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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10K-SB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED COMMISSION FILE NUMBER
DECEMBER 31, 1996 33-42406-A
FEDERAL MORTGAGE INVESTORS, LTD.
(A FLORIDA LIMITED PARTNERSHIP)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
FLORIDA 65-0287111
- ------------------------------ ---------------------
STATE OR OTHER JURISDICTION OF I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION IDENTIFICATION NUMBER
1800 SECOND STREET, SUITE 780, SARASOTA, FLORIDA 34236
------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, ZIP CODE)
Registrant's telephone number, including area code: 813/954-2328
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X NO .
--- ---
Federal Mortgage Investors, Ltd. had total revenues of $81,544 for the
year ended December 31, 1996
As of December 31, 1996, the Partnership has 1,728 Limited Partnership
Units outstanding. As indicated, the Partnership is a limited partnership
organized pursuant to Florida law.
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PART I
Item 1. Description of Business
FEDERAL MORTGAGE INVESTORS, LTD. (the "Partnership") is a limited
partnership which has been organized pursuant to the Florida Revised
Uniform Limited Partnership Law. The initial certificate legally creating the
Partnership was filed in July, 1991 by the General Partners of the Partnership,
Guy S. Della Penna ("Della Penna") and Capital Mortgage Management, Inc.
("Capital Mortgage"), a corporation wholly-owned by Della Penna. Pursuant to an
effective Registration Statement under the Securities Act of 1933, as amended
(the "Act") (Commission File No. 22-42406-A), dated November 20, 1991, the
Partnership engaged in the public offering of 7,500 Units of limited
partnership interest at a per Unit offering price of $1,000 (the "Units") until
January 31, 1993, at which time the offering was concluded. The Units were
offered on behalf of the Partnership on a best efforts basis by Executive
Wealth Management Services, Inc. (formally known as Executive Securities,
Inc.), a securities broker-dealer and member of the National Association of
Securities Dealers, Inc. Della Penna is the majority shareholder of Executive
Wealth Management Services, Inc. The Partnership has a total of 1,728 Units
outstanding as of December 31, 1996. During the offering period a total of
2,569 Units were sold, however, due to approved investor redemptions, 903 Units
were bought back and 62 were resold by the Partnership as of December 31, 1996.
The purpose of the Partnership is to acquire and deal in mortgage
loans secured by first liens on residential real estate, and to acquire
Federally-insured instruments of deposit and/or debt securities issued by the
United States government and instrumentalities thereof. Purchases of the
mortgage loans, instruments of deposit and debt securities are made in
accordance with policies set forth in the Partnership Agreement (the
"Agreement"), as amended. Cash from the Partnership activities available for
distribution, if any, is distributed to the limited partners of the Partnership
in accordance with the allocation provision set forth in the Partnership
Agreement.
The profits and losses of the Partnership are allocated in the same
manner and percentages as cash flow.
In accordance with the policy of acquisition (the "Acquisition
Policy") set forth in the Agreement, the Partnership purchases mortgage loans
which are secured by a first priority lien on residential real estate and in
certain instances, unimproved real estate, in accordance with the Acquisition
Policy. The mortgage loans have varying maturity dates from 10 to 30 years.
In order for a mortgage loan to be considered for acquisition by the
Partnership for its Portfolio, such mortgage loan must have a principal balance
which is not in excess of 90% of the fair market value of the underlying
collateral real estate securing the mortgage loan. Such fair market value must
be substantiated at a time contemporaneous to the intended acquisition of the
mortgage loan by a professional, independent appraisal. Alternative to such
loan to value ratio, a mortgage
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loan may be acquired for the Partnership's Portfolio at an acquisition cost
which does not exceed 75% of the fair market value of the underlying collateral
property, which fair market value shall also be determined as a result of such
appraisal.
The Partnership may on a case by case basis acquire real estate
mortgage loans which are secured by first liens on unimproved real estate
provided that the unpaid principal of any such mortgage loan acquired does not
exceed 50% of the fair market value of such unimproved real estate determined
contemporaneous to the acquisition of such loan by the Partnership as a result
of professional, independent appraisal. It is also subject to the condition
that at no time during the term of existence of the Partnership shall the
aggregate principal balance of Portfolio mortgages secured by unimproved real
estate exceed 10% of the aggregate principal balance of all mortgage loans held
in the Partnership's Portfolio. At December 31, 1996, the Partnership's
portfolio of mortgage loans did not include any mortgage loans secured by
unimproved real estate.
The Acquisition Policy to be followed by the Partnership allows for
the Partnership to utilize an amount not in excess of 10% of its available
capital for the acquisition of Federal Instruments. Federal Instruments are
defined in the Agreement as insured deposit and certificate accounts issued by
financial institutions such as banks, savings banks and savings and loan
associations whose accounts are insured by the Federal Deposit Insurance
Corporation (the FDIC) or debt instruments issued by the United States
government or instrumentality's thereof. The purpose of acquiring Federal
Instruments will be to assure to the extent of proceeds available to invest in
Federal Instruments, the integrity of the invested principal of the
Partnership. At December 31, 1996, the Partnership did not have any investments
in Federal instruments other than bank cash deposits which were insured up to
$100,000 by the FDIC.
The Partnership acquires its residential mortgage loans from
insurance, financial or deposit institutions, from the sellers of the
collateral real property securing the mortgage loan (or agents thereof), credit
unions, the Resolution Trust Corporation, pension funds, insurance companies
and mortgage brokers and bankers.
The responsibility of servicing the residential mortgage loan
Portfolio of the Partnership is vested in the General Partners. In connection
with such Portfolio servicing, the General Partners are responsible for the
collection of all principal and interest payments due under the terms of
Portfolio loans for the institution and implementation of collection procedures
with respect to mortgage loans which are in a default status, including:
foreclosure of the collateral property and the sale thereof, the acquisition
and disposition of Portfolio mortgage loans and, when appropriate, the
elimination of origination deficiencies in non standard loan documentation
which otherwise, involve acceptable credit and payment histories.
The Partnership engages in the business of acquiring and selling
mortgage loan portfolios. It is the General Partners' intent to turn the entire
portfolio over of a minimum of once a year.
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The Partnership encounters competition in its efforts to acquire
acceptable mortgage loans for its Portfolio. Numerous investment entities
presently exist which are in the continuous business of acquiring residential
real estate loans from the sources intended to be utilized by the Partnership.
The basis of this competition in Portfolio loan acquisition is related to the
ability of the Partnership to thoroughly identify sources of loan purchases,
the ability of the Partnership to rapidly and effectively evaluate mortgage
loan acquisition candidates and the price that the Partnership is able and
willing to pay for acceptable residential mortgage loans within its Portfolio
Acquisition Policy.
Item 2. Properties
At December 31, 1996, a significant amount of the assets of the
Partnership were constituted by first lien residential mortgage loans in the
amount of $446,387. The mortgaged properties included in the loan portfolio at
December 31, 1996, are located in Florida, Massachusetts, Kansas, Texas and
Missouri. (See Item 1 for discussion of mortgage activity, including servicing
and portfolio turnover.)
The Partnership leases office space from an affiliate company,
Executive Wealth Management Services, Inc. (EWMS) for $954 a month. EWMS's
lease on the office space expires in October 1997.
Item 3. Legal Proceedings
The Partnership entered into a lawsuit in July 1995, regarding the
purchase of nineteen first lien residential mortgage notes with an unpaid
principal balance of approximately $1,529,000. The Partnership purchased these
mortgage notes for approximately $1,193,000 in July 1993. The Partnership
alleges that the individuals (one a former officer of the Corporate General
Partner) entered into a conspiracy to obtain mortgages for the Partnership
which were worth considerably less than described. On October 7, 1996, the
Partnership entered into a Mediation Settlement Agreement with the defendants.
This settlement calls for the defendants to purchase mortgage notes from the
Partnership with an average "spread" between the Partnership's cost and selling
price of 400 basis points (4%). The Settlement Agreement provides for the
Partnership to earn from this "spread" on mortgages sold to defendants a sum of
$977,000. Other general provisions of the settlement include, but are not
limited to the following:
1. The Partnership must provide the mortgage notes to the defendants
in minimum blocks of $250,000 of outstanding principal balance.
2. Each mortgage shall be a fixed rate mortgage with a minimum ten
(10%) interest rate and a miximum 360 month amortization.
3. Each mortgage must have a minimum of five percent (5%) verifiable
cash down payment and a loan-to-value ratio no greater than 95% of the fair
market value, measured in accordance with an appraisal by a national appraisal
firm using FNMA Standard No. 704 or better,
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conducted within one (1) year of the purchase.
4. The property which is security for the mortgage must be located
within the Continental United States unless otherwise agreed by defendants.
5. Each mortgage must be on a Standard FMNA Form and all supporting
documents.
6. The borrowers under each mortgage must meet acceptable credit
standards.
As a result of this settlement, the Partnership will no longer have to
inventory, service and/or establish a payment history on the mortgage loan
included in its portfolio. This will result in increased turnover in the
Portfolio of mortgage loans thus resulting in increased profitability.
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable.
PART II
Item 5. Market for Partnership's Units and Related Partner Matters
As a limited partnership formed pursuant to the Florida Revised
Uniform Limited Partnership Law, the Partnership has no authorized class of
Common Stock or other equity securities. The Partnership had 1,728
non-assessable Units of limited partnership interest outstanding at December
31, 1996.
In accordance with the terms of the Agreement, such Units may only be
transferred upon consent of the General Partners of the Partnership. As of
December 31, 1996, there has not been, nor is it expected that any active
secondary market will develop with respect to such Units.
Since no active trading market for the Units is expected to develop,
Limited Partners desiring to sell their Units may be required to individually
negotiate sale/purchase transactions with suitable Unit purchasers in
accordance with the Agreement requirements relating to the written consent of
the General Partners.
For the year ended December 31, 1996, the Partnership, at the
discretion of the General Partner, liquidated a total of 379 Units, as a result
of investor requests.
The Partnership acts as its own transfer agent and registrar with
respect to its Units.
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK]
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Item 6. Selected Financial Data
The Partnership experienced net income (loss) of $(123,065), and
$68,429 for the years ended December 31, 1996, and 1995, respectively.
Scheduled principal and interest payments on Portfolio loans at
December 31, 1996, represent an annualized return of approximately 13.6% on the
basis of the Partnership costs in acquiring such Portfolio loans and an
annualized return of 10.6% on the basis of the unpaid principal balance of the
Portfolio loans at December 31, 1996.
During the year ended December 31, 1996, the Partnership had operating
revenues of $81,544, a decrease of $135,449 as compared to the same period in
1995. The following is a table reflecting the increases and decreases in
operating income and expenses for the years ended December 31, 1996 and 1995.
<TABLE>
<CAPTION>
Operating revenue 1996 1995 Increase/(decrease)
- ----------------- --------- -------- ------------------
<S> <C> <C> <C>
Interest income $ 72,845 $120,982 $ (48,137)
Gain (loss) on sale of residential
mortgage loans and other
real estate owned (16,171) 80,998 (97,169)
All other operating revenues 24,870 14,928 9,942
--------- -------- ---------
Total revenue $ 81,544 $216,908 $(135,364)
========= ======== =========
Operating expenses
- ------------------
Legal and accounting 34,175 18,412 15,763
Management fees 26,077 48,394 (22,317)
Salaries and wages 89,442 36,310 53,132
All other operating expenses 54,915 45,363 9,552
--------- -------- ---------
Total expenses $ 204,609 $148,479 $ 56,130
========= ======== =========
</TABLE>
Interest income decreased by 49,204 for the year ended December 31,
1996 as compared to the same period in 1995 due to the fact that the
Partnership traded the portfolio of mortgage loans more actively in 1995 than
it did in 1996.
Also contributing to the decrease in interest income was the reduction
in the amount invested in residential mortgage notes relates to the fact that
during 1995 there were approximately 370 more limited partnership units
outstanding, as compared to 1996.
The decrease in gain on sale of real estate and sale of mortgage loans
of $97,169 for the year ended December 31, 1996 as compared to the year ended
December 31, 1995 is a result of the above mentioned reduction in the amount
invested in residential mortgage notes management's decision to sell those
notes and other real estate that were under performing and/or costing too much
to carry.
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The increase in operating expenses during the year ending December 31,
1996 as compared to December 31, 1995, is primarily attributable to the
increases in legal and accounting and salaries and wages.
Legal and accounting expenses increased $15,763 and is primarily
attributable to legal expenses incurred in the lawsuit mentioned under Item 3.
Management fees decreased from $48,394 in 1995 to $26,077 in 1996. This
management fee is based upon three percent (3%) of the face value of the
mortgages at December 31, and one percent (1%) of the cash flow experienced by
the Partnership, as described in the Partnership Agreement, as amended. The
decrease in the management fee is directly attributed to the decrease in the
face value of the mortgages at December 31, 1996 as compared to December 31,
1995, which were $529,452 and $1,205,370, respectively. This management fee
will change from year to year depending upon the amount of the Partnerships
available capital invested in mortgage loans at December 31.
Salaries and wages increased $53,132 to $89,442 for the year ended
December 31, 1996 as compared to $36,310 for the same period ended 1995. This
increase is due to the additional staffing of a full time assistant servicer
and a full time mortgage note sourcer during the year ended December 31, 1996.
Salaries and wages will decrease substantially due to the fact that as of
February 28, 1997 the Partnership has only one full time employee.
Servicing fees (included in other revenue) of $10,343 and $13,258 were
charged to an affiliate issuer, Federal Mortgage Management, Inc. (FMMI) during
1996 and 1995, respectively. These fees relate to the performance of servicing
duties and responsibilities by the Partnerships portfolio servicer. The fee
paid by FMMI is paid monthly and it is calculated by multiplying .5% times the
average face value of the mortgages held by FMMI during any given month.
Management evaluated the costs of servicing individual residential
mortgage notes, the current and foreseeable market of mortgage notes as well as
the returns associated with the current portfolio and the annual return to the
limited partners. During the last six months of 1996, the Partnership has
invested approximately 15-20% of the portfolio in what is categorized as
interim financing. The past six months has given the management team the
perspective that this area of interim financing is a better way to keep the
investment dollars constantly in movement. Currently, once a portfolio is
purchased, the cost of preparing the portfolio for sale is primarily tied up in
servicing. Given the current market trends, timing, rating and pricing factors
of a portfolio can change drastically within a short time, with a cost of
several points, or loosing the sale altogether.
Although management has spent the last twenty four months developing a
list of buyers and sellers, there has not always been favorable timing in order
to achieve management's goal of turning the portfolio at least three times a
year.
Management believes that by positioning itself between a greater
number of buyers and
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sellers and not having to service the mortgage notes, the Partnership can
increase the revenue and at the same time, decrease the costs associated with
servicing. This is done through interim financing.
Management believes that the above mentioned movement to interim
financing along with the previously mentioned lawsuit settlement, that the
Partnership can become profitable by the second fiscal quarter of 1997.
Postage and shipping and telephone expenses increased $4,181 from
$3,781 for the year ended December 31, 1995 to $7,962 for the same period 1996.
This increase relates to the additional costs associated with delinquent
mortgage notes.
These increases in expenses such as postage, telephone, legal, travel
and salaries and wages resulted in managements decision to sell those mortgage
notes believed to be sub performing in nature at a loss. The goal of management
is to liquidate the portfolio which may result in a net loss in the short term;
however, by moving into higher yield, lower risk paper of first lien mortgage
notes, these costs should decrease substantially.
Item 7. Management's Discussion and Analysis of Financial Conditions and
results of Operation.
The Partnership, utilizing the Unit proceeds from the public offering,
has implemented and conducted its business operations for the purposes of which
the Partnership has been organized. The purpose for which the Partnership has
been organized is to acquire, purchase, hold and deal in mortgage loans secured
by first liens on residential real estate, as well as insured certificates and
instruments of deposit or debt securities issued by the United States
government and instrumentalities thereof in accordance with an expressed
Acquisition Policy. In summary, such Acquisition Policy requires that the
Partnership only acquire mortgage loans for its Portfolio which are secured by
a first priority lien on residential real estate. Acquired mortgage loans must
have an amortization schedule with respect to monthly payments of principal and
interest not to exceed 360 months (30 years) from the time that the mortgage
loan acquired was originated.
Scheduled principal and interest payments on Portfolio loans at
December 31, 1996, represent an annualized rate of return of 13.62% on the
basis of the Partnership costs in acquiring such Portfolio loans and an
annualized rate of return of 10.60% on the basis of the unpaid principal
balance of the Portfolio loans at December 31, 1996.
At December 31, 1996, the portfolio of the Partnership consisted of
mortgage notes with a carrying value of $1,008,329. The following table shows
the mortgage notes at face value and carrying value which takes into
consideration the discount and principal payments on the mortgages.
<TABLE>
<CAPTION>
Principal
Face Value Discount Payments Carrying Value
---------- -------- -------- --------------
<S> <C> <C> <C>
$530,532 $(70,939) $(17,795) $441,798
</TABLE>
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At December 31, 1996, the underlying real estate collateral of the
Partnership's Portfolio loans have an appraised value as of such date (or at
the time of loan acquisition by the Partnership) of approximately $634,000, or
a carrying value to appraised value ratio of 70.4 to 1. The collateral real
estate securing such loans as of December 31, 1995, was residential real
estate. The Partnership held no unimproved real estate loans as of December 31,
1996.
During the year ended December 31, 1996, the Partnership initiated a
sale of mortgage loans having a carrying value of approximately $364,713
resulting in a loss of approximately $12,500.
There are four mortgage notes with a carrying value of approximately
$139,534, with an appraisal value of approximately $242,000, that are
delinquent (in terms of scheduled principal and interest payments) as of
December 31, 1996. These notes represent 31.3% of the carrying value of
portfolio mortgage loans held by the Partnership as of December 31, 1996. The
four loans that are delinquent are comprised of two that are in bankruptcy and
two that are in workout. The two loans that are currently in bankruptcy have a
carrying value of approximately $82,093 and are making scheduled monthly
principal and interest payments with the arrearage being paid to the Company by
the courts over a three year period. The two in workout have a carrying value
of $57,441, and is making scheduled principal and interest payments plus an
additional amount to bring it current.
As noted above the Partnership has experienced delinquencies with its
current portfolio of mortgage loans. Management feels they have isolated the
cause of this increase in delinquencies and have implemented corrective
measures. Management has determined the biggest factors contributing to the
possibility of a mortgage loan becoming delinquent are the amount of down
payment and credit history of the mortgagee. In order for the Partnership to
purchase mortgage loans at the discounts they do, the mortgagee typically has a
history of credit problems and cannot place a substantial down payment on the
property. While individually the above situations would not necessarily
indicate that there is a good probability for the mortgage loan to become
delinquent, together the probability increases significantly.
The Partnership has experienced that if a mortgagee has past credit
problems, but has at least made an effort to rectify the situation, they are a
good credit risk. The Partnership has experienced problems with mortgagee's who
have had historical credit problems, but have not shown a good faith effort to
correct or rectify the situation. Therefore going forward management has
implemented a tighter credit review on the prospective mortgage loans it buys.
If a mortgagee has past credit problems and that mortgagee has not made a good
faith effort to correct or rectify the situation, the Partnership will not
purchase the mortgage loan unless there are compensating factors contributing
its purchase.
Additionally, management has also determined that the amount of down
payment plays a significant roll in whether or not a mortgage loans becomes
delinquent. In the past depending on the circumstances the Partnership would
purchase mortgage loans with as little as 3% down. However, because the
relatively small amount of money the mortgagee has at risk, he or she is more
likely to let the mortgage become delinquent. Because of the experience the
Partnership has had with these low down payment mortgage loans it is currently
only purchasing loans with at least 5%
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down, unless once again there are compensating circumstances making its
purchase feasible.
With the above new criteria in place management is confident that
delinquencies within the portfolio of mortgage loans will decrease in the
future.
For the year ended December 31, 1996, the Partnership had effected
distributions of Regular Cash Flow (as defined in the Agreement) to the Unit
purchasers in their capacity as Limited Partners of the Partnership in the
aggregate amount of $187,652. There can be no assurance that the Partnership
will continue to make such cash flow distributions in the future.
Management anticipates a significant decline in overhead expenses due
to stringent cost cutting and expense controls. In addition, a decrease in
annualized cash distributions is expected to be implemented by the General
Partners during the second quarter of 1997 to stabilize cash flow and
operations.
Item 8. Financial Statements and Supplementary Data
Included with this Annual Report on Form 10-K SB as an Exhibit are the
audited financial statements specified in Instruction (a) to the Item 7.
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
None.
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK]
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PART III
Item 10. Directors and Executive Officers of the Partnership
As a limited partnership formed pursuant to the Florida Revised
Uniform Limited Partnership Law, the Partnership does not have directors or
officers. The day-to-day business and affairs of the Partnership are managed
and carried out by the General Partners. Mr. Guy S. Della Penna serves in an
individual capacity as a General Partner of the Partnership and Capital
Mortgage, a Florida corporation, also serves as a Co-General Partner. Capital
Mortgage is wholly-owned by Mr. Della Penna. Mr. Della Penna serves as the sole
director and President of Capital Mortgage. Information concerning Mr. Della
Penna is presented below:
Mr. Della Penna, age 44, has been a resident of Sarasota, Florida
since 1980 and is the founder and President of Capital Management Group, Inc.
Capital Management Group, Inc. was organized by Mr. Della Penna in 1989. Under
the auspices of Capital Management Group, Inc., Mr. Della Penna has provided
financial and tax consulting and advisory services to individuals and corporate
entities. Capital Management Group, Inc. also acts as general agent for various
insurance companies. Mr. Della Penna is a General Securities Principal and
Financial and Operations Principal pursuant to NASD Rules. Additionally, at
December 31, 1994, Mr. Della Penna is the majority shareholder, director and
officer of Executive Wealth Management Services, Inc., the manager of the Unit
offering. Mr. Della Penna has been active in the financial industry for
approximately 15 years. During the period April 1980 to January 1986, Mr. Della
Penna served as the Assistant to the Chairman of the Board of Snelling &
Snelling, Inc., as well as Assistant Treasurer. Snelling & Snelling, Inc. is a
franchisor of an employee recruitment business. While with such firm, Mr. Della
Penna also served as a member of the Executive, Acquisition and Pension and
Profit Sharing Committees. Mr. Della Penna also served as the personal business
manager and financial advisor to the Snelling family and affiliated entities
and in such capacity, was responsible for cash management, tax and investment
analysis and commitments. The Snelling family are the principal shareholders of
Snelling & Snelling, Inc. During the period April, 1978 through February 1980,
Mr. Della Penna was an associated person of Lehman Brothers, New York, New
York, where he was involved in the structuring, documentation and marketing of
tax exempt financing issued by state and local governments. Mr. Della Penna
holds a Bachelor of Science degree in Business Administration from Ithaca
College, Ithaca, New York and received a Master of Business Administration
degree in Finance from the State University of New York, Albany, New York.
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Item 11. Executive Compensation
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
Annual Compensation Awards Payouts
--------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other Securities
Name Annual Restricted Under- All Other
Principal Compen- Stock lying LTIP Compen-
and sation Award(s) Options/ Payouts sation
Position Year Salary( $) Bonus($) ($) ($) SARs(#) ($) ($)
- -------- ---- ---------- ------- ----------------- ------- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996 26,077
1995 48,394
General Partner 1994 --- --- 61,019 --- --- --- --- --- ---
Guy S. Della Penna 1993 --- --- 88,894 --- --- --- --- --- ---
</TABLE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
As of December 31, 1996, Mr. Della Penna owns eight Units.
Item 13. Certain Relationships and Related Transactions
The General Partners of the Partnership include an individual and a
corporation owned wholly by that individual.
For their services to the Partnership, the general partners are
entitled to receive an annual management fee that is equal to three percent
(3%) of the aggregate principal balance of the portfolio investments as defined
by the Partnership Agreement at December 31, plus one% of the cash flow of the
Partnership as defined by the Partnership Agreement. In addition, the
management fee also includes one percent (1%) of the net income from capital
transactions. Management fees for the years ended December 31, 1996 and 1995
are $26,077 and $48,394 respectively.
The Partnership received $10,343 and $13,258 for the years ended
December 31, 1996 and 1995, respectively, in servicing fees from an affiliate
Company in which the individual General Partner owns 100% of the outstanding
stock. This fee relates to the servicing of mortgage loans included in the
affiliate's portfolio.
During the year ended December 31, 1996, the Partnership rented office
space from an affiliate for $11,529 compared to $12,299 for the same period
ended 1995.
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Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K
(a) The following documents are filed as a part of this Annual Report:
(1) The financial statements of the Partnership for the
fiscal year ended December 31, 1996, as examined by Bobbitt, Pittenger & Co.,
P.A., Certified Public Accountants, is included as Exhibit 1 attached to this
report.
27 Financial Data Schedule (for SEC use only).
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Partnership has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
FEDERAL MORTGAGE INVESTORS, LTD.
By CAPITAL MORTGAGE MANAGEMENT, INC.,
Co-General Partner
By /s/ Guy S. Della Penna
------------------------------------------
Guy S. Della Penna, President
By /s/ Guy S. Della Penna
------------------------------------------
Guy S. Della Penna, individually,
Co-General Partner
March 28, 1997
------------------------------------------
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FEDERAL MORTGAGE INVESTORS, LTD.
REPORT ON AUDITS OF
FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 1996 AND 1995
<PAGE> 15
BOBBITT, PITTENGER & COMPANY, P. A.
February 21, 1997
TO THE PARTNERS
Federal Mortgage Investors, Ltd.
Sarasota, Florida
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
We have audited the accompanying balance sheets of Federal Mortgage Investors,
Ltd., as of December 31, 1996 and 1995 and the related statements of
operations, changes in partners' capital and cash flows for the years then
ended. These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Federal Mortgage Investors,
Ltd. at December 31, 1996 and 1995 and the results of its operations, changes
in partners' capital and its cash flows for the years then ended, in conformity
with generally accepted accounting principles.
Certified Public Accountants
<PAGE> 16
FEDERAL MORTGAGE INVESTORS, LTD.
CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 1
FINANCIAL STATEMENTS
BALANCE SHEETS 2
STATEMENTS OF OPERATIONS 3
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL 4
STATEMENTS OF CASH FLOWS 5
NOTES TO FINANCIAL STATEMENTS 6
</TABLE>
<PAGE> 17
FEDERAL MORTGAGE INVESTORS, LTD.
BALANCE SHEETS
DECEMBER 31,
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ -- $ 139,466
Accounts receivable - related party 666 1,399
Note receivable - related party 50,000
Prepaid management fees - related party 58,019 38,770
Portfolio of residential mortgage loans 441,798 1,002,832
Other real estate owned and available for sale 301,011 164,502
---------- ----------
TOTAL CURRENT ASSETS 851,494 1,346,969
---------- ----------
OTHER ASSETS
Organization costs, net of accumulated
amortization of $4,022 178 1,229
Equipment at cost, net of
accumulated depreciation 8,956 10,285
---------- ----------
TOTAL ASSETS $ 860,628 $1,358,483
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES
Accounts payable and other liabilities $ 138,176 $ 34,188
---------- ----------
TOTAL CURRENT LIABILITIES 138,176 34,188
PARTNERS' CAPITAL 722,452 1,324,295
---------- ----------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 860,628 $1,358,483
========== ==========
</TABLE>
See notes to financial statements.
-5-
<PAGE> 18
FEDERAL MORTGAGE INVESTORS, LTD.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
REVENUE
Interest income - residential mortgage loans $ 72,845 $ 120,982
Gain (loss) on sale of residential mortgage loans
and other real estate owned (16,171) 80,998
Servicing fees 10,346 13,258
---------- ----------
67,020 215,238
---------- ----------
EXPENSES
Amortization 1,050 1,378
Commissions 5,511 4,825
Consulting 750 1,712
Depreciation 4,482 3,615
Fees and licenses 1,188 3,650
Legal and accounting 34,175 18,412
Management fees 26,077 48,394
Miscellaneous 6,822 1,996
Office 5,215 5,638
Rent 11,529 12,299
Salaries and wages 89,442 36,310
Taxes 8,128 4,157
Telephone 6,725 3,609
Travel 3,515 2,484
---------- ----------
204,609 148,479
---------- ----------
(LOSS) INCOME FROM OPERATIONS (137,589) 66,759
OTHER INCOME (EXPENSE)
Consulting fees 12,500
Other income 766 (85)
Interest income - other 1,258 1,755
---------- ----------
14,524 1,670
---------- ----------
NET (LOSS) INCOME $ (123,065) $ 68,429
========== ==========
</TABLE>
See notes to financial statements.
-6-
<PAGE> 19
FEDERAL MORTGAGE INVESTORS, LTD.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
<TABLE>
<S> <C>
BALANCE,
at January 1, 1995 $ 1,630,977
SALE OF LIMITED PARTNERSHIP UNITS 20,000
REDEMPTION OF LIMITED PARTNERSHIP UNITS (180,680)
DISTRIBUTIONS (214,431)
NET INCOME 68,429
-----------
BALANCE,
at December 31, 1995 1,324,295
REDEMPTION OF LIMITED PARTNERSHIP UNITS (291,126)
DISTRIBUTIONS (187,652)
NET LOSS (123,065)
-----------
BALANCE,
at December 31, 1996 $ 722,452
===========
</TABLE>
See notes to financial statements.
-7-
<PAGE> 20
FEDERAL MORTGAGE INVESTORS, LTD.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
NET (LOSS) INCOME $ (123,065) $ 68,429
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 5,532 4,993
(Increase) decrease in operating assets:
Accounts receivable - related party 733 74,939
Prepaid management fees (19,249) (9,214)
Portfolio of residential mortgage loans 561,034 241,242
Real estate owned and available for sale (136,509) (120,466)
Increase in operating liabilities:
Accounts payable and other liabilities 103,988 24,735
---------- ----------
Total adjustments 515,529 216,229
---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 392,464 284,658
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of furniture, fixtures and equipment (3,152)
Purchase of note receivable - related party (50,000)
---------- ----------
NET CASH USED IN INVESTING ACTIVITIES (53,152)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Sale of limited partnership units 20,000
Redemption of limited partnership units (291,126) (180,680)
Distributions to limited partners (187,652) (214,431)
---------- ----------
NET CASH USED IN FINANCING ACTIVITIES (478,778) (375,111)
---------- ----------
DECREASE IN CASH (139,466) (90,453)
CASH, at beginning of year 139,466 229,919
---------- ----------
CASH, at end of year $ -- $ 139,466
========== ==========
</TABLE>
See notes to financial statements.
-8-
<PAGE> 21
FEDERAL MORTGAGE INVESTORS, LTD.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
The purpose of Federal Mortgage Investors, Ltd. (the Partnership) is to acquire
and deal in mortgage loans secured by first liens on real estate, and to
acquire insured instruments of deposits and/or debt securities issued by the
United States Government and agencies thereof. Purchases of the mortgage loans,
instruments of deposits and debt securities are made in accordance with
policies set forth in the partnership agreement.
Profits and losses are allocated and cash distributions are made in accordance
with the partnership agreement.
Portfolio of Residential Mortgage Loans
Residential mortgage loans are recorded at lower of cost or fair market value.
During 1994, the Partnership ceased amortization of purchase discounts on
mortgage loans since it is the intent of the Partnership that the mortgage
loans will be owned for several months and then sold to investors. The
amortization of the discount would not be significant to the operating results
of the Partnership.
Organization Costs
Organization costs of $5,250 have been capitalized and are amortized on a
straight-line basis over five years. Organization costs are comprised of legal
fees associated with the organization of the Partnership. Amortization expense
was $1,050 for 1996 and 1995.
Syndication Costs
Syndication costs are comprised of selling commissions, underwriting fees,
organizational fees, legal, accounting, printing and other related fees and
expenses, and have been reported as a reduction of capital of the limited
partners.
Furniture, Fixtures and Equipment
Depreciation is provided for in amounts sufficient to allocate the cost of
assets to operations over the estimated useful lives using the straight-line
method.
Income Taxes
The financial statements include no provisions for federal or state income
taxes since the income or loss is reportable on the tax returns of the
partners.
-9-
<PAGE> 22
FEDERAL MORTGAGE INVESTORS, LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Reclassifications
Certain reclassifications have been made to the 1995 financial statements to
conform with the 1996 financial statement presentation. Such reclassifications
had no effect on net income as previously reported.
NOTE B - PORTFOLIO OF RESIDENTIAL MORTGAGE LOANS
The Partnership purchases residential mortgage loans at a discount from the
face amount of the loans with the intention of selling the loans at a gain
after servicing them for a relatively short period of time. The mortgage loans
are purchased by investors based on various factors inherent in the group of
mortgages presented for sale. The fair market value of the mortgage loans at
December 31, 1996 and 1995, at a minimum, approximates cost after assessing the
credit risks associated with the portfolio.
A summary of residential mortgage loans at December 31, is as follows:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Face value at acquisition $ 530,532 $1,205,370
Discount (70,939) (187,708)
Principal payments received (17,795) (14,830)
---------- ----------
$ 441,798 $1,002,832
========== ==========
</TABLE>
The mortgages have various maturities ranging from 10 to 30 years, and varying
interest rates ranging from 7% to 15%. The residential mortgage loans are
secured by first liens on residential real property throughout the United
States. The Partnership's policy is to acquire residential mortgage loans with
balances that either do not exceed 90% of the fair market value of the
collateral real estate or the loan acquisition price does not exceed 80% of the
fair market value of the collateral real estate at the time of the loan
acquisition. Past experience of the Partnership and its management indicates
that, in the event of default on the mortgage loan, the Partnership's exposure
to loss on the portfolio collateral is limited.
-10-
<PAGE> 23
FEDERAL MORTGAGE INVESTORS, LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE C - OTHER REAL ESTATE OWNED
Other real estate owned represents real property acquired by foreclosure or in
settlement of debt, and also includes in-substance foreclosures. In-substance
foreclosures are real estate mortgages in which the borrower has little or no
equity in the collateral and the borrower has formally or effectively abandoned
the collateral or cannot demonstrate the capacity to repay the mortgage other
than through sale of the collateral. Other real estate owned is valued at the
lower of the property's fair value or the recorded investment in the mortgage.
At the time of foreclosure, if the fair value of the real estate acquired is
less than the Partnership's recorded investment in the mortgage, a write down
is recognized through a charge to the allowance for mortgage losses. Gains or
losses on the sale of and losses on the periodic revaluation of real estate
acquired are charged or credited to noninterest expense.
At December 31, 1996 and 1995, the Partnership is holding properties for sale
with a cost basis of $301,011 and $164,502, respectively.
NOTE D - FURNITURE, FIXTURES AND EQUIPMENT
A summary of furniture, fixtures and equipment at December 31, follows:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Furniture and fixtures $ 311 $ 311
Equipment 22,733 19,580
---------- ----------
23,044 19,891
Less: accumulated depreciation (14,088) (9,606)
---------- ----------
$ 8,956 $ 10,285
========== ==========
</TABLE>
NOTE E - RELATED PARTY TRANSACTIONS
The general partners of the Partnership include an individual and a corporation
owned wholly by that individual. Also, a registered securities broker-dealer,
of which a majority is owned by the individual general partner, conducted the
offering of partnership units for sale to the general public.
For their services to the Partnership, the general partners are entitled to
receive an annual management fee that is equal to three percent (3%) of the
aggregate principal balance of the portfolio investments (as defined by the
partnership agreement) at December 31, plus one percent (1%) of the cash flow
of the Partnership (as defined by the partnership agreement). In addition, the
management fee also includes one percent (1%) of the net income from capital
transactions. Such management fees for 1996 and 1995 were $26,077 and $48,394,
respectively.
-11-
<PAGE> 24
FEDERAL MORTGAGE INVESTORS, LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE E - RELATED PARTY TRANSACTIONS (CONTINUED)
The Partnership received $10,343 and $13,263 in servicing fees for the years
ended December 31, 1996 and 1995, respectively, from an affiliate Company in
which the individual general partner owns 100% of the outstanding stock. This
fee relates to the servicing of mortgage loans included in the affiliate's
portfolio.
During the year ended December 31, 1995, the Partnership purchased mortgage
loans from an affiliate for $68,902, which represented the affiliate's cost
basis in the mortgages. During the year ended December 31, 1996, the
Partnership sold mortgage loans to the same affiliate for $137,529.
Additionally, during 1996, the Partnership collected $131,752 from the sale of
mortgages owned by the affiliate. These funds were payable to the affiliate at
December 31, 1996.
During the years ended December 31, 1996 and 1995, the Partnership rented
office space from an affiliate for $11,529 and $13,157, respectively.
As of December 31, 1996 and 1995, the Partnership had a receivable from the
general partner in the amount of $58,019 and $38,770, respectively, which
consisted primarily of prepayment of management fees.
The Partnership had a note receivable for $50,000 as of December 31, 1996 from
a Corporation whose controlling stockholder is a general partner in the
Partnership. The note pays 12% interest per annum and is due on October 31,
1997.
NOTE F - LIMITED PARTNERSHIP CAPITAL UNITS
During 1995, the Partnership sold 20 partnership units. Also during 1996 and
1995, 379 and 187 partnership units were redeemed for $291,126 and $180,680,
respectively.
As of December 31, 1996, there were 1,728 partnership units issued and
outstanding.
NOTE G - FAIR VALUE OF FINANCIAL INSTRUMENTS IN ACCORDANCE
WITH THE REQUIREMENTS OF SFAS NO. 107
The Partnership's financial instruments consist of all of its assets and
liabilities with the exception of other real estate and deferred financing
costs. The Partnership's management has determined that the fair value of all
of its financial instruments is equivalent to the carrying cost. The mortgage
portfolio is purchased with the intent of a relatively short holding period of
several months. Therefore, any differences in the value of the mortgage
portfolio due to changes in market interest rates are minimal. Furthermore,
each purchase and sale of mortgages by the Partnership is a private, negotiated
transaction. There is no readily established market for the Partnership's
mortgage portfolio.
-12-
<PAGE> 25
FEDERAL MORTGAGE INVESTORS, LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE H - CLASSIFICATION OF MORTGAGE PORTFOLIO IN ACCORDANCE
WITH THE REQUIREMENTS OF SFAS NO. 115
The Partnership's mortgage portfolio is a trading security. As such, it is
required to be carried at fair value, with any unrealized holding gains or
losses included in earnings. For the reasons discussed in Note G, the carrying
value of the mortgage portfolio has been determined by the Partnership's
management to be equivalent to its carrying cost.
NOTE I - CONCENTRATION OF CREDIT RISK
The Partnership invests in various financial institutions whose deposits are
insured by the Federal Deposit Insurance Corporation (FDIC) up to a maximum of
$100,000. At December 31, 1996 and 1995, the Partnership had deposits of
approximately $0 and $47,000, respectively, in excess of FDIC insured limits.
NOTE J - SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid in 1996 and 1995 was $0 and $85, respectively.
NOTE K - COMMITMENTS AND CONTINGENCIES
The Partnership entered into a lawsuit in July, 1995, regarding the purchase of
nineteen first lien residential mortgage notes which were worth considerably
less than represented. In 1996, the Partnership resolved the suit in an out of
court settlement and obtained a judgment totaling $977,000. Applicable attorney
fees are $150,000, of which $125,000 is unpaid at December 31, 1996. This
balance is payable as the settlement proceeds are realized. The Partnership
will be compensated by purchasing acceptable mortgages, as defined in a
mediation agreement, and selling these mortgages at a four percentage point
spread to the defendants. The parties shall each use their best efforts to
complete performance of payment within a forty-eight month period ending
October, 2000 unless extended by mutual agreement.
NOTE L - SUBSEQUENT EVENTS
Subsequent to December 31, 1996, the Partnership sold approximately $163,000 of
mortgage loans and other real estate owned and is in the process of liquidating
the remainder of these assets.
-13-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 0
<SECURITIES> 742,809
<RECEIVABLES> 108,685
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 851,494
<PP&E> 28,294
<DEPRECIATION> (19,160)
<TOTAL-ASSETS> 860,628
<CURRENT-LIABILITIES> 138,176
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 722,452
<TOTAL-LIABILITY-AND-EQUITY> 860,628
<SALES> 81,544
<TOTAL-REVENUES> 81,544
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 204,609
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (123,065)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (123,065)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
