UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
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 Nos.: 33-60662
FUND AMERICA INVESTORS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 84-1070310
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification number)
6400 S. Fiddler's Green Circle, Suite 1200A, Englewood, Colorado 80111
(Address of principal executive offices)
Registrant's telephone number including area code: (303) 290-6024
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 [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of November 13, 1998 -- 1,000 shares
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FUND AMERICA INVESTORS CORPORATION
FORM 10-Q FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1998
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements 3
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operation 6
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 9
Item 2. Changes in Securities 9
Item 3. Defaults upon Senior Securities 9
Item 4. Submission of Matters to a Vote
of Security Holders 9
Item 5. Other Information 9
Item 6. Exhibits and Reports 9
SIGNATURES 10
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<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
FUND AMERICA INVESTORS CORPORATION
BALANCE SHEETS
<CAPTION>
(Unaudited)
September 30, December 31,
1998 1997
____________ ___________
<S> <C> <C>
Assets
Cash $ 94,099 $117,269
Deferred offering costs 56,403 38,903
_________ _________
Total assets $150,502 $156,172
========= =========
Liabilities - accounts payable $ 17,500 $ 106
_________ _________
Shareholder's equity
Common stock, par value $.01 per share;
10,000 shares authorized; 1,000 shares
issued and outstanding 10 10
Additional paid-in capital 369,990 369,990
Accumulated deficit (236,998) (213,934)
_________ _________
Total shareholder's equity 133,002 156,066
_________ _________
Total liabilities and
shareholder's equity $150,502 $156,172
_________ _________
See notes to financial statements
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<TABLE>
FUND AMERICA INVESTORS CORPORATION
Statements of Operations
(Unaudited)
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
__________________ _________________
1998 1997 1998 1997
_______ _______ _______ _______
<S> <C> <C> <C> <C>
Revenue
Interest income $ 1,109 $ 1,100 $ 3,674 $ 3,497
________ ________ ________ ________
Total revenue 1,109 1,100 3,674 3,497
________ ________ ________ ________
Expenses
General and
administrative 460 582 8,630 7,662
Legal fees - 995 108 1,677
Management fees 6,000 6,000 18,000 18,000
________ ________ ________ ________
Total expenses 6,460 7,577 26,738 27,339
________ ________ ________ ________
Net loss $ (5,351) $ (6,477) $(23,064) $(23,842)
======== ======== ======== ========
See notes to financial statements
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<TABLE>
FUND AMERICA INVESTORS CORPORATION
Statements of Cash Flows
(Unaudited)
<CAPTION>
Nine months ended
September 30,
_____________________
1998 1997
______ ______
<S> <C> <C>
Net cash flow from operating
activities:
Net loss $(23,064) $(23,842)
Adjustments to reconcile net loss to net
cash flow from operating activities:
Changes in operating assets and
liabilities:
Accounts payable 17,394 -
Deferred offering costs (17,500) -
________ ________
Net cash flow used in operating
activities (23,170) (23,842)
________ ________
Net decrease in cash (23,170) (23,842)
Cash at beginning of period 117,269 147,076
________ ________
Cash at end of period $ 94,099 $123,234
======== ========
See notes to financial statements
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FUND AMERICA INVESTORS CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Nine months ended September 30, 1998 and 1997
1. Basis of Presentation
Organization
------------
Fund America Investors Corporation (the "Company") was incorporated in the
State of Delaware on October 19, 1987 as a limited purpose finance
corporation. The company was established to engage in the issuance and
administration of Collateralized Mortgage Obligations ("CMOs") which are
secured by mortgage loans or by mortgage loan pass-through certificates backed
by mortgage loans (collectively referred to as the ("Collateral"). The
Collateral may be issued and/or guaranteed by agencies, including the
Government National Mortgage Association, the Federal National Mortgage
Association and the Federal Home Loan Mortgage Corporation, or other agencies.
To issue such CMOs, the Company may acquire, hold, sell or pledge the
Collateral, but typically these activities are transacted through trusts
beneficially owned and created by the Company.
The Company may not, either directly or indirectly, through a beneficially
owned trust, engage in any business or investment activity other than (i)
issuing and selling CMOs (ii) investing its cash balance on an interim basis
in high quality short-term securities; (iii) purchasing, owning, holding,
pledging or selling the Collateral or other mortgage-related assets; and (iv)
engaging in other activities which are necessary or convenient to accomplish
the foregoing and are incidental thereto.
During the third quarter ended September 30, 1998, there was no issuance
activity on the Company's Registration Statement No. 33-60662. The total
registered and unissued CMOs under this registration statement remains at $141
million. In order to utilize these remaining and unissued securities, the
Company filed Post-Effective Amendment No. 1 on Form S-3 to its Registration
Statement No. 33-60662 on September 22, 1998.
The post-effective amendment converted the registration statement to a
Form S-3, allowed for the use of a pre-funding account in connection with the
issuance of securities, updated the federal income tax and ERISA disclosures
and made other minor revisions regarding clarification of prior disclosures.
The Company still anticipates that an affiliated mortgage company will
use the remaining unissued balance by securitizing mortgage loans that are
produced from their operations.
2. Unaudited Financial Statements
------------------------------
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim reporting
periods and in accordance with the instructions to Form 10-Q. Therefore, in
complying with these guidelines, these financial statements do no include all
of the information and footnotes that are required for the year-end or annual
reporting period.
In the opinion of management, the accompanying unaudited financial
statements contain all adjustments (consisting only of normally recurring
accruals) necessary to present fairly the financial position of the Company at
September 30, 1998, and the results of its operations and cash flows for the
periods ended September 30, 1998 and 1997. Operating results for the nine
month period ended September 30, 1998, or for the quarter ended September 30,
1998, are not necessarily indicative of the results that may be expected for
the year ending December 31, 1998.
3. Market Risk Disclosure Not applicable.
----------------------
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Year 2000 Issue
- ---------------
The Company recognizes the Year 2000 ("Y2K") issue as a highly sensitive
and important matter. The Company's goal is to continue to provide
uninterrupted service as business enters into the next millennium. The Y2K
issue addresses potential problems that may be encountered with date-related
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transactions on systems that have historically recognized years using two
digits versus four digits. For example, these systems will potentially
recognize "00" as the year 1900 instead of 2000. On the surface, the Y2K
issue may seem to be a simple problem, however, the implications may be
far reaching and could impact a full range of business services and
activities.
The Company is taking a systematic approach to addressing its own Y2K
compliance issues by using the following three-step remediation process:
1. Diagnostic phase
a. Recognition and acknowledgment of the problem
b. Inventory all business systems
c. Inspect and assess systems
2. Planning phase
a. Categorize problems by critical and non-critical systems
b. Prioritize
c. Define solutions for remediation
3. Execute remediation solutions
a. Implement defined solutions
b. Define testing procedures
b. Test and verify systems
The Company in conjunction with its facilities service provider, The
Chotin Group Corporation, a related party by common control, is identifying
and is assessing its internal systems that are subject to Y2K risk.
Additionally as part of the Company's compliance efforts, significant third
parties' Y2K preparedness is being confirmed.
The Company believes that it is taking all necessary and reasonable steps
to get its systems and operations Y2K compliant. As the Year 2000 approaches,
previously unidentified problems may surface. The Company recognizes that it
can not prepare for unknown problems but will make every reasonable effort to
minimize these problems should they occur.
Without a complete assessment and testing of systems that could be
vulnerable to problems, the Company does not have reasonable basis to conclude
that the Year 2000 compliance issue will not likely have an operational impact
on the Company. In addition, without a reasonable conclusive basis, reported
financial information will not necessarily be a indication of future operating
results or future financial condition. However, due to the fact that most
systems are out-sourced to third parties, the Company does not expect to incur
any direct cost that would affect its financial condition.
Liquidity and Capital Resources
- -------------------------------
The Company expects to fund its ongoing operations from its cash balances,
revenue derived from CMO offerings and, if necessary, with borrowings from
its sole shareholder. As of September 30, 1998, $500,000 was available to
be borrowed from the Company's sole shareholder. Any borrowings will be
subordinate and junior to any issued mortgage securities.
The Company will use substantially all of the net proceeds from the issuance
of each series of CMOs to acquire the mortgage loans or mortgage certificates
pledged as collateral for such series of CMOs, and to pay issuance expenses
incurred in connection with the transaction.
Results of Operations
- ---------------------
The third quarter operations resulted in a net loss of $5,351 and $6,477,
respectively, for the three months ended September 30, 1998 and 1997.
Comparably, the Company reported a net loss for both nine month periods ended
September 30, 1998 and 1997 of $23,064 and $23,842.
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Both interim periods reflected the same operating activities, generating
no issuance income while funding normal ongoing expenses. The primary reason
for the decrease in the net loss from 1998 to 1997 resulted from an increase
in interest earnings on cash balances and a decrease in legal expenses.
Forward Looking Statements
- --------------------------
The statements contained in this Item 2 that are not historical facts,
including, but not limited to, statements that can be identified by the use of
forward-looking terminology such as "may," "will," "expect," "anticipate,"
"estimate" or "continue" or the negative thereof or other variations thereon
or comparable terminology, are forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995, and involve a number
of risks and uncertainties. The actual esults of the future events described
in such forward-looking statements could differ materially from those stated
in such forward-looking statements. Among the factors that could cause actual
results to differ materially are: the Y2K preparedness of the Company's third
party information service providers, the market for mortgage-backed securities,
competition, government regulation and possible future litigation.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
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
A. Exhibits
Exhibit 27. Financial Data Schedule
B. Form 8-K - None
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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.
FUND AMERICA INVESTORS CORPORATION
----------------------------------
(Registrant)
Date: November 13, 1998 By: /s/ Helen M. Dickens
----------------------------------
Helen M. Dickens
Vice President
Secretary/Treasurer
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<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 94,099
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 94,099
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 150,502
<CURRENT-LIABILITIES> 17,500
<BONDS> 0
0
0
<COMMON> 10
<OTHER-SE> 133,002
<TOTAL-LIABILITY-AND-EQUITY> 150,502
<SALES> 0
<TOTAL-REVENUES> 3,674
<CGS> 0
<TOTAL-COSTS> 26,738
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (23,064)
<INCOME-TAX> 0
<INCOME-CONTINUING> (23,064)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (23,064)
<EPS-PRIMARY> 0<F1>
<EPS-DILUTED> 0<F1>
<FN>
<F1>
Not presented since all shares of common stock are held by a sole
shareholder.
</FN>
</TABLE>
