<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________
FORM 10-Q
(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, 1994
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 1-10001
RYMAC MORTGAGE INVESTMENT CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
Maryland 25-1577534
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
500 Market Street, Suite 600, Steubenville, Ohio 43952
(Address of Principal Executive Offices) (Zip Code)
(Registrant's Telephone No., Including Area Code) (614) 284-6960
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 twelve
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 xx No ____
Number of shares of common stock, $.01 par value, outstanding as
of August 10, 1994: 5,210,600
<PAGE>
RYMAC MORTGAGE INVESTMENT CORPORATION
FORM 10-Q
INDEX
Page Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of
June 30, 1994 (unaudited)
and December 31, 1993 3
Consolidated Statements of Revenues and
Expenses (unaudited) for the three and
six months ended June 30, 1994 and 1993 4
Consolidated Statements of Cash Flows
(unaudited) for the six months ended
June 30, 1994 and 1993 5
Notes to Consolidated Financial Statements
(unaudited) 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 16
PART II. OTHER INFORMATION 27
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to Vote of Security
Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES 28
<PAGE>
<TABLE>
Part I. Financial Information
Item 1. Financial Statements
RYMAC MORTGAGE INVESTMENT CORPORATION
CONSOLIDATED BALANCE SHEETS
(amounts in thousands except share data)
<CAPTION>
June 30, 1994 December 31, 1993
(Unaudited)
<S> <C> <C>
ASSETS
Real estate investments:
Mortgage related investments plus net premiums
of $31 and $840 (note 4) $ 13,995 $ 65,248
Mortgage derivative securities less valuation
allowance of $65 for 1994 (notes 2 and 3) 6,012 7,161
20,007 72,409
Cash 2,443 1,695
Funds held by trustee 2,046 1,347
Receivables on mortgage related investments 428 5,139
Receivables on mortgage derivative securities 201 469
Other assets 18 38
$ 25,143 $ 81,097
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Funding notes payable (note 5) $ 15,897 $ 44,892
CMOs payable (note 6) - 25,042
Accrued interest on funding notes
and CMOs payable 429 584
Notes payable (note 7) 2,256 3,814
Dividends payable - 208
Other liabilities 214 375
18,796 74,915
COMMITMENTS AND CONTINGENCIES (notes 2,3 and 7)
STOCKHOLDERS' EQUITY
Common stock: par value $.01 per share
50,000,000 shares authorized
5,210,600 issued and outstanding at June 30, 1994,
and December 31, 1993 52 52
Additional paid-in capital 43,985 43,985
Accumulated Deficit (note 8) (37,690) (37,855)
6,347 6,182
$ 25,143 $ 81,097
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
Part I. Financial Information
Item 1. Financial Statements (continued)
RYMAC MORTGAGE INVESTMENT CORPORATION
CONSOLIDATED STATEMENTS OF REVENUES AND EXPENSES
(UNAUDITED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 3O, 1994 AND 1993
(amounts in thousands except share data)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1994 1993 1994 1993
REVENUES
<S> <C> <C> <C> <C>
Interest:
Mortgage related investments $ 483 $ 2,585 $ 1,626 $ 5,669
Mortgage derivative securities 289 (5,592) 490 (10,493)
Provision for investment losses (98) - (98) -
Temporary investments 10 39 22 85
Gain(net)/(loss) on the sale of mortgage
related investments (134) - 448 234
Other 26 9 39 22
576 (2,959) 2,527 (4,483)
EXPENSES
Interest on funding notes payable 355 1,791 1,111 3,767
Interest on CMOs payable 164 1,021 707 2,249
Interest on notes payable 33 98 75 242
General and Administrative 214 393 469 845
766 3,303 2,362 7,103
Net Income (loss) (note 8) $ (190) $ (6,262) $ 165 $(11,586)
Net Income (loss) per share $ (0.04) $ (1.20) $ 0.03 $ (2.22)
Weighted average number of common
shares outstanding 5,211,000 5,211,000 5,211,000 5,211,000
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
Part I. Financial Information
Item 1. Financial Statements (continued)
RYMAC MORTGAGE INVESTMENT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1994 AND 1993
(amounts in thousands except share data)
<CAPTION>
1994 1993
<S> <C> <C>
Operating Activities:
Net Income (loss) (note 8) $ 165 $(11,586)
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of net premium on mortgage
related investments 809 (86)
Amortization of premiums on
mortgage derivative securities 917 15,580
Interest accrued and added to funding notes
payable 324 564
Decrease in interest receivable on
mortgage related investments 490 393
Decrease/(increase) in interest receivable on
mortgage derivative securities 229 (235)
Increase/(decrease) in accrued interest on
funding notes payable and CMOs payable (155) 577
Decrease in accrued expenses payable (369) (322)
Other, net 85 (1)
Net cash provided by operating activities 2,495 4,884
Investing Activities:
Principal payments on mortgage related investments 54,665 44,744
Increase in funds held by trustee ( 699) (4,130)
Principal payments on funding notes payable (29,319) (22,118)
Principal payments on CMOs payable (25,042) (17,708)
Principal payments on mortgage derivative
securities 206 2,061
Net cash provided by/(used in) investing
activities (189) 2,849
Financing Activities:
Net repayments of notes payable (1,558) (7,264)
Net cash used in financing activities (1,558) (7,264)
Net increase in cash 748 469
Cash at beginning of period 1,695 636
Cash at end of period $ 2,443 $ 1,105
Supplemental disclosure of cash flow information:
Interest paid (net of amounts added to funding
notes payable) $ 1,752 $ 5,211
Second quarter dividends declared $ 0 $ 0
See notes to consolidated financial statements.
</TABLE>
<PAGE>
RYMAC MORTGAGE INVESTMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands except share data)
_________________________________________________________________
Note 1 - The Company
RYMAC Mortgage Investment Corporation ("RMIC") was incorporated in
Maryland on July 1, 1988. RMIC has two wholly-owned subsidiaries,
RYMAC Mortgage Investment I, Inc. ("RMI") and RYMAC Mortgage
Investment II, Inc. ("RMII"). RMIC, RMI and RMII are collectively
referred to hereafter as the "Company". At inception, the Company
issued 5,420,000 shares of its common stock. During 1990 and 1991,
the Company repurchased 209,400 shares of its common stock in
accordance with a stock repurchase program at costs ranging from
$6.75 to $7.63 per share.
In response to the Company's earnings difficulties and reduced cash
flows from its investment portfolio, the Company is currently
implementing actions to begin alternative investment activities and
is evaluating several business combination proposals that
effectively utilize the Company's tax loss position. (See
Management's Discussion and Analysis - "Investment Philosophy and
Investment Activities" and "Future Prospects"). To date, actions
necessary to begin the alternative investment activities are
incomplete and no successful business combination has been
negotiated. If the Company is unable to successfully institute any
of the above mentioned plans, the Company's ability to re-establish
an investment portfolio would be impaired, causing the Company to
evaluate actions that would include an orderly distribution of
future excess cash receipts to stockholders.
_________________________________________________________________
Note 2 - Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of RMIC
and its wholly-owned subsidiaries RMI and RMII. All intercompany
balances and transactions have been eliminated in consolidation.
Mortgage Related Investments
Mortgage related investments are carried at their outstanding
principal balance, plus or minus the applicable premium or
discount. The net premium on mortgage related investments is
amortized over the estimated lives of the investments using the
interest method. (See note 4)
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(amounts in thousands except share data)
_________________________________________________________________
Note 2 - Summary of Significant Accounting Policies (continued)
On a quarterly basis, the Company makes adjustments to its mortgage
related investments based upon valuation estimates. Such
valuations are conducted on an asset-by-asset basis using
assumptions that incorporate both market expectations as to future
mortgage prepayment speeds at each valuation date and an estimate
of future interest rates implied by the yield curve at each
valuation date.
The Company compares the results of such assumptions to other
relevant market data and makes appropriate adjustments if
necessary. The cash flows are also evaluated for volatility under
increased stress levels (higher prepayment assumptions) and
additional adjustments are made for investments where cash flows
rapidly deteriorate under increased stress levels.
While the Company believes its prepayment assumptions are
appropriate, if higher prepayment speeds had been used in the
Company's assumptions, the results of the asset valuations would
result in further downward asset valuation adjustments.
Mortgage Derivative Securities
Mortgage derivative securities have been recorded at cost and are
amortized over their estimated lives using the interest method.
(See note 3)
The Company had been applying Emerging Issues Task Force ("EITF")
Issue No. 89-4 "Accounting for a Purchased Investment in a
Collateralized Mortgage Obligation Instrument or in a Mortgage-
Backed Interest-Only Certificate" in its quarterly valuation of its
Mortgage Derivative Securities. EITF 89-4 requires a valuation
adjustment when, under market based assumptions as to future
mortgage prepayment speeds and interest rate levels, the nominal
cash flows expected from a Mortgage Derivative Security asset are
less than the current carrying value of the asset.
The Financial Accounting Standards Board ("FASB") issued Financial
Accounting Standard No. 115 ("FASB-115"), "Accounting for Certain
Investments in Debt and Equity Securities," effective for fiscal
years beginning after December 15, 1993.
The Company elected to apply FASB-115 effective December 31, 1993.
FASB-115 requires that impaired investments be carried at fair
market value. The EITF has concluded that an impairment to value
under FASB-115 has occurred if the future cash flows, discounted at
a risk free rate (the yield associated with a U.S. Treasury
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(amounts in thousands except share data)
_________________________________________________________________
Note 2 - Summary of Significant Accounting Policies (continued)
Security with a maturity approximating the average life of the
future cash flows from the Company's portfolio of investments), are
less than the investment's carrying value.
Federal Income Taxes
The Company has elected to be taxed as a real estate investment
trust ("REIT") under the Internal Revenue Code of 1986, as amended
(the "Code"). As a result, the Company generally will not be
subject to federal income taxation at the corporate level to the
extent it distributes annually at least 95% of its REIT taxable
income, as defined in the Code, to its stockholders and satisfies
certain other requirements. Accordingly, no provision has been
made for income taxes in the accompanying consolidated financial
statements.
Net Income (Loss) Per Share
Net income (loss) per share is computed based on the weighted
average number of common shares outstanding during the period.
_________________________________________________________________
Note 3 - Mortgage Derivative Securities
The Company's investments in mortgage derivative securities
currently consist of (i) a class or classes of collateralized
mortgage obligations ("CMOs") that either represents a regular
class of bonds or a residual class of bonds or (ii) interests in a
class or classes of mortgage-backed pass-through certificates that
either represent a regular class of certificates or a residual
class of certificates. For federal income tax purposes, a majority
of the Company's mortgage derivative securities represent interests
in real estate mortgage investment conduits ("REMICs"). CMOs are
mortgage-backed bonds which bear interest at a specific
predetermined rate or at a rate which varies according to a
specified relationship to a specific short term interest rate
index, such as the London interbank offered rate for one-month U.S.
dollar deposits ("LIBOR").
Most residual bonds are structured so as to entitle the holder to
receive a proportionate share of the excess (if any) of payments
received from the collateral pledged to secure such bonds and the
other related classes, together with the reinvestment income
thereon, over amounts required to make debt service payments on
such CMOs and to pay related administrative expenses. In
connection with these investments, the Company acquired no other
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(amounts in thousands except share data)
_________________________________________________________________
Note 3 - Mortgage Derivative Securities (continued)
rights relating to the collateral pledged to secure its mortgage
derivative securities. Most residual certificates are structured
so as to entitle the Company to receive a specified percentage of
the distributions generated from the pool of assets comprising the
trust funds of which the certificates evidence an interest.
At June 30, 1994 and December 31, 1993, the Company had investments
in Mortgage Derivative Securities (computed in accordance with
FASB-115) as set forth below:
<TABLE>
<CAPTION>
PORTFOLIO OF MORTGAGE DERIVATIVE SECURITIES June 30, December 31,
1994 1993
_______________________________________________________________________
<S> <C> <C>
Collateralized Mortgage Obligation Trust 39
("CMOT 39") $ 372 $ 466
Collateralized Mortgage Obligation Trust 46
("CMOT 46") - 81
Collateralized Mortgage Obligation Trust 47
("CMOT 47") 710 864
FNMA REMIC Trust 1988-7 ("FNMA 1988-7") 127 177
- Trust 1988-11 ("FNMA 1988-11") 419 467
- Trust 1988-14 ("FNMA 1988-14") 709 843
- Trust 1990-09 Class H ("FNMA 1990-09") 859 989
- Trust 1991-163 Class SA ("FNMA 1991-163") 815 930
FNMA Stripped Mortgage-Backed Securities
Trust 127 ("FNMA 127") 583 646
FHLMC Multi-Class Mortgage Participation
Certificates
(Guaranteed)
- Series 2 ("FHLMC 2") 179 202
- Series 21 ("FHLMC 21") - 11
- Series 1235 Class L ("FHLMC 1235") 443 509
- Series 1248 Class H ("FHLMC 1248") 805 914
Cornerstone Mortgage Investment
Group II, Inc.
- Series 13 ("Cornerstone 13") 34 38
- Series 14 ("Cornerstone 14") 22 24
_______________________________________________________________________
$ 6,077 $ 7,161
_______________________________________________________________________
</TABLE>
The Company makes valuation adjustments at quarterly dates based
upon assumptions as to mortgage prepayment speeds, interest rates
and discount rates reflective of then current financial markets.
The Company adopted FASB-115 effective December 31, 1993. (See
note 2) FASB-115 incorporates a discounted cash flow valuation
approach whereas EITF 89-4 was based upon future expected
undiscounted cash flows.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(amounts in thousands except share data)
_________________________________________________________________
Note 3 - Mortgage Derivative Securities (continued)
Under FASB-115, future cash flows are discounted at a rate
reflective of market yields for assets of the type held by the
Company. At December 31, 1993, the Company applied a discount rate
of 12% to the cash flows for its portfolio of Mortgage Derivative
Securities. In 1994 the Company established a valuation reserve
account.
Substantially all of the Company's mortgage derivative securities
have been pledged as collateral for repurchase agreements as
described in note 7.
_________________________________________________________________
Note 4 - Mortgage Related Investments
The Company's mortgage related investments consist of ownership
interests in certain classes of mortgage-backed securities issued
by Ryan Mortgage Acceptance Corporation IV and Ryland Mortgage
Securities Corporation (as described below).
On November 29, 1989, the Company purchased from Ryland Mortgage
Securities Corporation ("RMSC") certain insured mortgage loans and
other collateral owned by RMSC and pledged to secure RMSC's
Mortgage Collateralized Bonds Series 1989-6 (the "RMSC Bonds").
This mortgage related investment and other collateral were
purchased subject to the lien of the Indenture (the "RMSC
Indenture") between RMSC and Sovran Bank, N.A., the Trustee for the
RMSC Bonds (the "RMSC Trustee"), pursuant to which the RMSC Bonds
were issued and subject to the rights of the RMSC Trustee and the
bondholders thereunder. (See note 6) This mortgage related
investment grants to the Company certain additional rights with
respect to the RMSC Bonds, including rights with respect to
substitution of collateral, amendments of or supplements to the
RMSC Indenture, and calling of the RMSC Bonds.
On September 23, 1988, the Company purchased from Ryan Mortgage
Acceptance Corporation IV ("RYMAC IV"), certain GNMA certificates
and FNMA certificates and other collateral owned by RYMAC IV and
pledged to secure RYMAC IV's Mortgage Collateralized Bonds Series
3, 4, 7, 10, and 19 (collectively the "RYMAC IV Bonds"). (See note
5) These mortgage related investments and other collateral were
purchased subject to the lien of the Indenture between RYMAC IV and
the Trustee (the "RYMAC IV Indenture") pursuant to which the RYMAC
IV Bonds were issued and subject to the rights of the Trustee and
the bondholders thereunder. (See note 5) This series of five
purchase agreements grants to the Company certain additional rights
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(amounts in thousands except share data)
_________________________________________________________________
Note 4 - Mortgage Related Investments (continued)
with respect to the RYMAC IV Bonds, such as the right, if any, to
substitute collateral, the right to direct the reinvestment of
collateral proceeds and the right to call the related RYMAC IV
Bonds.
During the first quarter of 1994, the Company sold its ownership
rights in the RYMAC IV Series 3 and 4 Bonds ("Series 3" and "Series
4", respectively), for a net gain of approximately $582. (See note
5) For the remaining RYMAC IV Bond Series 7, 10 and 19, it is not
currently anticipated that either call options or the contractual
assignment of the Company's rights will be available to the
Company. The Company assigned its ownership rights in the RMSC
Bonds to a third party during the second quarter for a net loss of
approximately $134.
At June 30, 1994 and December 31, 1993, the Company owned mortgage
related investments with aggregate outstanding principal balances
of $13,964 and $64,408, respectively, which provide for monthly
principal and interest payments. The RYMAC IV collateral bears
interest at rates ranging from 7.75% to 10.50% and have scheduled
maturity dates ranging from July 1, 2001 to April 1, 2017.
_________________________________________________________________
Note 5 - Funding Notes Payable
Funding notes payable represent limited recourse notes delivered to
RYMAC IV as partial payment for the purchase of mortgage related
investments and other collateral and have payment terms the same as
the related series of RYMAC IV Bonds. (See note 4) The funding
notes payable consisted of three and five multi-class series at
June 30, 1994 and December 31, 1993, respectively, having stated
maturities ranging from August 1, 2010 to May 1, 2017. The classes
of each series of funding notes payable bear interest at fixed
rates. The range of fixed rates at June 30, 1994 and December 31,
1993 were 8.25% to 9.45% and 8.25% to 11.20%, respectively.
Principal and interest payments on the mortgage related investments
are used to make the monthly or quarterly payments on the funding
notes payable. In addition, prepayments of the underlying mortgage
related investments are passed through as prepayments of the
funding notes payable so that the funding notes payable may be
fully paid prior to their stated maturities.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(amounts in thousands except share data)
_________________________________________________________________
Note 5 - Funding Notes Payable (continued)
During the first quarter of 1994, the Company sold its ownership
interest in the RYMAC IV Series 3 and 4 Bonds. (See note 4)
_________________________________________________________________
Note 6 - CMOs Payable
CMOs payable represented the RMSC Bonds. (See note 4) The RMSC
Bonds, secured by insured mortgage loans and other collateral,
consisted of one multi-class series with each class bearing
interest at fixed annual rates. The range of fixed rates at
December 31, 1993 was 9.80% to 9.85%. The RMSC Bonds were sold
during May 1994. (See note 4)
_________________________________________________________________
Note 7 - Notes Payable
At June 30, 1994, the Company was a party to thirteen separate
repurchase agreements for borrowings of $2,256 which are
collateralized by certain mortgage derivative securities. These
repurchase agreements have interest rates ranging from 4.375% to
5.500% with maturities ranging from July 5, 1994 to July 18, 1994.
At maturity dates, repurchase agreements are typically renewed for
additional periods (usually one to twelve months). At June 30,
1994, $1,072 of such repurchase agreements were outstanding with
Kidder Peabody and Company (eleven separate repurchase agreements).
These eleven repurchase agreements were secured by the pledge of
mortgage derivative securities with a carrying value of $4,579 and
had an average weighted maturity of 15.1 days. At December 31,
1993, repurchase agreement borrowings were $3,814 under twelve
separate repurchase agreements at rates ranging from 3.3% to 5.0%
and maturities ranging from January 6, 1994 to April 4, 1994. If
the borrowings under the repurchase agreements exceed a specified
percentage of the collateral value, as determined by the lenders in
their sole discretion, the lenders have the right to require either
the repayment of a portion of the borrowings prior to maturity or
the delivery of additional collateral.
The Company maintained a line of credit with a commercial bank for
$250 with an expiration of April 30, 1994, which availability was
subject to periodic valuations of the pledged collateral.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(amounts in thousands except share data)
_________________________________________________________________
Note 7 - Notes Payable (continued)
Amounts borrowed under this agreement were charged interest at a
rate of the prime rate plus 1.0%, and were collateralized by the
pledge of the Company's ownership interests in the RYMAC IV Bonds
and the RMSC Bonds. The availability under the line was limited to
the value of collateral pledged to the bank. At December 31, 1993,
no amounts were outstanding under the line. Upon expiration of the
agreement, the Company elected not to renew the line of credit.
The following summarizes information related to the Company's
short-term borrowings during the second quarter of 1994:
<TABLE>
<CAPTION>
Maximum Average Weighted
Weighted Amount Amount Average
Balance Average Outstanding Outstanding Interest
at End Interest During During Rate During
of Period Rate Period Period Period
<S> <C> <C> <C> <C> <C>
Repurchase
Agreements $2,256 4.91% $3,365 $2,166 4.68%
</TABLE>
__________________________________________________________________
Note 8 - Federal Income Taxes and Distributions
As described in note 2, the Company has elected to be treated, for
federal income tax purposes, as a REIT. As such, the Company is
required to distribute annually, in the form of dividends to its
stockholders, at least 95% of its taxable income. Because of the
provisions of the Code applicable to the type of investments made
by the Company, in the early years of the life of certain of the
Company's initial investments (particularly investments made in
connection with the Company's initial public offering, and to a
lesser degree during 1989) taxable income exceeded net income.
During the later years of such ownership Net Income will exceed
REIT taxable income. The principal reason for such difference is
that the Company reports income from its portfolio of mortgage
related investments and mortgage derivative securities on the
interest method for financial reporting purposes; however, for
income tax purposes, the Company reports its proportionate share of
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(amounts in thousands except share data)
_________________________________________________________________
Note 8 - Federal Income Taxes and Distributions (continued)
the difference between interest income generated by the collateral
and interest expense on the CMOs. More recent investments made by
the Company and investments currently available in the market are
typically structured so that taxable income and Net Income are
similar during each reporting period. Over the life of a
particular investment or security, taxable income and Net Income
will be equal. In reporting periods where taxable income exceeds
Net Income, stockholders' equity will be reduced by the amount of
dividends in excess of Net Income in such period and will be
increased by the excess of Net Income over dividends in future
reporting periods.
The Company estimates its taxable losses for 1992 and 1993 to
aggregate approximately $28 million. Further tax losses are likely
in 1994. During 1992 and 1993, the Company's investment in certain
REMICs produced excess inclusion income of $514 and $213,
respectively. Under the Code a REIT must generally distribute its
excess inclusion income to its stockholders even though it has
losses or deductions. Accordingly, if the Company were to report
future excess inclusion income, it would be required to distribute
such excess inclusion income as dividends even though it has an
estimated net operating loss carryforward approximating $28
million. The net operating losses can be carried forward to
offset ordinary income of the Company for fifteen years after such
loss is recognized.
The following table illustrates the reconciliation between Net
Income and Accumulated Deficit and the related per share data for
the three months ended June 30, 1994:
<TABLE>
<CAPTION>
1994
<S> <C>
Accumulated Deficit
at Beginning of Period $(37,500)
Net Loss (190)
Less: Dividends Declared -
Accumulated Deficit
at End of Period $(37,690)
Per Share:
Net Loss $ (0.04)
Dividends Declared $ -
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(amounts in thousands except share data)
_________________________________________________________________
Note 9 - Employee Benefits
The Company's Board of Directors has established a Salary
Reduction-Simplified Employee Pension Program ("SAR-SEP") for its
full-time employees. A SAR-SEP is a minimal administration 408-K
Plan (similar to a 401-K) for companies with fewer than 25
employees.
For 1994, the Company has established a minimum contribution of 3%
of gross compensation. Company contributions to the plan may vary
and the Company is not required to continue the program. Employee
contributions are based upon established formulas under the
Employee Retirement Income Security Act ("ERISA") rules governing
408-K Plans.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
INVESTMENT PHILOSOPHY AND INVESTMENT ACTIVITIES
The Company's historical and current portfolio of investments is
sensitive to changes in interest rates and mortgage prepayments.
The lowest mortgage interest rate levels in 20 years were reached
in 1992 and continued to 25 year lows in the fourth quarter of
1993, resulting in unprecedented mortgage refinancings and
therefore accelerated mortgage prepayments. As a result of the
high level and extended duration of these prepayments, earnings and
cash flow from the Company's current investments have been, and
continue to be, adversely impacted. For a majority of the assets,
earnings and cash flows have been permanently impaired and will not
recover as prepayments return to more historical levels. In
addition, the Company has been unable to sell any substantial
portion of its portfolio of investments at acceptable prices, thus
limiting acquisition of replacement or additional investments.
During the period from the Company's inception in 1988 through
early 1992, mortgage interest rate levels and prepayment speeds
remained within levels existent from 1970 to early 1992.
Historically, cash received from the Company's portfolio of
mortgage related investments and mortgage derivative securities
(collectively, "Investments") represented interest and dividend
earnings and the return of investment principal (basis) and were
used to 1) pay operating expenses and 2) make dividend
distributions to stockholders. Cash flow amounts representing
returns of principal on investments were used to 1) repay Company
borrowings, including margin calls on repurchase agreements, and 2)
make suitable new investments for the Company's portfolio.
However, between June of 1992 and early 1994, mortgage rates at
recent historical lows resulted in extraordinarily rapid and
sustained levels of residential mortgage prepayments. As a direct
result, the Company's Investments generated reduced interest and
dividend earnings and as the duration of high levels of prepayments
continued during such period, the Company's cash flows from returns
of investment principal and interest and dividend earnings have
also been severely impaired and sufficient only to reduce the
Company's borrowings (including margin calls), pay operating
expenses and fund minimal dividend distributions to stockholders.
As such, no new investments have been added to the Company's
portfolio since May 1992.
This prolonged period of rapid prepayments resulted in 1) reduced
cash flows due to the substantially diminished size of the mortgage
pools underlying the Company's Investments and 2) declining market
values of the Company's Investments which simultaneously reduced
the financing value of such assets. (See "Liquidity and Capital
Resources") As a result, during the second half of 1992, all of
<PAGE>
1993 and through the first six months of 1994, the Company has not
purchased any new assets. New purchases of mortgage derivative
securities are currently restricted to those specifically approved
by the Company's Board of Directors.
FUTURE PROSPECTS
The future prospects of the Company are affected significantly by
mortgage refinancing and prepayment activity. As of mid July 1994,
the Mortgage Bankers Refinancing Index, an indicator of mortgage
refinancing activity, declined to a level of 114, its lowest level
since November 1990. The Index reached an all-time high level of
1727 in September 1993. Fixed rate 30 year mortgages have risen to
a range of 8.10-8.90%, reducing refinancing applications to 11% of
new mortgage applications, as compared to 50-70% of applications at
points during the two year refinancing boom of early 1992 through
early 1994. Fixed rate 30 year mortgage loans had been available
at yields below 7% in the third and fourth quarters of 1993.
As a result of the decline in refinancing activity described above,
mortgage prepayment speeds for most mortgage coupon levels have
fallen substantially since the first quarter of 1994. These
decreases in prepayment speeds and dealer projections of further
declines in prepayment levels should result in a stabilization of
the Company's remaining cash flows on a majority of its assets.
However, the extended duration of historically high and
unprecedented prepayments has permanently reduced the level of cash
flows and earnings from the same assets, and the Company does not
expect any significant increase in cash flows or earnings from its
current portfolio. Nevertheless, a stabilization of cash flows
will increase the time available to the Company to evaluate and
implement available opportunities.
Simultaneously, the Company has further reduced operating expenses
in the second quarter of 1994 to include all areas of Company
expenditures, particularly employment costs, consulting fees,
officer compensation, communications/information expenses and
Directors' fees (as of April 4, 1994, the annual fee payable to
members of the Company's Board of Directors was reduced to $1.00
per year). The Company has reduced operating expenses by
approximately 70% since early 1993.
The Company believes that reduced but stable cash flows from the
current portfolio, substantially reduced operating expenses and a
current cash reserve of approximately $2,300,000 will enable the
Company to 1) implement the new investment strategy described
below and 2) evaluate various business combinations that would
effectively utilize the Company's current tax loss position. If
successful, both the new investment activity and a potential
business combination would add substantial earning assets to the
Company's investment portfolio. Any new assets are not likely to
<PAGE>
be subject to the risks of mortgage prepayments.
In response to its reduced cash flows, the Company has been
pursuing alternative investment opportunities, including, in
particular, the acquisition and financing of tax sale certificates
on residential and commercial properties that would increase cash
flow to the Company. To date, the actions necessary to begin the
alternative investment activities are incomplete.
The Company believes that it will benefit from the prepayment speed
decreases described above in "Investment Philosophy and Investment
Activities" as the monthly cash flow from its portfolio of
investments stabilizes and dealer margin calls on remaining
borrowings are expected to become less onerous. With the
expectation of a period of more stable mortgage market performance,
the Company expects to implement the alternative investment
activity involving the acquisition of tax sale certificates as
described above, and is also evaluating several business
combination proposals that would effectively utilize its tax loss
position.
Any new investment activity by the Company involving the
acquisition of tax lien certificates will likely include
incremental borrowings by the Company and exposure to market risks.
It is the Company's intention to incur only non-recourse debt in
connection with any such investments by means of a pledge of the
underlying assets acquired and subordination of the Company's cash
investment in the new assets. The Company believes that use of
conservative underwriting standards should serve to mitigate market
risks in the newly acquired assets.
No assurances can be given regarding the successful implementation
of the Company's new investment activity, given its dependence upon
financial market conditions, the availability of assets that meet
established underwriting criteria, the successful negotiation of a
servicing contract, the existence of market competition and the
successful placement of non-recourse debt. Similarly, any business
combination is subject to extensive negotiations of an economic,
financial, and legal nature and to changes in general market
conditions. If the Company is unable to successfully institute
its tax sale certificates investment activity or a business
combination, as described above, the Company's ability to re-
establish and conduct an investment business would be significantly
impaired. Under such circumstances, the Company would consider an
orderly liquidation of its current assets and distribution of
resulting net proceeds to stockholders. The market for mortgage
derivatives, which represents the majority of the Company's
investment portfolio, is currently very weak. Buyers of mortgage
derivatives are demanding excessive yields which results in
unsatisfactory sale prices for these types of assets. Under these
market conditions, the Company believes that greater value to
stockholders would be produced through the periodic payout of cash
<PAGE>
flows received from the assets in combination with specific asset
sales at future dates should prices improve.
As a result of operating losses, the Company accumulated
substantial tax loss carryforwards during 1992, 1993, and into
1994, currently estimated at $31,000,000. Absent the existence of
future excess inclusion income (see "Dividend Policy"), future cash
flows from the Company's current portfolio of investments would
represent, to a large degree, return of investment principal
(basis) to the Company and not taxable income required to be
distributed as dividends to stockholders. Additionally, the
Company's estimated tax loss carryforward of $31 million as of June
30, 1994 can be utilized to offset future taxable income generated
from the contemplated activities before the Company's earnings
again become taxable and result in the requirement for dividend
payments. Should the contemplated investment activities be
successful, the Company would be in a tax position to use cash
flows to rebuild the Company's investment portfolio prior to
resuming taxable dividend payments.
DIVIDEND POLICY
In accordance with the Code, the Company is required to distribute
at least 95% of its taxable income to its stockholders each year in
order to maintain its status as a REIT. Dividends paid for a
fiscal year in excess of the Company's taxable income are reported
as a return of capital to the Company's stockholders, except as
provided below.
Some of the Company's investments constitute REMIC residual
interests. Certain of these residual interests may produce "excess
inclusion" income during the fiscal year. The Code requires that
excess inclusion income be included in a taxpayer's income even
though the taxpayer has losses that would otherwise offset such
income. As a result, the Company could have taxable income from
excess inclusions in a taxable year even though it has losses from
other investments that would normally be sufficient to offset the
amount of such excess inclusion income. The Company is required to
distribute the taxable income representing excess inclusions to
meet its 95% distribution requirement and to avoid a corporate
level tax on such income. When such income is distributed to a
stockholder, the stockholder will have taxable income, rather than
a return of capital, equal to its share of such excess inclusion
income during the fiscal year. The Company reported for fiscal
1993 that all distributions paid for 1993 represented excess
inclusion income. (See note 8 of Notes to Consolidated Financial
Statements) For a stockholder, generally, excess inclusion income
cannot be offset by losses.
On March 29, 1994, and August 10, 1994, the Company announced that
no dividends would be paid for the quarters ended March 31, 1994
and June 30, 1994 respectively.
<PAGE>
RESULTS OF OPERATIONS
For the six months ended June 30, 1994, as compared to 1993's
comparable period, the Company's Net Income increased from
$(11,586,000) to $165,000. This improvement is attributable to 1)
the Company's incurring $11,959,000 in asset value writedowns
during the 1993 period while only minor writedowns were required
for the first six months of 1994, 2) slightly higher net gains from
the sale of assets, $448,000 in 1994's period as compared to
$234,000 in the 1993 period, and 3) a reduction in the Company's
operating expenses (includes "Interest on Notes Payable" and
"General and Administrative") from $544,000 for 1994's first six
months to $1,087,000 for the six months ended June 30, 1993.
At December 31, 1993, the Company first applied Financial
Accounting Standard No. 115 ("FASB-115"). FASB-115 requires that
impaired investments be carried at fair market value, and, as such,
all of the Company's Mortgage Derivative Securities were affected
at 1993 year end. Prior to the adoption of FASB-115, such
investments were carried at values equivalent to their estimated
future nominal monetary value, in accordance with EITF 89-4. (See
note 2 of Notes to Consolidated Financial Statements) With the
December 1993 fair value analysis on these investments, the Company
was able to recognize in 1994's first six months a rate of return
of 12% on these same investments.
Statement of Revenues and Expenses
Net Income (loss), as calculated in accordance with generally
accepted accounting principles ("GAAP") and as presented in the
accompanying consolidated financial statements, was $165,000, or
$0.03 per share, for the six months ended June 30, 1994 as compared
with $(11,586,000), or $(2.22) per share, for the six months ended
June 30, 1993 and $(190,000), or $(.0.04) per share, for the three
months ended June 30, 1994 as compared with $(6,262,000), or
$(1.20) per share, for the three months ended June 30, 1993.
The primary reason for the significant difference in income between
periods results from the writedown of assets during the six and
three month periods ended June 30, 1993. Such adjustments totalled
$11,959,000 and $6,065,000, respectively, for the six and three
month periods ended June 30, 1993. Writedowns of $33,000 were
required for the six month period ended June 30, 1994, all of which
related to the three month period ended June 30, 1994.
GAAP requires the Company to periodically evaluate its Investments
based upon current and expected future mortgage prepayment speeds,
interest rates and market discount rates. (See note 2 of Notes to
Consolidated Financial Statements) Such valuation adjustments are
reflected as a reduction of interest revenues in the Company's
Consolidated Statements of Revenues and Expenses. The assumptions
used to value assets at the end of each quarter take into
<PAGE>
consideration the actual mortgage prepayment speeds experienced for
each asset through the end of the quarterly period, market
expectations of future prepayment speeds for the mortgages backing
each asset, and effective for quarterly dates of December 31, 1993
and later, the application of a market discount rate to future cash
flows. If prepayment speeds were to increase to levels higher than
current market expectations, market expectations of future mortgage
prepayment speeds increase beyond current anticipated levels, or
the market discount rate applied was increased, additional
reductions in the value of the Company's Investments could be
necessary.
The Company derives its income (loss) primarily from its
investments in Mortgage Derivative Securities. The Company's
portfolio contains several types of mortgage derivative securities.
For each security that the Company purchases, it receives the right
to certain designated cash flows from these securities. Due to the
nature of these securities, income calculated in accordance with
the Code ("Taxable Income") and income calculated in accordance
with GAAP ("Net Income") are not always identical for any
particular period, particularly when mortgage prepayment speeds are
unusually high, as had been the case from early 1992 to early 1994,
or unusually low.
The substantial differences between Taxable Loss and Net Income
(loss) are reflected in the following table:
Six Months Ended June 30,
1994 1993
Net Income (loss) $ 165,000 $(11,586,000)
Estimated Taxable Loss $(3,200,000) $( 2,800,000)
Net Income (loss) per share $ 0.03 $(2.22)
Estimated Taxable Loss
per share $(0.61) $(0.54)
In addition to the absence of significant asset writedowns in the
first six months of 1994, the other factors contributing to the
increases in Net Income for the three and six month periods ended
June 30, 1994 are 1) an increase in the gains recognized from sales
of mortgage related investments, 2) a substantial decrease in
interest expense on funding notes, CMOs and notes payable and 3) a
substantial reduction in general and administrative expenses.
These changes, when combined with the decrease in interest revenue
on mortgage related investments, provided for the substantial
increase in the Company's Net Income.
Interest revenue on Mortgage Related Investments decreased from
$2,585,0000 and $5,669,000 for the three and six months ended June
<PAGE>
30, 1993 to $483,000 and $1,626,000 for the three and six months
ended June 30, 1994, as a result of the substantial reduction in
Mortgage Related Investments on the Company's Balance Sheet for
these periods discussed below. Interest revenue on Mortgage
Derivative Securities was $(5,592,000) and $(10,493,000) for the
three and six months ended June 30, 1993 as compared to $289,000
and $490,000 for the three and six months ended June 30, 1994. The
increase in interest revenue on Mortgage Derivative Securities was
attributable to writedowns of $11,751,000 which occurred for 1993's
first six months, of which $5,891,000 related to the second quarter
of 1993. These writedowns are deducted from Mortgage Derivative
Securities interest revenues. There were only $33,000 in
writedowns for 1994's first six months. There was also a general
increase in interest earnings on that same asset category in 1994
resulting from the recognition of 12% yields effective for the
first six months of 1994.
For the six months ended June 30, 1993, the Company recorded a gain
on the early redemption of RYMAC IV Series 1 of $234,000, which
occurred during the first quarter of 1993, while for the six months
ended June 30, 1994, the Company recorded net gains of $448,000 on
the sale of its ownership rights in RYMAC IV Series 3 and 4 and the
RMSC Bonds. This net gain of $448,000 represents a loss of
$134,000 on the sale of the RMSC Bonds during the second quarter of
1994 and a gain of $582,000 on the sale of the RYMAC IV Series 3
and 4 Bonds during the first quarter of 1994. The difference in
sales gains represents an increase in Net Income of $214,000 for
the six months ended June 30, 1994. Without the gains recorded
from the sale of ownership rights, the Company would have reported
a slight loss for 1994's first six months.
Interest expense on Funding Notes and CMOs Payable decreased from
$6,016,000 to $1,818,000 for the six months ended June 30, 1993 and
1994, respectively, and from $2,812,000 to $519,000 for the three
months ended June 30, 1993 and 1994, respectively, as a result of
the offsetting balance sheet decline of Funding Notes and CMOs
Payable discussed below. Six month operating expenses (includes
"Interest on Notes Payable" and "General and Administrative")
decreased from $1,087,000 for 1993 to $544,000 for the comparable
period in 1994, while operating expenses also declined for the
three months ended June 30, 1993 and 1994 from $491,000 to
$247,000, respectively. These decreases between periods of
$543,000 and $247,000 were the result of reduced interest expense
on Notes Payable of $167,000 and $65,000, respectively, as the
Company repaid substantial amounts under repurchase agreements
during 1993 and 1994, and a reduction in General and Administrative
Expenses of $376,000 and $179,000, respectively, as the Company
reduced costs in response to the deterioration of its investment
portfolio.
Commencing with the second quarter of 1994, the Company
established a Provision for Investment Losses by means of periodic
<PAGE>
charges to earnings. For the second quarter, such charge was for
$98,000. Writedowns of $33,000 were applied against the Reserve
relating to the remaining basis of two Mortgage Derivative
Securities. The Company will evaluate the Reserve quarterly and
consider additions to the Reserve as appropriate. Asset
writedowns, could be necessary in future quarters should 1)
mortgage prepayment speeds increase to levels higher than current
market expectations, 2) market expectations of future mortgage
prepayment speeds increase beyond current dealer anticipated
levels, or 3) the market discount rate applied in the valuation
process increases.
Balance Sheet
The Company's assets declined during the six month period ended
June 30, 1994 by $55,954,000, to a total of $25,143,000 at June 30,
1994. This decrease is attributable to the Company's Mortgage
Related Investments declining during the six month period from
$65,248,000 to $13,995,000, a decrease of $51,253,000. This
reduction is primarily the result of 1) the sale, during February
and June 1994, of the ownership rights to the RYMAC IV Bond Series
3 and 4 and the RMSC Bonds, respectively, in order to take
advantage of market premiums on the underlying mortgage collateral
of each of these series (such sales reduced Mortgage Related
Investments by approximately $40,755,000), 2) substantial
prepayments on collateral underlying the Company's three remaining
Mortgage Related Investments and 3) to a much lesser extent,
regularly scheduled principal payments on the underlying mortgage
collateral. Such prepayments and scheduled principal payments
further reduced Mortgage Related Investments by approximately
$10,499,000.
These asset reductions were matched by a corresponding decrease in
the related liability accounts, Funding Notes Payable and CMOs
Payable, from $69,934,000 to $15,897,000, or a decrease of
$54,037,000, as returned principal on the underlying mortgages was
used to retire outstanding obligations secured by such mortgages or
in the case of the Company's sales of ownership rights, the
liability accounts are no longer the obligation of the Company.
Mortgage Derivative Securities decreased from $7,161,000 at
December 31, 1993 to $6,012,000 at June 30, 1994, a decrease of
$1,149,000, reflecting the amortization of premium and return of
principal basis of the assets held in this category.
Funds held by trustee increased from $1,347,000 at December 31,
1993 to $2,046,000 at June 30, 1994. This category of assets
represents the receipt of monthly mortgage payments awaiting
further payment (reduction) of Funding Notes Payable at a future
date.
Receivables on Mortgage Related Investments and Mortgage Derivative
<PAGE>
Securities declined from $5,608,000 at December 31, 1993 to
$629,000, a decrease of $4,979,000, reflective of the substantial
drop in the corresponding assets, Mortgage Related Investments and
Mortgage Derivative Securities, of $52,402,000.
Notes Payable decreased from $3,814,000 at December 31, 1993 to
$2,256,000 at June 30, 1994. At both dates, Notes Payable consists
solely of repurchase agreements outstanding. Such $1,558,000
decrease in borrowings was the result of continued severe dealer
margin calls under repurchase agreements, all of which were met
with cash payments.
The Company's Accumulated Deficit declined from $(37,855,000) at
December 31, 1993 to $(37,690,000) at June 30, 1994. Since the
Company declared no dividend distribution for 1994's first two
quarters, its total Net Income of $165,000 served to reduce its
Accumulated Deficit.
EXPENSES AND USE OF BORROWED FUNDS
Operating expenses (Interest on Notes Payable and General and
Administrative) were $544,000 for the six months ended June 30,
1994 versus $1,087,000 for the six months ended June 30, 1993, a
decline of $543,000. The components of this decrease in Operating
expenses include: 1) significantly reduced interest costs on Notes
Payable, which decreased from $242,000 in 1993's first six months
to $75,000 for 1994's first six months, as Notes Payable on the
Balance Sheet declined from $3,814,000 to $2,256,000 between
December 31, 1993 and June 30, 1994 primarily due to dealer margin
calls, and 2) a decrease of General and Administrative Expenses
from $845,000 in 1993's first six months to $469,000 in 1994's
corresponding period, a decline of $376,000 as part of an extensive
expense reduction program on the part of the Company in response to
the deterioration of its investment portfolio.
The Company has used the proceeds from repurchase agreements to
fund a portion of its portfolio of Mortgage Derivative Securities.
(See notes 3 and 7 of Notes to Consolidated Financial Statements
and "Liquidity and Capital Resources") The Company had maintained
a line of credit used to fund day-to-day operating needs and in
past periods to also temporarily fund acquisitions of new
investments pending negotiation of repurchase agreements or
awaiting return of invested principal. During 1993 the Company
reduced its line of credit availability from $5,000,000 to $250,000
(see "Liquidity and Capital Resources") due to its ability to use
available collateral more efficiently in repurchase agreement
financings. In the second half of 1993 and through the first four
months of 1994, the Company had no borrowings under its $250,000
line of credit. The line of credit expired at April 30, 1994 and
was not renewed by the Company.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company is a party to various repurchase agreements, the
proceeds of which have been used to acquire Mortgage Derivative
Securities. (See notes 3 and 7 of Notes to Consolidated Financial
Statements) At December 31, 1993 and June 30, 1994, the Company
had outstanding under repurchase agreements $3,814,000, with
maturities ranging from January 6, 1994 to April 4, 1994, and
$2,256,000 with maturities ranging from July 5, 1994 to July 18,
1994, respectively. The repurchase agreements are secured by
substantially all of the Company's Mortgage Derivative Securities.
The repurchase agreements bear interest at rates ranging from
4.375% to 5.50% at June 30, 1994 and are adjusted periodically
according to current market levels.
The Company had maintained a line of credit with a commercial bank
for $250,000 which expired on April 30, 1994 and, at the Company's
election, was not renewed. The Company's decision to allow its
line of credit to expire was based upon the sale during the first
half of 1994 of the ownership rights to three of the assets used to
collateralize the line of credit and the insignificant borrowing
value that the remaining collateral would support.
At June 30, 1994, the total amount borrowed by the Company was
$2,256,000 while at December 31, 1993 the total amount borrowed was
$3,814,000. Such borrowings represented 36% and 62%, respectively,
of stockholders' equity at June 30, 1994 and December 31, 1993.
The Company is currently subject to a limitation on the amount of
total borrowings of $25,000,000 pursuant to a policy adopted by its
Board of Directors in March 1992, although such amount is
substantially in excess of the Company's currently available credit
sources.
During the period from June 8, 1992 through June 30, 1994, the
Company was subject to various margin calls from the dealers with
whom it had repurchase agreements. These margin calls, totalling
$19,800,000, are the result of periodic dealer revaluations of the
Mortgage Derivative Securities pledged by the Company to secure
such borrowings. The extraordinarily high level of mortgage
prepayments in the marketplace during this entire period and
recent instability of the mortgage markets caused dealers to
reassess the value of their collateral and call upon the Company to
reduce its borrowings outstanding. The Company has met all such
repayment requirements primarily through either the use of cash
flows from its portfolio of investments or the pledging of
unencumbered assets. Future repayment of margin calls, if any,
would be met through the use of current cash flows from the
Company's portfolio of investments. Any failure to meet any such
margin calls could result in the liquidation of the margined
collateral.
At June 30, 1994, the Company has pledged substantially all of its
<PAGE>
Mortgage Derivative Securities to secure repurchase agreement
outstandings. Since dealers have reduced the financing value of
these Mortgage Derivative Securities to minimum levels through
margin calls, the Company believes that cash flows from the
Company's current investment portfolio will be sufficient to enable
the Company to meet its current and anticipated liquidity needs.
Recently, Wall Street dealers have reduced substantially their
estimates of future prepayments on the mortgage collateral
underlying the Company's Mortgage Derivative Securities, resulting
in an increase in financing value on several of the Company's
assets. At the current time, this increased financing value
represents a source of additional liquidity to the Company.
<PAGE>
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) The following exhibits are included as part of
this Form 10-Q.
None
(b) Reports on Form 8-K
None
<PAGE>
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.
RYMAC MORTGAGE INVESTMENT CORPORATION
BY: /s/ Richard R. Conte
Richard R. Conte, Chairman of the
Board, Chief Executive Officer and
Principal Financial Officer
Dated: August 10, 1994
