FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
Or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from
Commission file number 333-41361
1st ATLANTIC GUARANTY CORPORATION
.........................................................
(Exact name of registrant as specified in its charter)
Maryland 52-2064471
.........................................................
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7920 Norfolk Avenue, Suite 1150, Bethesda, Maryland 20814-2595
........................................................
(Address of principal executive offices)
(Zip Code)
(301) 656-4200
........................................................
(Registrant's telephone number, including area code)
4847 Cordell Avenue, Suite 200, Bethesda, Maryland 20814
........................................................
(Former address since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes( ) No(X)
As of June 30, 1999, there were 10,000,000 shares of the registrant's
common stock outstanding.
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FORM 10-Q
1st ATLANTIC GUARANTY CORPORATION "Registrant"
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
The following financial statement represents the activities of the 1st
Atlantic Guaranty Corporation (the "Registrant") for the third effective
quarter from April 1, 1999 through June 30, 1999. The Registrant's Management
has concluded that the following financial statements fairly represent all
activities of the Registrant during this period.
1st Atlantic Guaranty Corporation
BALANCE SHEET
<TABLE>
<CAPTION>
June 30, 1999 March 31, 1999
Un-Audited Un-Audited
<S> <C> <C>
ASSETS
CASH/ INVESTMENTS 240,004 11,770
ACCOUNTS RECEIVABLE 124,167 68,274
TOTAL QUALIFIED RESERVE ASSETS 911,920 914,367
OTHER ASSETS 70,437 36,553
TOTAL ASSETS 1,346,528 1,030,964
LIABILITIES
CERTIFICATES ISSUED 635,396 352,407
CERTIFICATES PENDING ISSUANCE 278,500 78,000
ACCOUNTS PAYABLE 58,921 82,560
OTHER LIABILITIES 62,411 65,852
Due to Officers
TOTAL LIABILITIES 1,035,228 578,819
SHAREHOLDERS EQUITY
Common Stock, $.01 par value, 14.5 million 100,000 100,000
Shares authorized-10 million shares issued
Additional paid-in-capital 877,899 877,377
Retained Earnings (666,599) (447,232)
Total Liabilities Stockholders' Equity 1,346,528 1,030,964
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
Fiscal Quarter Fiscal Year-to-Date
<S> <C> <C>
Investment Income 21,156 85,827
Investment expenses (1,578) (3,626)
Investment income-net 19,578 82,201
Other Expense (244,729) (660,092)
Net income or loss (225,151) (577,891)
</TABLE>
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
THE RESULTS OF OPERATIONS
Liquidity:
The Registrant anticipates its liquidity to increase significantly over the
next year. Because the sales of Registrant's face-amount certificates
("Certificates") are expected to increase significantly, the Registrant's
investable assets should likewise increase. The proceeds from these
Certificate sales will be invested primarily in liquid securities.
Capital Resources:
The Registrant has no material commitments for capital expenditures other than
the budgeted items included in the Registrant's current financial statements.
(See accompanying Financial Statement above)
Because the Registrant is capitalized through its issuance of Certificates,
the Registrant's debt capitalization relative to equity capitalization
increases as sales of these securities increase. The Registrant does not
intend to pursue any additional capitalization through issuance of equity.
Results of operations:
The Registrant's earnings are derived primarily from the after-tax yield on
invested assets less investment expenses and interest credited on Certificate
reserve liabilities. Changes in earnings' trends occur largely due to changes
in the rates of return on investments, the rates of interest credited to
Certificate owner accounts, and the mix of fully taxable and tax-advantaged
investments in the Registrant's portfolio.
As of June 30, 1999, total assets increased by $315,564 and Certificate
reserves increased by $360,950 from March 31, 1999. The increase in total
assets and Certificate reserves was primarily the result of Certificate sales
totaling $882,444 and Certificate redemptions and maturities totaling $8,962.
The Registrant's accounts payable and short-term liabilities decreased during
the quarter.
Year 2000:
The Year 2000 issue is the result of computer programs having been written
using two digits rather than four digits to define a year. Some programs may
recognize a date using "00" as the year 1900 rather than 2000. This
misinterpretation could result in the failure of major systems or
miscalculations, which could adversely impact the Registrant and its
businesses or subsidiaries through business interruption or shutdown,
financial loss, reputational damage and legal liabilities to third parties.
The Registrant began addressing the Year 2000 issue immediately upon
registration with the SEC. By the end of 1998, all relevant systems, mid-range
and desktop computers, application software, operating systems, system
software, date backup and archiving/retrieval services, telephone and other
communication systems, and hardware peripherals and other facilities that
could be affected have all been updated with the latest available software
and/or replaced. A committee was formed in 1998 which continues to monitor all
above stated items to ensure that the Registrant continues to monitor the Y2K
issues. The committee primarily focuses on proactive steps to prevent Y2K
failures from occurring, or if such failures should occur, to detect them
quickly, minimize their impact and expedite their repair. The Year 2000
contingency plan will continue to be refined throughout 1999 as necessary.
<PAGE>
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Registrant's balance sheet includes a substantial amount of assets whose
fair values are subject to market risks. Due to the Registrant's significant
level of investments in real estate loans, fluctuations in the values of the
underlying real estate represent the largest market risk factor currently
affecting the Registrant's financial position.
Strategically, the Registrant strives to invest in real estate loans that have
a history of producing income, are of high quality by industry standards or
have underlying properties that represent excellent values relative to the
market. The Registrant attempts to minimize the risk associated with its loan
portfolio due to fluctuations of property values by only investing in
mortgages that represent a maximum of 75% of the property's value thus
building an equity "cushion" to counteract value fluctuations. The
Registrant's investable assets have increased only since it began to offer
Certificates on November 25, 1998. Accordingly, its investments are
concentrated in relatively few real estate loans.
The Registrant's primary investment strategy contemplates that most
investments in real estate loans will be held for between three and six
months. Historically the value of a real estate loan does not fluctuate
significantly over such a short term, provided that the underlying real
estate, borrower financial strength and market economic conditions remain
constant. Additionally, the values of fixed income investments like such loans
are primarily based on a fixed stream; therefore they retain value as long as
the loans are performing.
The Registrant's most significant risk in implementing its investment strategy
is its ability to market these loans to other real estate loan investors, or
on the secondary market. Before any investment is made in a real estate loan,
that loan's marketability in the secondary market is evaluated. The Registrant
mostly invests in loans which it perceives have excellent secondary
marketability characteristics. Occasionally the Registrant will invest in
loans that may not be as easily secondarily marketed. For such loan
investments, the loan to value ratio, or LTV, must be low enough for a
substantial investment gain on the sale of the underlying property should
foreclosure on that loan be necessary.
Various forward-looking statements have been made in this Form 10-Q Quarterly
Report. In addition, from time to time, the Registrant through its management
may make oral forward-looking statements. Forward-looking statements are
subject to uncertainties that could cause actual results to differ materially
from such statements. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date on which
they are made. Registrant undertakes no obligation to update publicly or
revise any forward-looking statements.
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1st ATLANTIC GUARANTY CORPORATION
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
Exhibits:
2. Not Applicable.
(a) Articles of Incorporation, incorporated herein by reference
to Exhibit 3(i) to Registrant Registration Statement on Form
S-1 No. 333-41361, filed December 1, 1997.
(b) Articles of Amendment, incorporated herein by reference to
Exhibit 3(a)(ii) to Pre-Effective Amendment No. 1 to
Registration Statement No. 333-41361, filed September 14,
1998.
(c) By-Laws, incorporated herein by reference to Exhibit 3(ii)
to Registrant Registration Statement on Form S-1 No.
333-41361, filed December 1, 1997.
4. (a) Form of Application, incorporated herein by reference to
Exhibit 4(a) to Pre-Effective Amendment No. 3 to
Registration Statement No. 333-41361, filed November 25,
1998.
(b) Form of Account Statement, incorporated herein by reference
to Exhibit 4(b) to Pre-Effective Amendment No. 1 to
Registration Statement No. 333-41361, filed September 14,
1998.
<PAGE>
10. (a) The Investment Advisory Agreement between Registrant and Key
Asset Management, Inc., incorporated herein by reference to
Exhibit 10(a) to Pre-Effective Amendment No. 1 to
Registration Statement No. 333-41361, filed September 14,
1998.
Custody Agreement by and between Registrant and Key Trust
Registrant of Ohio, incorporated herein by reference to
Exhibit 10(b) to Pre-Effective Amendment No. 1 to
Registration Statement No. 333-41361, filed September 14,
1998.
Subscription Agreement by and between Registrant and John J.
Lawbaugh, incorporated herein by reference to Exhibit
10(c)(1) to Pre-Effective Amendment No. 1 to Registration
Statement No. 333-41361, filed September 14, 1998.
Subscription Agreement by and between Registrant and Brian P.
Smith, incorporated herein by reference to Exhibit 10(c)(2)
to Pre-Effective Amendment No. 1 to Registration Statement
No. 333-41361, filed September 14, 1998.
11. Not Applicable.
15. Not Applicable.
18. Not Applicable.
19. Not Applicable.
22. Not Applicable.
23. Not Applicable.
24. Not Applicable.
27. (a) Financial Data Schedule.
Not Applicable.
No reports on Form 8-K have been filed during the quarter for which this
report is filed.
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
1ST ATLANTIC GUARANTY CORPORATION
(Registrant)
Date August 15, 1999 /s/JOHN J. LAWBAUGH
-------------------
John J. Lawbaugh
(President and Principal Financial Officer)
