thereto included in the Company's annual report on Form 10-KSB.
(c) Organization:
Creative Industries, Inc. was incorporated in the State of
Florida in April 1989, and operates as a licensed mortgage lender. In
October 1990, the Corporation's name was changed to Creative Financing,
Inc. and on May 24, 1995 the Corporation's name was changed to CFI
Mortgage Corporation ("CFI Mortgage"). CFI Mortgage Inc. was
incorpo-rated in Delaware on March 18, 1997. Immediately prior to the
initial public offering, the existing stockholders of CFI Mortgage
contributed all of their shares of CFI Mortgage common stock to CFI in
exchange for 1,200,000 shares of common stock of CFI. Through its two
wholly-owned subsidiaries, Bankers Direct Mortgage Corporation
("BDMC"), which was sold on September 11, 1998, and Direct Mortgage
Partners Inc., which ceased operations in the 4th Quarter of 1998, CFI
has been engaged in originating, purchasing and selling loans secured
primarily by first mortgages on one-to-four-residential properties as
well as purchasing and selling servicing rights associated with such
loans. The loans were both conventional conforming loans (originated
and sold through BDMC) and nonconforming loans (originated and sold
through DMP). Significant intercompany accounts and transactions have
been eliminated in consolidation.
(d) Geographic Concentration:
Prior to the sale, BDMC was approved by the U.S. Department of
Housing and Urban Development/Federal Housing Administration ("FHA") as
a nonsupervised mortgagee. Both BDMC and DMP were licensed and
registered in approximately 22 states, primarily in the southern United
States, as mortgage lenders with approximately 9 branch offices.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES. (Continued)
(e) Use of Estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions in determining the reported amounts of assets
and liabilities and disclosures of contingent assets and lia-bilities
at the date of the financial statements, and the reported amounts of
revenues and expenses during the reporting period. Actual results could
differ from those estimates.
F-8
(f) Income Taxes:
The Company complies with Statement of Financial Accounting
Standards No. ("SFAS 109"), "Accounting for Income Taxes," which
requires an asset and liability approach to financial accounting and
reporting for income taxes. Deferred income tax assets are computed for
differences between financial statement and tax basis of assets and
liabilities that will result in future taxable or deductible amounts,
based on the enacted tax laws and rates to the periods in which
differences are expected to affect taxable income. Valuation allowances
are established, when necessary, to reduce deferred tax assets to the
amount to be realized.
(g) Earnings (Loss) Per Common Share:
Earnings (loss) per common share are based on the weighted
average number of common shares outstanding. In March 1997, the
Financial Accounting Standards Board issued Statement No. 128 ("SFAS
128") "Earning Per Share" which requires dual presentation of basic and
diluted earnings per share on the face of the statements of operations.
Basic earnings (loss) per share excludes dilution and is computed by
dividing income available to common stockholders by the
weighted-average common shares outstanding for the period. Diluted
earnings (loss) per share reflect the potential dilution that could
occur if preferred stock conversions, options and warrants were to be
exercised or converted or otherwise resulted in the issuance of common
stock that then shared in the earnings of the entity. The Company
adopted SFAS 128 for the year ended December 31, 1997.
Since the effect of outstanding options, warrants and
preferred stock conversions are antidilutive in all periods presented,
it has been excluded from the computation of earnings (loss) per common
share.
NOTE 3 - INTEREST RECEIVABLE.
Interest earned on mortgages held for sale from origination to
date of sale is recognized as earned.
F-9
NOTE 4 - RELATED PARTY TRANSACTIONS.
On July 15, 1998, Mr. Vincent C. Castoro, Chairman of the
Board of Directors, loaned CFI Mortgage Inc. $100,000 and in return
holds a promissory note with an interest rate of 6% with a due date of
August 15, 1998. No payments were made on this note until September 1,
1999 when a principal payment of $5,000 was made. The balances of
$102,218 and $102,750 which includes accrued interest have been
included in accrued expenses and other current liabilities, as at
September 30, 1999 and December 31, 1998, respectively.
In addition on September 10, 1999 an affiliated company loaned
CFI Mortgage, Inc. $130,000. The note bears interest at 9% and is
payable upon demand.
The Company has made advances to three officers aggregating
approximately $86,000 as of September 30, 1999 and December 31, 1998,
respectively. The advances are noninterest-bearing and are due on
demand and are included in due from the related parties.
NOTE 5 - ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES.
Accrued expenses and other current liabilities are comprised
of the following and are presented under the following captions in the
financial statement.
September 30, December 31,
1999 1998
Liabilities not subject to compromise:
Dividends on preferred stock $136,100 $ --
Accrued general and
administrative expenses 45,041 --
-------- --------
$181,141 $ --
======== ========
Unsecured non-priority liabilities:
Professional fees $152,000 $152,000
Dividends on preferred stock 137,781 137,781
Accrued interest 44,713 44,713
Accrued payroll 377,077 377,077
Deposit payable 150,000 150,000
Loans payable - officer 102,218 102,750
-------- --------
$963,789 $964,321
======== ========
Each general creditor shall receive one share of common stock
for each dollar of debt in the reorganized CFI.
F-10
NOTE 6 - COMMITMENTS.
(a) Leases:
Effective April 1, 1999, CFI rents its corporate head-
quarters, and office facilities from a stockholder on a month to month
basis at $1,890 per month including certain escalation costs for real
estate taxes, operating expenses, usage and common area charges. Rent
expense for real property leases charged to operations for the nine
months ended September 30, 1999 was $11,340.
(b) Employment Contracts:
The Company had entered into several employment contracts with
certain officers and employees which expire between 1998 and 2002 which
have been disavowed under the Chapter 11 Plan.
NOTE 7 - INCOME TAXES.
The Company and its subsidiaries file a consolidated federal
income tax return. As of December 31, 1998, the Company and its
subsidiaries have a net operating loss carryforward of approximately,
$19,000,000 available to reduce future taxable income which expires in
the year 2014. The deferred tax asset resulting from the operating loss
carryforward of approximately $7,125,000 in management's estimate
requires a valuation allowance in the same amount based upon
management's assessment that there is not assurance the tax asset will
be realized. The Company's ability to utilize its NOL carryforward
could be limited following a change in ownership in excess of fifty
percentage points effectuated by the common stock issued in connection
with the bankruptcy.
NOTE 8 - STOCKHOLDERS' EQUITY.
On May 30, 1997, CFI completed the initial public offering of
1,000,000 shares of its common stock at $5 per share. The net pro-ceeds
from the offering, after deducting underwriting discounts and
commissions and offering expenses, aggregated $3,800,525. In
con-nection with the offering, CFI granted the underwriter warrants to
purchase 100,000 shares of common stock at an exercise priced of $6 per
share. The warrants are exercisable for a period of four years
commencing May 1998.
On December 3, 1997, CFI issued and sold 2,060 shares of
Series "A" 8% convertible preferred stock $.01 par value, at $1,000 per
share in a private placement. The net proceeds from the sale, after
deducting selling and other related expenses, aggregated $1,821,753.
The preferred stock is convertible for two years into common shares at
a price equal to 85% of the five-day average bid prices immediately
prior to the conversion date. The discount on the conversion price is
accounted for as a charge against retained earnings and is amortized
over the nonconvertible period. Included in the statement of changes in
stockholders' equity for the year ended December 31, 1997 is a charge
of $150,000 pursuant to the conversion discount. On March 3, 1998, 500
shares of the preferred stock, plus accrued interest of approximately
$10,000 were converted into 105,467 of common shares.
F-11
NOTE 8 - STOCKHOLDERS' EQUITY. (Continued)
In connection with the preferred stock transaction, the
Company granted warrants to purchase 240,000 shares of common stock at
an exercise price of $8.50 per share. The warrants are exercisable
until September 17, 2001. In addition, the Company issued 60 shares of
preferred stock with identical terms as payment for fees for the
private placement. The cost will be included in the net proceeds from
the transaction and will be amortized over the non-conversion term.
On May 18, 1998, the Company issued $1,700,000 principal
amount of the convertible debentures to a single investor.
On August 19, 1998, the entire convertible debenture was
retired in exchange for the issuance of 1,700 shares of Series "C", 10%
convertible preferred stock, $0.01 par value in a private placement on
terms substantially identical to the original debenture. In connection
with this issuance of Series "C" preferred stock, warrants to purchase
50,000 shares of the Company's common stock at a price of $8.75 a
shares held by the debenture holder were surrendered in favor of new
warrants to purchase 50,000 shares of the Company's common stock at a
price of $2.6563 per share which was the closing market bid price on
the effective date of the exchange. On March 1999, Series "C" preferred
stock was converted into 2,500,000 shares of the Company's common
stock.
On June 30, 1998, CFI issued and sold 1,000 shares of Series
B, 8% convertible preferred stock, $0.01 par value, at $1,000 per share
in a private placement. The proceeds from the sale amounted to
$1,000,000. The preferred stock is convertible for two years into
common shares at a price equal to 85% of the five-day average bid
prices immediately prior to the per common share. The discount on the
conversion price, which was $150,000, is accounted for as a charge
against retained earnings and is amortized over the non-con-vertible
period.
During the nine months ending September 30, 1999, 75 shares of
preferred stock were converted into 525,021 shares of common stock and
accordingly additional paid-in capital increased by $1,994 and
accumulated deficit increased by $7,242.
NOTE 9 - 15% DEMAND CONVERTIBLE DEBENTURES.
During the nine months ending September 30, 1999, the Company
received $245,420 net of expenses of $27,825 from the sale of 15%
demand convertible debentures through a Private Securities Subscription
Agreement. The debentures are collateralized by all assets of the
Company not pledged in the bankruptcy proceedings and 956,000 shares of
the Company's common stock owned by two stockholders. Interest accrues
at 15% per annum and at the Company's option be paid in shares of the
Company's common stock. The outstanding debentures plus accrued
interest may be converted into the common stock of the Company at 2% of
the Company's common stock for each $80,000 of principal. In addition,
160,000 and 124,000 warrants at $.08 per share and $.15 per share,
respectively have been issued.
NOTE 10 - OTC - BULLETIN BOARD MARKET.
The common stock of CFI moved to the OTC - Bulletin Board
Market as the Company did not meet the required minimum standards for
continued inclusion in the NASDAQ Small Cap Market, effective with the
close of business on November 17, 1998.
F-12
NOTE 11 - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS.
The Financial Accounting Standards Board periodically issues
new accounting standards in a continuing effort to improve the quality
of financial information and to promote uniformity in its presentation.
Management has reviewed all such pronouncements made in the last fiscal
year and concluded that none have a material impact on the Company's
presentation of its financial position, results of operations and cash
flows.
NOTE 12 - YEAR 2000.
The Company recognizes the need to ensure its operation will
not be adversely affected by Year 2000 software failures. The Company
is communicating with suppliers, customers and other with which it does
business to coordinate Year 2000 conversion. The cost of achieving
compliance is estimated to be a minor increase over the cost of normal
software upgrades and replacements.
F-13
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RUSULTS
OF OPERATIONS.
FORWARD LOOKING STATEMENTS
Certain of the matters discussed in this Form 10-QSB may constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. As such, these forward-looking statements may
involve known and unknown risks and uncertainties and other factors that may
cause the actual results, performance or achievements of the Company to be
materially different from any future results, performance, or achievements
expressed or implied by such forward-looking statements.
GENERAL BUSINESS
CFI Mortgage Inc. (the "Company") is a diversified financial services company
headquartered in North Palm Beach, Florida. The Company provides mortgages and
mortgage-related services to individuals indirectly through mortgage brokers and
mortgage lenders. The Company originates, processes, underwrites and funds
residential mortgage loans that are sold on an individual basis to institutional
and private investors. The Company originates loans that do not conform to
agency guidelines (non-conforming loans). Non-conforming loans typically fail to
meet agency guidelines due to credit impairment, higher loan-to-value ratios and
debt-to-income ratios, and are priced to compensate for the additional credit
risk.
During the quarter ended September 30, 1999 the Company continued to administer
the bankruptcy reorganization process resulting in the bankruptcy plan being
confirmed on August 2, 1999. The Company hired production and production support
personnel during the quarter, which resulted in a pipeline in excess of
$3,000,000. Management anticipates revenues from the funding and sale of these
mortgages to occur in the fourth quarter.
The Company had negotiated "Net Branch Agreements" with several Mortgage Banking
Companies. The agreements allow the Company to market their services to mortgage
brokers in multiple states. The agreement calls for the Company to pay between
1/2% and 1% of the loan amounts originated under the arrangement. These Net
Branch Agreements allowed the company to restructure its operating procedures
and to commence operations late in the third quarter. Currently, the Company's
operating division is doing business in several states through these net branch
agreements. Historically, the Company had focused primarily on originating
conventional conforming and government-insured loans. Sub-prime lending has the
ability to generate gross profit margins up to twice the level of the Conforming
lending. The Company sells substantially all of the mortgages it originates and
purchases, including the right to service such loans, to institutional
purchasers, including national and regional commercial banks and mortgage banks.
These institutional purchasers thereafter portfolio or resell the mortgages as
mortgage-backed securities.
Business Strategy
The Company's business strategy is to increase profitably the volume of its loan
purchases and the size of its broker network by (i) continuing to provide
quality service to its network of brokers /correspondents; (ii) broadening its
sub-prime product offerings; (iii) selling its mortgage loans in bulk for cash;
(iv) continuing its investment in "mortgage loan origination systems"; (v)
maintaining its underwriting standards; (vi) expanding onto the Internet to
offer mortgage related services to the companies broker network through
E-Commerce.
Continuing to Provide Quality Service
The Company provides a high level of service to its brokers and correspondents.
These services include preliminary approval of most brokered loans and certain
correspondent loans within one day, consistent application of its underwriting
guidelines and funding or purchase of loans generally within three to ten days
of preliminary approval. In addition, the Company services each broker and
correspondent with a team of professionals that includes a business development
representative, experienced underwriters and, in the case of brokered loans,
loan officers working primarily on a commission basis with processors assisting
them to handle applications submitted by each broker. The Company believes that
this commitment to service provides a competitive advantage in establishing and
maintaining productive broker and correspondent relationships.
Broadening Product Offerings
The Company frequently reviews its pricing and loan products relative to
its competitors and introduces new loan products in order to meet the needs of
its correspondents and brokers. For example, the non-conforming home equity loan
market is a logical extension of the Company's end product offering. The Company
is beginning to enter this market through its wholesale division, specifically
by lending to individuals who generally have impaired or limited credit profiles
or higher debt to income ratios and typically has substantial equity in their
homes.
Whole Sale Lending Platform
Management believes that lending through correspondents can he an efficient and
cost efficient method of producing loans because of the low fixed expenses and
capital investment required. Correspondents are paid for the loans purchased by
the Company based on a percentage of the loan balance purchased. Such percentage
is determined based upon a daily rate sheet that reflects market demand for
particular loans on that day. If efficiently utilized, correspondent lending can
allow the Company to match its costs more directly with the volume of loans
purchased so that a portion of the Company's cost is variable rather than fixed.
The correspondent origination approach also allows the Company the flexibility
to adjust to varying market conditions by quickly entering or exiting geographic
markets as economic conditions dictate.
The Company attracts and maintains relationships with correspondents by offering
a variety of services that provide incentives for the correspondents to sell
mortgage loans to the Company. The Company's strategy with respect to its
correspondents has been to provide a high level of service together with
competitive pricing. Services provided include timely underwriting and approval
or rejection of a loan (within 24 hours after receipt of a completed loan
application), timely purchase of loans (within five to ten days after they are
approved for acquisition), information sessions and updates regarding current
underwriting practices and new products. In addition, the Company provides
correspondents with a variety of products and multiple methods of funding loans.
As the Company moves forward with its Internet delivery strategy, correspondent
relationships will provide a potential customer base for the sale of Internet
mortgage loan leads in geographic markets where the Company lacks the licensing
or physical presence to originate loans directly. Management believes that
correspondent lending can be structured to manage risks and maintain quality
control. The Company will approve correspondents only after a thorough review of
the reputation and mortgage lending expertise of such entities, including a
review of references and financial statements.
The Company requires that a full appraisal of the collateral property for any
loan that it acquires or originates be performed in connection with the
origination of the loan. All appraisals are performed by third party, fee-based
appraisers and generally conform to current FNMA, FHLMC secondary market
requirements for residential property appraisals. Each such appraisal generally
includes, among other things, an inspection of the exterior and interior of the
subject property and, where available, data from sales within the preceding 12
months of similar properties within that same general location of the subject
property.
A credit report by an independent, nationally recognized credit reporting agency
reflecting the applicant's complete credit history is also required. The credit
report typically contains information reflecting delinquencies, repossessions,
judgments, foreclosures, bankruptcies and similar instances of adverse credit
that can be discovered by a search of public records. An applicant's recent
credit performance weighs heavily in the evaluation of risk by the Company. The
credit report is used to evaluate the borrower's record and must he current at
the time of application. A lack of credit history will not necessarily preclude
a loan if the borrower has sufficient equity in the property. Slow payments on
the borrower's credit report must be satisfactorily explained and will impact
the amount of the loan for which the applicant can be approved.
The Company requires title insurance coverage issued by an approved ALTA title
insurance company on the collateral property for all loans it originates or
purchases. The Company and its assignees will be the named insured on the
policy. Title insurance policies indicate the lien position of the mortgage loan
and protect the Company against loss if the title or lien position is not as
indicated. The applicant is also required to secure hazard and, if required,
flood insurance in an amount sufficient to cover the lesser of (i) the new loan
balance or (ii) an amount sufficient to cover replacement costs of the Mortgaged
property.
The Company has implemented a quality control program to monitor compliance with
the Company's established lending and servicing policies and procedures, as well
as with applicable laws and regulatory guidelines. The Company believes that the
implementation and enforcement of its comprehensive underwriting criteria and
its quality control program are a significant element in the Company's efforts
to originate and purchase high quality mortgage loans. The Company's quality
control's all loans in order to evaluate compliance with underwriting criteria
Sale of Loan
The sale of mortgage loans may generate a gain or loss to the Company. Gains or
losses result primarily from two factors. First, the Company may purchase a loan
at a price (i.e., interest rate, and discount) which may be higher or lower than
the Company would receive if it immediately sold the loan in the secondary
market. These pricing differences occur principally as a result of competitive
pricing conditions in the primary loan origination market. Second, gains or
losses upon the sale of loan may result from changes in interest rates which
result in changes in the market value of the loans, or commitments to originate
or to purchase loans, from the time the price commitment is given to the broker
until the time that the loan is sold by the Company to the investor. In order to
reduce the effect of interest rate changes on the gain and loss on loan sales,
the Company generally commits to sell all its warehouse loans. (i.e. mortgage
loans that have closed) and its pipeline loans (i.e., mortgage loans which are
not yet closed but for which the interest rate has been established) to
institutional investors for delivery at a future time for a stated price. In
general the Company will not establish an interest rate for a mortgage loan
until it has obtained a commitment from an institutional investor to purchase
the loan. These commitments are on a "best efforts" basis and the Company has no
obligation to sell a loan to an investor unless and until the loan closes.
Financing of Mortgage Banking Operations
The Company's primary cash flow requirement involves the funding of its loan
production. The Company finances its mortgage loan purchases through warehouse
lines of credit or loan purchase agreements it accesses through its Net branch
affiliation that they have entered into with several unaffiliated commercial
banks or financial services companies. These credit facilities are
collateralized by the underlying loans are provide for either a short term (60
to 90 days) borrowing or an interim purchase of the loan by the funding bank
while awaiting final purchase by the end investor.
BANKRUPTCY PROCEEDING:
On March 10, 1999, CFI Mortgage Inc. ("CFI") commenced a voluntary petition for
relief under Chapter 11 of Title 11 of the United States Code. The Plan provides
for an infusion of $800,000 by a lender, which is secured by CFI's assets. The
lender has the option of converting the loan to common stock of CFI at a rate of
2% of the company per $80,000 funded to the Company. Each general creditor shall
receive one share of common stock for each dollar of debt in the reorganized
CFI. The Plan was confirmed on August 2, 1999 CFI will no longer be threatened
by any litigation, claims, and assessments on a cash basis, which may have
existed as of December 31, 1998. The only liabilities the company can incur
would be an additional common stock distribution to a creditor whom the company
has objected to their claim and the court might award an additional distribution
over the amount the company had scheduled in its Bankruptcy filings. The company
believes in the validity of the amount due creditors in its Bankruptcy Filings.
In the event that the Company losses some or all of the claims objections the
existing shareholders would be further diluted to the degree that the award to
the creditor exceeds the amount scheduled on the companies Bankruptcy filings.
The overage to the creditors would be paid in the Company's Common Stock.
PLAN OF REORGANIZATION:
See Company's annual 10K filing for the amended plan of reorganization (Exhibit
1) and amended disclosure statement (Exhibit 2) as filed with the Securities and
Exchange Commission.
EVENTS LEADING TO THE CHAPTER 11 PETITION:
Beginning in September 1998, as a result of a number of factors, cash prices in
the sub-prime mortgage market significantly deteriorated and in some cases
investor yield requirements increased some 200 basis points. This in turn
significantly devalued the Company's loans held for sale and subsequent
revenues.
The Company previously had a warehouse line of $15 million with Bank One, Texas,
NA., which was discontinued as of September 30, 1998. The Company's other
warehouse line, which was with Nikko Financial Services, was terminated
effective November 30, 1998. As of September 30, 1998, the Company was in
violation of the net worth covenant of this agreement. In addition, the Company
previously had a purchase facility agreement with Fidelity Bank and Trust
aggregating $25 million. As of September 30, 1998 the use of that facility was
terminated. Upon termination of the warehouse line with Nikko, further advances
for new loan funding could only be under a repurchase agreement which provided
Nikko with the ability to evaluate whether or not it would enter into any new
transactions with the Company. The Company no longer had a committed warehouse
facility. Given that Nikko could decline the Company's request to fund loans
after November 30, 1998, the Company was not able to make loan-funding
commitments beyond November 30, 1998.
As of March 31,1998 and again as of June 30,1998, the Company did not meet the
required minimum standards for continued inclusion in the NASDAQ Small-Cap
Market in that its net tangible assets had fallen below $2,000,000 and so the
Company received a formal notice of de-listing from NASDAQ. On July 31, 1998 the
Company appealed the notice of de-listing at an oral hearing and awaited a final
decision from NASDAQ. On November 17, 1998 NASDAQ informed the Company by letter
that a determination had been made to de-list the Company's securities from The
NASDAQ Stock Market effective with the close of business on November 17, 1998.
The Company attempted a non-bankruptcy workout with its creditors. The Company
received a commitment from an investor to re-capitalize the Company with up to
$2 million if the Company could restructure its then-existing liabilities.
Accordingly, the Company presented a voluntary, non-bankruptcy plan of
reorganization to all its creditors (and those of its subsidiaries) wherein all
creditors were offered 1 share of the Company's common stock for each dollar
owed.
The success of that reorganization plan was dependent on full acceptance by all
of the Company's creditors and the consent of its underwriters to issue the
related common shares. All creditors did not accept the Company's common shares
in lieu of payment, and the underwriters did not consent to the issuance of the
underlying shares, which resulted in the investor not agreeing to re-capitalize
the Company.
The Company disclosed in a letter to the creditors that in the event that the
voluntary plan was not successful by December 11, 1998, management intended to
seek liquidation of the Company though the filing of a Chapter 7 bankruptcy
action on December 14, 1998." Prior to a Chapter 7 bankruptcy petition being
filed, the Company consulted with its bankruptcy counsel, Kevin C. Gleason, and
was advised that a plan similar to the attempted workout could be accomplished
through a petition under Chapter 11 of the bankruptcy code, without the need for
the unanimous consent of the creditors. With its only alternatives being
liquidation under Chapter 7, or an reorganization under Chapter 11, the
Directors elected to seek a course of action under reorganization.
The substantial decrease in the Company's net worth from November 24, 1998
through March 10, 1999 was overwhelmingly due to the devaluation of the mortgage
portfolios of the Company's subsidiary, DMP.
COMPARISON OF QUARTERS ENDED SEPTEMBER 30, 1999 AND 1998
The Company did not have any revenues for the current period. With the loss of
the Company's credit facilities the Company was unable fund loans after November
30, 1998, and subsequently discontinued its mortgage-banking operations. On
March 10, 1999, CFI Mortgage Inc. ("CFI") commenced a voluntary petition for
relief under Chapter 11 of Title 11 of the United States Code. As such, the
Company did not have any operating subsidiary in the current quarter when
compared to last year when the Company had two operating subsidiaries.
EXPENSES
The Company recorded total operating expenses of $295,928 for the quarter ended
September 30, 1999. This reflected increased payroll and operating expenses
associated in the building of an infrastructure to support the mortgage
operations and administrative expenses primarily associated with the filing and
subsequent approval of the bankruptcy reorganization petition. General and
administrative expenses accounted for $274,529 and interest $9,657, of the total
expenses. Selling expenses were $11,742, and accrued preferred stock dividends
of $56,460. The Company generated in excess of a $3,000,000 mortgage loan
pipeline. Funding and sales of these loans will contribute revenues in the
fourth quarter.
NET INCOME (LOSS)
The Company generated a net loss of $352,388, after accrued preferred stock
dividends of $56,460, in the quarter ended September 30, 1999, which included
$295,928 in operating expenses, primarily associated with the filing and
subsequent approval of the bankruptcy reorganization petition and the staffing
of production and production support personnel for the mortgage operations.
Accrued preferred stock dividends were $56,460 in accrued dividends.
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
The Company recorded $1,358 in revenues for the nine months ended September 30,
1999. With the loss of the Company's credit facilities the Company was unable
fund loans after November 30, 1998, and subsequently discontinued its
mortgage-banking operations. On March 10, 1999, CFI Mortgage Inc. ("CFI")
commenced a voluntary petition for relief under Chapter 11 of Title 11 of the
United States Code. As such, the Company did not have any operating subsidiaries
in the current period when compared to last year when the Company had two
operating subsidiaries.
The Company recorded total operating expenses of $492,330 for the nine months
ended September 30, 1999. This reflected the increase payroll and operating
expenses associated with building an infrastructure for the mortgage operations,
and administrative expenses primarily associated with the filing and subsequent
approval of the bankruptcy reorganization petition. General and administrative
expenses accounted for $465,468, interest $15,120 and selling $11,742 of the
total expenses.
The Company generated net loss of $627,072, after accrued preferred stock
dividends of $136,100, for the nine months ended September 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company's is dependent on stock sales or third party borrowings to sustain
operations. During the quarter ending September 30, 1999, the Company received
$144,000 net of expense of $16,000 from the sale of 15% demand convertible
debentures through a Private Securities Subscription Agreement (The "Ronco
Agreement"). The debentures are collateralized by all the assets of the Company
not pledged in the Bankruptcy proceedings and 956,000 shares of the Company's
common stock owned by two stockholders. In addition, on September 10, 1999 an
affiliated Company loaned $130,000 to CFI Mortgage, Inc. The note bears interest
at 9% and is payable upon demand.
Management believes that the planned fourth quarter capital infusion, combined
with acquisitions as outlined in the amended plan of Reorganization, and
revenues from the sale of mortgage loans will be sufficient to fund the
Company's expansion through the remainder of 1999. There can be no assurance
that the Company will be able to obtain an additional capital infusion in the
fourth quarter or that the planned acquisitions will be consummated.
RISK FACTORS
SEASONALITY
The mortgage banking industry is subject to seasonal trends. These trends
reflect the general pattern of re-sales of homes, which sales typically peak
during the spring and summer seasons and decline from January through March. In
addition, the primary home market in Florida tends to increase during the fourth
quarter, while the second home market increases from October through April.
Refinancing tend to be less seasonal and more closely related to changes in
interest rates. The mortgage servicing business is generally not subject to
seasonal trends, except to the extent that growth of a mortgage-servicing
portfolio is generally higher in periods of greater mortgage loan originations.
COMPETITION
The mortgage banking industry is highly competitive. The Company competes with
financial institutions, mainly mortgage companies, commercial banks and savings
and loan associations and, to a certain extent, credit unions and insurance
companies, depending upon the type of mortgage loan product offered. The Company
competes principally by purchasing or originating a variety of types of mortgage
loans, emphasizing the quality of its service and pricing the loans at
competitive rates. Many of the Company's competitors have financial resources
substantially greater than that of the Company. Many of the nation's largest
mortgage companies and commercial banks have a significant number of branch
offices in areas in which the Company's correspondents and wholesale and retail
branches operate. Increased competition for mortgage loans from larger lenders
may result in a decrease in the volume of loans originated and purchased by the
Company, thereby possibly reducing the Company's revenues. The top five
competitors in the market are a) the Associates, b) Household Financial, c)
ContiMortgage Corp., d) Green Tree Financial and e) the Money Store.
REGULATION
The operations of the Company are subject to extensive regulation by federal and
state governmental authorities and are subject to various laws and judicial and
administrative decisions that, among other things, regulate credit activities,
require disclosures to customers, govern secured transactions and establish
collection, repossession and claims handling procedures and other trade
practices. The Company is subject to the rules and regulations of the Federal
Housing Administration ("FHA"), FNMA and the Department of Veteran Affairs (the
"VA") and state regulatory authorities with respect to originating, processing,
underwriting, selling, securitizing and servicing mortgage loans.
In addition, there are other federal and state statutes and regulations, as well
as judicial decisions, affecting the Company's operations. Those rules and
regulations, among other things, impose licensing obligations on the Company,
establish eligibility criteria for mortgage loans, prohibit discrimination and
establish underwriting guidelines which include provisions for inspections and
appraisals, require credit reports on prospective borrowers and fix maximum loan
amounts, and with respect to the VA loans, fix maximum interest rates. Moreover,
lenders such as the Company are required to submit annually to the FHA, FNMA and
VA audited financial statements, and each regulatory entity has its own
financial requirements. The Company's affairs also are subject to examination by
the FHA, FNMA and VA at all times to assure compliance with all applicable
regulations, policies and procedures. Mortgage origination activities are
subject to, among other regulatory requirements, the Equal Credit Opportunity
Act, the Federal Truth-in-Lending Act, the Home Mortgage Disclosure Act and
RESPA and the regulations promulgated thereunder which prohibit discrimination
and require the disclosure of certain basic information to mortgagors concerning
credit terms and settlement costs. Many of the aforementioned regulatory
requirements are designed to protect the interests of consumers, while others
protect the owners or insurers of mortgage loans. Failure to comply with these
requirements can lead to loss of approved status, termination of servicing
contracts without compensation to the servicer, demands for indemnification or
loan repurchases, class action lawsuits and administrative enforcement actions.
There are various state and local laws and regulations affecting the Company's
operations. The Company is in possession of all licenses required by the State
of Florida to conduct its business operations and for the states were it
transacts business. Conventional mortgage operations also may be subject to
state usury statutes. FHA and VA mortgage loans are exempt from the effect of
such statutes.
ENVIRONMENTAL MATTERS
To date, the Company has not been required to perform any investigation or
re-mediation activities, nor has it been subject to any environmental claims.
There can be no assurance, however, that this will remain the case in the
future. In the ordinary course of its business, the Company from time to time
forecloses on the properties securing loans. Although the Company primarily
lends to owners of residential properties, there is a risk that the Company
could be required to investigate and clean up hazardous or toxic substances or
chemical releases at such properties after acquisition by the Company, and may
be held liable to a governmental entity or to third parties for property damage,
personal injury and investigation and clean up costs incurred by such parties in
connection with the contamination. In addition, the owner or former owners of a
contaminated site may be subject to common law claims by third parties based on
damages and costs resulting from environmental contamination emanating from such
property.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As a result of the confirmation of the bankruptcy plan, the Company is no longer
threatened with any litigation, claims and assessments which may have exited as
of year end December 31, 1998.
The Company is aware of an additional suit pending against Christopher Castoro
and Don L. Lashbrook by Thomson, Kernaghan & Co. The Company is not a party to
the suit.
The Company was served on August 17, 1999 with a lawsuit from the "Unofficial
Creditors Committee" seeking $10,000,000 in damages. All of the former officers
and directors of the Company were named as well Gulf Insurance Company, the
Company's Officer & Directors insurance carrier. The Company, its Directors and
former Directors and former Officers believe the suit to be without merit and
intend to vigorously defend the action.
In the event an objection to a claim is made, such objection shall preclude the
consideration of such claim as "allowed" for purposes of timely distribution in
accordance with the Plan. The Disbursing Agent shall escrow sufficient shares of
common stock to cover all potential distributions with respect to claims that
have objections filed against them. The Company has filed objections to the
substantial claims. See Exhibit 3 of the Company's annual 10K report as filed
with the Securities & Exchange Commission for all disputed claims that if
adjudicated against the Company in bankruptcy court will result in payment of
one share of common stock being issued for every one dollar ($1.00) owed. Claims
objections are being done post-confirmation.
ITEM 2. CHANGES IN SECURITIES
On March 10, 1999, CFI Mortgage Inc. ("CFI") commenced a voluntary petition for
relief under Chapter 11 of Title 11 of the United States Code. The Plan provided
for an infusion of $800,000 by a lender (Ronco), which is secured by CFI's
assets. The Ronco Funding subscription represents Class 1 of CFI Mortgages
Inc.'s Creditor class in regards to the Companies Bankruptcy Reorganization
plan.. Ronco, or its assigns, shall have the option to convert the amount of the
loan to common stock of the Company pro rata, at the rate of 2 percent of the
outstanding common shares of the Company for each $80,000 of gross
disbursements. Such shares to be determined after the Effective Date, and to
represent two percent (2%) of the Company's outstanding common stock after
distributions to claimants in Classes 2 and 3. A warrant for one share of the
stock of the Company will also be issued to Lender, or its assigns, for each
share of common stock issued to Ronco pursuant to the Agreement with the
Company.
During the quarter ended September 30, 1999, the Company received $144,000 net
of expense of $16,000 from the sale of 15% demand convertible debentures through
the Private Securities Subscription Agreement with Ronco. The debentures are
collateralized by all assets of the Company not pledged in the Bankruptcy
Proceedings and 956,000 of the Company's common stock owned by two stockholders.
Interest accrues at 15% per annum and at the Company's option be paid in shares
of the Company's common stock. In addition, 80,000 warrants at $.15 per share
and 80,000 warrants at $.24 per share were issued.
The following table sets forth the range of high and low closing prices per
share of the Common stock during the period since December 31, 1998.
- ---------------------------------------------------------------------------
1999 High Low
- ---------------------------------------------------------------------------
First Quarter $ 0.34 $ 0.07
Second Quarter $ 0.34 $ 0.06
Third Quarter $ 0.42 $ 0.17
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
ITEM 5. OTHER INFORMATION - SUBSEQUENT EVENTS
On March 10, 1999, CFI Mortgage Inc. ("CFI") commenced a voluntary petition for
relief under Chapter 11 of Title 11 of the United States Code. The Plan provided
for an infusion of $800,000 by a lender (Ronco), which is secured by CFI's
assets. The Ronco Funding subscription represents Class 1 of CFI Mortgages
Inc.'s Creditor class in regards to the Companies Bankruptcy Reorganization
plan. Ronco, or its assigns, shall have the option to convert the amount of the
loan to common stock of the Company pro rata, at the rate of 2 percent of the
outstanding common shares of the Company for each $80,000 of gross
disbursements. Such shares to be determined after the Effective Date, and to
represent two percent (2%) of the Company's outstanding common stock after
distributions to claimants in Classes 2 and 3. A warrant for one share of the
stock of the Company will also be issued to Lender, or its assigns, for each
share of common stock issued to Ronco pursuant to the Agreement with the
Company.
Subsequently, as of September 30, 1999 Ronco Funding, Inc. has subscribed a
gross amount of $284,000. The Company was funded $256,000 which was less the
$28,000 in funding commissions due to the agent of Ronco Funding. The Funding to
date represents (when converted) an approximate seven percent (7%) equity
interest. The Company was granted an extension on September 15, 1999 by the
bankruptcy court extending the time Ronco Funding, Inc and or its assigns, has
to fulfill the $800,000 subscription until October 1, 1999.
On June 28, 1999 the Company's Amended Plan of Reorganization was approved. On
August 2, 1999 the Company's bankruptcy reorganization was confirmed.
Subsequent to the March 10, 1999 petition for relief filing under Chapter 11,
the following material agreements were made through the bankruptcy proceedings.
An agreement was reached to conduct an assignment for the benefit of creditors
for the Company's subsidiary Direct Mortgage Partners for the benefit of its
creditors. In addition, by request of the major creditors of the Company, a
mechanism was included in an amendment to the plan and the order confirming the
plan, which preserves any and all causes of action held by the unofficial
creditors committee, before or after commencement of the case, to be prosecuted
post-confirmation, at the unofficial creditors committee's expense.
On October 11, 1999 the Company executed a Letter of Intent to acquire a
majority interest in a leading developer of special purpose software, Inventek,
Inc. Inventek has been an IBM business partner since 1996 and is one of the
leading producers of software product solutions to the ground transportation
industry. Inventek began operations in 1994 with the development of TranWare
software, which maximizes client scheduling, cashiering, accounting and
insurance administration. The Company is currently performing due diligence
which is anticipated to continue through November.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Not applicable
SIGNATURE
In accordance with the requirements of the Securities and Exchange Act, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
CFI MORTGAGE INC.
(Registrant)
Date: November 11, 1999 /s/ Christopher C. Castoro
------------------------------------------------
Christopher C. Castoro
(Executive Vice President)
Date: November 11, 1999 /s/ Rodger W. Stubbs
------------------------------------------------
Rodger W. Stubbs
(Principal Administrative Officer)