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 MARCH 31, 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 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 require-
ments 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 May 14, 1999 -- 1,000 shares
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FUND AMERICA INVESTORS CORPORATION
FORM 10-Q FOR THE
THREE MONTHS ENDED MARCH 31, 1999
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 Operations 6
PART II. OTHER INFORMATION
--------------------------
Item 1. Legal Proceedings 8
Item 2. Changes in Securities 8
Item 3. Defaults upon Senior Securities 8
Item 4. Submission of Matters to a Vote
of Security Holders 8
Item 5. Other Information 8
Item 6. Exhibits and Reports 8
SIGNATURES 9
Page 2
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<TABLE>
PART I. FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements
--------------------
FUND AMERICA INVESTORS CORPORATION
BALANCE SHEETS
(Unaudited)
<CAPTION>
March 31, December 31,
1999 1998
---------- -----------
<S> <C> <C>
Assets
Cash $ 53,055 $ 63,258
Prepaid expenses 2,000 -
---------- ----------
Total assets $ 55,055 $ 63,258
========== ==========
Liabilities - accounts payable $ 7,140 $ 2,215
---------- ----------
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 (322,085) (308,957)
---------- ----------
Total shareholder's equity 47,915 61,043
---------- ----------
Total liabilities and share-
holder's equity $ 55,055 $ 63,258
========== ==========
See notes to financial statements
Page 3
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<TABLE>
FUND AMERICA INVESTORS CORPORATION
Statements of Operations
(Unaudited)
<CAPTION>
Three months ended
March 31,
--------------------------
1999 1998
---------- ----------
<S> <C> <C>
Revenue
Interest income $ 572 $ 1,304
--------- ---------
Total revenue 572 1,304
--------- ---------
Expenses
General and administrative 7,700 7,700
Management fees 6,000 6,000
--------- ---------
Total expenses 13,700 13,700
--------- ---------
Net loss $ (13,128) $ (12,396)
========= =========
See notes to financial statements
Page 4
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<TABLE>
FUND AMERICA INVESTORS CORPORATION
Statements of Cash Flows
(Unaudited)
<CAPTION>
Three months ended
March 31,
----------------------------
1999 1998
---------- ----------
<S> <C> <C>
Net cash flow used in operating activities:
Net loss $ (13,128) $ (12,396)
Adjustments to reconcile net loss to net
cash flow from operating activities:
Changes in operating assets and
liabilities:
Accounts payable 4,925 7,034
Prepaid expenses (2,000) -
---------- ----------
Net cash flow used in operating
activities (10,206) (5,362)
---------- ----------
Net decrease in cash (10,206) (5,362)
Cash at beginning of period 63,258 117,269
---------- ----------
Cash at end of period $ 53,055 $ 111,907
========== ==========
See notes to financial statements
Page 5
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FUND AMERICA INVESTORS CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Three months ended March 31, 1999 and 1998
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 entities. 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 (1) issuing and
selling bonds; (2) investing cash balances on an interim basis in high quality
short-term securities; (3) purchasing, owning, holding, pledging or selling the
collateral or other mortgage-related assets; and (4) engaging in other activi-
ties which are necessary or convenient to accomplish the foregoing and are
incidental thereto.
At January 1, 1999, the Company had $141 million of registered and unissued
CMOs remaining on its Registration Statement No. 33-60662. It was
determined that the registration statement required some updating in order to be
utilized and that management anticipated the use of the remaining unissued
CMOs after the update was completed. During 1998, the Company proceeded
with its plans to update the registration statement by filing an amendment to it
on September 22, 1998.
After filing the amendment, the Company received many comments from the
Security and Exchange Commission ("SEC"). To respond to all the SEC
comments, it was estimated that the Company will have to spend an additional
$50,000 to $100,000 for filing the amendment. At December 31, 1998,
management determined that it is not economically feasible to follow through
on updating the Registration Statement. In accordance with SFAS No. 121
"Impairment of Long-Lived Assets to be Disposed Of," the deferred offering
costs remaining were charged to operations in 1998. The remaining unissued
securities, however, have not been deregistered because management believes
that it may be economically feasible to finish the update at some point in
the future.
2. Unaudited Financial Statements
------------------------------
In the opinion of management, the accompanying unaudited financial statements
contain all adjustments necessary to present fairly the financial position of
the Company at March 31, 1999, and the results of its operations and cash flows
for the periods ended March 31, 1999 and 1998.
Item 2. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations
---------------------
The Year 2000 Issue
- -------------------
With the year 2000 approaching, potential computer failures and errors may
occur due to problems with the computerized recognition of date codes. The
Year 2000 ("Y2K") issue addresses potential problems that may be encountered
with date-related transactions on systems that have historically recognized
years using two digits versus four digits. For example, these systems may re-
cognize "00" as the year 1900 instead of 2000. This could potentially affect
computerized operations that rely on date calculations or are date sensitive.
All operations of the Company are essentially driven by the issuance of
securities. In order to assess and determine potential Y2K issues within the
operations, the Company has separated operations into three sections, the
registration of securities, the issuance of securities, and the administrational
operations.
Page 6
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The preparation, filing, and follow-up of the registration and issuance proces-
ses are typically out-sourced to third-party service providers that specialize
in these services. The Company is requesting confirmation from its third-party
servicing providers that their systems are Y2K compliant. The Company has rec-
eived assurance of Y2K compliance for some of its third-party service providers.
In addition, the Company is still continuing its efforts to receive assurance
from its other third-party service providers.
The Company in conjunction with its facilities provider, The Chotin Group
Corporation (TCG), a related party, has assessed the third area of the Company's
operations, administration systems. TCG provides the Company with office facili-
ties and administrative functions. TCG has assessed its internal systems and
has developed a Y2K Compliance Plan. Currently, TCG is in the process of imple-
menting the plan steps to update and upgrade its internal systems that were det-
ermined not compliant. The Company will closely monitor TCG's progress.
Due to the fact that all operational systems are hired out, the Company does not
expect to incur any direct costs for Y2K remediation that would materially
affect its financial condition. The risk, however, to the Company could
potentially be a delay in its operations of registering securities and issuing
securities. Delays may be caused by the Company's reliance on third- party
service providers who handle out-sourced operations and who are not Y2K
compliant. To address this issue, the Company will consider out-sourcing
operations to other third-party service provider who confirm their compliance.
If necessary updates and upgrades of TCG's systems are not made on a timely
basis, or if third- party service providers are not Y2K ready, Y2K problems
could have a material adverse effect on the Company's operations.
Without a reasonably complete upgrade and testing of systems that may 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.
Liquidity and Capital Resources
- -------------------------------
The Company expects to fund its ongoing operations from its cash balances, and
to fund any potential Registration Statement updates from its cash balances and
borrowings from its sole shareholder. As of March 31, 1999, $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.
Results of Operations
- ---------------------
The Company reported a net loss for the three months ended March 31, 1999 of
$13,128 as compared to a net loss for the three months ended March 31, 1998
of $12,396. A decrease in interest income earned on a lower cash balance for the
three months ended March 31, 1999 is the primary difference in the results of
operations between the two reporting periods.
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 results 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.
Page 7
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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
Page 8
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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: May 14, 1999 By: /s/ Helen M. Dickens
-------------------- ------------------------------
Helen M. Dickens
Vice President and Secretary
(Duly authorized and
Principal Financial Officer)
Page 9
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 53,055
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 55,055
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 55,055
<CURRENT-LIABILITIES> 7,140
<BONDS> 0
0
0
<COMMON> 10
<OTHER-SE> 47,095
<TOTAL-LIABILITY-AND-EQUITY> 55,055
<SALES> 0
<TOTAL-REVENUES> 572
<CGS> 0
<TOTAL-COSTS> 13,700
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (13,128)
<INCOME-TAX> 0
<INCOME-CONTINUING> (13,208)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13,208)
<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>
