<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, 1996
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.)
100 North Fourth Street, Suite 813, Steubenville, Ohio 43952
(Address of Principal Executive Offices) (Zip Code)
(Registrant's Telephone No., Including Area Code) (800) 666-6960
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 14, 1996: 5,210,600
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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, 1996 (unaudited)
and December 31, 1995 3
Consolidated Statements of Revenues and
Expenses (unaudited) for the three and
six months ended June 30, 1996 and 1995 4
Consolidated Statements of Cash Flows
(unaudited) for the three months ended
June 30, 1996 and 1995 5
Notes to Consolidated Financial Statements
(unaudited) 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 13
PART II. OTHER INFORMATION 19
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 20
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<TABLE>
<CAPTION>
Part I. Financial Information
Item 1. Financial Statements
RYMAC MORTGAGE INVESTMENT CORPORATION
CONSOLIDATED BALANCE SHEETS
(amounts in thousands except share data)
<S> <C> <C>
June 30, 1996 December 31, 1995
(Unaudited)
ASSETS
Real estate investments:
Mortgage related investments (note 4) $ - $ 9,814
Mortgage derivative securities less valuation
allowance of $39 for 1995 (notes 2 and 3) - 1,014
Mortgage-backed securities less allowance for
unrealized loss of $128 for 1996 (note 5) 3,252 3,397
----- ------
3,252 14,225
Cash 2,747 1,549
Funds held by trustee - 159
Receivables on mortgage related investments - 370
Receivables on mortgage derivative securities - 45
Other assets 131 254
----- ------
$ 6,130 $ 16,602
===== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Funding notes payable (note 5) $ - $ 10,114
Accrued interest on funding notes payable - 146
Other liabilities 117 127
------ ------
117 10,387
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, 1996,
and December 31, 1995 52 52
Additional paid-in capital 43,985 43,985
Accumulated Deficit (note 8) (37,896) (37,822)
Unrealized loss on mortgage-backed securities (128) -
------ ------
6,013 6,215
------ ------
$ 6,130 $ 16,602
====== ======
See notes to consolidated financial statements.
</TABLE>
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<TABLE>
<CAPTION>
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 30, 1996 AND 1995
(amounts in thousands except share data)
<S> <C> <C> <C> <C>
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
REVENUES
Interest:
Mortgage related investments $ 144 $ 277 $ 369 $ 561
Mortgage derivative securities 20 (639) 72 (570)
Provision for investment losses 52 3 35 -
Mortgage-backed securities 59 - 119 -
Temporary investments 28 78 51 165
Net loss on the sale of
mortgage related investments (202) - (202) -
Net gain on the sale of
mortgage derivative securities 79 - 155 -
------- ------- ------ ------
180 (281) 599 156
EXPENSES
Interest on funding notes payable 142 273 368 558
General and Administrative 138 166 305 322
------ ------ ------ ------
280 439 673 880
Net Loss (note 8) $ (100) $ (720) $ (74) $ (724)
======= ======== ========= =========
Net Loss per share $ (0.02) $ (0.14) $ (0.02) $ (0.14)
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>
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<TABLE>
<CAPTION>
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, 1996 AND 1995
(amounts in thousands except share data)
<S> <C> <C>
1996 1995
Operating Activities:
Net Loss (note 7) $ (74) $ (724)
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of premiums on
mortgage derivative securities 50 817
Interest accrued and added to funding notes
payable - 152
Decrease in interest receivable on
mortgage related investments 79 6
Decrease in interest receivable on mortgage
derivative securities 44 4
Decrease in accrued interest on funding
notes payable (146) (10)
Gains on sales of investments (155) -
Decrease in accrued expenses payable (10) (58)
Other, net 86 14
------ ------
Net cash provided by operating activities (126) 201
Investing Activities:
Principal payments on mortgage
related investments 10,105 771
Decrease/(increase) in funds held by trustee 159 (6)
Principal payments on funding notes payable (10,114) (908)
Principal payments on mortgage-backed security 17 -
Principal payments on mortgage derivative
securities 4 3
Proceeds from sales of investments 1,153 -
------ ------
Net cash used in investing activities 1,324 (140)
Financing Activities:
Dividends paid - -
------ -----
Net cash used in financing activities - -
Net increase in cash 1,198 61
Cash at beginning of period 1,549 4,917
------- --------
Cash at end of period $ 2,747 $ 4,978
======= ========
Supplemental disclosure of cash flow information:
Interest paid (net of amounts added to funding
notes payable) $ 515 $ 416
Second quarter dividends declared $ - $ -
See notes to consolidated financial statements.
</TABLE>
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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.
On May 15, 1996, the Company and Navistar International
Transportation Corp. ("Navistar") announced that they had reached
a non-binding agreement in principle dated May 13, 1996 (the
"Agreement in Principle") with respect to the purchase by the
Company (the "Acquisition") of Navistar's Columbus Plastics
Operation ("Columbus Plastics"), which manufactures large sheet
molding compound ("SMC") components and is located in Columbus,
Ohio.
The obligation of either party to proceed with the Acquisition is
subject to the negotiation and execution by the Company and
Navistar of a mutually acceptable definitive purchase agreement.
The Agreement in Principle contemplated that the parties would work
diligently to complete and sign such an agreement by May 31, 1996.
Since the parties have not reached agreement by May 31, 1996,
either is free to terminate negotiations by the terms of the
Agreement in Principle. The parties are nonetheless continuing to
negotiate the terms of a possible transaction. In the event an
agreement is executed, consummation of the transaction will be
subject to approval by the Board of Directors of each of the
Company and Navistar, approval by the Company's stockholders, and
such other terms and conditions as may be set forth in such
purchase agreement. If an agreement is successfully concluded and
all conditions set forth therein are satisfied, it is expected that
the Acquisition will be consummated in fall 1996.
_________________________________________________________________
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.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(amounts in thousands except share data)
_________________________________________________________________
Note 2 - Summary of Significant Accounting Policies (continued)
Use of Estimates
The preparation of the financial statements in conformity with
generally accepted accounting principles ("GAAP") requires
management to make estimates and assumptions that affect the
amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
Mortgage-Backed Securities
Mortgage-Backed Securities have been recorded at the lower of cost
or market and are considered held to maturity. At June 30, 1996,
the cost exceeded the market value by $128. An allowance for
unrealized losses and a separate component of stockholders' equity
has been recorded.
Investment Restrictions
In addition to qualifying as a Real Estate Investment Trust
("REIT") under the Internal Revenue Code of 1986, as amended (the
"Code"), the Company's investment activities are currently
restricted by provisions of the Investment Company Act of 1940, as
amended (the "Investment Company Act"). The Investment Company Act
specifically exempts entities primarily engaged in the business of
purchasing or otherwise acquiring mortgages and other liens and
interests in real estate from the definition of an investment
company (the "Real Estate Exception"). Under interpretations
issued by the staff of the Securities and Exchange Commission, in
order to qualify for the Real Estate Exception, the Company must
maintain at least 55% of its assets in mortgage loans or certain
other interests in real estate, and another 25% of its assets in
those or certain other types of real estate related interests.
During 1995, the Company purchased additional assets, specifically
mortgage-backed securities. As such, the Company continues to
maintain in excess of 55% of its assets in mortgage loans or
certain other interests in real estate and, therefore, can continue
to rely on the Real Estate Exception to avoid registration as an
investment company under the Investment Company Act.
If the Acquisition described in Note 1 above is consummated, the
Company will no longer be required to rely upon the Real Estate
Exception in order to avoid being subject to the provisions of the
Investment Company Act.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(amounts in thousands except share data)
_________________________________________________________________
Note 2 - Summary of Significant Accounting Policies (continued)
Federal Income Taxes
The Company has elected to be taxed as a REIT under 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.
If the Acquisition described in Note 1 above is consummated, the
Company will no longer qualify as a REIT and will be taxed as a
corporation under subchapter C of Chapter 1 of the Code.
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
Prior to June 30, 1996, the Company had investments in mortgage
derivative securities, which consisted of (i) a class or classes of
collateralized mortgage obligations ("CMOs") that either
represented 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 represented 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 represented 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
rights relating to the collateral pledged to secure its Mortgage
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(amounts in thousands except share data)
_________________________________________________________________
Note 3 - Mortgage Derivative Securities (continued)
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.
The Company sold its remaining Mortgage Derivative Securities
during the second quarter of 1996 for $785 and recorded a net gain
of $79 during the quarter.
During the first quarter, the Company sold one Mortgage Derivative
Security for $368 and recorded a net gain of $76. The proceeds
from these sales will be directed toward the new business
activities which the Company is currently investigating.
_________________________________________________________________
Note 4 - Mortgage Related Investments
Prior to June 30, 1996, the Company maintained a portfolio which
included Mortgage Related Investments, consisting of ownership
interests in certain classes of mortgage-backed securities issued
by Ryan Mortgage Acceptance Corporation IV (as described below).
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 (the
"RYMAC IV Bonds"). (See note 6) 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. The purchase agreements grant to the Company certain
additional rights 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. At December 31, 1995, the Company's
Mortgage Related Investments consisted of RYMAC IV Bonds, Series 7,
10 and 19.
During the second quarter of 1996, the Company sold its ownership
rights in the RYMAC IV Series 7, 10 and 19 Bonds for a net loss of
$202. (See note 6)
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(amounts in thousands except share data)
_________________________________________________________________
Note 5 - Mortgage-Backed Securities
Mortgage-Backed Securities have been recorded at the lower of cost
or market. The market value of the Company's Mortgage-Backed
Securities were at a discount to the carrying value at June 30,
1996. An allowance for unrealized losses was established at March
31, 1996. A separate component of stockholders' equity has been
reduced by $128, accordingly.
_________________________________________________________________
Note 6 - Funding Notes Payable
Funding Notes Payable represented limited recourse notes delivered
to RYMAC IV as partial payment for the purchase of Mortgage Related
Investments and other collateral, and had payment terms the same as
the related series of RYMAC IV Bonds. (See note 4)
Principal and interest payments on the Mortgage Related Investments
were used to make the quarterly payments on the funding notes
payable. In addition, prepayments of the underlying mortgage
related investments were passed through as prepayments of the
Funding Notes Payable so that the Funding Notes Payable could be
fully paid prior to their stated maturities.
During the second quarter of 1996, the Company sold its ownership
interest in the RYMAC IV Series 7, 10 and 19 Bonds. As a result of
the sale of these ownership interests, the related liability
account, Funding Notes Payable, was reduced to $0. (See note 4)
_________________________________________________________________
Note 7 - 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 7 - 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.
During the first and second quarter of 1996, no dividend
distributions were made. The Company's taxable losses through 1995
aggregate to approximately $36 million. Under the Code, a REIT
must generally distribute its excess inclusion income to its
stockholders even though it has other losses or deductions
exceeding such excess inclusion income. Accordingly, if the
Company were to report future excess inclusion income, it may elect
to distribute such excess inclusion income as dividends even though
it has an estimated tax loss carryforward approximating $36
million, including approximately $5 million in capital loss
carryforwards. The tax losses can be carried forward to offset
future income of the Company.
If the Acquisition described in Note 1 above is consummated, the
Company will no longer qualify as a REIT and will be taxed as a
corporation under subchapter C of Chapter 1 of the Code.
_________________________________________________________________
Note 8 - Related Party Transactions
Pursuant to the Purchase Agreements between the Company and RYMAC
IV (see note 4), $15 has been withheld from amounts released from
the lien of the RYMAC IV Indenture, retained by RYMAC IV and
deposited in escrow to be used for payment of expenses of the CMOs
secured by certain of the Mortgage Related Investments purchased by
the Company. In addition, during the quarter ended June 30, 1996,
the Company incurred $7 of CMO administration fees which were paid
to RYMAC IV under the terms of the Purchase Agreements.
_________________________________________________________________
Note 9 - Employee Benefits
The Company's Board of Directors has established a Salary
Reduction-Simplified Employee Pension Program ("SAR-SEP") for its
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(amounts in thousands except share data)
_________________________________________________________________
Note 9 - Employee Benefits (continued)
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 1996, 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.
The Unaffiliated Directors adopted an incentive stock option
program during 1994 for the Company's two Officers and Affiliated
Director. Under the Stock Option Program, options on 260,000
shares of the Company's Common Stock were awarded at market prices,
exercisable over ten year periods ending May 2005. The Company
accounts for stock option grants in accordance with APB Opinion No.
25, "Accounting for Stock Issued to Employees", and, accordingly,
recognizes no compensation expense for the stock option grants. In
addition, a salary continuance program was provided to the
Company's officers, allowing for up to one year's base salary
following the consummation of a business combination.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
RECENT DEVELOPMENTS
On May 15, 1996, RYMAC Mortgage Investment Corporation (the
"Company") and Navistar International Transportation Corp.
("Navistar"), the principal operating subsidiary of Navistar
International Corporation, announced that they had reached a non-
binding agreement in principle dated May 13, 1996 (the "Agreement
in Principle") with respect to the purchase by the Company (the
"Acquisition") of Navistar's Columbus Plastics Operation, which
manufactures large sheet molding compound components and is located
in Columbus, Ohio. A copy of the Agreement in Principle was filed
with the Securities and Exchange Commission by the Company on May
22, 1996 as an exhibit to a Current Report on Form 8-K.
The obligation of either party to proceed with the Acquisition is
subject to the execution by the Company and Navistar of a mutually
acceptable definitive purchase agreement. The Agreement in
Principle contemplated that the parties would work diligently to
complete and sign such an agreement by May 31, 1996. Since the
parties have not reached agreement by May 31, 1996, either is free
to terminate negotiations by the terms of the Agreement in
Principle. The parties are nonetheless continuing to negotiate the
terms of a possible transaction.
It is currently contemplated that the consideration for the
Acquisition would consist of newly issued common stock of the
Company and a promissory note of the Company, together with certain
contingent payments to Navistar should the Company's earnings exceed
certain pre-established levels. It is further contemplated that
Navistar would become the Company's largest stockholder and have
substantial representation on the Company's board of directors.
The Company would further expect to enter into a long-term supply
contract with Navistar to supply fiberglass reinforced plastic
parts for Navistar's truck assembly business.
In the event a definitive agreement is executed, consummation of
the transaction would be subject to approval by the Board of
Directors of each of the Company and Navistar, approval by the
Company's stockholders, and such other terms and conditions as may
be set forth in a purchase agreement. If an agreement is executed
and all conditions set forth therein are satisfied, the Company
presently anticipates that the Acquisition would be consummated in
fall 1996.
If the Company is unsuccessful in concluding the Acquisition
described above, it may elect to continue to seek a suitable
candidate with which to effect a business combination or,
alternatively to begin to develop an investment portfolio of
financial assets as a means of increasing value to stockholders.
A decision to pursue such alternative investment activity would be
subject to the Company's financial position as well as general
economic and financial market conditions prevailing at such time.
The Company and its financial advisor continue to believe that the
future potential earnings and value building aspects of utilizing
its assets in a successful business combination outweigh those of
rebuilding an investment portfolio containing lower-risk assets
than those previously composing the Company's investment portfolio.
In anticipation of an acquisition of Columbus Plastics, the Company
sold the majority of its remaining mortgage assets during the
second quarter of 1996. (See Results of Operations)
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.
Historically, some of the Company's investments constituted 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 current or prior 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 current or prior 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. For a stockholder, generally, excess inclusion
income cannot be offset by losses.
For the tax year ended December 31, 1995, the Company paid a
dividend of $0.003 per share on September 29, 1995 to stockholders
of record on September 20, 1995. This 1995 dividend was the result
of excess inclusion income and is reportable by stockholders as
taxable income for 1995. The Company paid no dividend for the
first or second quarters of 1996.
If the Acquisition described in note 1 to the Company's
Consolidated Financial Statements and "Recent Developments" is
consummated, the Company will no longer qualify as a REIT and will
be taxed as a corporation under subchapter C of Chapter 1 of the
Code. As a result, the Company will no longer be entitled to any
deduction for dividends paid to stockholders. No assurances can be
given as to the dividends, if any, that may be declared by the
Board of Directors of the Company following such Acquisition.
RESULTS OF OPERATIONS
The Company's Net Loss declined from $724,000 for the six month
period ended June 30, 1995 to a Net Loss of $74,000 for the six
month period ended June 30, 1996, a decrease of $650,000. This
decline is attributable to the Company's incurring $700,000 in
asset valuation writedowns during the 1995 period while no
writedowns were required for the first six months of 1996, offset
in part by the existence of a net loss from the sale of assets of
$47,000 in 1996's period as compared to no such loss in the 1995
period.
Without the net loss recorded from the sale of assets in 1996's
first half, the Company's loss for such period would have been
reduced to $27,000.
Statement of Revenues and Expenses
Net Income (loss), as calculated in accordance with GAAP and as
presented in the accompanying consolidated financial statements,
was $(74,000), or $(0.02) per share, for the six months ended June
30, 1996 as compared with $(724,000), or $(0.14) per share, for the
six months ended June 30, 1995, and $(100,000), or $(0.02) per
share, for the three months ended June 30, 1996 as compared to
$(720,000), or $(0.14) per share, for the three months ended June
30, 1995.
Interest revenue on Mortgage Related Investments decreased from
$561,000 for the six months ended June 30, 1995 to $369,000 for the
six months ended June 30, 1996, as a result of the reduction in
Mortgage Related Investments on the Company's Balance Sheet, which
decreased from an average outstanding of $11,912,000 during 1995's
first six months to an average outstanding of $4,907,000 during the
first six months of 1996. Interest revenue on Mortgage Derivative
Securities was $(570,000) for the six months ended June 30, 1995 as
compared to $72,000 for the six months ended June 30, 1996. This
$642,000 increase in interest revenue was the result of the
valuation writedown of assets equal to $700,000 in 1995's second
quarter as compared with no such writedown in the first half of
1996. Such writedowns are reflected as a decrease to interest
revenues on Mortgage Derivative Securities during the period
incurred.
Income from Temporary investments decreased from $165,000 for the
six months ended June 30, 1995 to $51,000 for the six months ended
June 30, 1996 due to the Company's purchase of one 7% FNMA
guaranteed 30-year single family mortgage pool of which the Company
maintains 100% ownership since 1995's fourth quarter. This
Mortgage-Backed Security carried as a separate investment category
produced $119,000 of interest revenues during the 1996 period.
In anticipation of the transaction with Navistar described in note
1 to the Company's Consolidated Financial Statements and "Recent
Developments", the Company sold during the March-June 1996 time
period all of its remaining Mortgage Related Investments and
Mortgage Derivative Securities. Nine Mortgage Derivative
Securities were sold for net cash proceeds of $1,153,000,
representing prices that exceeded the Company's carrying value by
$155,000 and was recognized as a gain during the 1996 period.
Also, the Company sold its ownership interests (including early
redemption rights) in its three remaining Mortgage Related
Investments (RYMAC IV, Series 7, 10 and 19). The sale transaction
relating to the RYMAC IV assets included the Company's transfer of
the future obligation for payment of quarterly administrative costs
to the purchaser. Such administrative costs approximated $12,500
per annum over the next five and one-half years. The sale of the
Company's ownership rights, including ongoing administrative costs,
in its Mortgage Related Investments resulted in the Company
recording a loss on such transaction of $202,000 during the 1996
period.
The Company also recognized $35,000 in revenues during the 1996
period reflecting the reversal of a provision for future losses on
Mortgage Derivative Securities that was no longer necessary given
the sale of the Company's remaining assets carried in this
category.
Interest expense on Funding Notes Payable decreased from $558,000
to $368,000 for the six months ended June 30, 1995 and 1996,
respectively, as a result of the substantial offsetting balance
sheet decline of Funding Notes Payable, which decreased from
average outstandings of $12,160,000 to $5,057,000 for the six
months ended June 30, 1995 and 1996, respectively. General and
Administrative expenses decreased slightly from $322,000 for 1995's
first six months to $305,000 in 1996's first six months as the
Company maintained a minimal staff while continuing its efforts to
identify and conclude a business combination.
Balance Sheet
The Company's assets declined by $10,472,000 during the six month
period ended June 30, 1996, dropping from $16,602,000 to a total of
$6,130,000 at June 30, 1996. This decrease is attributable to the
Company's sale of its remaining Mortgage Related Investments and
Mortgage Derivative Securities during the six month period ended
June 30, 1996 and, to a minor extent, reductions resulting from
principal payments on the mortgage collateral underlying the
Company's Mortgage Related Investments and amortization of the cost
basis in its Mortgage Derivative Securities.
Concurrently, Funds Held by Trustee and Receivables on both
Mortgage Related Investments and Mortgage Derivative Securities
decreased from $159,000 and $415,000, respectively at December 31,
1995 to $0 in both categories at June 30, 1996, as both of these
assets categories were associated with the sale of the Company's
remaining Mortgage Related and Mortgage Derivative holdings.
The sale of Mortgage Related Investments caused the related
liability account, Funding Notes Payable, to decrease from
$10,114,000 to $0, between December 31, 1995 and June 30, 1996.
The two liability accounts, Accrued Interest on Funding Notes
Payable and Other Liabilities, decreased in total by $156,000,
primarily reflecting the sale of the corresponding liability
account, Funding Notes Payable, related to the sale of Mortgage
Related Investments described above.
The Company's Accumulated Deficit increased slightly from
$(37,822,000) at December 31, 1995 to $(37,896,000) at June 30,
1996 due to the Net Loss incurred for the period of $74,000.
Additionally, the Company's net worth was negatively affected by
the GAAP requirement to carry a valuation account, Unrealized Loss
on Mortgage-Backed Securities, for the Company's Mortgage-Backed
Securities, valuing the asset at the lower of cost or market. This
Unrealized Loss of $128,000 reflects the loss that would have been
recognized if the Company had elected to sell its entire Mortgage-
Backed Securities holding at June 30, 1996.
EXPENSES AND USE OF BORROWED FUNDS
Operating expenses, "General and Administrative", were $322,000 for
the six months ended June 30, 1995 versus $305,000 for the six
months ended June 30, 1996. These low expense levels are
reflective of the Company's minimal staffing and cost reduction
efforts while continuing its efforts to conclude a business
combination.
The Company has had no borrowings since November 30, 1994.
LIQUIDITY AND CAPITAL RESOURCES
At both December 31, 1995 and June 30, 1996, the total amount
borrowed by the Company was $0. The Company is 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 amounts
that could currently be borrowed by the Company.
All of the Company's remaining Mortgage-Backed Securities are
available to secure future borrowings. The Company estimates that
either the approximate $3,000,000 in borrowing value or $3,300,000
from the current market sale value of the Company's Mortgage-Backed
Securities in conjunction with its cash reserves of approximately
$2,700,000, currently held in high quality short-term instruments,
provide the Company with sufficient liquidity with which to pursue
its proposed business activities. (See "Recent Developments")
If the Acquisition described in note 1 to the Company's
Consolidated Financial Statements and "Recent Developments" above
is consummated, additional liquidity to fund working capital
requirements of the Company will be needed. The Company intends to
seek additional working capital funding prior to the consummation
of the Acquisition in order to fund such requirements. No
assurances can be given that the Company will be successful in
obtaining such funding.
<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.
Exhibit 27.1 Financial Data Schedule
(b) Reports on Form 8-K
Form 8-K was filed during the second quarter of 1996 on
May 22, 1996, reflecting "Item 5 - Other Events" as the
Company announced an Agreement in Principle regarding
the potential acquisition of the Columbus Plastics
Operation of Navistar International Transportation Corp.
<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 14, 1996
<PAGE>
EXHIBIT INDEX
Exhibits filed with Quarterly Report on Form 10-Q for the
Quarter Ended June 30, 1996
Exhibit No. Description
27.1 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains financial information extracted from the Company's report
on Form 10-Q for the quarter ended June 30, 1996 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 2,747
<SECURITIES> 3,252
<RECEIVABLES> 0
<ALLOWANCES> 128
<INVENTORY> 0
<CURRENT-ASSETS> 5,999
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 6,130
<CURRENT-LIABILITIES> 117
<BONDS> 0
0
0
<COMMON> 52
<OTHER-SE> 5,961
<TOTAL-LIABILITY-AND-EQUITY> 6,013
<SALES> 0
<TOTAL-REVENUES> 599
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 673
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (74)
<INCOME-TAX> 0
<INCOME-CONTINUING> (74)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (74)
<EPS-PRIMARY> $(0.02)
<EPS-DILUTED> $(0.02)
</TABLE>
