UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999,
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________
Commission File Nos.: 33-73748
FUND AMERICA INVESTORS CORPORATION II
(Exact name of registrant as specified in its charter)
Delaware 84-1218906
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification number)
6400 S. Fiddler's Green Circle, Suite 1200B, Englewood, Colorado 80111
(Address of principal executive offices)
Registrant's telephone number including area code: (303) 290-6025
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 re-
quirements for the past 90 days. YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of August 13, 1999 -- 349,000 shares
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<PAGE>
FUND AMERICA INVESTORS CORPORATION II
FORM 10-Q FOR THE
SIX MONTHS ENDED JUNE 30, 1999
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements 3
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 9
Item 2. Changes in Securities 9
Item 3. Defaults upon Senior Securities 9
Item 4. Submission of Matters to a Vote
of Security Holders 9
Item 5. Other Information 9
Item 6. Exhibits and Reports 9
SIGNATURES 10
Page 2
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<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
FUND AMERICA INVESTORS CORPORATION II
BALANCE SHEETS
(Unaudited)
<CAPTION>
June 30, December 31,
1999 1998
----------- -----------
<S> <C> <C>
Assets
Cash $ 209,015 $ 226,446
Deferred offering costs 248,555 248,555
Prepaid expenses - 179
--------- ---------
Total assets $ 457,570 $ 475,180
========= =========
Liabilities - accounts payable $ - $ 215
--------- ---------
Shareholder's equity
Common stock, par value $.01 per share;
10,000 shares authorized;349,000
shares issued and outstanding 3,490 3,490
Retained earnings 454,080 471,475
--------- ---------
Total shareholder's equity 457,570 474,965
--------- ---------
Total liabilities and share-
holder's equity $ 457,570 $ 475,180
========= =========
<FN>
See notes to financial statements
Page 3
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<TABLE>
FUND AMERICA INVESTORS CORPORATION II
Statements of Operations
(Unaudited)
<CAPTION>
Three months ended Six months ended
June 30, June 30,
---------------------- --------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue
Issuance fee income $ - $360,418 $ - $360,418
Interest income 2,158 1,924 4,317 3,092
-------- -------- -------- --------
Total revenue 2,158 362,342 4,317 363,510
-------- -------- -------- --------
Expenses
Deferred offering costs - 135,418 - 135,418
General and administrative 1,505 690 9,712 9,258
Management fees 6,000 6,000 12,000 12,000
-------- -------- -------- --------
Total expenses 7,505 142,108 21,712 156,676
-------- -------- -------- --------
Net income/(loss) $ (5,347) $220,234 $(17,395) $206,834
======== ======== ======== ========
<FN>
See notes to financial statements
Page 4
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<TABLE>
FUND AMERICA INVESTORS CORPORATION II
Statements of Cash Flows
(Unaudited)
<CAPTION>
Six months ended
June 30,
------------------------
1999 1998
---------- ----------
<S> <C> <C>
Net cash flow used in operating activities:
Net income/(loss) $ (17,395) $ 206,834
Adjustments to reconcile net loss to net
cash flow from operating activities:
Amortization deferred offering costs - 135,418
Changes in operating assets and liabilities:
Accounts payable (215) (8,630)
Prepaid expenses 179 172
--------- ---------
Net cash flow provided by/(used in)
operating activities (17,431) 333,794
--------- ---------
Net increase/(decrease) in cash (17,431) 333,794
Cash at beginning of period 226,446 110,311
--------- ---------
Cash at end of period $ 209,015 $ 444,105
========= =========
<FN>
See notes to financial statements
Page 5
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FUND AMERICA INVESTORS CORPORATION II
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Six months ended June 30, 1999 and 1998
1. Basis of Presentation
Organization
- ------------
Fund America Investors Corporation II (the "Company") was incorporated in
the State of Delaware on December 14, 1992 as a limited purpose finance
corporation. The Company was established to engage in the issuance and
administration of Collateralized Mortgage Obligations (the "Bonds") and
Asset-Backed Certificates (the "Certificates", and together with the Bonds,
the "Securities"). The Securities are issued in one or more series, from
time to time, by the Company in accordance with the provisions in the pros-
pectus and series-related prospectus supplement of the Company's latest
effective registration statement.
The Securities of each series can be issued directly by the Company, but
typically the Company forms a separate trust to act as the issuer solely for the
purpose of issuing a series of Securities. A series of Securities that consist
of Bonds will be issued pursuant to an indenture and will represent indebtedness
of the trust or issuer. A series of Securities that consist of Certificates
will represent beneficial ownership in the related trust or issuer. The sole
source of payments to Bondholders or Certificateholders within each series of
Securities is produced from the related trust property. The trust property
is generally comprised of mortgage loans and/or mortgage-related assets as
described in each of the series' related prospectus supplements.
The Company may not, either directly or indirectly through a beneficially owned
trust, engage in any business or investment activity other than to; (1)issue and
sell Securities; (2) purchase, own, hold, pledge or sell mortgage loans or other
mortgage-related assets; (3) invest and maintain cash balances on an interim
basis in high quality short-term securities; and (4) engage in other activities
which are necessary or convenient to accomplish the foregoing and are
incidental thereto.
On April 1, 1999, the Company had a total of $564 million registered and
unissued Securities on its Registration Statement No. 333-33823. During the
second quarter ended June 30, 1999, the Company did not issue any additional
Securities. The balance of unissued Securities on Registration Statement No.
333-33823 remains at $564 million for the second quarter ended June 30, 1999.
To date, the Company has issued eighteen series of Securities which aggregate
$2.4 billion in original issued principal. The Company does not have any further
obligations in connection with the issuance of these Securities. Under generally
accepted accounting principles, such issuances are considered to be a direct
sale of the collateral.
On September 30, 1998, the Company filed its fifth Registration Statement on
Form S-3 with the Securities and Exchange Commission. The purpose of this
Registration Statement is to register an additional amount of Securities and to
merge the Company's Effective Registration Statement No. 333-33823, thereby
increasing the total amount of Securities that can be issued by the Company. As
of June 30, 1999, this Registration Statement was not effective and was subject
to completion or amendment. The Company intends to file one or more further
amendments to complete this Registration Statement and to bring it effective.
2. Unaudited Financial Statements
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim reporting
periods and in accordance with the instructions to Form 10-Q. In complying to
the guidelines, the accompanying financial statements do not include all of the
information and footnotes that are required for a complete annual reporting
period.
In the opinion of management, the accompanying unaudited financial statements
contain all adjustments necessary to present fairly the financial position of
the Company at June 30, 1999, and the results of its operations and cash flows
for the periods ended June 30, 1999 and 1998.
Page 6
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The Year 2000 Issue
- -------------------
With the year 2000 approaching, potential computer failures and errors may
occur due to problems with the computerized recognition of date codes. The
Year 2000 ("Y2K") issue addresses potential problems that may be encountered
with date-related transactions on systems that have historically recognized
years using two digits versus four digits. For example, these systems may
recognize "00" as the year 1900 instead of 2000. This could potentially
affect computerized operations that rely on date calculations or are date
sensitive.
All operations of the Company are essentially driven by the issuance of
securities. In order to assess and determine potential Y2K issues within the
operations, the Company has separated operations into three sections, the
registration of securities, the issuance of securities, and the administrational
operations.
The preparation, filing, and follow-up of the registration and issuance
processes are typically out-sourced to third-party service providers that
specialize in these services. The Company has requested confirmation from
its third-party service providers that their systems are Y2K compliant. The
Company has received assurance of Y2K compliance for some of its third-party
service providers.
The Company in conjunction with its facilities provider, The Chotin Group
Corporation (TCG), a related party, has assessed the third area of the
Company's operations, administration systems. TCG provides the Company
with office facilities and administrative functions. TCG is in the first
part of its final phase of its Y2K compliance plan. TCG is currently replacing
and upgrading its hardware systems that were identified in the assessment phase.
Hardware replacement is 90% complete and once completed, replacement of identi-
fied software systems will begin, followed by system testing. TCG believes
that its Y2K efforts are on track to ensure compliance with the upcoming
deadline. The Company will closely monitor TCG's progress.
Due to the fact that all operational systems are hired out, the Company does not
expect to incur any direct costs for Y2K remediation that would materially af-
fect its financial condition. The risk, however, to the Company could potenti-
ally be a delay in its operations of registering securities and issuing securi-
ties. Delays may be caused by the Company's reliance on third- party service
providers who handle out-sourced operations and who are not Y2K compliant. To
address this issue, the Company will consider out-sourcing operations to other
third-party service provider who confirm their compliance.
If the necessary updates and upgrades of TCG's systems are not made on a
timely basis, or if third- party service providers are not Y2K ready, Y2K
problems could have a material adverse effect on the Company's operations.
Without a reasonably complete upgrade and testing of systems that may be
vulnerable to problems, the Company does not have reasonable basis to
conclude that the Year 2000 compliance issue will not likely have an operational
impact on the Company. In addition, without a reasonable conclusive basis,
reported financial information will not necessarily be a indication of future
operating results or future financial condition.
Liquidity and Capital Resources
- -------------------------------
The Company expects to fund ongoing operations from working capital and
revenues derived from the issuance of Securities. Management believes that the
Company's current cash position will adequately fund overhead and capital costs
related to the registration of additional securities for the remainder of 1999.
Results of Operations
- ---------------------
The Company operates on a relatively fixed general and administrative costs
which have not substantially deviated from comparable periods in prior years.
The periodical fluctuations in net income are directly related to activity from
the issuance of Securities. Periods reporting net income are the result of
issuance fees earned by the Company, and in periods reporting a net loss,
Page 7
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typically, no issuance fees were earned. For the three months ended June 30,
1998, the Company earned net issuance fees of $225,000 which resulted in net
income for the period of $220,234. For the three months ended June 30, 1999,
the Company did not earn any issuance fees and reported a net loss of $5,347.
The six month period ended June 30, 1999 as compared to the six months ended
June 30, 1998 had similar results. The Company earned $225,000 in issuance
fees for 1998 and reported a net income of $206,834. For the comparable six
month period in 1999, no issuance fees were earned, and the Company reported
a net loss of $17,395.
Page 8
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit 27. Financial Data Schedule
b. Form 8-K - None
Page 9
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FUND AMERICA INVESTORS CORPORATION II
-------------------------------------
(Registrant)
Date: August 13, 1999 By: /s/Helen M. Dickens
-------------------- -------------------------------------
Helen M. Dickens
Vice President, Secretary/Treasurer
(Duly authorized and
Principal Financial Officer
Page 10
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<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> $209,015
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 209,015
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 457,570
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 3,490
<OTHER-SE> 454,080
<TOTAL-LIABILITY-AND-EQUITY> 457,570
<SALES> 0
<TOTAL-REVENUES> 4,317
<CGS> 0
<TOTAL-COSTS> 21,712
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (17,395)
<INCOME-TAX> 0
<INCOME-CONTINUING> (17,395)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (17,395)
<EPS-BASIC> 0<F1>
<EPS-DILUTED> 0<F1>
<FN>
<F1>Not presented, as all shares of common stock are held
by a sole shareholder.
</FN>
</TABLE>
