Annual Report (Form 10-K), fiscal year 1994

Item 1. Business
(A) General Development of Business.
RYMAC Mortgage Investment Corporation (the "Company") was incorporated in the State of Maryland on July 1, 1988. Prior to 1994, the Company was primarily engaged in making investments in mortgage derivative securities and, to a lesser extent, mortgage related investments. Two wholly-owned, limited purpose finance subsidiaries of the Company, RYMAC Mortgage Investment I, Inc. ("RMI I") and RYMAC Mortgage Investment II, Inc. ("RMI II"), hold certain mortgage related investments. The Company also generates revenues from other sources, such as interest earnings on certain investments of the Company and sales of certain investments of the Company.
The Company has elected to be taxed as a real estate investment trust ("REIT") under the Internal Revenue Code of 1986, as amended (the "Code"). As long as the Company qualifies as a REIT, dividends paid to stockholders will be allowed as a deduction for purposes of determining income subject to federal corporate income tax. As a result, the Company will not be subject to such tax on that portion of its net income that is distributed to stockholders. (See "Federal Income Taxation of the Company and Stockholders")
(B) Current Business Environment.
No new investments have been added to the Company's portfolio since May 1992. During the period from the Company's inception in 1988 through early 1992, mortgage interest rate levels and prepayment speeds remained within ranges existent from 1970 to early 1992. Historically, cash received from the Company's investments represented interest and dividend earnings and the return of investment principal (basis). However, from June of 1992 to early 1994, mortgage rates declined to levels lower than those existent for the prior twenty years, resulting in extraordinarily rapid and sustained levels of residential mortgage prepayments. As a direct result, the Company's investments generated sharply reduced interest and dividend earnings and as the duration of high levels of prepayments continued, the Company's cash flows from returns of investment principal and interest and dividend earnings were also severely impaired and sufficient only to reduce the Company's borrowings (including margin calls), pay operating expenses and fund dividend distributions to stockholders during the second half of 1992, all of 1993 and 1994. As a result, the Company's investment strategy has been modified and the Company is investigating other business alternatives to the business currently conducted by the Company. Operating and capital losses incurred during 1992 through 1994 have resulted in tax losses estimated currently at $35,000,000. Such tax losses can be carried forward and utilized to offset future taxable income generated from current or contemplated activities before Company earnings are taxable or, as a REIT, result in dividend distributions. The Company is currently investigating the implementation of investment activity in tax sale certificates and is conducting discussions with a number of entities regarding business combinations. Both the new investment activity and any business combination could make effective use of the Company's tax loss position. (See "Management's Discussion and Analysis of Financial Condition and Results of Operations")
(C) Narrative Description of Business.
1. Management of Operations. The Company's investment policy is controlled by its Board of Directors (the "Board of Directors"). The By-laws of the Company provide that, except in the case of a vacancy, a majority of the members of the Board of Directors and of any committee of the Board of Directors must not be employed by, or otherwise affiliated with, the Company or its former manager.
2. Operating Policies and Strategies. Unprecedented high levels of mortgage refinancings resulting in prepayment of the Company's assets for all of 1992 and 1993 and continuing into the early part of 1994, have caused the Company to incur large operating losses. The extended duration of these prepayments has permanently reduced cash flows and earnings from these same assets and caused the Company to consider alternative investment policies and strategies, including the purchase and financing of tax sale certificates, the selective purchase of mortgage derivative securities available periodically at attractive prices and evaluation of potential business combinations. (See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Current Market and Future Prospects for the Company")
During the three year period ended December 31, 1994, the Company incurred tax losses estimated at $35 million. Of this, it is estimated that $30 million represents operating losses while $5 million represents capital losses related to sales of assets. Tax losses may be carried forward for a period of up to 15 years from the date of occurrence. The Company's tax loss positions can be utilized to offset future taxable income before the Company's earnings again become taxable, or, as a REIT, result in required dividend distributions. Should its future activities be successful, the Company would be in a position to reinvest cash flows into suitable assets.
Historically, the Company generated revenues primarily from investments in mortgage derivative securities ("Mortgage Derivative Securities"). The Company's investments in Mortgage Derivative Securities currently consist of (i) a class or classes of collateralized mortgage obligations ("CMOs") (as defined below) that either represents a regular class of bonds or a residual class of bonds or (ii) interests in a class or classes of mortgage-backed pass-through certificates that either represent a regular class of certificates or a residual class of certificates. These securities entitle the Company to receive a portion of the cash flow from the Mortgage Collateral (as defined below) underlying the CMOs or mortgage-backed pass-through certificates. For federal income tax purposes, a majority of the Company's Mortgage Derivative Securities represent interests in real estate mortgage investment conduits ("REMICs"). A CMO is a security issued in one or more classes ("CMO Classes") collateralized by a specific group of mortgage loans or mortgage certificates guaranteed by GNMA, FNMA or FHLMC (collectively, the "Mortgage Certificates" and together with the mortgage loans, the "Mortgage Collateral") and evidences the right of the investors to cash flows from the assets underlying such CMO. The Company had also generated revenues from Mortgage Related Investments (as defined below) and had purchased for its portfolio shares of common stock of companies engaged in businesses similar to the Company's.
In addition, or as an alternative, the Company, with the approval of a majority of the Unaffiliated Directors, may adopt investment strategies which, among other things, could involve the acquisition of non-real estate related assets. Such strategies, if adopted, could result in the Company being unable to qualify as a REIT under the Code. The failure to qualify as a REIT could have severe adverse tax consequences for the Company. (See "Federal Income Taxation of the Company and Stockholders") However, the adverse tax consequences may be substantially mitigated by the Company's net operating losses.
The Company may elect to purchase or otherwise reacquire, shares of its Common Stock, par value $.01 per share ("Common Stock"), if, in the opinion of the Board of Directors, such purchases can be made upon favorable terms that can be expected to result in an increase in distributions or value to the remaining stockholders without adversely affecting the ability of the Company to maintain its qualification as a REIT under the Code. The Company did not purchase any shares of Common Stock during calendar 1994 nor does it anticipate any purchase of shares during calendar 1995.
The Company previously utilized borrowings to purchase certain of the investments described above and contemplates the use of borrowings to purchase future investments. During 1994, the Company elected to allow its bank line of credit to expire and repaid in full all outstanding repurchase agreements with Wall Street dealers. Since November 30, 1994, the Company has had no outstanding borrowings. (See "Capital Resources")
3. Types of Investments. Historically, the Company's portfolio of assets has included:
(a) Mortgage Related Investments. In its first fifteen months of operations, the Company's primary source of income was its mortgage related investments, wherein the Company purchased from issuers of CMOs the right to receive the cash flow of the CMO after debt service payments on the CMO are made ("Mortgage Related Investments").
(b) Mortgage Derivative Securities. Although Mortgage Related Investments still constitute a portion of the Company's portfolio, the Company's portfolio also includes other investments, consisting of Mortgage Derivative Securities such as IOs, Inverse IOs, PAC and TAC IOs, POs, IOettes, Floating Rate and Inverse Floating Rate Bonds, Z Bonds, MBSs, and Residual Bonds, as defined below.
1) An IO is an interest only class. An IO entitles the holder to receive the interest portion of the cashflow from the underlying mortgage-backed security. These securities are bearish in nature and thus show improved performance as prepayment speeds slow and interest rates rise.
2) An Inverse IO is created by dividing a fixed rate bond class into floating and inverse floating rate components based upon a market interest rate index, such that, at any time the sum of the interest payments to the two classes is no greater than the coupon on the fixed rate bond. As the index rises, more interest is required in the floating rate component and therefore less is available to the inverse floating rate holder. In a rising interest rate environment, the lower coupon payments due the Inverse IO holder are to some degree offset by the IO structure of the security. With rising rates, slower prepayments will enable the Inverse IO holder to recognize a decreased coupon on an outstanding balance for a longer period. An Inverse IO does not guarantee the par face of the bond, unlike an Inverse Floating Rate Bond (see 7 below), and is usually sold with nominal principal face amount but at a premium.
3) A PAC (Planned Amortization Class) IO is an IO with a fixed coupon calculated on a nominal principal balance that is protected within a band of prepayment rates. This prepayment band offers more average life assurance than a pure IO strip. A TAC (Targeted Amortization Class) IO is similar to a PAC IO except that the band of prepayment rates is much narrower. This narrower band makes the average life of a TAC IO more sensitive to prepayment speeds than a PAC IO.
4) A PO is a principal only class. A PO entitles the holder to receive the principal portion of the underlying mortgage- backed security. These securities are sold at a discount to face and benefit when interest rates fall and prepayment rates rise.
5) An IOette represents an interest only strip from a portion of the interest component of an underlying mortgage backed security. This security is bearish in nature as it shows improved performance as prepayments slow (interest rates rise).
6) A Floating Rate Bond is a CMO bond on which the interest rate paid to bondholders fluctuates with changes in an interest rate index, such as the London Interbank Offered Rate ("LIBOR"), and is usually reset monthly.
7) An Inverse Floating Rate Bond contains a coupon that fluctuates inversely with changes in a floating rate index such as LIBOR. As the index decreases, the formula used to set the coupon on this bond results in an increased yield. Typically, this type of Mortgage Derivative Security is purchased at or near the face amount of the bond. Although the face amount of principal will always be returned, it may be faster than expected due to an increase in prepayment speeds usually associated with lower interest rates.
8) A Z, or accrual, bond is a bond class that does not receive payments of interest until certain other classes of bonds are retired. Until the Z bond begins receiving interest payments, the amount of interest due is accrued, or added, to the principal amount of the bond.
9) An MBS, or Mortgage Backed Security, is a security backed by an undivided interest in a pool of mortgage loans. The cash flow from the mortgage loans is used to pay principal of, and interest on, the securities. The most commonly recognized MBSs are issued through the following three governmental entities: GNMA; FNMA; and FHLMC.
10) Residual Bonds, in general, entitle the holder to receive all or a portion of the residual cash flow from an underlying CMO after payment of principal and interest on all other bond classes and other expenses related to administration of the CMO.
4. Investment Portfolio. During the year ended December 31, 1994, the Company purchased no additional investments. (See "Current Business Environment" above, and "Management's Discussion and Analysis of Financial Condition and Results of Operations")
The information presented below with respect to each of the Mortgage Derivative Securities and Mortgage Related Investments held by the Company at December 31, 1994, was provided to the Company either by the issuer of the related CMO or obtained from the Bloomberg Financial System ("Bloomberg"). The Company did not participate in the issuance of such CMOs and is relying on the respective CMO Issuers and Bloomberg regarding the accuracy of the information provided. The Company believes, however, that such information is accurate. In reading the information presented below, only information regarding CMO classes whose structure and balance affect the performance of the Company's investment in the related Mortgage Derivative Security or Mortgage Related Investment is shown. For investments where no information is shown for other CMO classes, the performance of the Company's investment relates solely to prepayment speeds on the underlying Mortgage Collateral.
5. Cash Flow from Investments. The Company's return on its investments has been substantially affected by a number of factors, including short-term interest rates to the extent that such rates affect certain of its investments, and the rates of prepayment of the underlying Mortgage Collateral. The rate at which principal payments occur on pools of single-family loans is influenced by a variety of economic, geographic, social and other factors. In general, however, mortgage loans are likely to be subject to higher prepayment rates if prevailing interest rates are significantly below the interest rates on the mortgage loans, as was the case during the time period of early 1992 to early 1994. Conversely, in the event that interest rates are near or above the interest rate on the mortgage loans, the rate of prepayment would be expected to decrease as has been the case since the second quarter of 1994. The extended duration of unprecedented high levels of prepayments during the early 1992 to early 1994 time period caused permanent impairment to the cash flow levels of a majority of the Company's assets, to such an extent that a return to slower prepayment speeds will not materially improve the cash flow performance of such assets. Other factors affecting the rate of prepayment of mortgage loans include changes in mortgagor's housing needs, job transfers, unemployment, mortgagors' net equity in the mortgaged properties, assumability of mortgage loans, servicing decisions and the cost of refinancing.
The Company's Mortgage Derivative Securities each have different characteristics; thus the cash flows from any particular mortgage derivative security will vary based upon the structure of the particular Mortgage Derivative Security (see 3(b) above), the level of interest rates on mortgage loans and mortgage prepayment levels. However, the Company's portfolio of Mortgage Derivative Securities has been materially adversely affected because of such levels.
The Company's cash flow from its Mortgage Related Investments is derived from three principal sources: (a) any positive difference between the interest rates of the Mortgage Collateral and the weighted average interest rates of the related CMO Classes; (b) any amounts available from prepayments on the Mortgage Collateral that are not necessary for debt service payments on such CMOs; and (c) any reinvestment income in excess of amounts required to ensure timely payments of principal and interest on such CMOs. The positive difference between rates on the Mortgage Collateral and the weighted average rates on the related CMO Classes was negatively affected by the rapid levels of mortgage prepayments in the 1992 to early 1994 period. Rapid prepayments result in 1) a reduction of the positive difference available to the Company and 2) a shortened duration of such positive difference. Also, lower interest rates result in reduced reinvestment rates.
Excess cash flow from a particular investment will decline over time and eventually terminate.
6. Other Potential Investments. The Company's Board of Directors adopted Investment Guidelines ("Guidelines") to provide general parameters for the Company's investments and borrowings pursuant to which the Company may make investments without case by case approval by the Board of Directors. The Guidelines list certain investments which the Company is permitted to make. Pursuant to the Guidelines, the Company may purchase Mortgage Collateral which the Company may hold or pledge to secure a CMO or to back other mortgage related securities. The Company may also acquire shares of equity securities of other CMO residual REITs. Additionally, the investment criteria set forth in the Guidelines, allow the Company, for a fee, to issue commitments to sellers of Mortgage Collateral. The Company may purchase mortgage loans (i) that are eligible for securitization and guaranty by GNMA, FNMA or FHLMC or (ii) that are not eligible for such securitization and guaranty. The Company may also purchase Mortgage Collateral that could subsequently be used to secure various CMOs issued by one or more CMO Issuers, and may participate in the issuance of CMOs by forming, acquiring or entering into arrangements with CMO Issuers. The Company has not engaged in any of such activities to date and does not expect to consider such activities. However, due to the performance of the Company's investment portfolio since 1992 and the current business environment for mortgage investments in general, the Company has made no additional investments since May 1992 and is currently required to seek specific Board of Directors approval for purchases of any new investment. The Board of Directors has authorized management 1) to make an initial investment in a portfolio of tax sale certificates, 2) to continue evaluation of the potential for financing and securitization of tax sale certificates, 3) to evaluate business combination proposals that could effectively utilize the Company's tax loss position and 4) to periodically consider the purchase of specific Mortgage Derivative Securities available at attractive prices due to supply and demand disallocations in the mortgage markets.
7. Capital Resources. Prior to April 1993, the Company maintained a line of credit with a commercial bank for $5,000,000 with an expiration of March 31, 1993. During the process of documenting the line of credit renewal, the Company determined that the collateral pledged to the bank under the line of credit had substantially greater borrowing value to the Company in other financing arrangements, particularly repurchase agreements, than the value provided under the bank line of credit. Accordingly, the Company and the bank agreed to the release of the majority of the collateral pledged thereunder and the maintenance of a reduced line of credit of $250,000 with an expiration date of April 30, 1994, at which date the Company elected to allow such line of credit to expire. At April 30, 1994 (the expiration date), no amount was outstanding and at December 31, 1993, no amount was borrowed under the line.
The Company had historically supplemented its funds available for investment through repurchase agreements. The repurchase agreements entered into by the Company involved the transfer by the Company of certain of its assets to a financial institution in exchange for cash in an amount that was less than the fair market value of such assets. At the same time, the Company agreed to repurchase such assets at a future date at a price equal to the cash paid by such financial institution plus interest thereon. The extraordinarily high level of mortgage prepayments in recent periods caused dealers to reduce substantially the financing value of investments pledged under repurchase agreements. Under such circumstances, the Company was required to reduce the amount of outstanding borrowings by cash payments under the repurchase agreement or the delivery of other unencumbered investments, thus reducing the Company's ability to purchase new investments, as was the case from June 1992 through mid 1994. (See "Management's Discussion and Analysis - Liquidity and Capital Resources")
At December 31, 1994 and March 29, 1995 the Company had no outstanding borrowings under repurchase agreements. As such all of the Company's Mortgage Derivative Securities are available to secure any future borrowings.
The Company's By-laws provide that it may not incur additional indebtedness if, after giving effect to such indebtedness, its aggregate indebtedness (other than liabilities incurred in connection with participation in the issuance of CMOs and any loans between the Company and its corporate subsidiaries), secured and unsecured, would exceed 300% of the Company's average invested assets, in each case on a consolidated basis, as calculated at the end of each calendar quarter in accordance with generally accepted accounting principles, unless such additional indebtedness is approved by a majority of the Unaffiliated Directors. The Company is currently operating under a borrowing limitation pursuant to a policy adopted by its Board of Directors that limits total borrowings to $25,000,000, an amount substantially in excess of the amount the Company would be able to borrow under the current operating condition of the Company. At December 31, 1994 and March 29, 1995, the Company had no indebtedness outstanding. The Company's contemplated future activities could include borrowings by the Company which would be secured by a pledge of newly acquired assets and/or current portfolio assets.
The Company has authorized 50,000,000 shares of Common Stock. Although the Company recognizes that its current financial condition substantially limits its ability to raise additional equity capital, the successful implementation of alternative investment strategies and/or the negotiation of a business combination could provide the investment values necessary to raise additional equity capital. The Company believes that, subject to the successful initiation of alternative investment activities and/or a business combination, raising additional equity capital is in the long-term best interests of the Company.
In addition, the Company's Articles of Incorporation permit the Board of Directors to authorize and issue from time to time additional classes of stock without the necessity of further approval by the stockholders and with such rights and preferences as the Board of Directors of the Company may designate by resolution. Depending upon the terms set by the Board of Directors, the authorization and issuance of preferred stock or other new classes of stock could adversely affect existing stockholders. The effects on stockholders could include, for example, dilution of existing stockholders, restriction on dividends on Common Stock, restrictions on dividends for other corporate purposes and preferences to holders of a new class of stock in the distribution of assets upon liquidation. Since the filing of the Articles of Incorporation, the Board of Directors has neither authorized nor issued any additional classes of stock.
8. Investment Restrictions. Restrictions on investments by the Company in certain types of assets are imposed by the provisions of the Investment Company Act of 1940, as amended (the "Investment Company Act"). During 1994, the Company believes that its investment activities did not bring it within the definition of an investment company under the Investment Company Act because it was primarily engaged in the business of purchasing or otherwise acquiring mortgages and other liens on and interests in real estate. The Investment Company Act specifically excepts entities primarily engaged in such activities from the definition of an investment company (the "Real Estate Exception"). Under interpretations issued by the staff of the Securities and Exchange Commission, in order to qualify for the Real Estate Exception, the Company must maintain at least 55% of its assets in mortgage loans or certain other interests in real estate, and another 25% of its assets in those or certain other types of real estate-related interests. The ability of the Company to acquire Mortgage Derivative Securities may be limited by the Investment Company Act depending, among other things, upon whether the Company acquires all or only a portion of the residual interest in a CMO, the nature of the collateral underlying such CMO and the composition of the balance of the Company's assets at the time of each such acquisition. Under interpretations of the staff of the Commission, investments in mortgage-backed or other mortgage related securities (including mortgage certificates) that are securities considered to be separate from the underlying mortgage loans are not considered to be investments in mortgage loans for purposes of the 55% test unless such securities represent all the certificates issued with respect to the underlying pool of mortgages. The Company's investment policies prohibit it from making any investments that would cause the Company to be an investment company within the meaning of the Investment Company Act. The Company monitors its operations in order to evaluate the qualification of the Company for the Real Estate Exception.
Uncertainties exist as to the interpretation of the exception from the definition of an investment company under the Investment Company Act for companies primarily engaged in the business of purchasing or otherwise acquiring mortgages and other liens on and interests in real estate. The Company believed that, based upon its historical method of operation, it fell within such exception. In connection with the review by the Commission of the registration statement for the Company's initial public offering, the Company had been advised, based on a preliminary review, that the staff of the Division of Investment Management of the Commission, while not taking a definitive position, was not in agreement with the Company's conclusion. If the Company were required to register as an investment company or to revise materially its contemplated method of operation to qualify for an exemption, it would be subject to additional limitations and restrictions on its activities.
Between December 31, 1991 and 1994, changes in assets held by the Company caused the composition of the Company's balance sheet to change sufficiently to cause the Real Estate Exception historically relied upon by the Company to be unavailable. Nevertheless, pursuant to Rule 3a-2 under the Investment Company Act, the Company is deemed not to be an investment company for a period not to exceed one year, provided that it has a bona fide intent to be engaged, as soon as is reasonably possible and in any event by the termination of such one-year period, in a business other than that of investing, reinvesting, owning, holding or trading in securities. Management of the Company believes that certain of the new investment activities contemplated by the Company could satisfy such requirement, and, if commenced within such one-year period, thereby result in continued exemption of the Company from the Investment Company Act. In addition, if the Company reaches a determination that such investment activities are not sufficient to cause the Company to be exempt from the Investment Company Act, the Company would seek to acquire real estate assets sufficient to enable it to again qualify for the Real Estate Exception or take such other actions to enable it to continue to be exempt from the Investment Company Act, although no assurances can be given that the Company would be able to successfully maintain any such exemption.
If the Company is unable to qualify for the Real Estate Exception or otherwise engage in a business other than that of an investment company, it will be required to register as an investment company under the Investment Company Act. The Company is unable to predict how registration under such Act would affect its current plans to pursue new investment activities or business combinations. Registration under the Investment Company Act would also require the investments held by the Company to be adjusted to market value at the balance sheet date to the extent not done so already. The other financial statement reporting and disclosure requirements of the Investment Company Act may differ in certain respects from those to which the Company is currently subject.
The Company is prohibited from purchasing real estate contracts of sale. The Company also may not invest in unimproved real property or mortgage loans on unimproved real property, nor may it underwrite securities of other issuers. The foregoing restrictions may not be changed without the approval of a majority of the Unaffiliated Directors.
The Company may purchase or otherwise reacquire shares of its Common Stock if, in the opinion of the Board of Directors, the purchases can be made upon favorable terms that can be expected to result in an increase in distributions to the remaining stockholders. However, the Company may not make such purchases if to do so would adversely affect the ability of the Company to maintain its qualification as a REIT under the Code. (See "Federal Income Taxation of the Company and Stockholders")
The operating policies and strategies of the Company are governed by the Board of Directors, which has the power to modify or alter such policies without the consent of the stockholders.
9. Management Agreement and Fees. The Company's Management Agreement with its former manager expired on March 31, 1992. The Board of Directors determined that the Company would operate on a self-managed basis and, consequently, it did not enter into a new management agreement with its former manager.
On a self-managed basis, the Company is responsible for all expenses, including resources previously provided by the former manager.
10. Dividend Reinvestment Plan. On December 13, 1988, the Company adopted an Automatic Dividend Reinvestment Plan (the "Plan"). The Plan is administered by American Stock Transfer & Trust Company. The Plan provides to the Company's security holders a method of investing cash dividends paid by the Company in new shares of the Company's common stock. The Plan also permits participants to make optional cash investments in additional shares of the Company's common stock.
11. Federal Income Taxation of the Company and Stockholders. THE PROVISIONS OF THE CODE ARE HIGHLY TECHNICAL AND COMPLEX. THIS SUMMARY IS NOT INTENDED AS A DETAILED DISCUSSION OF ALL APPLICABLE PROVISIONS OF THE CODE, THE RULES AND REGULATIONS PROMULGATED THEREUNDER, OR THE ADMINISTRATIVE AND JUDICIAL INTERPRETATIONS THEREOF. THE COMPANY HAS NOT OBTAINED A RULING FROM THE INTERNAL REVENUE SERVICE WITH RESPECT TO ANY TAX CONSIDERATIONS RELEVANT TO ITS ORGANIZATION OR OPERATION, OR TO AN INVESTMENT IN ITS SECURITIES. THIS SUMMARY IS NOT INTENDED TO SUBSTITUTE FOR PRUDENT TAX PLANNING, AND EACH STOCKHOLDER OF THE COMPANY IS URGED TO CONSULT ITS OWN TAX ADVISER WITH RESPECT TO THESE AND OTHER FEDERAL, STATE AND LOCAL TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF SHARES OF THE COMMON STOCK OF THE COMPANY AND ANY CHANGES IN APPLICABLE LAW.
General
The Company operates in a manner that permits it to qualify as a REIT under the Code. As a REIT, the Company itself generally will be subject to federal income tax only on the amount of its taxable income, subject to certain modifications ("REIT Taxable Income"), that it does not distribute in the taxable year in which it is earned. In addition, the Company will be subject to a 4% excise tax to the extent it fails to satisfy certain calendar year distribution requirements. The Company expects that, with limited exceptions, it will not be subject to federal income tax at the corporate level or to federal excise tax.
The Company would be subject to tax (including any applicable minimum tax) on its taxable income at regular corporate rates without any deduction for distributions to stockholders if it failed to qualify as a REIT in any taxable year. Unless entitled to relief under specific statutory provisions, the Company also would be disqualified from treatment as a REIT for the following four taxable years. The failure to qualify as a REIT for even one year could result in the Company incurring substantial indebtedness in order to pay any resulting taxes, thus reducing the amount of cash available for distribution to stockholders.
For purposes of the special REIT taxation rules and the REIT qualification requirements set forth below, the assets, liabilities, income and deductions of any subsidiary, all of whose stock has been owned by the Company during the subsidiary's entire existence ("Qualified REIT Subsidiary"), will be treated as assets, liabilities, income and deductions of the Company.
REIT Qualification Requirements
In order to qualify as a REIT, the Company must satisfy various requirements with respect to (i) the nature of its assets ("Asset Requirements") and income ("Income Requirements"), (ii) certain organizational matters ("Organizational Requirements") and (iii) the amount of distributions to stockholders ("Distribution Requirements").
Under the Asset Requirements, at the close of each quarter during the taxable year (a) at least 75% of the assets of the Company, by value, must consist of specified real estate assets, cash or U. S. government securities and (b) as to its other assets other than securities of a Qualified REIT Subsidiary, the Company cannot own (1) securities of any one issuer which represent more than 5% of the total value of the Company's assets or (2) more than 10% of the outstanding voting securities of any one issuer.
The Income Requirements provide that at least 75% of the Company's gross income must be derived from specified real estate related sources, including interest on mortgage obligations, income from REMIC interests, and gains from the sale of such obligations and interests not held primarily for sale to customers in the ordinary course of business ("Dealer Property"). Additionally, at least 95% of the Company's gross income must consist of income derived from items that qualify for the 75% income test plus other specified types of passive income, such as interest, dividends and gains from the sale or other disposition of stock and securities other than Dealer Property.
If the Company fails to satisfy either of the foregoing 75% and 95% Income Requirements but (a) the Company otherwise satisfies the requirements for qualification as a REIT, (b) such failure is due to reasonable cause and not willful neglect and (c) certain other requirements are met, then the Company will continue to qualify as a REIT but will be subject to a 100% tax on the greater of the amount by which it fails to satisfy either of such tests reduced by expenses incurred in earning that amount.
The Income Requirements also require that less than 30% of the Company's gross income be derived from the sale or other disposition of (a) stock or securities held for less than one year, (b) certain Dealer Property and (c) most real property (including mortgage obligations and REMIC interests) held for less than four years. In addition, the Code also generally imposes a 100% tax on gains (less associated expenses) derived from sales of Dealer Property (without an offset for any losses).
The Distribution Requirements require that the Company distribute annually at least 95% of its REIT Taxable Income (and 95% of certain other income related to foreclosure property), excluding any net capital gain, to its stockholders. For this purpose, certain dividends paid by the Company after the close of a taxable year may be considered as having been paid during such taxable year, although they would be taxed to the stockholders in the year in which they were actually paid. Such dividends will also be treated as paid during the taxable year for purposes of determining whether the Company has undistributed REIT Taxable Income subject to income tax at the corporate level for the taxable year. For purposes of the 4% excise tax (described above), however, such dividends would not be treated as having been distributed in the taxable year. In addition, dividends declared in October, November or December of a calendar year, payable to stockholders of record as of a date in such a month, and actually paid during January of the following year will be considered as paid on December 31 of such calendar year for excise tax purposes as well as for other purposes under the REIT rules. Such dividends, however, will also be treated as having been paid on that December 31 for purposes of determining a stockholder's gross income.
Due to the nature of the Company's income from its assets and its deductions in respect of its obligations, under certain circumstances, the Company may generate REIT Taxable Income in excess of its cash flow. For example, the maturity and pass- through rates of the Mortgage Collateral pledged to secure the CMO issuances in which the Company holds an investment are not likely to match the maturity and interest rates of the CMOs secured thereby. Similarly, the Company may recognize taxable market discount income with respect to its receipts from the sale, retirement or other disposition of the portion of the Mortgage Collateral that constitutes market discount bonds (i.e., obligations with a stated redemption price at maturity greater than the Company's tax basis therein), whereas these receipts frequently will be used to make nondeductible principal payments on CMOs. In addition, certain CMOs may be issued with original issue discount, the tax treatment of which may result in taxable income in excess of cash flow. Accordingly, the Company may be required to distribute a portion of its working capital to its stockholders or borrow funds to make required distributions in years in which the gross income of the Company on a tax basis (including "non-cash" income) exceeds its deductible expenses. In the event that the Company is unable to pay dividends equal to substantially all of its REIT Taxable Income, it may incur income tax or excise tax or may not be able to qualify as a REIT.
Dividends paid for a fiscal year in excess of the Company's earnings and profits, as computed for federal income tax purposes, are reported as a return of capital to the Company's stockholders. Some of the Company's investments constitute REMIC residual interests. Certain of these residual interests produce "excess inclusion" income (see "Excess Inclusion Income" below) during the fiscal year. The Code requires that excess inclusion income be included in a taxpayer's income even though the taxpayer has losses that would otherwise offset such income. As a result, the Company could have taxable income from excess inclusions in a taxable year even though it has losses from other investments that would normally be sufficient to offset the amount of such excess inclusion income. The Company is required to distribute the taxable income representing excess inclusions to meet its 95% distribution requirement and to avoid a corporate level tax on such income. When such income is distributed to a stockholder, the stockholder will have taxable income, rather than a return of capital, equal to its share of such excess inclusion income during the fiscal year. For fiscal 1993, the Company reported that all its distributions paid in 1993, even though it experienced both a net loss and a tax loss for 1993, represented excess inclusion income. For 1994, the Company made no distributions. For a stockholder, excess inclusion income cannot be offset by losses, except in the case of certain excess inclusion income for certain savings and loan associations and their "qualified" subsidiaries.
The most significant Organizational Requirement is that the stock of the Company must be widely held. This requires that the stock of the Company be held by a minimum of 100 persons for at least 335 days in each taxable year and that no more than 50% in value of the stock be owned, actually or indirectly, by five or fewer individuals at any time during the second half of each taxable year. For this purpose, some pension funds and certain other tax-exempt entities are treated as individuals. To evidence compliance with these requirements, the Company is required to maintain records that disclose the actual ownership of its outstanding shares of Common Stock. In fulfilling its obligations to maintain records, the Company must demand written statements each year from the record holders of designated percentages of its shares of Common Stock which would, among other things, disclose the actual owners of such shares.
Excess Inclusion Income
All of the cash dividends distributed to the Company's stockholders in 1993 were comprised of "excess inclusion" income. There were no distributions for 1994. Excess inclusion income is attributable to CMO issuances for which an election has been made to be treated as a REMIC for federal income tax purposes. The portion of the Company's dividends determined to be excess inclusion income is taxable to certain otherwise tax-exempt stockholders as unrelated business income. In addition, generally, excess inclusion income may not be offset by any deductions or losses, including net operating losses.
12. Restrictions on Transfer and Redemption of Shares. Two of the requirements for qualification as a REIT under the Code are that (i) during the last half of each taxable year not more than 50% of the outstanding shares may be owned directly or indirectly by five or fewer individuals and (ii) there must be at least 100 stockholders for at least 335 days in each taxable year. Those requirements apply for all taxable years after the year in which the REIT elects REIT status.
In order that the Company may meet these requirements at all times, the Company's Articles of Incorporation prohibit any person or group of persons from acquiring or holding, directly or indirectly, ownership of a number of shares of Common Stock in excess of 9.8% of the outstanding shares. Shares of Common Stock owned by a person or group of persons in excess of such amounts are referred to in the Articles of Incorporation and herein as "Excess Shares". The Articles of Incorporation also provide that in the event any person acquires Excess Shares, such Excess Shares may be redeemed by the Company, at the discretion of the Board of Directors.
Under the Company's Articles of Incorporation, any acquisition of shares of the Company that would result in the disqualification of the Company as a REIT under the Code is void to the fullest extent permitted by law, and the Board of Directors is authorized to refuse to recognize a transfer of shares to a person if, as a result of the transfer, that person would own Excess Shares.
Additional provisions regarding restrictions on transfers and redemptions of the Company's shares are set forth in the Company's Articles of Incorporation, which were filed as Exhibit 3.1 to Amendment No. 1 to the Company's Registration Statement No. 33-22891 on Form S-11.
The Articles of Incorporation also contain provisions intended to minimize the potential adverse effect on the Company of a Code provision that would impose a tax on REITs (and other pass- through entities) that hold REMIC interests if at any time during the taxable year a Disqualified Organization (as defined below) is a record holder of an interest in such entity. A "Disqualified Organization" means the United States, any state or political subdivision thereof, any foreign government, any international organization or instrumentality of the foregoing, any tax-exempt entity, other than a farmer's cooperative, not subject to the unrelated business income tax and any rural electric or telephone cooperative. If a Disqualified Organization were a stockholder of record of the Company during a year in which the Company held a REMIC interest, a tax might be imposed on the Company. The amount of tax would be equal to the product of the highest marginal corporate tax rate and the amount of REMIC excess inclusions for the taxable year allocable to the interest in the Company held by the Disqualified Organization.
Accordingly, the Articles of Incorporation provide that any acquisition of shares of the Company that could or would result in the direct or indirect imposition of a penalty tax on the Company (including the tax described above) (a "Prohibited Transfer") will be void ab initio to the fullest extent permitted by applicable law, and the intended transferee of any shares that are the subject of a Prohibited Transfer may be deemed never to have had an interest therein. If the foregoing provision is determined to be void or invalid, the transferee shall be deemed, at the option of the Company, to have acted as agent of the Company in acquiring those shares and to hold those shares on behalf of the Company. In addition, any shares of the Company that are the subject of a proposed, attempted or actual Prohibited Transfer may be redeemed by the Company at the discretion of the Board of Directors. Any such redemption will be effected as provided in the preceding paragraphs with respect to Excess Shares. Furthermore, whenever it is deemed by the Board of Directors to be prudent in order to avoid a Prohibited Transfer, the Board of Directors may require a holder or proposed transferee of shares to file a statement or affidavit with the Company, stating that the holder or proposed transferee is not a Disqualified Organization; and any contract for the sale or other transfer of shares of the Company will be subject to this provision. Moreover, the Board of Directors may, in its discretion, refuse to transfer shares on the books of the Company if (i) a statement or affidavit described in the preceding sentence has not been received or (ii) the proposed transferee is a Disqualified Organization.
13. Competition. In purchasing Mortgage Derivative Securities, Mortgage Collateral and tax sale certificates, the Company competes, or will compete, with investment banking firms, savings and loan associations, banks, mortgage bankers, insurance companies and other lenders, other REITs, GNMA, FNMA and FHLMC and other entities, many of which have greater financial resources than the Company.
As a REIT, the Company's business activities are limited by the provisions of the Code that require a REIT to meet certain tests to maintain its qualification as a REIT. Many of the Company's competitors operate through entities that may have more flexibility than the Company in conducting their business operations.
14. Employees. The Company employs two full-time employees and one part-time employee as of December 31, 1994, and utilizes the services of consultants, as necessary.
Item 2.



Item 2. Properties.
The Company does not own real estate or physical property. The executive offices of the Company are located in leased space at 100 North Fourth Street, Suite 813, P.O. Box 250, Steubenville, Ohio 43952. The lease covering such space can be terminated at any time after August 14, 1995 with notice to the lessor.
Item 3.

Item 3. Legal Proceedings.
As of December 31, 1994, there were no legal proceedings pending or threatened to which the Company or its subsidiaries were a party or to which any of their respective property was subject.
Item 4.

Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of the Company's security holders during the fourth quarter of 1994.
PART II
Item 5.

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The Company's Common Stock is traded on the American Stock Exchange under the symbol "RM".
The table below sets forth the high and low sale prices of the Company's Common Stock for each full quarterly period within the two most recent fiscal years for which such stock was traded, as reported on the American Stock Exchange Composite Tape, and certain dividend information with respect to such shares.
Per Share Dividends Paid or High Low Declared
First Quarter 1993 5 3/8 3 1/2 $ 0.00 Second Quarter 1993 3 5/8 2 5/16 0.00 Third Quarter 1993 2 3/8 1 3/8 0.00 Fourth Quarter 1993 2 1 0.04
First Quarter 1994 1 7/16 1 1/8 $ 0.00 Second Quarter 1994 1 1/8 11/16 0.00 Third Quarter 1994 1 11/16 0.00 Fourth Quarter 1994 1 1/4 11/16 0.00
In order to qualify as a REIT under the Code, the Company, among other things, must distribute as dividends to its stockholders an amount at least equal to (i) 95% of its REIT Taxable Income (determined before the deduction for dividends paid and excluding any net capital gain and any net income from the sale or other disposition of property held primarily for sale) plus (ii) 95% of the excess of its net income from foreclosure property over the tax imposed on such income by the Code less (iii) any excess noncash income (as determined under the Code). The actual amount and timing of dividend payments, however, is at the discretion of the Board of Directors and depends upon the financial condition of the Company in addition to the requirements of the Code.
The Company's Common Stock was held by 569 stockholders of record on March 29, 1995.
Item 7.


Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
INVESTMENT PHILOSOPHY AND INVESTMENT ACTIVITIES (HISTORICAL)
The Company's current portfolio of investments is sensitive to changes in interest rates and mortgage prepayments. The lowest mortgage interest rate levels in 20 years were reached in 1992 and continued to 25 year lows during the fourth quarter of 1993, resulting in unprecedented mortgage refinancings and vastly accelerated mortgage prepayments. As a result of the high level and extended duration of these prepayments, earnings and cash flows from the Company's current investments have been adversely impacted. For a large majority of the assets, earnings and cash flows have been permanently impaired and did not recover even as prepayments returned to more historical levels in the second, third and fourth quarters of 1994. This permanent impairment is the direct result of the massive level of paydowns on the mortgages collateralizing the Company's investments. Since most of the Company's assets represent the ownership of identified cash flows in diverse CMO structures, prepayments of the underlying mortgage collateral, especially of the magnitude and duration experienced from early 1992 through early 1994, will permanently reduce cash flows even when prepayment speeds slow. As an example, an "interest only" type investment in a CMO collateralized by $100 million in mortgages produces only 20% of the original expected cash flows when the underlying mortgage collateral prepays to a $20 million level.
Historically, cash received from the Company's portfolio of investments represented interest and dividend earnings and the return of investment principal (basis). Interest and dividends were used to 1) pay operating expenses and 2) make dividend distributions to stockholders. Cash flow, representing returned investment principal, was used to repay Company borrowings, including dealer margin calls on repurchase agreements, and to purchase new investments for the Company's portfolio. Since mid- year 1992, total cash flows have been utilized to reduce the Company's borrowings (including margin calls), pay operating expenses and fund minimal dividend distributions to stockholders. During the second half of 1992, all of 1993 and 1994, the Company has elected not to purchase any new assets. During the same time period, Company borrowings were reduced from approximately $22,000,000 to zero. New purchases of mortgage derivative securities are currently restricted to those specifically approved by the Company's Board of Directors.
CURRENT MARKET AND FUTURE PROSPECTS FOR THE COMPANY
As a result of the rapid decline in refinancing activity, mortgage prepayment speeds for most mortgage coupon levels have fallen substantially since the first quarter of 1994. These decreases in prepayment speeds have resulted in a stabilization of the Company's remaining cash flows and improved market values on some of its assets. However, the extended duration of historically high and unprecedented prepayments has permanently reduced the level of cash flows and earnings from the same assets; thus the Company does not expect any increase in cash flows or earnings from its current portfolio. Nevertheless, this stabilization of cash flows has increased the time available to the Company to evaluate and implement available opportunities.
During the third quarter and early fourth quarter of 1994 and as a direct result of the substantial slowdown in prepayment speeds of mortgages collateralizing the Company's investments, the Company sold six mortgage derivative assets for approximately $4.25 million, representing a gain of approximately $650,000 over the Company's carrying value for these same assets. After repayment of related debt on these assets of approximately $1.9 million, the Company increased its cash balances by $2.31 million.
Simultaneously, the Company has reduced operating expenses in all expenditure areas, particularly employment costs (2-1/2 current employees from 7 prior employees), consulting fees, officer compensation, communications/information expenses and Directors' fees (as of April 4, 1994, the annual fee payable to members of the Company's Board of Directors was reduced to $1.00 per year). The Company has reduced operating expenses by approximately 75% since early 1993. At such reduced expense levels, the periodic cash flows from the Company's current assets are in excess of the Company's operating expenses.
During the three year period ended December 31, 1994, the Company incurred tax losses estimated at $35 million. Of this amount, it is estimated that $30 million represents operating losses while $5 million represents capital losses related to sales of assets. Absent the existence of future excess inclusion income (see "Dividend Policy"), future cash flows from the Company's current portfolio of investments would represent, to a large degree, return of investment principal (basis) to the Company and not taxable income required to be distributed as dividends to stockholders. Additionally, the Company's tax loss carryforward positions can be utilized to offset future taxable income generated from newly contemplated activities before the Company's earnings again become taxable and result in the requirement for dividend payments. Should the contemplated investment activities be successful, the Company would be in a tax position to use cash flows to rebuild the Company's investment portfolio prior to resuming taxable dividend payments.
With expectations of a continuing period of more stable mortgage market performance and in order to utilize the Company's accumulated tax loss positions, the Company is exploring alternative investment activities involving 1) the acquisition of tax sale certificates mentioned in its second and third quarter 1994 Reports on Form 10Q, 2) the selective purchase, with Board approval, of mortgage derivative securities having attractive risk/return profiles reflective of the materially altered marketplace for such securities and 3) the evaluation of several business combination proposals that could effectively utilize its tax loss position and add significant earning assets to the Company's balance sheet.
First, the Company has made continuing progress toward implementation of a strategy of acquisition and potential financing of tax sale certificates on residential and commercial properties. All of the actions, approvals and authorizations necessary to begin this alternative investment activity are currently incomplete and no assurance can be given regarding the implementation of such activities. Nevertheless, continued progress has been made in 1) establishing the parameters of a program acceptable to the investment community and the structure that would be necessary to implement same; 2) retention of an experienced and recognized acquisition and servicing agent; 3) obtaining the necessary warehouse financing; 4) retaining a trustee and back-up servicer; 5) obtaining an investment grade rating from one of the recognized national rating agencies regarding the issuance of collateralized notes; 6) identifying an agent for placement of the collateralized notes and 7) engaging legal counsel for preparation of documentation.
Acquisition of tax lien certificates could include incremental borrowings by the Company and exposure to market risks. It is the Company's intention to incur only non-recourse debt in connection with any such investments by means of a pledge of the underlying assets acquired and subordination of the Company's cash investment in the new assets. The Company believes that use of conservative underwriting standards should serve to mitigate market risks in the newly acquired assets. The Company expects to make its initial equity investment in tax sale certificates during the second quarter of 1995.
In addition, as a result of new investment regulations and increased capital requirements for insurance companies, investment funds, pension funds, commercial banks and savings banks, the investing activities of these entities in mortgage derivative products have been greatly reduced, creating an oversupplied market. As a result, the Company may from time to time investigate acquiring a limited number of mortgage derivative securities available at attractive price levels. If acquired, such securities would be purchased at discount prices, backed by lower coupon mortgages less subject to substantial volatility in prepayment speed levels and contain AAA rated principal guarantees. Nevertheless, these securities would, if purchased, introduce to the Company an added degree of prepayment and interest rate risk. If implemented, the Company would use a conservative level of leveraging, through repurchase agreement financing, to increase returns available to the Company.
No assurances can be given regarding the successful implementation of either of these new investment activities, given dependence upon financial market conditions, the availability of assets that meet established underwriting criteria, the final successful negotiation of a servicing contract in the case of tax sale certificates, the existence of market competition and the successful placement of non-recourse debt and repurchase agreement borrowings.
Finally, since the second quarter of 1994 and simultaneous with the consideration of new investment activities, the Company has analyzed numerous potential business combinations. At the current time the Company is conducting discussions with several parties attempting to identify a value maximizing opportunity. Although several of these discussions are positive in tone, any business combination is subject to extensive negotiations of an economic, financial, and legal nature, to changes in general market conditions and to the attitudes and requirements of another entity. If an attractive transaction is identified and recommended by the Company's Board of Directors, stockholders would be asked for approval to proceed through a proxy vote.
If the Company is unable to successfully institute new investment activities or a business combination as described above, the Company's ability to re-establish and conduct an investment business would be significantly impaired. Under such circumstances, the Company would consider an orderly liquidation of its current assets and distribution of resulting net proceeds to stockholders. The market for mortgage derivatives, which represents the majority of the Company's investment portfolio, is currently erratic and illiquid. Buyers of mortgage derivatives are demanding substantial yields which often result in unsatisfactory sale prices for these types of assets. Under these market conditions, the Company could realize greater value for stockholders through the periodic payout of cash flows received from the assets in combination with specific asset sales at future dates at improved prices.
DIVIDEND POLICY
In accordance with the Code, the Company is required to distribute at least 95% of its taxable income to its stockholders each year in order to maintain its status as a REIT. Dividends paid for a fiscal year in excess of the Company's taxable income are reported as a return of capital to the Company's stockholders, except as provided below.
Some of the Company's investments constitute REMIC residual interests. Certain of these residual interests may produce "excess inclusion" income during the fiscal year. The Code requires that excess inclusion income be included in a taxpayer's income even though the taxpayer has losses that would otherwise offset such income. As a result, the Company could have taxable income from excess inclusions in a taxable year even though it has losses from other investments that would normally be sufficient to offset the amount of such excess inclusion income. The Company is required to distribute the taxable income representing excess inclusions to meet its 95% distribution requirement and to avoid a corporate level tax on such income. When such income is distributed to a stockholder, the stockholder will have taxable income, rather than a return of capital, equal to its share of such excess inclusion income during the fiscal year. The Company reported for fiscal 1993 that all distributions paid for 1993 represented excess inclusion income. No distributions were paid for fiscal 1994, but the Company estimates the existence of a minor amount of excess inclusion income for 1994. Due to the minor amount of such excess inclusion income, the Company will pay the income taxes due (an amount expected to be less than $3,500) rather than incur the expense of a negligible stockholder distribution. For a stockholder, generally, excess inclusion income cannot be offset by losses.
RESULTS OF OPERATIONS
1994 TO 1993 COMPARISONS
For both years ended December 31, 1994 and 1993, the Company's Balance Sheet and Statement of Revenues and Expenses reflect substantial changes related to the unprecedented high level and extended duration of residential mortgage prepayments experienced during all of 1992 and 1993 and continuing into the early portion of 1994. These prepayments have resulted in the Company incurring significant losses during such periods.
Statement of Revenues and Expenses
For fiscal 1993 and 1994, the Company derived its income (loss) primarily from its investments in Mortgage Derivative Securities. The Company's portfolio contains several types of mortgage derivative securities. For each security that the Company purchases, it receives the right to certain designated cash flows. Due to the nature of these securities, income calculated in accordance with the Code ("Taxable Income") and income calculated in accordance with generally accepted accounting principles ("Net Income") are not always identical for any particular period, especially when mortgage prepayment speeds are exceedingly rapid, as for 1992 and 1993, or exceedingly slow.
The rapid prepayment environment of 1992 to early 1994 is reflected in the substantial differences between Taxable Loss and Net Income/(loss).
1994 1993
Net Income/(loss) $ 805,000 $(25,624,000) Taxable Loss $ (8,500,000) $(10,823,000) (estimated)
Net Income/(loss) per share $ 0.15 $(4.92) Taxable Loss per share $(1.63) $(2.08) (estimated)
Net Income/(loss), as calculated in accordance with generally accepted accounting principles, and as presented in the accompanying consolidated financial statements, for the twelve months ended December 31, 1994, was $805,000, or $0.15 per share, as compared to $(25,624,000), or $(4.92) per share, for the twelve months ended December 31, 1993.
Generally accepted accounting principles require the Company to periodically evaluate its Investments based upon current and expected future mortgage prepayment speeds and interest rates and, effective December 31, 1993, market discount rates, as well. (See note 2 to the Company's Consolidated Financial Statements) The record level of mortgage prepayments during 1992 and 1993 and into the early portion of 1994 caused the Company to revalue its Investments periodically, resulting in valuation adjustments of $25,569,000 during 1993 but only $285,000 for the year ended December 31, 1994. Such adjustments are reflected as a reduction of interest revenues in the Company's Consolidated Statements of Revenues and Expenses.
The substantial improvement in the Company's Net Income/(loss) from 1993 to 1994 of $26,429,000 is due to 1) drastically larger writedowns in value of Company Investments during 1993, 2) larger gains from the sale of assets in 1994 and 3) sharply reduced operating expenses for 1994. Downward asset valuation adjustments in 1993 were $25,569,000, while such writedowns in 1994 were only $285,000, a decrease of $25,284,000. The large magnitude of asset valuation writedowns during 1993 reflected unprecedented actual mortgage prepayment levels and market expectations of a continuation of high prepayment levels. 1994's minor valuation adjustments reflect the dramatic slowdown in prepayment speeds and resultant stabilization in values of securities collateralized by mortgage loans. In 1993, the Company recorded gains on the sale of mortgage related investments of $838,000 and losses on the sale of marketable equity securities of $486,000, for a total net gain of $352,000 from asset sales. In 1994, the Company had total net gains of $1,119,000, of which $461,000 related to the sale of ownership rights in three mortgage related investments and $658,000 related to the sale of six mortgage derivative securities. The difference in sales gains represents an increase of $767,000 in Net Income between periods. Absent these sales gains, the Company's Net Income would have been $38,000. The Company also reduced operating expenses from $1,703,000 in 1993 to $850,000 in 1994, a decrease of $853,000. These three substantial improvements, when combined with other minor income reductions on assets between 1993 and 1994, provide for an increase in the Company's Net Income of $26,429,000.
The assumptions used to value assets at the end of each quarter take into consideration the current level of interest rates (short and long), actual mortgage prepayment speeds experienced for each asset through the end of the quarterly period, Management's evaluation of the market expectations of future prepayment speeds for the mortgages backing each asset and, effective December 31, 1993, the application of a market discount rate to future cash flows. If prepayment speeds were to occur at levels higher than market expectations, market expectations of future mortgage prepayment speeds increase beyond current anticipated levels, short term interest rates increase beyond their current levels, or the market discount rate applied were to be increased, further reductions in the value of the Company's Investments would be necessary.
Interest revenue on Mortgage Related Investments decreased from $9,205,000 for the year ended December 31, 1993 to $2,208,000 for the year ended December 31, 1994, as a result of the substantial reduction in Mortgage Related Investments on the Company's Balance Sheet between December 31, 1993 and December 31, 1994, discussed below. Interest revenue on Mortgage Derivative Securities was $(23,345,000) for the year ended December 31, 1993 as compared to $612,000 for the year ended December 31, 1994. The $23,957,000 increase in interest revenue on Mortgage Derivative Securities was primarily attributable to a $24,800,000 writedown of this asset category for 1993 while such writedowns were only $285,000 for 1994. Such writedowns are deducted from Mortgage Derivative Securities interest revenues. There was also a general reduction in interest earnings on that same asset category from 1993 to 1994 resulting from the high mortgage prepayments during the period in the amount of $600,000.
Interest expense on Funding Notes and CMOs Payable decreased from $10,333,000 to $2,430,000 for the years ended 1993 and 1994, respectively, as a result of the offsetting balance sheet decline of Funding Notes and CMOs Payable, discussed below. Operating expenses (which includes "Interest on Notes Payable" and "General and Administrative") decreased from $1,703,000 for 1993 to $850,000 for the comparable period in 1994. This decrease between periods of $853,000 was the result of reduced interest expense on Notes Payable of $188,000 as the Company repaid all amounts outstanding under repurchase agreements during 1994 and a reduction in General and Administrative Expenses of $665,000 as the Company reduced costs in response to the deterioration of its investment portfolio.
Balance Sheet
The Company's assets declined during the twelve month period ended December 31, 1994 by $61,205,000, to a total of $19,892,000 at December 31, 1994. This decrease is attributable to the Company's Mortgage Related Investments declining during the twelve month period from $65,248,000 to $12,430,000, a decrease of $52,818,000. This reduction is primarily the result of 1) the sales, during February 1994, of the ownership rights of two RYMAC IV Bond Series, and during June 1994, of the ownership rights to the RMSC Bonds, in order to take advantage of market premiums on the underlying Mortgage Collateral (such sales reduced Mortgage Related Investments by $40,755,000), 2) substantial prepayments on collateral underlying the Company's remaining Mortgage Related Investments and 3) to a much lesser extent, regularly scheduled principal payments on the underlying Mortgage Collateral. Such prepayments and scheduled principal payments further reduced Mortgage Related Investments by approximately $12,000,000.
These asset reductions were matched by a corresponding decrease in the related liability accounts, Funding Notes Payable and CMOs Payable, from $69,934,000 to $12,538,000, or a decrease of $57,396,000. The sale of ownership rights includes the transfer of CMO and Funding Note obligations to the buyers while regularly scheduled and prepaid principal on the underlying mortgages serve to retire outstanding obligations secured by such mortgages. The sale of ownership rights reduced CMO and Funding Notes by $42,012,000, while regularly scheduled and prepaid mortgage payments produced approximately $15,400,000 in reductions.
Mortgage Derivative Securities decreased from $7,161,000 at December 31, 1993 to $1,990,000 at December 31, 1994, a decrease of $5,171,000, reflecting 1) the amortization and return of the cost basis of the assets held in this category of approximately $1,335,000, 2) the writedown of carrying value of such securities which represents additional amortization in 1994 totaling $285,000 and 3) the sale of six securities during the third and fourth quarters of 1994 which removed the cost basis of such assets from the balance sheet totaling $3,551,000.
Funds held by trustee decreased from $1,347,000 at December 31, 1993 to $172,000 at December 31, 1994. This category of assets represents the receipt of monthly mortgage payments awaiting further payment (reduction) of Funding Notes and CMOs Payable at a future date. The magnitude of this account is directly affected by the substantial decrease in Mortgage Related Investments discussed above.
Receivables on Mortgage Related Investments and Mortgage Derivative Securities declined from $5,608,000 at December 31, 1993 to $257,000 at December 31, 1994. Such $5,351,000 decrease is directly attributable to the sizeable decreases in Mortgage Related Investments and Mortgage Derivative Securities discussed previously.
Notes Payable, consisting solely of repurchase agreements, decreased from $3,814,000 at December 31, 1993 to $0 at December 31, 1994 due primarily to the result of dealer margin calls during 1994 and Kidder Peabody & Company's payment demand on five repurchase agreements, which occurred immediately prior to Paine Webber's acquisition of them during 1994. At November 30, 1994 the Company repaid Kidder Peabody $433,000, reducing its Notes Payable balance to zero.
Net Income for 1994 of $805,000, or $0.15 per share, is reflected as a decrease to the Accumulated Deficit. Such amount decreased from $(37,855,000) at December 31, 1993 to $(37,050,000) at December 31, 1994. Estimated Taxable Income was a negative $8,500,000, or $(1.63) per share. As a result, the Company declared no dividends for 1994.
1993 TO 1992 COMPARISONS
Statement of Revenues and Expenses
Net Loss for the year ended December 31, 1993 was $(25,624,000) or $(4.92) per share as compared to Net Loss of $(1,868,000), or $(0.36) per share for the year ended December 31, 1992, a decrease of $23,756,000. This significant decrease was due primarily to 1) substantially reduced gains on sales of assets in 1993 as compared to 1992 and 2) the large magnitude of writedown of asset valuations in 1993 to reflect the continuing high levels of mortgage prepayment speeds in that year as compared to already significant adjustments in 1992.
Gains on sales of assets in 1992 were $1,602,000 compared to $352,000 in net gains in 1993, a decrease of $1,250,000. Generally accepted accounting principles which require periodic evaluation of the Company's Investments based upon current and expected future prepayment and interest rate levels and, for 1993, the application of a discount rate to expected future cash flows, caused 1993 writedowns of asset valuations totalling $25,569,000 (such writedowns are reflected as reductions to interest revenues on the Company's Statement of Revenues and Expenses) compared to $7,921,000 for 1992, a difference of $17,648,000. Reduced sales gains of $1,250,000 and asset writedown increments of $17,648,000, totalling $18,898,000 represent approximately 80% of the decrease in Net Income from 1992 to 1993. The remaining difference of $4,800,000 was the net result of generally reduced interest yields on the Company's portfolio of Investments in 1993 related to the extremely high level of mortgage prepayments in such year netted against a decrease in expenses (Interest on Notes Payable, General and Administrative and Management Fees) which declined from $2,722,000 in 1992 to $1,703,000 in 1993.
Balance Sheet
The Company's assets declined during the twelve month period ended December 31, 1993 by $176,763,000, to a total of $81,097,000 at December 31, 1993. This decrease was attributable to the Company's Mortgage Related Investments declining during the twelve month period from $142,396,000 to $65,248,000, a decrease of $77,148,000. This reduction was primarily the result of 1) the calling, during January and September 1993, of two RYMAC IV Bond Series in order to take advantage of market premiums on the underlying Mortgage Collateral of each of those series (such calls reduced Mortgage Related Investments by approximately $16,917,000), 2) unprecedented prepayments on collateral underlying the Company's remaining Mortgage Related Investments and 3) to a much lesser extent, regularly scheduled principal payments on the underlying Mortgage Collateral. Such prepayments and scheduled principal payments further reduced Mortgage Related Investments by approximately $60,000,000.
These asset reductions were matched by a corresponding decrease in the related liability accounts, Funding Notes Payable and CMOs Payable, from $149,215,000 to $69,934,000, or a decrease of $79,281,000, as returned principal on the underlying mortgages was used to retire outstanding obligations secured by such mortgages.
Mortgage Derivative Securities decreased from $40,727,000 at December 31, 1992 to $7,161,000 at December 31, 1993, a decrease of $33,566,000 reflecting 1) the amortization and return of the cost basis of the assets held in this category of approximately $8,766,000 and 2) the writedown of carrying value of such securities which represented additional amortization in 1993 totalling $24,800,000.
Funds held by trustee decreased from $3,922,000 at December 31, 1992 to $1,347,000 at December 31, 1993. This category of assets represents the receipt of monthly mortgage payments awaiting further payment (reduction) of Funding Notes and CMOs Payable at a future date.
Marketable securities decreased from $332,000 at December 31, 1992 to $0 at December 31, 1993, reflecting the result of the sale of stock of TIS Mortgage Investment Company ("TIS") during 1993.
Notes Payable decreased from $14,833,000 (inclusive of $575,000 of bank line borrowings and $14,258,000 of repurchase agreements) at December 31, 1992 to $3,814,000 at December 31, 1993, consisting solely of repurchase agreements. Such $11,019,000 decrease in leverage was principally the result of severe dealer margin calls under repurchase agreements throughout 1993.
The Company declared dividends of $0.04 per share, or $208,000, for 1993, while incurring a Net Loss of $(25,624,000), or $(4.92) per share, and Taxable Income of a negative $(10,823,000), or $(2.08) per share. The dividend of $0.04 per share represents "excess inclusion income" for 1993 which under the Code for Real Estate Investment Trusts must be distributed as dividends, even during periods where the Company has losses in excess of such excess inclusion amount. This amount, $208,000, plus the Net Loss of $25,624,000 and the reversal of $338,000 carried at December 31, 1992 as an unrealized loss but in 1993 representing a portion of the Company's Net Loss on the sale of the Company's entire holding of TIS, is reflected as an increase in Accumulated Deficit. Such amount increased from $(12,361,000) at December 31, 1992 to $(37,855,000) at December 31, 1993.
At December 31, 1992, the Balance Sheet reflected an Unrealized Loss on Marketable Equity Securities of $(338,000). This amount represented the difference between the cost basis of the Company's investment in TIS and the market value of such investment at December 31, 1992. As stated above, the Company's entire holding of TIS was liquidated during 1993.
EXPENSES AND USE OF BORROWED FUNDS
Operating expenses (Interest on Notes Payable and General and Administrative) were $850,000 for the year ended December 31, 1994 versus $1,703,000 for the year ended December 31, 1993, a decline of $853,000. The components of this significant decrease in Operating expenses include: 1) reduced interest costs on Notes Payable, which decreased from $297,000 in 1993 to $109,000 for 1994, as Notes Payable on the Balance Sheet declined from $3,814,000 to $0 between December 31, 1993 and December 31, 1994 due to dealer margin calls and 2) a decrease of General and Administrative Expenses from $1,406,000 in 1993 to $741,000 in 1994, a decline of $665,000 as part of a continuing expense reduction program in response to the deterioration of the investment portfolio.
The Company had used the proceeds from repurchase agreements to fund a portion of its portfolio of Mortgage Derivative Securities. (See notes 3 and 7 of Notes to Consolidated Financial Statements and "Liquidity and Capital Resources") The Company had also maintained a line of credit used to fund day-to- day operating needs and in past periods to also temporarily fund acquisitions of new investments pending negotiation of repurchase agreements or awaiting return of invested principal. During 1993, the Company reduced its line of credit availability from $5,000,000 to $250,000 (see "Liquidity and Capital Resources") due to its ability to use available collateral more efficiently in repurchase agreement financings. In the second half of 1993 and through the first four months of 1994, the Company had no borrowings under its $250,000 line of credit and allowed the line of credit to expire on April 30, 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company was a party to various repurchase agreements, the proceeds of which had been used to acquire Mortgage Derivative Securities. (See Notes 3 and 7 of Notes to Consolidated Financial Statements) At December 31, 1993 and December 31, 1994, the Company had outstanding under repurchase agreements $3,814,000, with maturities ranging from January 6, 1994 to April 4, 1994, and $0, respectively. The repurchase agreements were secured by substantially all of the Company's Mortgage Derivative Securities.
The Company had maintained a line of credit with a commercial bank for $250,000 which expired on April 30, 1994 and, at the Company's election, was not renewed. The Company's decision to allow its line of credit to expire was based upon the sale during the first half of 1994 of the ownership rights in three of the assets used to collateralize the line of credit and the insignificant borrowing value that the remaining collateral would support.
At December 31, 1994, the total amount borrowed by the Company was $0 while at December 31, 1993 the total amount borrowed was $3,814,000. Such borrowings represented 0% and 62%, respectively, of stockholders' equity at December 31, 1994 and December 31, 1993. The Company is subject to a limitation on the amount of total borrowings of $25,000,000 pursuant to a policy adopted by its Board of Directors in March 1992, although such amount is substantially in excess of the Company's current available credit sources.
From June 8, 1992 through November 30, 1994, the Company was subject to continuous dealer margin calls based upon periodic dealer revaluations of the Mortgage Derivative Securities pledged by the Company to secure repurchase agreement borrowings, including Kidder Peabody's full payment demand in late 1994. Total repurchase agreement repayments during the June 8, 1992 to November 30, 1994 time period were $22,085,000. The extraordinarily high level of mortgage prepayments in the marketplace during the majority of this period and instability of the mortgage markets caused dealers to reassess the value of their collateral and call upon the Company to reduce its borrowing outstandings. The Company met all such repayment requirements primarily through either the use of cash flows from its portfolio of investments or the pledging of unencumbered assets. In mid 1994, the substantial slowdown in actual and dealer forecasted prepayment speeds produced a slight improvement in dealer valuations of the Company's pledged Mortgage Derivative Securities. As such, several assets provided a source of incremental borrowing amounts to the Company for a period of time.
During the third quarter and early fourth quarter of 1994, the Company sold six Mortgage Derivative Securities. Since all of these Mortgage Derivative Securities were subject to repurchase agreement financing, their sales required the repayment in full of associated borrowed amounts. The repayment of these repurchase agreements totaled $1,901,000 and reduced repurchase agreement borrowings to $432,000 as of late October 1994. At November 30, 1994, the Company repaid in full its remaining repurchase agreement obligations and has had no outstanding Notes Payable since that date. As such, all of the Company's remaining Mortgage Derivative Securities are available to secure any future borrowings.
Item 8.


Item 8. Financial Statements and Supplementary Data.
RYMAC MORTGAGE INVESTMENT CORPORATION AND SUBSIDIARIES
Index to Consolidated Financial Statements
PAGE
Consolidated Financial Statements
Independent Auditors' Report 41
Consolidated Balance Sheets as of December 31, 1994 and 1993 42
Consolidated Statements of Revenues and Expenses for the years ended December 31, 1994, 1993 and 1992 43
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1994, 1993 and 1992 44
Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1993 and 1992 45
Notes to Consolidated Financial Statements 46
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of RYMAC Mortgage Investment Corporation:
We have audited the consolidated balance sheets of RYMAC Mortgage Investment Corporation and subsidiaries as of December 31, 1994 and 1993, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1994. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of RYMAC Mortgage Investment Corporation and subsidiaries as of December 31, 1994 and 1993 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles.
/s/ KENNETH LEVENTHAL & COMPANY New York, New York March 3, 1995
RYMAC MORTGAGE INVESTMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (amounts in thousands except share data) _________________________________________________________________
Note 1 - The Company
RYMAC Mortgage Investment Corporation ("RMIC") was incorporated in Maryland on July 1, 1988. RMIC has two wholly-owned subsidiaries, RYMAC Mortgage Investment I, Inc. ("RMI") and RYMAC Mortgage Investment II, Inc. ("RMII"). RMIC, RMI and RMII are collectively referred to hereafter as the "Company". At inception, the Company issued 5,420,000 shares of its common stock. During 1990 and 1991, the Company repurchased 209,400 shares of its common stock in accordance with a stock repurchase program at costs ranging from $6.75 to $7.63 per share.
In response to the Company's earnings difficulties and reduced cash flows from its investment portfolio, the Company is currently implementing actions to begin alternative investment activities and is simultaneously evaluating several business combination proposals that could effectively utilize the Company's tax loss position. To date, actions necessary to begin the alternative investment activities are incomplete and no successful business combination has been negotiated. If the Company is unable to successfully institute any of the above mentioned plans, the Company's ability to re-establish an investment portfolio would be impaired, causing the Company to evaluate actions that would include an orderly distribution of its current cash balance and future excess cash receipts to stockholders. _________________________________________________________________
Note 2 - Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of RMIC and its wholly-owned subsidiaries RMI and RMII. All intercompany balances and transactions have been eliminated in consolidation.
Mortgage Related Investments
Mortgage related investments are carried at their outstanding principal balance, plus or minus the applicable premium or discount. The net premium on mortgage related investments was amortized over the estimated lives of the investments using the interest method. (See note 4). Due to the sale of several of the Company's mortgage related investments during 1994, the Company determined that the remaining balance of any premiums was nominal and, as such, decided to amortize all premiums at December 31, 1994.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (amounts in thousands except share data) _________________________________________________________________
Note 2 - Summary of Significant Accounting Policies (continued)
Mortgage Derivative Securities
Mortgage derivative securities have been recorded at cost and are amortized over their estimated lives using the interest method. (See note 3)
The Financial Accounting Standards Board ("FASB") issued Financial Accounting Standard No. 115 ("FASB-115"), "Accounting for Certain Investments in Debt and Equity Securities," effective for fiscal years beginning after December 15, 1993. Prior to this date, the Company had been applying Emerging Issues Task Force ("EITF") Issue No. 89-4 "Accounting for a Purchased Investment in a Collateralized Mortgage Obligation Instrument or in a Mortgage-Backed Interest- Only Certificate" in its quarterly valuation of its Mortgage Derivative Securities. EITF 89-4 required a valuation adjustment when, under market based assumptions as to future mortgage prepayment speeds and interest rate levels, the nominal cash flows expected from a Mortgage Derivative Security asset were less than the then current carrying value of the asset.
The Company first applied FASB-115 to its December 31, 1993 financial statements. FASB-115 requires that impaired investments be carried at fair market value. The EITF has concluded that an impairment to value under FASB-115 has occurred if the future cash flows, discounted at a risk free rate (the yield associated with a U.S. Treasury Security with a maturity approximating the average life of the future cash flows from the Company's portfolio of investments), are less than the investment's carrying value.
Fair Value
Statement of Financial Accounting Standards No. 107, "Disclosure about Fair Value of Financial Instruments" ("FASB 107"), requires the Company to disclose the fair value of financial instruments for which it is practicable to estimate such value and to disclose the method(s) and assumptions used to estimate such value(s). Each of Notes 3, 4, and 5 discuss the fair value of the Company's mortgage derivative securities, mortgage related investments and funding notes payable, respectively.
For mortgage related investments, prices for similar mortgage- backed securities were obtained from Wall Street Dealers active in mortgage-backed markets. It is important to note, however, that the current market premiums on such similar mortgage-backed securities are not available to the Company unless and until the Company is able to call for early redemption the funding notes that NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (amounts in thousands except share data) _________________________________________________________________
Note 2 - Summary of Significant Accounting Policies (continued)
are collateralized by such mortgage related investments. The potential for early redemption (calls) is specific to each underlying collateralized obligation and the indenture covering such transaction. For the Company's three remaining mortgage related investments the timing of early redemptions based upon the current market conditions and individual indenture restrictions are not predictable and likely to be at distant future dates.
In regard to funding notes payable, market price quotations for these underlying obligations were obtained from a dealer who actively trades such instruments. Although these instruments currently trade at par or slight discounts in the present financial environment, the Company's obligation thereunder is equal to the face principal amounts without any applicable premiums or discounts. In certain circumstances, however, a premium to face may be paid in order to effect a specific early redemption.
Investment Restrictions
In addition to qualifying as a REIT under the Code, the Company's investment activities are restricted by provisions of the Investment Company Act of 1940 as amended (the "Investment Company Act"). Until 1994, the Company believed that its investment activities did not bring it within the definition of an investment company under the Investment Company Act because it was primarily engaged in the business of purchasing or otherwise acquiring mortgages and other liens and interests in real estate (the "Real Estate Exception"). Under interpretations issued by the staff of the Securities and Exchange Commission, in order to qualify for the Real Estate Exception, the Company must maintain at least 55% of its assets in mortgage loans or certain other interests in real estate, and another 25% of its assets in those or certain other types of real estate related interests. Between December 31, 1991 and 1994, changes in assets held by the Company caused the composition of the Company's balance sheet to change sufficiently to cause the Real Estate Exception historically relied upon by the Company to be unavailable. Under Rule 3a-2 of the Investment Company Act, the Company is deemed not to be an investment company for at least one year, provided that the Company has a valid intent to engage in a business other than that of investing, reinvesting, owning, holding or trading in securities. Management believes that certain of the new activities contemplated could satisfy such requirement, or alternatively, the Company could acquire real estate assets sufficient to qualify for the Real Estate Exception.
If the Company is unable to qualify for the Real Estate Exception NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (amounts in thousands except share data) _________________________________________________________________
Note 2 - Summary of Significant Accounting Policies (continued)
or engage in a business other than that of an investment company, it will be required to register as an investment company under the Investment Company Act. The Company is unable to predict how registration under such Act would affect its current plans to pursue new investment activities or business combinations. Registration under the Investment Company Act would also require the investments held by the Company to be adjusted to market value at each financial reporting date to the extent not done so already. Other financial statement reporting and disclosure requirements of the Investment Company Act may differ in certain respects from those to which the Company is currently subject.
Federal Income Taxes
The Company has elected to be taxed as a real estate investment trust ("REIT") under the Internal Revenue Code of 1986, as amended (the "Code"). As a result, the Company generally will not be subject to federal income taxation at the corporate level to the extent it distributes annually at least 95% of its REIT taxable income, as defined in the Code, to its stockholders and satisfies certain other requirements. Accordingly, no provision has been made for income taxes in the accompanying consolidated financial statements.
Net Income (Loss) Per Share
Net income (loss) per share is computed based on the weighted average number of common shares outstanding during the period. _________________________________________________________________
Note 3 - Mortgage Derivative Securities
The Company's investments in mortgage derivative securities currently consist of (i) a class or classes of collateralized mortgage obligations ("CMOs") that either represents a regular class of bonds or a residual class of bonds or (ii) interests in a class or classes of mortgage-backed pass-through certificates that either represent a regular class of certificates or a residual class of certificates. For federal income tax purposes, a majority of the Company's mortgage derivative securities represent interests in real estate mortgage investment conduits ("REMICs"). CMOs are mortgage-backed bonds which bear interest at a specific predetermined rate or at a rate which varies according to a specified relationship to a specific short term interest rate index, such as the London interbank offered rate for one-month U.S. dollar deposits ("LIBOR").
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (amounts in thousands except share data) _________________________________________________________________
Note 3 - Mortgage Derivative Securities (continued)
Most residual bonds are structured so as to entitle the holder to receive a proportionate share of the excess (if any) of payments received from the collateral pledged to secure such bonds and the other related classes, together with the reinvestment income thereon, over amounts required to make debt service payments on such CMOs and to pay related administrative expenses. In connection with these investments, the Company acquired no other rights relating to the collateral pledged to secure its mortgage derivative securities. Most residual certificates are structured so as to entitle the Company to receive a specified percentage of the distributions generated from the pool of assets comprising the trust funds of which the certificates evidence an interest.
At December 31, 1994 and 1993, the Company had investments in Mortgage Derivative Securities as set forth below:
Of the eight mortgage derivative securities reflecting a zero basis for 1994 in the table above, six securities were sold while the Company reduced its carrying value on two other securities to zero NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (amounts in thousands except share data) _________________________________________________________________
Note 3 - Mortgage Derivative Securities (continued)
due to the projection of minimal future cash receipts on these two securities. During the third quarter of 1994, the Company sold four mortgage derivative securities for a net gain of $470 and during the fourth quarter of 1994, the Company sold two additional securities for a net gain of approximately $188, for total gains in 1994 of $658. The net proceeds from these sales will be directed toward new business opportunities which the Company is currently pursuing.
Under FASB-115, future cash flows are discounted at a rate reflective of market yields for assets of the type held by the Company. At December 31, 1994 and 1993, the Company applied a discount rate of 12% to the cash flows for its portfolio of Mortgage Derivative Securities except for two assets where at December 31, 1994 (FNMA 1988-7 and FHLMC 1248) a 16% discount rate was applied to reflect the negative effects caused by an increase in short-term interest rates on these two assets. If the Company had applied higher discount rates, the resulting FASB-115 adjustment would have increased. In 1994, the Company established a valuation reserve account to provide for future downward valuation adjustments. At December 31, 1994, the balance of the valuation reserve account was utilized to reduce the value of certain assets. Total valuation adjustments for 1994 were $285 as compared with $26,330 for 1993.
Additionally, in accordance with FASB-107, the Company is required to compute the estimated fair value of its mortgage derivative securities by projecting anticipated future cash flows and discounting those cash flows at discount rates established in market transactions for securities having similar characteristics and backed by collateral of similar rate and term.
For the December 31, 1994 estimate of fair market values, the Company used the same prepayment and interest rate assumptions as for its determination of carrying values under FASB-115. (See note 2) The PSA speeds vary depending on the collateral. The prepayment assumption model used by the Company incorporates a market methodology established by the Public Securities Association ("PSA"). Such model assumes a rate of prepayment each month of the unpaid principal balance of a pool of mortgage loans. 100% of PSA assumes that 0.2% per annum of the then outstanding principal balance of a pool of mortgage loans will prepay in the first month of the life of such mortgage loans and an additional 0.2% per annum in each month thereafter (for example, 0.4% per annum in the second month, 0.6% in the third month, etc.) until the 30th month. Beginning with the 30th month and in each month thereafter, 100%
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (amounts in thousands except share data) _________________________________________________________________
Note 3 - Mortgage Derivative Securities (continued)
PSA assumes a constant prepayment rate of 6% per annum of the then outstanding principal balance of such mortgage loans. On a bi- weekly basis, Bloomberg Financial Markets ("Bloomberg") obtains PSA estimates for a wide range of mortgage coupons and ages from several dealers in mortgage derivative securities and makes them available to Bloomberg's subscribers.
The prepayment speeds used by the Company in establishing the estimated fair value of its securities at December 31, 1994 are:
Bloomberg Median PSA Collateral/(Year of Issue) As of December 31, 1994
GNMA 9.5% (1986) 165% FNMA/FHLMC 9.0 (1986) 191 FNMA/FHLMC 9.0 (1991) 184 FNMA/FHLMC 9.5 (1986) 205
Such PSA assumptions do not purport to be an historical description of prepayment experience or a prediction of the future rate of prepayments of any mortgage loan.
All assets were modeled forward using the December 31, 1994 Bloomberg Median PSA for the life of each asset. LIBOR was assumed at 6.00% for the life of the assets and discount rates of 12% and 16% were applied. Since PSA, interest rate and discount rate assumptions under FASB-115 and FASB-107 were identical for the Company's Mortgage Derivative Securities at December 31, 1994, fair market values and carrying values of such assets are equal.
None of the Company's mortgage derivative securities are pledged as collateral for any borrowings and thus represent a source of increased liquidity to the Company. _________________________________________________________________
Note 4 - Mortgage Related Investments
The Company's mortgage related investments consist of ownership interests in certain classes of mortgage-backed securities issued by Ryan Mortgage Acceptance Corporation IV and, until June 1994, Ryland Mortgage Securities Corporation (as described below).
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (amounts in thousands except share data) _________________________________________________________________
Note 4 - Mortgage Related Investments (continued)
On November 29, 1989, the Company purchased from Ryland Mortgage Securities Corporation ("RMSC") certain insured mortgage loans and other collateral owned by RMSC and pledged to secure RMSC's Mortgage Collateralized Bonds Series 1989-6 (the "RMSC Bonds"). This mortgage related investment and other collateral were purchased subject to the lien of the Indenture (the "RMSC Indenture") between RMSC and Sovran Bank, N.A., the Trustee for the RMSC Bonds (the "RMSC Trustee"), pursuant to which the RMSC Bonds were issued and subject to the rights of the RMSC Trustee and the bondholders thereunder. (See note 6) This mortgage related investment grants to the Company certain additional rights with respect to the RMSC Bonds, including rights with respect to substitution of collateral, amendments of or supplements to the RMSC Indenture, and calling of the RMSC Bonds.
On September 23, 1988, the Company purchased from Ryan Mortgage Acceptance Corporation IV ("RYMAC IV") certain GNMA certificates and FNMA certificates and other collateral owned by RYMAC IV and pledged to secure RYMAC IV's Mortgage Collateralized Bonds, Series 3, 4, 7, 10 and 19 (collectively the "RYMAC IV Bonds"). (See note 5) These mortgage related investments and other collateral were purchased subject to the lien of the Indenture between RYMAC IV and the Trustee (the "RYMAC IV Indenture") pursuant to which the RYMAC IV Bonds were issued and subject to the rights of the Trustee and the bondholders thereunder. (See note 5) This series of five purchase agreements grant to the Company certain additional rights with respect to the RYMAC IV Bonds, such as the right, if any, to substitute collateral, the right to direct the reinvestment of collateral proceeds and the right to call the related RYMAC IV Bonds.
During the first quarter of 1994, the Company sold its ownership rights in the RYMAC IV Series 3 and 4 Bonds ("Series 3" and "Series 4", respectively), for a net gain of approximately $595. (See note 5) For the remaining RYMAC IV Bond Series 7, 10 and 19, it is not currently anticipated that either call options or the contractual assignment of the Company's rights will be available to the Company. The Company assigned its ownership rights in the RMSC Bonds to a third party during the second quarter of 1994 and realized a net loss of approximately $134.
At December 31, 1994 and 1993 the Company owned mortgage related investments with aggregate outstanding principal balances of $12,430 and $64,408, respectively, which provide for monthly principal and interest payments. The RYMAC IV collateral bears interest at rates ranging from 7.75% to 10.50% and have scheduled
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (amounts in thousands except share data) _________________________________________________________________
Note 4 - Mortgage Related Investments (continued)
maturity dates ranging from July 1, 2001 to April 1, 2017.
The Company held the following mortgage related investments as of December 31, 1994:
Interest Final Rate Maturity Principal Description Range Date Range Amount
87 Pools of FNMA 7.75% to 7/01/2001 $12,430 Certificates, 10.50% to 4/01/2017 18 of which were under $50
The following is a summary of total mortgage related investments for the years ended December 31, 1994 and 1993:
1994 1993
Balance at beginning of year $ 64,408 $140,881
Sales of collateral or ownership rights (40,755) (17,483)
Collections of principal (11,223) (58,990) ________ ________ Balance at end of year $ 12,430 $ 64,408
The 1994 sales of collateral or ownership rights were in connection with the RYMAC IV Series 3 and 4 bonds and the RMSC bonds. (See note 5)
In accordance with FASB-107, the Company obtained prices from a Wall Street Dealer for the mortgage-backed securities collateralizing the Company's mortgage related investments.
Although the FNMA Certificates were trading at premiums to their face values as of December 31, 1994, as described in note 2, the premiums on these FNMA Certificates are only available to the Company under limited circumstances related to early redemption of specific series of bonds.
In March 1994, the Company sold its ownership rights in Series 3 and 4 including the rights to excess cash flows until applicable Series call option dates, the rights to effecting the call options and the rights to the premiums, if any, existent on the underlying GNMA and FNMA certificates at future call dates. After providing NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (amounts in thousands except share data) _________________________________________________________________
Note 4 - Mortgage Related Investments (continued)
for the expenses of these contractual assignments and expensing of the remaining premium on both Series, the Company recorded a net gain of $595. The Company also assigned its ownership rights in the RMSC Bonds to a third party during the second quarter for a net loss of $134.
For the remaining RYMAC IV Bond Series 7, 10 and 19, it is not currently anticipated that either call options or the contractual assignment of the Company's rights will be available to the Company. The Company estimates the fair value of the RYMAC IV Bond Series 7, 10 and 19 to be $12,430, which equals the carrying value at December 31, 1994. _________________________________________________________________
Note 5 - Funding Notes Payable
Funding notes payable represent limited recourse notes delivered to RYMAC IV as partial payment for the purchase of mortgage related investments and other collateral, and have payment terms the same as the related series of RYMAC IV Bonds. (See note 4) The funding notes payable consisted of three and five multi-class series at December 31, 1994 and 1993, respectively, having stated maturities ranging from August 1, 2010 to May 1, 2017 and July 1, 2010 to May 1, 2017, respectively. The classes of each series of funding notes payable bear interest at fixed rates. The range of fixed rates at December 31, 1994 and 1993 were 8.25% to 9.45% and 8.25% to 11.20%, respectively.
Principal and interest payments on the mortgage related investments are used to make the monthly or quarterly payments on the funding notes payable. In addition, prepayments of the underlying mortgage related investments are passed through as prepayments of the funding notes payable so that the funding notes payable may be fully paid prior to their stated maturities. During the first quarter of 1994, the Company sold its ownership interest in the RYMAC IV Series 3 and 4 Bonds. (See note 4)
In accordance with FASB-107, the Company obtained prices for its Funding Notes Payable as of December 31, 1994, from a dealer actively trading in RYMAC IV Bonds and other bonds of this type. Such bonds were trading at par or slight discounts to their face values as of December 31, 1994. Market discounts on trades of these obligations do not affect the Company. The Company's obligations for repayment of its Funding Notes Payable are at par through receipt of principal and interest payments on its mortgage related investments.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (amounts in thousands except share data) _________________________________________________________________
Note 6 - CMOs Payable
CMOs payable represented the RMSC Bonds. (See note 4) The RMSC Bonds, secured by insured mortgage loans and other collateral, consisted of one multi-class series with each class bearing interest at fixed annual rates. The range of fixed rates at December 31, 1993 was 9.80% to 9.85%. The Company sold its ownership rights in the RMSC Bonds during May 1994. (See note 4) _________________________________________________________________
Note 7 - Notes Payable
Notes payable represented repurchase agreements with Wall Street dealers and borrowing availability under a commercial bank line of credit. During 1994, all repurchase agreements were repaid and the line of credit was allowed to expire.
At December 31, 1993, the Company was a party to twelve separate repurchase agreements for borrowings of $3,814 which were collateralized by certain mortgage derivative securities. As of December 31, 1993 these repurchase agreements had interest rates ranging from 3.30% to 5.00% with maturities ranging from January 6, 1994 to April 4, 1994. At December 31, 1993, $2,622 of such repurchase agreements was outstanding with Kidder Peabody and Company (nine separate repurchase agreements). These nine repurchase agreements were secured by the pledge of mortgage derivative securities with a carrying value of $4,820 and had an average weighted maturity of 57 days.
The Company maintained a line of credit with a commercial bank for $250 with an expiration of April 30, 1994, which availability was subject to periodic valuations of the pledged collateral. Amounts borrowed under this agreement were charged interest at a rate of the prime rate plus 1.0%, and were collateralized by the pledge of the Company's ownership interests in the RYMAC IV Bonds and the RMSC Bonds. The availability under the line was limited to the value of collateral pledged to the bank. At December 31, 1993, no amounts were outstanding under the line. Upon expiration of the agreement, the Company elected not to renew the line of credit.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (amounts in thousands except share data) _________________________________________________________________
Note 7 - Notes Payable (continued)
The following summarizes information related to the Company's short-term borrowings during 1994:
_________________________________________________________________
Note 8 - Federal Income Taxes and Distributions
As described in note 2, the Company has elected to be treated, for federal income tax purposes, as a REIT. As such, the Company is required to distribute annually, in the form of dividends to its stockholders, at least 95% of its taxable income. Because of the provisions of the Code applicable to the type of investments made by the Company, in the early years of the life of certain of the Company's initial investments (particularly investments made in connection with the Company's initial public offering, and to a lesser degree during 1989) taxable income exceeded net income.
During the later years of such ownership Net Income will exceed REIT taxable income. The principal reason for such difference is that the Company reports income from its portfolio of mortgage related investments and mortgage derivative securities on the interest method for financial reporting purposes; however, for income tax purposes, the Company reports its proportionate share of the difference between interest income generated by the collateral and interest expense on the CMOs. More recent investments made by the Company and investments currently available in the market are typically structured so that taxable income and Net Income are similar during each reporting period. Over the life of a particular investment or security, taxable income and Net Income will be equal. In reporting periods where taxable income exceeds Net Income, stockholders' equity will be reduced by the amount of dividends in excess of Net Income in such period and will be increased by the excess of Net Income over dividends in future reporting periods.
For 1994, the Company made no distribution to its stockholders and it expects to have a tax loss of approximately $8.5 million for the NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (amounts in thousands except share data) _________________________________________________________________
Note 8 - Federal Income Taxes and Distributions (continued)
year. The Company's taxable losses for 1992 and 1993 aggregate to approximately $28 million. The Company's cumulative tax losses are likely to aggregate $35 million. During 1993, the Company's investment in certain REMICs produced excess inclusion income of $213. For 1994, the Company's investments generated negligible excess inclusion income. Under the Code a REIT must generally distribute its excess inclusion income to its stockholders even though it has other losses or deductions exceeding such excess inclusion income. Accordingly, if the Company were to report future excess inclusion income, it may elect to distribute such excess inclusion income as dividends even though it has an estimated tax loss carryforward approximating $35 million. The tax losses can be carried forward to offset future income of the Company.
The following table illustrates the reconciliation between Net Income and Accumulated Deficit, and the related per share data for the following periods:
1994 1993
Accumulated Deficit at Beginning of Period $(37,855) $(12,023) Net Income/(loss) 805 (25,624) Less: Dividends Declared - 208
Accumulated Deficit at End of Period $(37,050) $(37,855)
Per Share: Net Income/(loss) $ 0.15 $ (4.92) Dividends Declared $ - $ 0.04
_________________________________________________________________
Note 9 - Related Party Transactions
Pursuant to the Purchase Agreements between the Company and RYMAC IV (see note 4), $25 has been withheld from amounts released from the lien of the RYMAC IV Indenture, retained by RYMAC IV and deposited in escrow to be used for payment of expenses of the CMOs secured by certain of the mortgage related investments purchased by the Company. In addition, during the year ended December 31, 1994, the Company incurred $17 of CMO administration fees which were paid to RYMAC IV under the terms of the Purchase Agreements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (amounts in thousands except share data) _________________________________________________________________
Note 10 - Employee Benefits
The Company's Board of Directors has established a Salary Reduction-Simplified Employee Pension Program ("SAR-SEP") for its full-time employees. A SAR-SEP is a minimal administration 408-K Plan (similar to a 401-K) for companies with fewer than 25 employees.
For 1994, the Company contributed 3% of gross compensation and has established the same minimum contribution for 1995. Company contributions to the plan may vary and the Company is not required to continue the program. Employee contributions are based upon established formulas under the Employee Retirement Income Security Act ("ERISA") rules governing 408-K Plans.
In order to encourage Management to remain with the Company 1) to diligently seek a business combination(s) that creates the maximum current and future value for the Company's stockholders and 2) to make the significant arrangements necessary to begin a profitable new investment program, the Unaffiliated Directors adopted incentive stock option and salary continuation programs during 1994 for the Company's two Officers and Affiliated Director. Under the Stock Option Program, options on 240,000 shares of the Company's common stock were awarded at an exercise price of $0.75/share, exercisable over the ten year period ending September 2004. Salary continuance was provided to the same Officers and Affiliated Director, allowing for up to one year's base salary should an Officer not be offered employment by a surviving entity and not find comparable employment within one year of any such business combination.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (amounts in thousands except share data) _________________________________________________________________
Note 11 - Quarterly Financial Data (unaudited)
Item 9.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None
PART III
Item 10.



Item 10. Directors and Executive Officers of the Registrant.
The information required to be set forth hereunder has been omitted and will be incorporated by reference, when filed, to the Company's Proxy Statement for its 1995 Annual Meeting of Stockholders to be held on or about May 22, 1995.
Item 11.

Item 11. Executive Compensation.
The information required to be set forth hereunder has been omitted and will be incorporated by reference, when filed, to the Company's Proxy Statement for its 1995 Annual Meeting of Stockholders to be held on or about May 22, 1995.
Item 12.

Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required to be set forth hereunder has been omitted and will be incorporated by reference, when filed, to the Company's Proxy Statement for its 1995 Annual Meeting of Stockholders to be held on or about May 22, 1995.
Item 13.

Item 13. Certain Relationships and Related Transactions.
The information required to be set forth hereunder has been omitted and will be incorporated by reference, when filed, to the Company's Proxy Statement for its 1995 Annual Meeting of Stockholders to be held on or about May 22, 1995.
PART IV
Item 14.

Item 14. Exhibits, Financial Statements, Schedules and Reports On Form 8-K.
(a) Documents filed as part of this Report:
1. The following financial statements are included in Part II, Item 8 of this Form 10-K:
Independent Auditors' Report Consolidated Balance Sheets Consolidated Statements of Revenues and Expenses Consolidated Statements of Stockholders' Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements
2. Financial statement schedules required:
None
3. The following exhibits are included as part of this Form 10-K:
Exhibit No. Description Page No.
3.1 Amended and Restated Articles of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to Amendment No. 1 to the Company's Registration Statement No. 33-22891 on Form S-11).
3.1.1 Articles of Amendment to Amended and Restated Articles of Incorporation of the Company (incorporated by reference to Exhibit 3.1.1 to the Company's Form 10-K for the year ended December 31, 1990).
3.2.1 Amended and Restated By-laws of the Company (incorporated by reference to Exhibit 3.2 to Amendment No. 1 to the Company's Registration Statement No. 33-22891 on Form S-11).
3.2.2 Amendment to By-laws of the Company (incorporated by reference to Exhibit 3.2.1 to Amendment No. 2 to the Company's Registration Statement No. 33-22891 on Form S-11).
10.1 Purchase Agreement dated as of August 30, 1988 among the Company, RMI I and RYMAC IV with respect to collateral securing RYMAC IV's Series 7 Bonds (incorporated by reference to Exhibit 10.5 to the Company's Form 10-Q for the quarter ended September 30, 1988).
Exhibit No. Description Page No.
10.2 Purchase Agreement dated as of August 30, 1988 among the Company, RMI I and RYMAC IV with respect to collateral securing RYMAC IV's Series 10 Bonds (incorporated by reference to Exhibit 10.6 to the Company's Form 10-Q for the quarter ended September 30, 1988).
10.3 Purchase Agreement dated as of August 30, 1988 among the Company, RMI I and RYMAC IV with respect to collateral securing RYMAC IV's Series 19 Bonds (incorporated by reference to Exhibit 10.7 to the Company's Form 10-Q for the quarter ended September 30, 1988).
10.4 First Amendment to Purchase Agreements dated as of September 23, 1989 among the Company, RMI I and RYMAC IV (incorporated by reference to Exhibit 10.27 to the Company's Form 10-Q for the quarter ended March 31, 1989).
10.5 Residual Bond Purchase Agreement dated as of September 30, 1988 between NVR Mortgage L.P. and the Company (incorporated by reference to Exhibit 10.21 to the Company's Form 10-Q for the quarter ended September 30, 1988).
10.6 Amended and Restated Investment Guidelines (incorporated by reference to Exhibit 10.38 to the Company's Form 10-K for the year ended December 31, 1991).
10.7 Agreement dated as of March 31, 1992 between the Company and NVR Mortgage Management Partnership, NVR Mortgage Management, Inc., NVR Mortgage L.P., Ryan Securities, Inc., and NVR, L.P. (incorporated by reference to Exhibit 10.16 to the Company's Form 10-K for the year ended December 31, 1992).
Exhibit No. Description Page No.
10.8 Limited Waiver and Fourth Amendment to Amended and Restated Revolving Credit Agreement dated as of August 31, 1992 between the Company and Pittsburgh National Bank (incorporated by reference to Exhibit 10.17 to the Company's Form 10-K for the year ended December 31, 1992).
10.9 Limited Waiver and Fifth Amendment to Amended and Restated Revolving Credit Agreement dated as of December 30, 1992 between the Company and Pittsburgh National Bank (incorporated by reference to Exhibit 10.18 to the Company's Form 10-K for the year ended December 31, 1992).
10.10 Sixth Amendment to Amended and Restated Revolving Credit Agreement dated as of January 21, 1993 between the Company, RMI I, RMI II and Pittsburgh National Bank (incorporated by reference to Exhibit 10.19 to the Company's Form 10-K for the year ended December 31, 1992).
10.11 Settlement Agreement dated as of June 29, 1993 by and among the Company, NVR Mortgage Management Partnership, NVR Mortgage L.P., Ryan Securities, Inc., NVR L.P., NVR Mortgage Management, Inc., Ryan Financial Services, Inc., Ryan Mortgage Acceptance Corporation IV, and RMI I (incorporated by reference to Exhibit 99 to the Company's Form 10-Q for the quarterly period ended June 30, 1993).
10.12 Seventh Amendment to Amended and Restated Revolving Credit Agreement dated as of June 16, 1993 between the Company and PNC Bank, National Association, formerly Pittsburgh National Bank.
10.13 Eighth Amendment to Amended and Restated Revolving Credit Agreement dated as of September 15, 1993 by and among the Company, RMI I, and PNC Bank, National Association.
Exhibit No. Description Page No.
20 Notice to stockholders regarding Dividend Reinvestment Plan (incorporated by reference to Exhibit 21 to the Company's Form 10-K for the year ended December 31, 1988).
99.1 Dividend Reinvestment Plan of the Company (incorporated by reference to Exhibit 28.1 to the Company's Form 10-K for the year ended December 31, 1988).
99.2 Dividend Reinvestment Service Agreement dated December 13, 1988 between the Company and Maryland National Bank (incorporated by reference to Exhibit 28.2 to the Company's Form 10-K for the year ended December 31, 1988).
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of the period covered by this Report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
RYMAC MORTGAGE INVESTMENT CORPORATION
By: /s/ Richard R. Conte Richard R. Conte, Chief Executive Officer
Date: March 29, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Name Title Date
/s/ Richard R. Conte Chairman of the Richard R. Conte Board of Directors, Chief Executive Officer and Principal Financial Officer March 29, 1995
/s/ Edward S. Babbitt, Jr. Director March 29, 1995 Edward S. Babbitt, Jr.
/s/ Joseph P. Berghold Director March 29, 1995 Joseph P. Berghold
/s/ Spencer B. Burke Director March 29, 1995 Spencer B. Burke
/s/ James C. Chaplin, IV Director March 29, 1995 James C. Chaplin, IV
[Signatures continued on next page.]
[Signatures continued from previous page.]
/s/ Malcolm M. Prine Director March 29, 1995 Malcolm M. Prine
/s/ Ronald L. Temple Director March 29, 1995 Ronald L. Temple
/s/ Hay Walker, IV Director March 29, 1995 Hay Walker, IV