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, 2004
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
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(Exact name of registrant as specified in its charter)
Delaware 84-1218906
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(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
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(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 21, 2004- 349,000 shares.
FUND AMERICA INVESTORS CORPORATION II
FORM 10-Q FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 2004
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 6
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
PART I. FINANCIAL INFORMATION
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Item 1. Financial Statements
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FUND AMERICA INVESTORS CORPORATION II
Balance Sheets
(Unaudited) (Unaudited)
September 30, December 31,
2004 2003
------------ ------------
Assets
Cash and cash equivalents $ 1,100 $ 466
Deferred offering costs, net 246,861 256,361
Prepaid expenses - 219
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Total assets $ 247,961 $ 257,046
============ ============
Liabilities - accounts payable $ 750 $ 1,110
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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 505,010 504,010
Shareholder distributions (1,918,298) (1,918,298)
Retained earnings 1,657,009 1,666,734
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Total shareholder's equity 247,211 255,936
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Total liabilities and
shareholder's equity $ 247,961 $ 257,046
============ ============
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,
------------------------ -----------------------
2004 2003 2004 2003
-------- -------- -------- --------
Revenue
Miscellaneous $ 1,500 $ - $ 1,500 $ -
Other bond income - 25,000 - 25,000
Interest - 5 - 73
-------- -------- -------- --------
Total revenue 1,500 25,005 1,500 25,073
-------- -------- -------- --------
Expenses
Impairment - deferred
offering costs - - 9,500 -
Disposition fees - 7,500 - 7,500
General and
administrative 771 251 1,725 2,145
-------- -------- -------- --------
Total expenses 771 7,751 11,225 9,645
-------- -------- -------- --------
Net income/(loss) $ 730 $ 17,254 $ (9,725) $ 15,428
======== ======== ======== ========
See notes to financial statements
Page 4
FUND AMERICA INVESTORS CORPORATION II
Statements of Cash Flows
(Unaudited)
Nine months ended
September 30,
---------------------------
2004 2003
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Operating activities:
Net (loss)/income $ (9,725) $ 15,428
Adjustments to reconcile net (loss)/income
to net cash from operating activities:
Impairment - deferred offering costs 9,500 -
Changes in operating assets and liabilities:
Accounts payable (360) -
Prepaid expenses 219 (40)
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Net cash (used in)/provided by
operating activities: (366) 15,388
Financing activities:
Capital contributions 1,000 -
Shareholder distributions - (43,500)
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Net cash provided by/(used in)
financing activities: 1,000 (43,500)
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Net increase/(decrease) in cash and
cash equivalents 634 (28,112)
Cash and cash equivalents at beginning of year 466 28,797
---------- ----------
Cash and cash equivalents at end of period $ 1,100 $ 685
========== ==========
See notes to financial statements
Page 5
FUND AMERICA INVESTORS CORPORATION II
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Nine months ended September 30, 2004 and 2003
1. Basis of Presentation
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Organization
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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, 2004, the Company had a total of $561 million registered
and unissued Securities on its Registration Statement No. 333-33823. During
the first three quarters of 2004 and the year ending December 31, 2003, no
securities were issued. From inception to date, the Company has issued nine-
teen 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, 2004, 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 Statement
- ---------------------------------
In the opinion of management, the accompanying unaudited financial
statements contain all adjustments necessary to present fairly the finan-
cial position of the Company at September 30, 2004 and December 31, 2003,
and the results of its operations and cash flows for the periods ended
September 30, 2004 and 2003.
Page 6
Item 2. Management's Discussion and Analysis of Financial Condition and
- ------------------------------------------------------------------------
Results of Operations
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Liquidity and Capital Resources
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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 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 oper-
ating costs on a monthly basis until the Company generates sufficient revenue.
The funding source for any additional capital costs relating to the registra-
tion 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
the issuer of a series of Securities a flat fee and a proportionate share
of deferred costs associated with its registration statement.
For the three-months ended September 30, 2004, the Company reported
net profit of $730 and a net profit of $17,254 for the three months ended
September 30, 2003. The difference in the two reporting periods was a result
of a drop in expenses during the first three quarters of 2004, and the
recognition of other bond income in the third quarter of 2003.
The Company reported a net loss for the nine months ended September 30,
2004 of $9,725 as compared to a net profit for the nine months ended September
30, 2003 of $15,428. The company had limited income in the first nine months
of 2004 and 2003. The primary difference in the results of operations between
the two reporting periods is due to the write-off of deferred offering costs
related to securities backed by Title One Certificates, which the Company no
longer deals in and the recognition of other bond income in the third quarter
of 2003.
For the years ended 1993 to 2002, the Company paid facilities manage-
ment 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 reviewed the fee structure and determined that an income-based
fee is more appropriate to the structure and nature of its business. There
were no fees paid during the nine months ended September 30, 2004 or for the
nine months ended September 30, 2003.
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 years ended, December 31,2003 and
December 31, 2002. Audit fees in the amount of $9,250 were paid during the
first quarter of 2002 and since there was no audit performed for the year
ended December 31, 2002 there were no audit fees paid in the first quarter
of 2003.
Forward Looking Statements
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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.
Page 7
Item 3. Quantitative and Qualitative Disclosures about Market Risk
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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 Certificate-
holders 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 regis-
trant'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
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Pursuant to the Securities and Exchange Commission in regards to the
Sarbanes-Oxley Act Section 404, the Company is considered a "non-accelerated
filer" and does not have to comply with the management report on internal
controls until its first fiscal year ending on or after July 15, 2005.
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
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(Registrant)
Date: November 21, 2004 By: /s/ Helen M. Dickens
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Helen M. Dickens
President
(Duly authorized and
Principal Financial Officer)
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