UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 0-27314
AMC FINANCIAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 11-2994671
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
11111 WILCREST GREEN, SUITE 250, HOUSTON, TEXAS 77042
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
(713) 787-0100
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934
DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT
WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENT FOR THE PAST 90 DAYS.
YES [X] NO [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
INDICATE BY CHECK MARK WHETHER THE REGISTRANT HAS FILED ALL DOCUMENTS AND
REPORTS REQUIRED TO BE FILED BY SECTIONS 12, 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 SUBSEQUENT TO THE DISTRIBUTION OF SECURITIES UNDER A PLAN
CONFIRMED BY A COURT.
YES [X] NO [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
7,782,615 SHARES, $.01 PAR VALUE,
OF NEW COMMON STOCK, WERE OUTSTANDING AS OF MAY 13, 2000
AMC FINANCIAL, INC.
(FORMERLY CITYSCAPE FINANCIAL CORP.)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2000
PART I - FINANCIAL INFORMATION PAGE
----
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Statements of Financial Condition as of ...................... 3
March 31, 2000 (Unaudited) and December 31, 1999
Consolidated Statements of Operations for the three ....................... 4
months ended March 31, 2000 and 1999 (Unaudited)
Consolidated Statements of Cash Flows for the three ....................... 5
months ended March 31, 2000 and 1999 (Unaudited)
Notes to Consolidated Financial Statements ................................ 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF ........................... 11
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES .......................... 13
ABOUT MARKET RISK
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS ................................................. 14
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS ......................... 16
ITEM 3. DEFAULTS UPON SENIOR SECURITIES ................................... 16
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ............... 16
ITEM 5. OTHER INFORMATION ................................................. 16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K .................................. 17
2
PART I. - FINANCIAL STATEMENTS
ITEM 1. FINANCIAL STATEMENTS
AMC FINANCIAL, INC. AND SUBSIDIARIES
(FORMERLY CITYSCAPE FINANCIAL CORP.)
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
REORGANIZED COMPANY
-------------------------------------
MARCH 31, 2000 DECEMBER 31, 1999
-------------- -----------------
(UNAUDITED)
ASSETS
Cash and cash equivalents .......................... $33,103,395 $30,850,395
Marketable securities .............................. 175,000 763,644
Residual certificates .............................. 12,538,461 12,538,461
Mortgage loans held for sale, net .................. 13,914,347 14,338,442
Income taxes receivable ............................ 1,437,288 1,437,288
Investment in discontinued operations, net ......... 12,239,110 12,239,110
Other assets ....................................... 1,007,142 927,828
----------- -----------
Total assets .......................................... $74,414,743 $73,095,168
=========== ===========
LIABILITIES
Accounts payable and other liabilities ............. $ 9,481,315 $ 9,651,469
----------- -----------
Total liabilities ..................................... 9,481,315 9,651,469
----------- -----------
STOCKHOLDERS' EQUITY
Common Stock, $ .01 par value; 25,000,000
shares authorized; 7,766,807 and 7,743,622 issued
and outstanding in 2000 and 1999, respectively ... 77,668 77,436
Additional paid-in capital ........................ 61,869,185 61,202,720
Accumulated other comprehensive income ............ 143,989 559,108
Retained earnings ................................. 2,842,586 1,604,435
----------- -----------
Total stockholders' equity ............................ 64,933,428 63,443,699
----------- -----------
Total liabilities and stockholders' equity ............ $74,414,743 $73,095,168
=========== ===========
See accompanying notes to consolidated financial statements.
3
AMC FINANCIAL, INC. AND SUBSIDIARIES
(FORMERLY CITYSCAPE FINANCIAL CORP.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
REORGANIZED COMPANY PREDECESSOR COMPANY
------------------- -------------------
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 2000 MARCH 31, 1999
------------------- -------------------
REVENUES
Gain on sale of loans ............................ $ -- $5,568,012
Interest ......................................... 1,147,650 2,282,083
Other ............................................ 1,521,101 1,415,906
---------- ----------
Total revenues ........................................ 2,668,751 9,266,001
---------- ----------
EXPENSES
Salaries and employee benefits ................... 152,256 1,429,045
Interest expense ................................. -- 1,289,059
Selling expenses ................................. -- 140,926
Other operating expenses ......................... 611,647 2,394,293
---------- ----------
Total expenses ........................................ 763,903 5,253,323
---------- ----------
Earnings before reorganization items and
income taxes ............................... 1,904,848 4,012,678
Reorganization items .................................. -- 654,059
---------- ----------
Earnings before income taxes ..................... 1,904,848 3,358,619
Income tax provision .................................. 666,697 7,673
---------- ----------
NET EARNINGS APPLICABLE TO COMMON
STOCKHOLDERS ....................................... $1,238,151 $3,350,946
========== ==========
NET EARNINGS PER COMMON SHARE:
Basic and Diluted ............................... $ 0.16 $ NMF (1)
========== ==========
Weighted average number of common shares outstanding:
Basic and Diluted ................................ 7,751,800 NMF (1)
========== ==========
(1) Not Meaningful Figure due to reorganization.
See accompanying notes to consolidated financial statements.
4
AMC FINANCIAL, INC. AND SUBSIDIARIES
(FORMERLY CITYSCAPE FINANCIAL CORP.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
REORGANIZED COMPANY PREDECESSOR COMPANY
------------------- -------------------
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 2000 MARCH 31, 1999
------------------- -------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings ................................... $ 1,238,151 $ 3,350,946
Adjustments to reconcile net earnings to
cash provided by operating activities:
Depreciation and amortization ............... -- 3,471
Income taxes payable ........................ -- 173,713
Decrease in residual certificates ........... -- 258,153
Proceeds from sale of mortgages ............. -- 87,926,600
Other, net .................................. 1,014,849 (5,787,071)
------------ ------------
Net cash provided by operating activities ........... 2,253,000 85,925,812
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in warehouse financings ............... -- (83,679,583)
------------ ------------
Net cash used in financing activities ............... -- (83,679,583)
------------ ------------
Net increase in cash and cash equivalents ........... 2,253,000 2,246,229
Cash and cash equivalents at beginning of
period .............................................. 30,850,395 18,405,426
------------ ------------
Cash and cash equivalents at end of period .......... $ 33,103,395 $ 20,651,655
============ ============
Supplemental disclosure of cash flow information:
Interest paid during the period ......... $ -- $ 1,568,366
============ ============
See accompanying notes to consolidated financial statements.
5
AMC FINANCIAL, INC. AND SUBSIDIARIES
(FORMERLY CITYSCAPE FINANCIAL CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(UNAUDITED)
1. Organization
AMC Financial, Inc., formerly Cityscape Financial Corp. (the "Company"
or "AMC"), was a consumer finance company which, through its wholly owned
subsidiary Cityscape Corp. ("CSC"), was in the business of selling and servicing
mortgage loans secured primarily by one- to four-family residences. The Company
was previously in the business of originating and purchasing mortgage loans
until such business was indefinitely suspended in November 1998. The majority of
the Company's loans were made to owners of single-family residences for such
purposes as debt consolidation, financing of home improvements and educational
expenditures. In October 1998, the Company filed voluntary petitions for
bankruptcy in the United States Bankruptcy Court. The Bankruptcy Court confirmed
the amended plan of reorganization in June 1999. In September 1999 the Company
relocated operations from Elmsford, New York to Houston, Texas.
2. Reorganization
The Company has been reorganized through a plan of reorganization under
Chapter 11 of Title 11 of the United States Bankruptcy Code. Although the plan
became effective on July 1, 1999, the effective date of the plan for accounting
purposes is considered to be June 30, 1999, and accordingly, the Company adopted
fresh start reporting as of June 30, 1999 (see Notes 4 and 5). Adjustments were
recorded as of June 30, 1999 to reflect the effects of the consummation of the
plan of reorganization and the implementation of fresh start reporting.
3. Plan of Liquidation and Dissolution
In January 2000 the Company engaged a financial advisor, Peter J.
Solomon Company Limited, to advise the Company on strategic alternatives
regarding the Company's future. Such alternatives included re-entering the
mortgage loan origination and servicing business, sale of the Company,
liquidation of assets and subsequent distribution of cash to the shareholders
upon dissolution of the Company, and maintenance of the current status of the
Company. In April 2000 the financial advisor recommended to the Board of
Directors that liquidation and subsequent dissolution of the Company was the
strategy most likely to maximize stockholder value. On May 2, 2000 the Board of
Directors authorized, subject to stockholder approval, the orderly liquidation
of the Company's assets pursuant to the Plan of Liquidation and Dissolution (the
"Plan"). The Plan provides that, if the requisite stockholder approval is
received (such time of approval deemed the "Effective Date"), the officers and
directors of the Company will initiate the complete liquidation and subsequent
dissolution of the Company. After the Effective Date, AMC will not engage in any
business activities except for the purpose of preserving the value of its
assets, prosecuting and defending suits by or against the Company, satisfying
all outstanding liabilities, adjusting and winding up its business and affairs,
selling and liquidating its properties and assets and making distributions to
the stockholders in accordance with the Plan. Once the liquidation of AMC's
property and assets is substantially completed, or at such earlier time is
determined by the Board of Directors, the officers of the Company will promptly
execute and file a certificate of dissolution with the Secretary of the State of
Delaware. Such Plan will be submitted to the stockholders for approval at the
Company's Annual Meeting of Stockholders currently scheduled to be held on June
27, 2000. If the Plan is not approved by the stockholders, the Board of
Directors will explore the alternatives then available for the future of the
Company.
6
4. Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-Q and do not include all
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments consisting of normal recurring accruals, considered necessary for a
fair presentation of the results for the interim period, have been included. The
accompanying consolidated financial statements and the information included
under the heading "Management's Discussion and Analysis of Financial Condition
and Results of Operations" should be read in conjunction with the consolidated
financial statements and related notes of the Company for the year ended
December 31, 1999.
The Company's emergence from Chapter 11 proceedings resulted in a new
reporting entity with no retained earnings or accumulated deficit as of June 30,
1999. Retained earnings as of March 31, 2000 represent earnings from July 1,
1999 to March 31, 2000. A vertical black line has been drawn on certain of the
accompanying consolidated financial statements and footnotes to distinguish
between the pre-reorganization operating results (the "Predecessor Company") and
the post-reorganization operating results (the "Reorganized Company").
Operating results for the three months ended March 31, 2000 are for the
Reorganized Company and results for the three months ended March 31, 1999 are
for the Predecessor Company. The results for the Reorganized Company are not
comparable to those of the Predecessor Company. Since the Company's emergence
from Chapter 11 proceedings, the Company has not had significant operations as a
restructured entity.
The consolidated financial statements of the Company include the
accounts of CSC and its wholly owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.
5. Fresh Start Reporting
As of June 30, 1999, the Company adopted fresh start reporting in
accordance with the American Institute of Certified Public Accountants Statement
of Position 90-7, "Financial Reporting by Entities in Reorganization under the
Bankruptcy Code" ("SOP 90-7"). Fresh start reporting assumes that a new
reporting entity has been created and assets and liabilities should be reported
at their fair values as of the effective date.
The reorganization value was determined based upon the Predecessor
Company's estimate of the fair value of the Company's assets as defined in the
plan of reorganization, which did not assume any future origination and loan
sale activity. Accordingly, the reorganization value approximates the fair value
of the Company's assets before considering liabilities, which must be assumed
and extinguished pursuant to the terms of the plan of reorganization plan, as
amended, and represents the Company's estimates of the amount a buyer would pay
for the assets after the restructuring.
6. Discontinued Operations
The Company commenced operations in the United Kingdom in May 1995 with
the formation of City Mortgage Corporation Limited ("CSC-UK"), an English
corporation that originated, sold and serviced loans in England, Scotland and
Wales in which the Company initially held a 50% interest of CSC-UK and
subsequently purchased the remaining 50% of CSC-UK. CSC-UK had no operations and
no predecessor prior to May 1995. The Company adopted a plan in March 1998 to
sell the assets of CSC-UK and completed the sale in April 1998
The net assets of CSC-UK have been reclassified on the Company's
consolidated financial statements as investment in discontinued operations, net.
As of March 31, 2000, the Company's net investment in discontinued operations
totaled approximately $12.2 million, net representing cash on hand in the
discontinued operations of approximately $12.1 million and net receivables (net
of liabilities) due of approximately $100,000. No loss was
7
recorded on discontinued operations for the quarter ended March 31, 2000. At
December 1999 the Company recorded a loss on discontinued operations of
$500,037, net of tax of $269,251. The Company expects to maintain a balance of
cash on hand in the discontinued operations to cover existing and potential
liabilities and costs pending dissolution of CSC-UK and its subsidiaries.
7. Valuation of Residuals
The interests the Company received upon loan sales through its
securitizations are in the form of residual certificates. The Company's residual
certificates are comprised of interests in "Sav*-A-Loan(R)" mortgage loans
(loans generally made to homeowners with little or no equity in their property
but who possess a favorable credit profile and debt-to-income ratio and who
often use the proceeds from such loans to repay outstanding indebtedness as well
as to make home improvements).
The Company classifies these residual certificates as "securities
available-for-sale" and, as such, they are recorded at their fair value. Fair
value of these certificates is determined based on various economic factors,
including loan types, sizes, interest rates, dates of origination, terms and
geographic locations. The Company also uses other available information such as
reports on interest rates, collateral value, economic forecasts and historical
default and prepayment rates of the portfolio under review. If the fair value of
the residual certificates is different from the recorded value and the
difference is considered to be a permanent difference, the gain or loss on the
valuation of residuals will be reflected in the consolidated statements of
operations. Should the unrealized gain or loss be considered a temporary
difference, the unrealized amount will be recorded in accumulated other
comprehensive income in stockholders' equity.
The table below summarizes the value of the Company's residual
certificates:
REORGANIZED COMPANY
----------------------------------
MARCH 31, 2000 DECEMBER 31, 1999
-------------- -----------------
Sav*-A-Loan(R) ......... $12,538,461 $12,538,461
=========== ===========
The key assumptions used to value the Company's residual certificates at
March 31, 2000 and December 31, 1999 were as follows:
REORGANIZED COMPANY
-----------------------------------
MARCH 31, 2000 DECEMBER 31, 1999
-------------- -----------------
Sav*-A-Loan(R)
Discount Rate ................. 20.0% 20.0%
Constant Prepayment Rate ...... 19.0% 19.0%
Loss Rate Range Per Annum ..... 3.0 - 8.0% 3.0 - 8.0%
In December 1999, the Company recorded an unrealized gain of $62,739,
net of tax of $33,783, on residual certificates. The unrealized gain was
considered a temporary gain and as such was recorded in accumulated other
comprehensive income in stockholders' equity. There were no adjustments to
residual certificates for the quarter ended March 31, 2000.
8
8. Administrative Services Agreement
The Company entered into an Administrative Services Agreement (the
"Agreement") with AEGIS Mortgage Corporation ("AEGIS") to assume responsibility
for accounting and administrative activities effective September 1, 1999. The
Company pays administrative fees of $90,000 per month under the terms of the
Agreement. The Agreement is effective until terminated by either party. AEGIS is
be required to give the Company a minimum of ninety (90) days written notice
prior to termination and the Company is required to give AEGIS a minimum of
thirty (30) days written notice prior to termination.
9. Marketable Securities
Marketable securities, which represent the Company's investment in the
common stock of Mortgage.com, are classified as available-for-sale securities.
Available-for-sale securities are carried at fair value, with the unrealized
gains and losses, net of applicable income taxes, reported as a separate
component within stockholders' equity in accumulated other comprehensive income.
During the first quarter of 2000, the Company exercised warrants for 70,000
shares of Mortgage.com for $50,000. Another 70,000 shares were sold in the first
quarter of 2000 for $193,757; which resulted in a realized gain of $193,757. The
remaining stock has been recorded at the fair market value of $131,250, net of
taxes of $43,750, at March 31, 2000.
10. Comprehensive Income
In accordance with Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income", comprehensive income includes all changes in a
company's equity (except those resulting from investments by and distributions
to owners), including, among other things, foreign currency transaction
adjustments and unrealized gains (losses) on marketable securities classified as
available-for-sale. Total comprehensive income for the quarters ended March 31,
2000 and 1999 was as follows:
REORGANIZED COMPANY PREDECESSOR COMPANY
------------------- -------------------
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 2000 MARCH 31, 1999
------------------- -------------------
Net earnings ................................ $1,238,151 $3,350,946
Other comprehensive income:
Unrealized gain on marketable
securities, net of tax of $43,750 ....... 81,250 --
Unrealized gain on write-up of residual
certificate, net of tax of $33,783 ...... 62,739 --
---------- ----------
Comprehensive income, net of tax ............ $1,382,140 $3,350,946
========== ==========
9
11. Income Taxes
Pursuant to Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes", the Company had available certain deductible
temporary differences and net operating loss carryforwards for use in future tax
reporting periods, which created deferred tax assets. Statement of Financial
Accounting Standards No. 109 requires that deferred tax assets be reduced by a
valuation allowance if, based on the weight of the available evidence, it is
more likely than not that some portion or all of the deferred tax assets will
not be realized. During the three months ended March 31, 2000, the deferred tax
asset valuation allowance was reduced by $666,697 with a corresponding increase
in additional paid-in capital in accordance with SOP 90-7 to adjust the recorded
net deferred tax asset to an amount considered more likely than not to be
realized. Realization of the deferred tax asset is dependent on generating
sufficient taxable income prior to the expiration of the loss carryforwards in
2014. Realization could also be affected by a significant ownership change of
the Company over a period of three years as prescribed by income tax law. In
view of the proposed liquidation it is more likely than not that all of the
deferred tax assets will not be realized and accordingly the valuation allowance
fully offsets the deferred tax asset.
In accordance with SOP 90-7, income tax benefits recognized from
pre-confirmation net operating loss carry-forwards are used first to reduce the
reorganization value in excess of amounts allocable to identifiable assets and
thereafter to increase additional paid-in capital.
In accordance with the provisions of Internal Revenue Code Section 382,
utilization of the Company's net operating loss carryforwards could be limited
in years following a change in the Company's ownership. In general, a change in
ownership occurs if a shareholder's (or the combined group of shareholders each
owning less than 5%) ownership increases 50 percentage points over a three-year
period. The net operating loss limitation is computed by applying a percentage
(approximately 5%, as determined by the Internal Revenue Code) to the value of
the Company on the date of the change. The Section 382 limitation limits the use
of the net operating loss carry forward as computed on the date of change of
ownership. Net operating losses incurred after the date of the change of
ownership are not limited unless another change in ownership occurs. A change in
ownership occurred in October of 1997 primarily as a result of conversions of
the Company's Series A Preferred Stock into the Company's common stock.
Additionally, a change in ownership occurred upon the Company's emergence from
bankruptcy. Accordingly, the Company's use of pre-ownership change net operating
losses and certain other tax attributes (if any), to the extent remaining after
the reduction thereof as a result of the cancellation of indebtedness of the
Company, will be limited and generally will not exceed each year the product of
the long-term tax-exempt rate and the value of the Company's stock increased to
reflect the cancellation of indebtedness pursuant to the amended plan of
bankruptcy.
12. Earnings Per Share
Basic earnings per share are computed on the basis of the weighted
average number of common shares outstanding. Earnings per share was not
calculated for the periods prior to fresh start accounting since such amounts
would not be meaningful. The Company has no stock options or preferred stock
convertible into common stock and therefore diluted earnings per share is equal
to basic earnings per share. Basic and diluted earnings per share is calculated
as follows:
REORGANIZED COMPANY
-------------------
THREE MONTHS ENDED
MARCH 31,2000
-------------------
Net Earnings .......................................... $1,238,151
----------
Weighted average shares ............................... 7,751,800
----------
Basic and diluted earnings per share .................. $ 0 .16
==========
10
13. Changes in Stockholders' Equity
During the quarter, the Company issued an additional net 23,185 shares
of common stock.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial
Condition and Results of Operations contains forward-looking statements, which
involve risks and uncertainties. The Company's actual results could differ
materially from those anticipated in these forward-looking statements. The
Company undertakes no obligation to release publicly any revisions to these
forward-looking statements to reflect events or circumstances after the date
hereof or to reflect the occurrence of anticipated or unanticipated events.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999
REORGANIZED COMPANY PREDECESSOR COMPANY
------------------- -------------------
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 2000 MARCH 31, 1999
------------------- -------------------
REVENUES
Gain on sale of loans ............................... $ -- $5,568,012
Interest ............................................ 1,147,650 2,282,083
Other ............................................... 1,521,101 1,415,906
---------- ----------
Total revenues ........................................... 2,668,751 9,266,001
---------- ----------
EXPENSES
Salaries and employee benefits ...................... 152,256 1,429,045
Interest expense .................................... -- 1,289,059
Selling expenses .................................... -- 140,926
Other operating expenses ............................ 611,647 2,394,293
---------- ----------
Total expenses ........................................... 763,903 5,253,323
---------- ----------
Earnings before reorganization items and
income taxes .................................. 1,904,848 4,012,678
Reorganization items ..................................... -- 654,059
---------- ----------
Earnings before income taxes ........................ 1,904,848 3,358,619
Income tax provision ..................................... 666,697 7,673
---------- ----------
NET EARNINGS APPLICABLE TO COMMON
STOCKHOLDERS .......................................... $1,238,151 $3,350,946
========== ==========
NET EARNINGS PER COMMON SHARE:
Basic and Diluted .................................... $ 0.16 $ NMF (1)
========== ==========
Weighted average number of common shares outstanding:
Basic and Diluted ................................... 7,751,800 NMF (1)
========== ==========
(1) Not Meaningful Figure due to reorganization.
11
THE RESULTS OF OPERATIONS SHOWN ABOVE ARE FOR THE REORGANIZED AND PREDECESSOR
COMPANIES. THE COMPANY ADOPTED FRESH START REPORTING IN ACCORDANCE WITH SOP 90-7
EFFECTIVE JUNE 30, 1999. THEREFORE, THE OPERATING RESULTS PRESENTED ABOVE FOR
THE THREE MONTHS ENDED MARCH 31, 2000 ARE NOT COMPARABLE TO THOSE FOR THE SAME
PERIOD IN FISCAL YEAR 1999.
Revenues decreased $6.6 million to $2.7 million for the three months
ended March 31, 2000 from $9.3 million for the comparable period in 1999,
primarily due to a gain recorded on the sale of loans of $5.6 million during the
first quarter of 1999.
The Company recognized no gain on the sale of loans during the three
months ended March 31, 2000. The gain on the sale of loans during the first
quarter of 1999 consisted of the recognition of $7.0 million related to the
Company's profit participation on loans previously sold into the Company's
purchase facility, offset by the sale of $90.0 million of whole loans at a loss
of $1.4 million. Under the terms of the purchase facility, the Company as
seller/servicer sold loans on a non-recourse basis into such facility and
retained a participation in future profits in the form of servicing rights. Due
to the uncertainty of the market conditions, the Company did not attribute any
value to the profit participation of such loans and correspondingly did not
recognize any gain upon the initial sale into such facility.
Interest income decreased $1.2 million, or 49.7%, to $1.1 million for
the three months ended March 31, 2000 from $2.3 million for the comparable
period in 1999. In the first quarter of 2000 the Company recorded interest
income from loans held for sale and investments in high-grade commercial paper.
During the first quarter of 1999 the Company had a significantly higher average
balance of loans held for sale which produced increased interest income.
Other income increased $105,000, or 7.4%, to $1.5 million for the three
months ended March 31, 2000 from $1.4 million for the comparable period in 1999.
Other income for the quarter ended March 31, 2000 included $900,000 in legal
settlements and a $194,000 gain on the sale of Mortgage.com common stock. During
the first quarter of 1999, other income included $1.4 million in servicing
revenue. In 1999 the Company recorded servicing revenue as income when
collected, whereas previously the Company had assigned value to the servicing
rights.
Total expenses decreased $4.5 million, or 85.5%, to $764,000 for the
three months ended March 31, 2000 from $5.3 million for the comparable period in
1999. The decrease was due primarily to a reduction of the Company's workforce
and the termination of the Company's warehouse facilities.
Salaries and employee benefits decreased $1.3 million, or 89.3%, to
$152,000 for the three months ended March 31, 2000 from $1.4 million for the
comparable period in 1999. This decrease was due primarily to reduced staffing
levels to one employee at March 31, 2000 as compared to 52 employees at March
31, 1999, as a result of the Company's reorganization efforts.
No interest expense was incurred during the first quarter of 2000 as
compared to $1.3 million for the three months ended March 31, 1999. During the
first quarter of 1999 the Company incurred interest expense on two credit
warehouse facilities that were terminated during the second quarter of 1999.
Selling and other operating expenses decreased $1.9 million or 75.9% to
$612,000 for the three months ended March 31, 2000 from $2.5 million for the
comparable period in 1999. This decrease was due primarily to a reduction in
other operating costs. During the first quarter of 1999 the Company incurred
higher operating costs associated with a corporate office. Such costs included
rent, utilities, telephone and
12
equipment leasing. The Predecessor Company's offices were closed subsequent to
the first quarter of 1999; therefore, such expenses were not incurred during
2000.
No reorganization expenses were charged during the three months ended
March 31, 2000 compared to $654,000 for the same period in 1999. Expenses
incurred during the first quarter of 1999 included legal fees and other
expenses.
Net earnings applicable to common stockholders decreased to $1.2 million
for the three months ended March 31, 2000 from $3.4 million for the comparable
period in 1999. This decrease was due primarily to revenues recognized from
gains on loans sold into the Company's purchase facility during the first
quarter of 1999 compared to no loan sales during the same period in 2000.
LIQUIDITY AND CAPITAL RESOURCES
During the three months ended March 31, 2000, the Reorganized Company
generated $2.3 million in cash from operations. During the three months ended
March 31, 1999, the Predecessor Company generated $85.9 million from operations,
of which $83.7 million was used to reduce warehouse financing. The Company's
principal cash requirements include the payment of operating and post bankruptcy
expenses. The Company uses its cash flow from interest income to meet its
working capital needs. Should the full funding of the over-collateralization
accounts in connection with the Company's securitizations occur, the Company
also may receive cash payments on its residual certificates related to its
securitizations, although no assurance can be given as to when or whether this
will occur. Based upon the current and anticipated levels of operations, the
Company believes that cash flow from operations and available cash will be
adequate to meet the Company's anticipated requirements for working capital
through the next twelve months.
The Board of Directors approved a Plan of Liquidation and Dissolution of
the Company. Such plan will be presented to the stockholders for approval at the
Company's Annual Meeting (See Note 3. to the consolidated financial statements).
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the risk of loss arising from adverse changes in market
prices and interest rates. The Company's market risk arises from interest rate
risk inherent in its financial instruments. The Company is not currently subject
to commodity price risk. The Company does not make use of off-balance sheet
derivative instruments to control interest rate risk.
The Company is dependent on interest earned from loans held for sale and
investments in high-grade commercial paper for current cash flow purposes. A
decrease in interest rates or the sale of loans could adversely affect cash
flow; however the Company believes that cash on hand is sufficient to meet
existing obligations.
The interests that the Company received on loan sales through its
securitizations are in the form of residual certificates which are classified as
securities available-for-sale. Securities available-for-sale do not have a
stated maturity or amortization period. The expected amount of the cash flow as
well as the timing is dependent on the performance of the underlying collateral
supporting each securitization. The actual cash flow of these instruments could
vary substantially if the performance is different from the Company's
13
assumptions. The Company generally develops its assumptions by analyzing past
portfolio performance, current loan characteristics and current market
conditions. The Company currently values residual certificates using a discount
rate of 20%.
The Company is exposed to foreign currency exchange risk related to the
pending dissolution of CSC-UK and its subsidiaries. Specifically, the exchange
risk relates to certain receivables and liabilities which will be satisfied in a
foreign currency. The Company believes this exposure to be immaterial, and
therefore, has not utilized any financial instrument to mitigate any potential
exchange risk.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
CEASAR ACTION. On or about September 29, 1997, a putative class action
lawsuit (the "Ceasar Action") was filed against the Company and two of its
former officers and directors in the United States District Court for the
Eastern District of New York (the "Eastern District") on behalf of all
purchasers of the Company's common stock during the period from April 1, 1997
through August 15, 1997. Between approximately October 14, 1997 and December 3,
1997, nine additional class action complaints were filed against the same
defendants, as well as certain additional former Company officers and directors.
Four of these additional complaints were filed in the Eastern District and five
were filed in the United States District Court for the Southern District of New
York (the "Southern District"). On or about October 28, 1997, the plaintiff in
the Ceasar Action filed an amended complaint naming three additional former
officers and directors as defendants. The amended complaint in the Ceasar Action
also extended the proposed class period from November 4, 1996 through October
22, 1997. The longest proposed class period of any of the complaints is from
April 1, 1996 through October 22, 1997. On or about February 2, 1998, an
additional lawsuit brought on behalf of two individual investors, rather than on
behalf of a putative class of investors, was filed against the Company and
certain of its former officers and directors in federal court in New Jersey (the
"New Jersey Action").
In these actions, plaintiffs allege that the Company and its former
senior officers engaged in securities fraud by affirmatively misrepresenting and
failing to disclose material information regarding the lending practices of the
Company's UK subsidiary, and the impact that these lending practices would have
on the Company's financial results. Plaintiffs allege that certain public
filings and press releases issued by the Company were false or misleading. In
each of the putative class action complaints, plaintiffs have asserted
violations of Section 10(b) and Section 20(a) of the Securities Exchange Act of
1934, as amended. Plaintiffs seek unspecified damages, including pre-judgment
interest, attorneys' and accountants' fees and court costs.
In December 1997, the Eastern District plaintiffs filed a motion for
appointment of lead plaintiffs and approval of co-lead counsel. On September 23,
1998, the court granted this motion. On March 25, 1998, the Company and its
former officers and directors who were defendants filed a motion with the
federal Judicial Panel for Multidistrict Litigation ("JPML"), seeking
consolidation of all current and future securities actions, including the New
Jersey Action, for pre-trial purposes before Judge Sterling Johnson in the
Eastern District. On June 12, 1998, the JPML granted this motion. As a result of
the Company's Chapter 11 proceedings, the action against the Company was
discharged when the Company's plan of reorganization became effective on July 1,
1999. The action is still pending against the individual defendants.
14
WALSH ACTION. In January 1998, the Company commenced a breach of
contract action in the Southern District against Walsh Securities, Inc.
("Walsh"). The action alleges that Walsh breached certain obligations that it
owed to the Company under an agreement whereby Walsh sold mortgage loans to the
Company. The Company claims damages totaling in excess of $11.9 million. In
March 1998, Walsh filed a motion to dismiss, or, alternatively, for summary
judgment. In May 1998, the Company served papers that opposed Walsh's motion and
moved for summary judgment as to certain of the loans. In December 1998, Judge
Stein of the Southern District denied Walsh's motion to dismiss, or,
alternatively, for summary judgment with respect to all but 69 of the loans at
issue in the litigation. With respect to those 69 loans, Judge Stein granted
Walsh's motion and dismissed the loans from the litigation. At that time, Judge
Stein also denied the Company's motion for summary judgment. On February 1,
1999, Judge Stein denied the Company's motion for reconsideration of that part
of his December 1998 order that granted Walsh's motion to dismiss with respect
to 69 of the loans at issue. The parties completed all discovery by the early
summer of 1999, and then filed cross-motions for summary judgment. The Company
moved for Partial Summary Judgment on 32 loans that were part of a fraudulent
pyramid scheme in New Jersey and that Walsh warranted under the parties'
agreement as being "true and correct in all material respects." Walsh, in turn,
moved for summary judgment on all of the loans remaining in the case, claiming
that the Company had waived its right to sue on all loans. The parties completed
the briefing on both motions on October 22, 1999, and do not expect the Court to
rule until some time in 2000.
GLOBAL MORTGAGE ACTION. In August 1998, the Company filed a lawsuit in
the Circuit Court for Baltimore City, Maryland entitled Cityscape Corp et. al.
v. Global Mortgage et. al. (the "Global Mortgage Action") against various
defendants seeking damages for losses resulting from the Company's acquisition
in 1995 and 1996 of 145 fraudulent residential mortgages on inner city Baltimore
rowhouses. The complaint, as amended, seeks $5.5 million in compensatory damages
and unspecified punitive damages against the mortgage broker and its principals,
the title company and its principals, the settlement attorney, and the
appraisers, based on theories of negligence, malpractice, conspiracy and fraud.
The Company recently consummated settlements with all but one of the defendants
in this case, and it has an agreement in principle to settle with the remaining
defendant. Trial has been postponed indefinitely, pending consummation of the
settlement agreement between the Company and the last defendant. Once the last
settlement agreement has been consummated, this matter will be concluded.
Although no assurance can be given as to the outcome of the unresolved
lawsuits described above, the Company believes that the allegations in each of
the actions are without merit and that its disclosures were proper, complete and
accurate. The Company intends to defend vigorously against these actions and
seek their early dismissal. The lawsuits, however, against the Company, could
have a material adverse effect on the Company's consolidated financial position
and results of operations.
REGULATORY MATTERS. In April and June 1996, CSC-UK acquired J&J
Securities Limited (the "J&J Acquisition") and Greyfriars Group Limited
(formerly known as Heritable Finance Limited) (the "Greyfriars Acquisition"),
respectively. In October 1996, the Company received a request from the staff of
the Securities and Exchange Commission (the "Commission") for additional
information concerning the Company's voluntary restatement of its financial
statements for the quarter ended June 30, 1996. The Company initially valued the
mortgage loans in the J&J Acquisition and the Greyfriars Acquisition at the
respective fair value which were estimated to approximate par (or historical
book value). Upon the subsequent sale of the mortgage portfolios, the Company
recognized the fair value of the mortgage servicing receivables retained and
recorded a corresponding gain for the fair value of such mortgage servicing
receivables. Upon subsequent review, the Company determined that the fair value
of such mortgage servicing rights should have been included as part of the fair
value of the mortgage loans acquired as a result
15
of such acquisitions. The effect of this accounting change resulted in a
reduction in reported earnings of $26.5 million. Additionally, as a result of
this accounting change, the goodwill initially recorded in connection with such
acquisitions was reduced resulting in a reduction of goodwill amortization of
approximately $496,000 from the previously reported figure for the second
quarter. On November 19, 1996, the Company announced that it had determined that
certain additional adjustments relating to the J&J Acquisition and the
Greyfriars Acquisition should be made to the financial statements for the
quarter ended June 30, 1996. These adjustments reflect a change in the
accounting treatment with respect to restructuring charges and deferred taxes
recorded as a result of such acquisitions. This caused an increase in the amount
of goodwill recorded which resulted in an increase of amortization expense as
previously reported in the second quarter of 1996 of $170,692. The staff of the
Commission requested additional information from the Company in connection with
the accounting related to the J&J Acquisition and the Greyfriars Acquisition.
The Company supplied such requested information. In mid-October 1997, the
Commission authorized its staff to conduct a formal investigation which, to
date, has continued to focus on the issues surrounding the restatement of the
financial statements for the quarter ended June 30, 1996. The Company is
continuing to cooperate fully in this matter; however, the Commission has not
contacted the Company on this matter since July 1999.
In the normal course of business, aside from the matters discussed
above, the Company is subject to various legal proceedings and claims, the
resolution of which, in management's opinion, will not have a material adverse
effect on the consolidated financial position or the results of operations of
the Company.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Since July 1, 1999, the Company has issued an aggregate of 7,782,615
unregistered securities. Such unregistered securities were issued to creditors
of the Company pursuant to the Company's First Amended Joint Plan of
Reorganization under Chapter 11 of Title 11 of the United States Bankruptcy Code
effective as of July 1, 1999 and were in settlement of claims against the
Company. The unregistered securities were issued pursuant to Section 1145 of the
United States Bankruptcy Code, which exempts such issuances from Section 5 of
the Securities Act of 1933.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
3.1** Certificate of Incorporation of the Company (incorporated by
reference to the Company's Form 10-Q for quarter ended
June 30, 1999)
3.2** Bylaws of the Company (incorporated by reference to the
Company's Form 10-Q for quarter ended June 30, 1999)
10.1** Agreement with AEGIS Mortgage Corporation - Service Agreement,
dated September 1, 1999 (incorporated by reference to the
Company's Form 10-Q for the quarter ended
September 30, 1999)
27.1* Financial Data Schedule
--------------------------
* Indicates documents filed herewith.
** Indicates documents incorporated by reference from the prior filing
indicated.
(b) Reports on Form 8-K
A current report on Form 8-K filed by the Company on January 13, 2000
announcing the appointment of Peter J. Solomon Limited Company as
investment advisor. No financial statements were filed.
17
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMC FINANCIAL, INC
(Registrant)
Date: MAY 15, 2000 By: /s/ D. RICHARD THOMPSON
D. Richard Thompson
Title: Chief Executive
Officer and President
Date: MAY 15, 2000 By: /s/ MICHAEL L. KENNEMER
Michael L. Kennemer
Title: Chief Financial Officer
And Treasurer