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 SEPTEMBER 30, 2003
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.: 033-73748
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
requirements for the past 90 days. YES [X] NO
Indicate by check mark whether the registrant is an accelerated filer.
[ ] Yes [X] No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of November 14, 2003- 349,000 shares
FUND AMERICA INVESTORS CORPORATION II
FORM 10-Q FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 2003
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
Item 3. Quantitative and Qualitative
Disclosures about Market Risk 7
Item 4. Controls and Procedures 8
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
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PART I. FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements
- -----------------------------
FUND AMERICA INVESTORS CORPORATION II
Balance Sheets
(Unaudited) (Unaudited)
September 30, December 31,
2003 2002
------------- ------------
Assets
Cash and cash equivalents $ 685 $ 28,796
Deferred offering costs, net 256,361 256,361
Prepaid expenses 250 210
---------- ----------
Total assets $ 257,296 $ 285,367
========== ==========
Liabilities - accounts payable $ - $ -
---------- ----------
Commitments and Contingencies - -
Shareholder's equity
Common stock, par value $.01 per share;
1,000,000 shares authorized; 349,000
shares issued and outstanding 3,490 3,490
Additional paid-in capital 504,010 504,010
Shareholder distributions (1,918,298) (1,874,798)
Retained earnings 1,668,094 1,652,665
---------- ----------
Total shareholder's equity 257,296 285,367
---------- ----------
Total liabilities and shareholder's equity $ 257,296 $ 285,367
========== ==========
See notes to financial statements
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FUND AMERICA INVESTORS CORPORATION II
Statements of Operations
(Unaudited)
Three months ended Nine months ended
September 30, September 30,
--------------------- ----------------------
2003 2002 2003 2002
-------- -------- -------- --------
Revenue
Other bond income $ 25,000 $ - $ 25,000 $ 44,166
Interest 5 - 73 -
-------- -------- -------- --------
Total revenue 25,005 - 25,073 44,166
-------- -------- -------- --------
Expenses
Disposition fees 7,500 - 7,500 -
General and
Administrative 251 1,151 2,145 12,011
Management fees - 6,000 - 18,000
-------- -------- -------- --------
Total expenses 7,751 7,151 9,645 30,011
-------- -------- -------- --------
Net income/(loss) $ 17,254 $ (7,151) $ 15,428 $ 14,155
======== ======== ======== ========
See notes to financial statements
Page 4
FUND AMERICA INVESTORS CORPORATION II
Statements of Cash Flows
(Unaudited)
Nine months ended
September 30,
---------------------
2003 2002
-------- --------
Operating activities:
Net income/(loss) $ 15,428 $ 14,155
Adjustments to reconcile net income/(loss)
to net cash from operating activities:
Changes in operating assets and liabilities:
Accounts payable - 214
Prepaid expenses (40) (1,946)
-------- --------
Net cash provided by operating activities: 15,388 12,423
Financing activities:
Capital contributions - 16,000
Shareholder distributions (43,500) -
-------- --------
Net cash (used in)/provided by
financing activities: (43,500) 16,000
-------- --------
Net (decrease)/increase in cash
and cash equivalents (28,112) 28,423
Cash and cash equivalents at
beginning of year 28,797 5,071
-------- --------
Cash and cash equivalents at
end of period $ 685 $ 33,494
See notes to financial statements
Page 5
FUND AMERICA INVESTORS CORPORATION II
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Nine months ended September 30, 2003 and 2002
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 prospectus 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 Bonds; (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 January 1, 2002, the Company had a total of $561 million
registered and unissued Securities on its Registration Statement No.
333-33823. No Securities were issued during the nine months ended
September 30, 2003 or during the previous year ending December 31, 2002.
From inception to date, the Company has issued nineteen 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 accounting principles generally
accepted in the United States of America, these issuances are considered
to be a direct sale of the collateral.
The Company's fifth Registration Statement on Form S-3 was filed on
September 30, 1998 with the Securities and Exchange Commission. The
purpose of this filing was 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 September 30, 2003, 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
- ----------------------------------
In the opinion of management, the accompanying unaudited financial
statements contain all adjustments necessary to present fairly the
financial position of the Company at September 30, 2003 and December 31,
2002, and the results of its operations and cash flows for the periods
ended September 30, 2003 and 2002.
Page 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
- -------------------------------
The Company expects to fund ongoing operations from its cash
balances, revenues derived from the issuance of Securities, and if
necessary, from loans or capital contributions from its sole shareholder.
The current cash position will not adequately fund overhead costs over the
next twelve months without additional revenues generated during this
period. Capital funding has and will continue to be provided by the sole
shareholder to cover operating costs on a monthly basis or until the
Company generates sufficient revenue. The funding source for any
additional capital costs relating to the registration of securities will
be determined when the funding is required and will depend on the cash
position at that time.
Results of Operations
- ---------------------
The Company does not have any significant assets other than cash held
for operations and capitalized deferred offering costs. Major operating
activity is initiated from the issuance of Securities or the preparation
in registering Securities to be issued. Costs incurred with registering
Securities are capitalized until such time as the Securities are issued in
an offering.
Net income may fluctuate from period to period based on the use of
the Company's registered and unissued Securities. The Company generally
charges a flat fee on the issuance of a series of securities and a
proportionate share of deferred costs associated with its registration
statement.
For the three-months ended September 30, 2003, the Company reported
net income of $17,254 and a net loss of $7,151 for the three months ended
September 30, 2002. The difference in income for the two reporting
periods was a result of call option fees received in the amount of $25,000
when the call rights to Fund America Investors Corporation II, Series
1993-B were sold during the three months ended September 30, 2003 and no
fees were earned during the same three-month period in 2002. The
difference in expenses is because of a change in the Management Agreement
between the Company and an affiliated company as explained below.
The nine-month period ended September 30, 2003 reported a net income
of $15,428 as compared to the nine-months ended September 30, 2002, which
reported a net income of $14,155. The net income is comparable between
the two reporting periods, however, a fluctuation in components of net
income occurred. Call option income in 2003 was less than the income that
was generated in 2002 due to the relative composition of the series from
which the call right value was determined. Although income decreased from
2002 to 2003, net income remained comparable since expenses also decreased
in 2003. The primary decrease in expense was from the restructure of
management fees discussed below.
For the years ended 1993 to 2002, the Company paid facilities
management fees to The Chotin Group Corporation (the "Facilities
Manager"), a related party, under a Management Agreement dated January 1,
1993. Under this agreement, a fixed monthly fee was paid to the
Facilities Manager. The Company has adopted a new income-based fee
structure that is more appropriate to the structure and nature of its
business. Payment of fees under the January 1, 1993 Management Agreement
ceased on December 31, 2002. The management fees paid during the nine
months ended September 30, 2002 were $18,000 as compared to $0 paid for
the nine months ended September 30, 2003. In the nine months ended
September 30, 2003, under the new income-based fee structure, the Company
paid fees to The Chotin Group Corporation in the amount of $7,500 based on
income earned from the sale of the call rights to Fund America Investors
Corporation II, Series 1993-B, while no income-based fees were paid in
2002 because the new agreement was not in place.
Pursuant to Rule 3-11 of Regulation S-X, if a registrant is an
inactive entity as defined in this rule, the financial statements required
by this regulation for purposes of reports pursuant to the Securities
Exchange Act of 1934 may be unaudited. The Company meets all the
conditions as defined for an inactive entity under this rule and
accordingly had elected to file unaudited financial statements for the
year ended, December 31, 2002. Audit fees in the amount of $9,250 were
paid during the first quarter of 2002 and since no audit was performed for
the year ended December 31, 2002 no audit fees were paid in the first
quarter of 2003.
Page 7
Forward Looking Statements
- --------------------------
The statements contained in this Item 2 that are not historical
facts, including, but not limited to, statements that can be identified by
the use of forward-looking terminology such as "may," "will," "expect,"
"anticipate," "estimate" or "continue" or the negative thereof or other
variations thereon or comparable terminology, are forward-looking
statements within the meaning of the Private Securities Litigation Reform
Act of 1995, and involve a number of risks and uncertainties. The actual
results of the future events described in such forward-looking statements
could differ materially from those stated in such forward-looking
statements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Securities issued by the Company are either debt securities or
securities which evidence beneficial ownership interest in designated
trusts established to facilitate the transfer of trust asset payments to
the Bondholders who hold such debt securities or to the Certificateholders
who hold such beneficial ownership interests. Assets securing payments to
Bondholders or Certificateholders are pledged or sold to designated trusts
and are not assets of the Company. Additionally, Bonds and Certificates
issued by a trust formed by the Company do not represent an ownership
interest in or an obligation of the Company.
Disclosures required in this Item 3 are intended to clarify a
registrant's exposures to market risk associated with activities in
derivative financial instruments, other financial instruments, and
derivative commodity instruments. The purpose of this section is to
disclose the material effects on earnings, fair values, and cash flows
that are inherent to potential market risk exposure. Potential market
risk associated with Securities issued under the Company's registration
statement will not have a material effect on the Company's earnings or
cash flow since the Securities do not represent an interest in or an
obligation of the Company. In addition, the Company has no public common
equity; all common stock of the Company is held by one shareholder.
Therefore, material effects of potential market risk exposure on
Securities issued from the Company will not have any significant impact on
the Company.
Item 4. Controls and Procedures
The Company is not required to disclose the information required by
Item 307 Controls and Procedures because the Company meets the definition
of a registrant that is an Asset-Backed Issuer as defined in Section
240.15d-14(g).
Page 8
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 31.1 - Certification by the Chief Executive Officer
pursuant to Rule 13a-14(a) and 15d-14(a)
under the Exchange Act
Exhibit 31.2 - Certification by the Chief Financial Officer
pursuant to Rule 13a-14(a) and 15d-14(a)
under the Exchange Act
B. Form 8-K
None.
Page 9
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: November 14, 2003 By: /s/ Helen M. Dickens
------------------- --------------------------------
Helen M. Dickens
President
(Duly authorized and
Principal Financial Officer
Page 10