10-K 1 laser-10k_032802.txt SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------ FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________ TO ___________ COMMISSION FILE NUMBER: 1-13563 ----------------- LASER MORTGAGE MANAGEMENT, INC. (EXACT NAME OF THE REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 22-3535916 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) C\O MARINER INVESTMENT GROUP, INC. 780 THIRD AVENUE, 16TH FLOOR, NEW YORK, NEW YORK 10017 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 758-2024 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NAME OF EACH EXCHANGE TITLE OF EACH CLASS: ON WHICH REGISTERED: ------------------- -------------------- COMMON STOCK, $.001 PAR VALUE NEW YORK STOCK EXCHANGE SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO ___ INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE BEST OF THE REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS FORM 10-K. [X] AT MARCH 1, 2002, THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES OF THE REGISTRANT WAS APPROXIMATELY $16,285,000, BASED UPON THE CLOSING SALE PRICE OF THE COMMON STOCK ON THE NEW YORK STOCK EXCHANGE ON THAT DATE. AT MARCH 1, 2002, THE REGISTRANT HAD OUTSTANDING 14,038,983 SHARES OF COMMON STOCK. DOCUMENTS INCORPORATED BY REFERENCE ----------------------------------- NONE. LASER MORTGAGE MANAGEMENT, INC. TABLE OF CONTENTS PART I Item 1. Business........................................................1 Item 2. Properties......................................................8 Item 3. Legal Proceedings...............................................8 Item 4. Submission of Matters to a Vote of Security Holders.............9 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters............................................10 Item 6. Selected Financial Data........................................11 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations......................................12 Item 7A. Quantitative and Qualitiative Disclosures About Market Risk....27 Item 8. Financial Statements and Supplementary Data....................27 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.......................................27 PART III Item 10. Directors and Executive Officers of the Registrant.............27 Item 11. Executive Compensation.........................................29 Item 12. Security Ownership of Certain Beneficial Owners and Management.....................................................30 Item 13. Certain Relationships and Related Transactions.................31 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.......................................................32 Financial Statements.........................................................F-1 PART I ITEM 1. BUSINESS. REFERENCE IS MADE TO THE GLOSSARY COMMENCING ON PAGE 33 OF THIS REPORT FOR DEFINITIONS OF TERMS USED IN THE FOLLOWING DESCRIPTION OF THE COMPANY'S BUSINESS AND ELSEWHERE IN THIS REPORT. GENERAL LASER Mortgage Management, Inc. (the "Company") was incorporated in Delaware on May 1, 2001, as a wholly-owned subsidiary of LASER Mortgage Management, Inc., a Maryland corporation ("LASER Maryland"), and is the successor by merger to LASER Maryland. LASER Maryland was incorporated in Maryland on September 3, 1997 and commenced its operations on November 26, 1997. On May 30, 2001, the Company's Board of Directors and sole stockholder, LASER Maryland, approved the liquidation and dissolution of the Company under the terms and conditions of the Plan of Liquidation and Dissolution, subject to the approval of the Plan of Liquidation and Dissolution by the stockholders of LASER Maryland. On July 27, 2001, the stockholders of LASER Maryland, at the annual meeting, approved the reincorporation of LASER Maryland in Delaware (the "Reincorporation"), through the merger of LASER Maryland with and into the Company, and the subsequent liquidation and dissolution of the Company under the terms and conditions of the Plan of Liquidation and Dissolution. On July 31, 2001, LASER Maryland completed the Reincorporation by merging with and into the Company. As of the effective date of the Reincorporation, LASER Maryland ceased to exist. On August 3, 2001, the Company filed a certificate of dissolution with the Secretary of State of the State of Delaware, and the dissolution of the Company was effective upon such filing. The Company has ceased to conduct normal business operations and now operates solely for the purpose of providing for the satisfaction of its obligations, adjusting and winding-up its business and affairs and distributing its remaining net assets. References herein to "LASER" or the "Company" include LASER Maryland prior to the date of the Reincorporation, as applicable. In accordance with the Plan of Liquidation and Dissolution, on November 8, 2001, the Board of Directors filed a petition with the Delaware Court of Chancery for permission to make an initial distribution to stockholders of $3.00 per outstanding common share. On November 28, 2001, the Delaware Court of Chancery approved this initial distribution to stockholders. On December 28, 2001, a distribution of $3.00 per outstanding share of common stock was made to stockholders of record as of December 17, 2001. As of December 31, 2001, the estimated net realizable value of the Company's net assets in liquidation was $1.31 per share. After providing for expenses and subject to court approval, the Company expects to distribute the majority of the remaining net assets in liquidation over the next three years with a final liquidating distribution to occur thereafter. The total amount of distributions to stockholders is subject to change based on numerous factors, including operating expenses, the Delaware Court of Chancery modifying the distribution amounts and timing currently envisioned by the Board of Directors under the Plan of Liquidation and Dissolution, unanticipated claims or expenses and income received, if any, from the pending litigation against Asset Securitization Corporation ("ASC"), Nomura Asset Capital Corporation ("Nomura Asset") and Nomura Securitization International, Inc. ("Nomura"), as well as other factors beyond the control of the Company. At its inception, the Company elected to be taxed as a real estate investment trust (a "REIT") under the Internal Revenue Code of 1986, as amended (the "Code"), commencing with its short taxable year ended December 31, 1997. The Company qualified as a REIT for the taxable years ended December 31, 1997 through 2001. The Company does not expect to qualify as a REIT for the year beginning January 1, 2002. See "--Federal Income Tax Considerations." As described above, stockholders approved the Plan of Liquidation and Dissolution of the Company on July 27, 2001. As a result, the Company adopted liquidation basis accounting on July 28, 2001. Prior to July 28, 2001, the Company's operating results were presented in accordance with the historical cost (or going concern) basis accounting. Under liquidation basis accounting, the Company's income, expenses and other comprehensive income are reported as changes in net assets in liquidation in lieu of a statement of operations and comprehensive income. Additionally, under liquidation basis accounting, the Company's assets are carried at their estimated net realizable values and the Company's liabilities are reported at their expected settlement amounts in a statement of net assets in liquidation in lieu of a balance sheet. RECENT DEVELOPMENTS Continuing through January 2002, the Company has liquidated substantially all of its Mortgage Assets pursuant to the Plan of Liquidation and Dissolution, thereby minimizing the risk of loss on the Company's net assets in liquidation. As a result of the proceeds of the sales of Mortgage Assets in 2002, the Company has increased its cash and cash equivalents by $15.3 million from December 31, 2001. The Company conducted its operations before January 2002 so as not to become regulated as an "investment company" under the Investment Company Act of 1940 (the "Investment Company Act"). As a result of the sales of Mortgage Assets described above, and applicable provisions of the Investment Company Act, the Company will not engage in any transactions except those which are "merely incidental to its dissolution" so as to avoid having to register as an "investment company" under the Investment Company Act. At its inception, the Company elected to be taxed for federal income tax purposes as a REIT under the REIT Provisions of the Code. In order to qualify as a REIT, the Company must satisfy a number of asset, income and distribution tests, including the requirement that 75% of its gross income be derived from real estate sources. The Company does not expect to qualify as a REIT for the year beginning January 2002 because less than 75% of the Company's gross income for the 2002 taxable year is expected to be derived from real estate sources. See "--Federal Income Tax Considerations." INVESTMENT STRATEGY The Company was organized to create and manage an investment portfolio of primarily mortgage-backed securities and mortgage loans that, in combination with financing and hedging activities, would generate income for distribution to its stockholders while preserving the Company's capital base. The mortgage-backed securities included mortgage pass-through certificates, collateralized mortgage obligations, other securities representing interests in, or obligations backed by, pools of mortgage loans and mortgage derivative securities (collectively, the "Mortgage Securities"). The mortgage loans are secured by first or second liens on single-family residential, multi-family residential, commercial or other real property (the "Mortgage Loans" and, together with the Mortgage Securities, the "Mortgage Assets"). The Company was also authorized to acquire the following types of investments: o fixed and adjustable rate mortgage pass-through certificates ("Pass-Through Certificates"), which are securities collateralized by pools of Mortgage Loans issued and sold to investors by private, non-governmental issuers ("Privately-Issued Certificates") or by various U.S. government agencies or instrumentalities (collectively, "Agency Certificates"); o collateralized mortgage obligations, including regular interests in real estate mortgage investment conduits, which are fixed and adjustable rate debt obligations collateralized by Mortgage Loans or Pass-Through Certificates; o mortgage derivative securities ("Mortgage Derivatives"), including interest-only securities ("IOs") which receive only certain interest payments from a pool of Mortgage Securities or Mortgage Loans; o subordinate interests ("Subordinate Interests"), which are classes of Mortgage Securities junior to other classes of Mortgage Securities in the right to receive payments from the underlying Mortgage Loans; and o other fixed-income securities in an amount not to exceed 5% of total assets. The Company maintained a portfolio at its peak of approximately $3.8 billion of Mortgage Assets in June 1998. From June 1998 through March 2000, the Company delevered its portfolio by selling certain securities and repaying borrowings in an attempt to reduce the portfolio's susceptibility to basis and interest rate risk and to create additional liquidity. In November 1999, the Company announced that its Board of Directors authorized management to conduct a competitive sale of its less liquid portfolio assets as part of its ongoing program to reduce the volatility of the Company's assets. In order to maximize stockholder value, the Board of Directors continuously reviewed the Company's strategic position and its short-term and long-term prospects. The Board of Directors determined that adverse developments in the markets for mortgage-backed securities, REIT stocks in general and the Company's shares in particular made it more difficult for the Company to enhance stockholder value by growing its business as an independent entity and that the Company would continue to experience difficulties in obtaining new debt or equity financing at a reasonable cost. Therefore, the Board of Directors unanimously agreed in April 2001 that the liquidation and dissolution of the Company was the best alternative available to maximize stockholder value. From time to time before the adoption by the stockholders of the Plan of Liquidation and Dissolution, the Company received inquiries from third parties concerning a possible acquisition of the Company or its outstanding shares of common stock. Some of those inquiries concerned a possible acquisition only after an initial liquidating distribution had been made to stockholders. None of those inquiries resulted in a transaction proposal that the Board of Directors viewed as being as favorable to stockholders as the liquidation and dissolution of the Company. Now that an initial liquidating distribution has been made, management and the Board of Directors will review any inquiries to determine whether any of the inquiries offers an alternative transaction proposal that the Board of Directors views as being as or more favorable to stockholders than the current liquidation and dissolution of the Company pursuant to the Plan of Liquidation and Dissolution. During the period July 28, 2001 through December 31, 2001, the Company began the process of liquidating its assets pursuant to the Plan of Liquidation and Dissolution. At December 31, 2001, the Company's remaining portfolio amounted to $17.3 million and consisted primarily of Agency Certificates. In January 2002, the Company disposed of all of its remaining Agency Certificates. OPERATING POLICIES AND STRATEGIES HISTORICAL CAPITAL AND LEVERAGE POLICIES Initially, the Company financed its acquisition of Mortgage Assets through proceeds of its initial public offering in December 1997 and several concurrent private placements, and subsequently financed any acquisitions primarily by borrowing against or "leveraging" its existing portfolio and using the proceeds to acquire additional Mortgage Assets. Historically, the Company's target for its equity-to-assets ratio depended upon market conditions and other relevant factors. In connection with its liquidation and dissolution, the Company has substantially reduced its portfolio of Mortgage Securities and the leverage financing used to maintain its portfolio. HISTORICAL SHORT-TERM BORROWING Mortgage Assets were financed primarily at short-term borrowing rates through repurchase agreements. Repurchase agreements are sales of pledged securities to a lender at discounted prices in return for an agreement by the lender to resell the same or substantially similar securities to the borrower on some future date at an agreed price. Repurchase agreements are structured as sale and repurchase obligations that allow a borrower to pledge purchased Mortgage Assets as collateral securing short-term loans to finance the purchase of such Mortgage Assets. Typically, the lender in a repurchase arrangement makes a loan in an amount equal to a percentage of the market value of the pledged collateral. At maturity, the borrower is required to repay the loan and the pledged collateral is released. Pledged Mortgage Assets continue to pay principal and interest to the borrower. Repurchase agreements also require the Company to deposit additional collateral (a "margin call") or reduce its borrowings thereunder, if the market value of the pledged collateral declines below certain levels. The Company has met every margin call to date initiated by its lenders. The Company has entered into repurchase agreements with financially sound institutions, primarily broker-dealers. The Company has liquidated substantially all of its Mortgage Securities pursuant to the Plan of Liquidation and Dissolution and has used the proceeds from the sales of Mortgage Securities to repay substantially all of the outstanding repurchase agreements. The Company does not intend to enter into any new repurchase agreements. HISTORICAL INTEREST RATE RISK MANAGEMENT STRATEGY AND HEDGING ACTIVITIES The Company followed an interest rate risk management strategy designed to protect against the adverse effects of major interest rate changes. As part of this strategy, the Company entered into hedging transactions which included interest rate swaps and an interest rate cap. These instruments were used to hedge as much of the interest rate risk of the Company as the investment manager determined was in the best interest of the stockholders, given the cost of such hedges and the prior need to maintain the Company's status as a REIT. PRIOR LOSSES ON HEDGING STRATEGIES In December 1997, the Company entered into interest rate swaps with an aggregate notional amount of $1,035 million. The Company used these interest rate swaps to hedge its available-for-sale portfolio of fixed-rate Agency Certificates. The primary objective of this hedging strategy was to change the interest rate characteristics of these securities from fixed to variable rates, to better correspond to the maturity and repricing characteristics of the short-term repurchase agreements used by the Company to fund these investments. This primary objective was the basis for the Company's hedge accounting treatment. The Company continually monitored the swaps to ensure that they were effective at changing the interest rate characteristics of the securities. A secondary objective was to offset fluctuations in the fair value of the securities caused by fluctuations in market interest rates. In September 1998, the Company experienced margin calls and believed it prudent to increase its liquidity and, therefore, liquidated a large portion of its Agency Certificates. In conjunction with the liquidation of these securities positions, the Company also discontinued hedge accounting for the related swaps with an aggregate notional amount of $485 million. The Company recognized the unrealized loss on these swaps as an element of the overall loss on the liquidation of the securities of $(26.0) million. In October 1998, the Company liquidated Agency Certificates in response to continued margin calls and the need for liquidity. The overall October 1998 loss on the liquidation of Agency Certificates, including losses recognized upon suspension of hedge accounting for the remaining swap with a notional amount of $550 million, totaled $(35.0) million. On the day of each suspension of hedge accounting, the affected swaps were closed out without additional gain or loss. The valuations and other information previously used by the Company to monitor the effectiveness of its interest rate swap hedging strategy were obtained through multiple independent dealer quotes. This same information was used to record the investments and swaps in the Company's financial statements and to determine the Company's net asset value. The Company has never purchased or written options to enter into swaps. The Company did not enter into any interest rate swaps during 1999, 2000 and 2001, after having used them extensively in 1997 and 1998. In May 2000, the Company purchased a cap with a notional amount of $100 million for a premium of $3.0 million to reduce the risk of rising interest rates on the cost of the short-term repurchase agreements used to finance its investments. The cap agreement had a term of three years and provided for monthly payments of interest to the Company to the extent that the one-month London Interbank Offered Rate ("LIBOR") exceeded 6.54% as applied to the notional amount. At December 31, 2000, the cap had an estimated fair value of $0.4 million and the Company recorded an unrealized loss of $(2.6) million in the statement of operations. As a result of the subsequent reduction in interest rates, the Company closed out the cap in January 2001 for $0.3 million and recognized an additional loss of $(0.1) million in the statement of operations. The Company did not purchase any interest rate caps in 2001. MANAGEMENT ARRANGEMENTS From November 1, 1999 to November 1, 2001, Mariner Mortgage Management, L.L.C. ("Mariner") served as the external manager of the Company and was responsible for the day-to-day management of the Company's investments and operations. Under the most recent management agreement, which was entered into on November 1, 2000 and terminated on November 1, 2001, Mariner became entitled to be paid an incentive fee upon the earlier of (1) the termination date of the management agreement or (2) the date on which the Board of Directors adopted resolutions approving the liquidation and dissolution, referred to as the anniversary date, which it did on April 25, 2001, equal to the number of shares outstanding on the applicable date, multiplied by: o 10% of the difference between the 15-day average closing market price (plus any distributions per share other than common stock) of the Company's common stock preceding November 1, 2001 (or such earlier anniversary date, as set forth in the agreement) and $3.317 per share (which approximates the average closing price of the Company's common stock for the fifteen days ended October 31, 2000) up to the equivalent of $3.50 per share; o 15% of the difference between the 15-day average closing market price (plus any distributions per share other than common stock) of the Company's common stock preceding November 1, 2001 or on the anniversary date, whichever is earlier, and $3.50 per share up to $4.00 per share; and o 20% of the difference between the 15-day average closing market price (plus any distributions per share other than common stock) of the Company's common stock preceding November 1, 2001 or on the anniversary date, whichever is earlier, and $4.00 per share. Based upon this calculation, an incentive fee of $1,219,285 was paid to Mariner on May 1, 2001. Mariner was not entitled to receive any other fee in connection with the Plan of Liquidation and Dissolution. In accordance with the terms of the management agreement, Mariner continued to receive its base management fee of $50,000 per month until the termination of the management agreement. For the period November 1, 1999 to November 1, 2000, the annual base fee under the terms of the management agreement then in effect, was payable monthly in cash and based on 0.45% of the aggregate value of the Company's outstanding equity as of the end of such month; the annual incentive fee calculation for that period was similar to the computation described above. The table below shows the base fees incurred to the Company pursuant to the terms of the Mariner management agreement. FOR THE PERIOD: Base Fees Incurred July 28, 2001 through November 1, 2001 $ 150,000 January 1, 2001 through July 27, 2001 $ 350,000 January 1, 2000 through December 31, 2000 $ 294,193 November 1, 1999 through December 31, 1999 $ 42,754 No incentive fees were incurred during the period July 28, 2001 through December 31, 2001, or during the years ended December 31, 2000 and 1999. As described above, an incentive fee of $1,219,285 was paid to Mariner during the period January 1, 2001 through July 27, 2001. Upon the termination of the management agreement on November 1, 2001, the Company became self managed and entered into employment agreements with William J. Michaelcheck, the President and Chief Executive Officer of the Company, and Charles R. Howe, II, the Vice President, Treasurer and Secretary of the Company, each at a salary of $10,000 per month. Messrs. Michaelcheck and Howe previously were responsible for managing the Company's portfolio at Mariner and continue to have significant responsibilities at Mariner. On November 1, 2001, the Company also entered into a support services agreement with Mariner Investment Group, Inc. ("Mariner Investment Group"), an affiliate of Mariner, under which Mariner Investment Group will provide the Company with office space and services, bookkeeping and accounting services and such other services as may be agreed upon from time to time by the Company and Mariner Investment Group for a fee of $30,000 per month. Prior to November 1, 1999, the Company was engaged in a consulting arrangement with BlackRock Financial Management, Inc. ("BlackRock") and in a management agreement with LASER Advisers, Inc. (the "Former Manager"). The management agreement with the Former Manager was terminated effective February 28, 1999. During the time the management agreement was in effect, it provided for an annual base management fee of 1.0% of average stockholders' equity, as defined in the management agreement, and a quarterly incentive fee in an amount equal to 20% of the excess quarterly net income of the Company over a hurdle, all as defined. For the year ended December 31, 1999, the Company incurred consulting fees to BlackRock in the amount of $1.1 million and management fees to the Former Manager of approximately $0.5 million for the year ended December 31, 1999. FEDERAL INCOME TAX CONSIDERATIONS TAXATION OF THE COMPANY At its inception, the Company elected to be taxed for federal income tax purposes as a REIT under the REIT Provisions of the Code. As such, the Company generally was entitled to a deduction for all dividends it paid to its stockholders for a taxable year. As a result, the Company was not subject to federal income taxation with respect to its distributed income. Because less than 75% of the Company's gross income for the 2002 taxable year is expected to derive from the prescribed real estate sources, the Company does not expect to qualify as a REIT for the year beginning January 2002. If, in 2002, the Company fails to qualify as a REIT or the Company revokes its election to be taxed as a REIT, it will no longer be entitled to deduct dividends paid to stockholders from its taxable income. In this case, the Company would be subject to federal income tax at corporate rates (including any applicable alternative minimum tax) with respect to gains from liquidating sales of assets and income from operations for that year and for subsequent taxable years. These federal income taxes should reduce the amounts otherwise distributable to its stockholders. Revenue Procedure 99-17 provided securities and commodities traders with the ability to elect mark-to-market treatment for 1998 by including a statement with their timely filed 1998 tax return. The election applies for all future years as well unless revoked with the consent of the Internal Revenue Service (the "IRS"). The Company elected mark-to-market treatment as a securities trader, and accordingly, recognizes gains and losses prior to the actual disposition of its securities. Moreover, some if not all of these constructive gains and losses, as well as some if not all gains or losses from actual dispositions of securities, for both 1998 and beyond, are being treated as ordinary in nature, and not capital, as they would be in the absence of this election. There is no assurance, however, that the Company's election will not be challenged on the ground that it is not in fact a trader in securities, or that it is only a trader with respect to some, but not all, of its securities. As such, there is a risk that the Company will not be able to mark to market its securities, or that it will be limited in its ability to recognize certain losses. The Company believes that during 1999 it experienced an "ownership change" within the meaning of Section 382 of the Code. Consequently, the Company's use of NOLs generated before the ownership change to reduce taxable income after the ownership change will be subject to limitations under Code Section 382. Generally, Code Section 382 limits the use of NOLs in any year to the value of the Company's common stock on the date of the ownership change multiplied by the long-term tax-exempt rate (published by the IRS) with respect to that date. TAX CONSEQUENCES OF LIQUIDATING DISTRIBUTIONS TO STOCKHOLDERS The Company believes that the distributions of proceeds of sales of assets to stockholders pursuant to the Plan of Liquidation and Dissolution should be treated as distributions in a complete liquidation. In this case, distributions should not be treated as dividends received by a stockholder, but rather as if the stockholder had sold its shares. Also in this case, a stockholder should recognize gain or loss with respect to each share held by the stockholder, measured by the difference between: o the total amount of cash and fair market value of other property, if any, received by the stockholder with respect to such share pursuant to the Plan of Liquidation and Dissolution; and o the stockholder's basis in that share. If a stockholder holds blocks of shares acquired at different times or at different costs, each liquidating distribution would be allocated ratably among the various blocks of shares, and gain or loss would be computed separately with respect to each block of shares. Gain or loss recognized by a stockholder would be capital gain or loss if the shares are held by the stockholder as capital assets. Capital gain or loss would be long-term if the shares were held for more than 12 months. Corporate stockholders may deduct capital losses in the year recognized only to the extent of capital gains recognized during such year. Unused capital losses of a corporation may generally be carried back three years and forward for five years, but may not be carried to any year in which they would create or increase a net operating loss. Individual stockholders may deduct capital losses each year to the extent of their capital gains, plus $3,000. Any unused capital loss may be carried forward indefinitely by individual taxpayers until the individual recognizes sufficient capital gains to absorb them or recognizes such losses at the rate of up to $3,000 per year. Capital losses may not be carried back by an individual. The liquidation and dissolution will result in more than one liquidating distribution to the stockholders. Each liquidating distribution would be first applied against the adjusted tax basis of each of a stockholder's shares and gain would be recognized with respect to a share only after an amount equal to the adjusted tax basis of such share has been fully recovered. Any losses with respect to a share could be recognized by a stockholder only after we have made our final distribution, if any, or after the last substantial liquidating distribution was determinable with reasonable certainty. As a consequence of the foregoing, stockholders that would realize losses under the Plan of Liquidation and Dissolution would likely be prevented from recognizing such losses until the receipt of the final distribution. TAX CONSEQUENCES OF LIQUIDATING DISTRIBUTIONS TO NON-UNITED STATES STOCKHOLDERS Because liquidating distributions pursuant to the Plan of Liquidation and Dissolution should be treated as paid in exchange for a stockholder's shares and not as dividends, no withholding on liquidating distributions should generally be required. Although the Company will not be required to withhold against liquidating distributions to any non-U.S. stockholder (non-U.S. stockholders, as used herein, refer to stockholders that are not "U.S. persons" as defined in section 7701(a)(30) of the Code) a non-U.S. stockholder nevertheless will be subject to U.S. federal income tax with respect to liquidating distributions under the following circumstances. First, if a non-U.S. stockholder's investment in the Company's shares is effectively connected with the non-U.S. stockholder's U.S. trade or business, the non-U.S. stockholder generally will be subject to the same treatment as U.S. stockholders with respect to liquidating distributions, and if the non-U.S. stockholder is a corporation, it may also be subject to the branch profits tax. Second, if the non-U.S. stockholder is a nonresident alien individual who is present in the United States for 183 days or more during the taxable year in which the liquidating distributions are received and certain other conditions apply, the nonresident alien individual will be subject to a 30% tax on the individual's capital gains. Non-U.S. stockholders should consult their own tax advisors regarding the U.S. federal income tax consequences of receiving liquidating distributions. INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING The Company reports to its U.S. stockholders and to the IRS the amount of distributions paid during each calendar year, and the amount of tax withheld, if any. Under the backup withholding rules, a stockholder may be subject to backup withholding at the rate of 30% with respect to distributions paid unless such holder (i) is a corporation or comes within certain other exempt categories and, when required, demonstrates this fact, or (ii) provides a taxpayer identification number, certifies as to no loss of exemption from backup withholding, and otherwise complies with the applicable requirements of the backup withholding rules. A stockholder who does not provide the Company with his correct taxpayer identification number also may be subject to penalties imposed by the IRS. Any amount paid as backup withholding will be creditable against the stockholder's income tax liability. The Treasury Department has issued regulations regarding the backup withholding rules as applied to non-U.S. stockholders that unify and tighten current certification procedures and forms and clarify reliance standards. STATE AND LOCAL TAXES The Company and its stockholders may be subject to state and local tax in various states and localities, including those states and localities in which it or they transact business, own property, or reside. The state and local tax treatment of the Company and its stockholders in such jurisdictions may differ from the federal income tax treatment described above. Consequently, stockholders should consult their own tax advisors regarding the effect of state and local tax laws on ownership of the Common Stock. EMPLOYEES The Company currently has two employees. Mariner Investment Group provides various support services to the Company pursuant to a support services agreement described in Item 2. ITEM 2. PROPERTIES. On November 1, 2001, the Company entered into a support services agreement with Mariner Investment Group, an affiliate of Mariner, under which Mariner Investment Group will provide the Company with office space and services, bookkeeping and accounting services and such other services as may be agreed upon from time to time by the Company and Mariner Investment Group for a fee of $30,000 per month. The Company's executive offices are located within Mariner Investment Group's offices at 780 Third Avenue, 16th Floor, New York, New York 10017. ITEM 3. LEGAL PROCEEDINGS. On October 23, 2000, the Company filed suit in federal court in the Southern District of New York against ASC, Nomura Asset and Nomura alleging that the defendants defrauded the Company into purchasing over $19.0 million worth of mortgage pass-through certificates by failing to disclose among other things, that one of largest loans in the mortgage pool was seriously troubled. On December 8, 2000, the defendants filed a motion to dismiss the action. On September 5, 2001, such motion was granted with respect to the claims brought under Sections 12(a)(2) and 15 of the Securities Act of 1933 and denied with respect to the common law fraud claims and claims brought under Sections 10(b) and 20(a) of Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. Discovery is proceeding with regard to the surviving claims. A recovery of this investment may be possible, but management is unable to predict the likelihood of this occurrence. In accordance with the Plan of Liquidation and Dissolution, on November 8, 2001, the Board of Directors filed a petition with the Delaware Court of Chancery for permission to make an initial distribution to stockholders of $3.00 per outstanding common share. On November 28, 2001, the Delaware Court of Chancery approved this initial distribution to stockholders. On December 28, 2001, a distribution of $3.00 per outstanding share of common stock was made to stockholders of record as of December 17, 2001. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. EXECUTIVE OFFICERS OF THE REGISTRANT The Company's executive officers are as follows:
OFFICER NAME AGE SINCE POSITION ----------------------------- --- ------- ------------------------------------------------ William J. Michaelcheck...... 55 1999 Chief Executive Officer, President and Director Charles R. Howe, II.......... 40 2000 Chief Financial Officer, Treasurer and Secretary
The Company's officers are elected by the Board of Directors and serve at the discretion of the Board. WILLIAM J. MICHAELCHECK has been the President and Chief Executive Officer of the Company since November 1999 and the Chairman and sole member of Mariner since its inception in October 1999. Mr. Michaelcheck has been the Chairman and sole stockholder of Mariner Investment Group since 1992. Formerly, he was Executive Vice President of the Bear Stearns Companies Inc. and a Senior Managing Director of Bear, Stearns & Co. Inc., where he was co-head of the Fixed-Income Department and also responsible for a large segment of the firm's trading activities and risk management. Mr. Michaelcheck joined Bear Stearns in 1979 as co-creator of the Government Bond Department, becoming a General Partner in 1981 and a Senior Managing Director when Bear Stearns became a publicly-held corporation. He was named Executive Vice President in 1987, and served on the firm's Executive Committee and Management and Compensation Committee until leaving Bear Stearns in October 1992. CHARLES R. HOWE, II has been the Chief Financial Officer, Treasurer and Secretary of the Company since January 2000 and the Chief Financial Officer of Mariner since its inception and of Mariner Investment Group for more than five years. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The Common Stock trades on the New York Stock Exchange under the symbol "LMM." The following table sets forth, for the periods indicated, the high and low sales prices per share of Common Stock as reported on the NYSE composite tape and the cash dividends and distributions declared per share of Common Stock. To comply with applicable provisions of the Investment Company Act, the Company may be required to delist its Common Stock from the NYSE. In any event, based on conversations with the NYSE, the Company believes that the NYSE will take action to delist the Common Stock because the Company will not be able to maintain continued compliance with the NYSE's listing requirements. Accordingly, if the Common Stock is delisted from the NYSE, trading, if any, would thereafter be conducted on the over-the-counter market in the so-called "pink sheets." As a result, it may be more difficult to dispose of, or to obtain accurate quotations as to the price of, the Common Stock. Stock Prices Cash Dividends/ ------------ Distributions High Low Declared Per Share ---- --- ------------------ 2000 First Quarter $4.06 $3.75 $-- Second Quarter $3.94 $3.63 -- Third Quarter $3.81 $3.00 -- Fourth Quarter $3.50 $3.00 -- 2001 First Quarter $3.92 $3.37 -- Second Quarter $4.24 $3.86 -- Third Quarter $4.17 $3.97 -- Fourth Quarter $4.17 $1.05 $3.00 2002 First Quarter (through March 1, 2002) $1.16 $1.04 -- As of March 1, 2002, the Company had 14,038,983 shares of Common Stock issued and outstanding which were held by 48 holders of record. DISTRIBUTIONS In accordance with the Plan of Liquidation and Dissolution, on November 8, 2001, the Board of Directors filed a petition with the Delaware Court of Chancery for permission to make an initial distribution to stockholders of $3.00 per outstanding common share. On November 28, 2001, the Delaware Court of Chancery approved this initial distribution to stockholders. On December 28, 2001, a distribution of $3.00 per outstanding share of common stock was made to stockholders of record as of December 17, 2001. As of December 31, 2001, the estimated net realizable value of the Company's net assets in liquidation was $1.31 per share. After providing for expenses and subject to court approval, the Company expects to distribute the majority of the remaining net assets in liquidation over the next three years with a final liquidating distribution to occur thereafter. The total amount of distributions to stockholders is subject to change based on numerous factors, including operating expenses, the Delaware Court of Chancery modifying the distribution amounts and timing currently envisioned by the Board of Directors under the Plan of Liquidation and Dissolution, unanticipated claims or expenses and income received, if any, from the pending litigation against ASC, Nomura Asset and Nomura, as well as other factors beyond the control of the Company. ITEM 6. SELECTED FINANCIAL DATA. The information set forth below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and all of the financial statements and the notes thereto and other financial information included elsewhere herein.
------------------------------------------------------------------------------------------------------------------- Period from January 1, 2001 through July 27, Period from 2001 (the date November 26, immediately prior 1997 to the date of (Commencement adoption of Year Ended Year Ended Year Ended of Operations) liquidation basis December 31, December 31, December 31, through accounting 2000 1999 1998 December 31, 1997 ----------------- ------------ ------------ ------------ ----------------- (in thousands, except share and per share data) STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME DATA: Interest income: Securities and mortgage loans......... $ 7,231 $ 17,194 $ 28,139 $ 182,733 $ 10,078 Cash and cash equivalents............. 526 1,250 1,805 4,053 811 ----------- ----------- ----------- ----------- ----------- Total interest income.............. 7,757 18,444 29,944 186,786 10,889 ----------- ----------- ----------- ----------- ----------- Interest expense: Repurchase agreements................. 4,060 10,654 16,812 154,757 8,489 Other................................. -- 21 -- -- -- ----------- ----------- ----------- ----------- ----------- Total interest expense............. 4,060 10,675 16,812 154,757 8,489 ----------- ----------- ----------- ------------ ----------- Net interest income..................... 3,697 7,769 13,132 32,029 2,400 Net realized (loss) gain on sale of securities and swaps.................. (4,218) (1,125) (19,829) (52,443) 588 Net loss on interest rate agreement..... (120) (2,580) -- -- -- Impairment loss on securities........... -- (17,597) -- (51,474) -- General and administrative expenses..... 2,528 1,617 4,325 8,384 415 ----------- ----------- ----------- ----------- ----------- Net (loss) income...................... $ (3,169) $ (15,150) $ (11,022) $ (80,272) $ 2,573 ----------- ----------- ----------- ----------- ----------- Other Comprehensive (Loss) Income: Unrealized net gain (loss) on securities: Unrealized holding (loss) gain arising during the period.......... (3,017) (9,973) (17,506) (67,793) 1,192 Add: reclassification adjustment for net realized loss (gain) included in net (loss) income...... 4,218 18,722 19,829 52,443 (588) ----------- ----------- ----------- ----------- ----------- Other comprehensive income (loss)....... 1,201 8,749 2,323 (15,350) 604 ----------- ----------- ----------- ----------- ----------- Comprehensive (loss) income............. $ (1,968) $ (6,401) $ (8,699) $ (95,622) $ 3,177 =========== =========== =========== =========== =========== Net (loss) income per share: Basic................................. $ (0.23) $ (1.05) $ (0.65) $ (4.16) $ 0.13 =========== =========== =========== =========== =========== Diluted............................... $ (0.23) $ (1.05) $ (0.65) $ (4.16) $ 0.13 =========== =========== =========== =========== =========== Weighted average number of shares outstanding: Basic................................. 14,038,983 14,369,081 16,925,143 19,313,865 20,019,999 =========== =========== =========== =========== =========== Diluted............................... 14,038,983 14,369,081 16,925,143 19,313,865 20,019,999 =========== =========== =========== =========== =========== -------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------ STATEMENT OF NET BALANCE SHEET DATA ASSETS IN LIQUIDATION As of As of As of As of As of As of December 31, 2001 July 27, 2001 December 31, 2000 December 31, 1999 December 31, 1998 December 31, 1997 ----------------- ------------- ----------------- ----------------- ----------------- ----------------- Cash and cash equivalents $ 2,960 $ 22,592 $ 3,542 $ 16,065 $ 30,393 $ 82,627 Total assets 21,919 109,391 327,928 118,283 874,071 3,793,239 Total liabilities 3,476 47,919 264,488 45,291 746,514 3,510,805 Stockholders' equity -- 61,472 63,440 72,992 127,557 282,434 Net assets in liquidation 18,443 -- -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------
As a result of the stockholders approving the Plan of Liquidation and Dissolution, the Company adopted liquidation basis accounting effective July 28, 2001. Accordingly, the Company's assets are stated at their estimated net realizable values and liabilities are stated at their estimated settlement amounts, including an accrual for estimated expenses associated with the liquidation of the Company. This information should also be read in conjunction with "Item 1. Business" and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations," as well as the audited financial statements and notes thereto included in "Item 8. Financial Statements and Supplementary Data." ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS You should read the following discussion in conjunction with "Selected Financial Data" and the financial statements and notes thereto included elsewhere herein. GENERAL On July 27, 2001, the stockholders of LASER Maryland, at the annual meeting, approved the Reincorporation of LASER Maryland in Delaware, through the merger of LASER Maryland with and into the Company, and the subsequent liquidation and dissolution of the Company under the terms and conditions of the Plan of Liquidation and Dissolution. On July 31, 2001, LASER Maryland completed the Reincorporation by merging with and into the Company. As of the effective date of the Reincorporation, LASER Maryland ceased to exist. On August 3, 2001, the Company filed a certificate of dissolution with the Secretary of State of the State of Delaware, and the dissolution of the Company was effective upon such filing. The Company has ceased to conduct normal business operations and now operates solely for the purpose of providing for the satisfaction of its obligations, adjusting and winding-up its business and affairs and distributing its remaining net assets. In accordance with the Plan of Liquidation and Dissolution, on November 8, 2001, the Board of Directors filed a petition with the Delaware Court of Chancery for permission to make an initial distribution to stockholders of $3.00 per outstanding common share. On November 28, 2001, the Delaware Court of Chancery approved this initial distribution to stockholders. On December 28, 2001, a distribution of $3.00 per outstanding share of common stock was made to stockholders of record as of December 17, 2001. As of December 31, 2001, the estimated net realizable value of the Company's net assets in liquidation was $1.31 per share. After providing for expenses and subject to court approval, the Company expects to distribute the majority of the remaining net assets in liquidation over the next three years with a final liquidating distribution to occur thereafter. The total amount of distributions to stockholders is subject to change based on numerous factors, including operating expenses, the Delaware Court of Chancery modifying the distribution amounts and timing currently envisioned by the Board of Directors under the Plan of Liquidation and Dissolution, unanticipated claims or expenses and income received, if any, from the pending litigation against ASC, Nomura Asset and Nomura, as well as other factors beyond the control of the Company. As a result of the stockholders approving the Plan of Liquidation and Dissolution, the Company adopted liquidation basis accounting effective July 28, 2001. Accordingly, the Company's assets are stated at their estimated net realizable values and liabilities are stated at their estimated settlement amounts, including an accrual for estimated expenses associated with the liquidation of the Company. Before the adoption of liquidation basis accounting, the Company operated as a continuing business and followed going concern basis accounting. Because substantially all of the existing assets and liabilities of the Company were carried at approximate fair value in accordance with generally accepted accounting principles ("GAAP"), the adoption of liquidation basis accounting did not have a material impact on the Company's financial statements other than requiring the Company to charge stockholders' equity for the: reduction in the carrying value of securities to reflect their estimated net realizable value, write-off of the remaining balance of prepaid expenses, and reserve for estimated expenses associated with the liquidation of the Company. However, the valuation of assets and liabilities at their estimated net realizable values and estimated settlement amounts, respectively, necessarily requires estimates and assumptions. Changes in market conditions, actual costs associated with the liquidation, and other factors may affect the amounts ultimately realized or settled, and those amounts may differ, perhaps materially, from the carrying values on the Company's financial statements. At its inception, the Company elected to be taxed as a REIT under the Code, commencing with its short taxable year ended December 31, 1997. The Company qualified as a REIT for the taxable years ended December 31, 1997 through 2001. The Company does not expect to qualify as a REIT for the year beginning January 1, 2002. See "Business--Federal Income Tax Considerations." CHANGES IN NET ASSETS IN LIQUIDATION FOR THE PERIOD JULY 28, 2001 THROUGH DECEMBER 31, 2001 Under liquidation basis accounting, net assets in liquidation increased by $1.8 million for the period July 28, 2001 through December 31, 2001 excluding the $(42.1) million cash liquidation distribution paid on December 28, 2001. At December 31, 2001, net assets in liquidation amounted to $18.4 million. The Company's portfolio of interest earning assets, net of interest bearing liabilities, earned $1.8 million of net interest income. In addition, the Company recorded a net increase of $0.6 million from gains on sales of securities and changes in the estimated net realizable value of the portfolio. General and administrative expenses during that period amounted to $(0.6) million and consisted of $(0.2) million of management fees and $(0.4) million of professional fees, payroll and other expenses. During the period July 28, 2001 through December 31, 2001, a net $66.8 million of cash was generated from the Company's operating and investing activities, including $66.0 million of proceeds from sales of, and principal payments on, securities. Additionally, the Company paid $(44.4) million to substantially reduce its outstanding repurchase agreements and paid a cash liquidation distribution of $(42.1) million. Cash and cash equivalents amounted to $3.0 million at December 31, 2001. At adoption of liquidation basis accounting, certain adjustments were made to stockholders' equity, as determined under going concern basis accounting, to reflect more accurately the estimated net realizable values of the remaining net assets of the Company. In that regard, reductions in the aggregate amount of $(2.7) million were charged to stockholders' equity of $61.4 million at that time. These adjustments consist of a $(0.9) million reduction in the carrying value of securities, the immediate write-off of the remaining balance of all prepaid expenses and the recognition of the estimated costs associated with the liquidation. However, the valuation of assets and liabilities at their estimated net realizable values and estimated settlement amounts, respectively, necessarily requires estimates and assumptions. Changes in market conditions, actual costs associated with the liquidation, and other factors may affect the amounts ultimately realized or settled, and those amounts may differ, perhaps materially, from the carrying values on the Company's financial statements. RESULTS OF OPERATIONS PERIOD JANUARY 1, 2001 THROUGH JULY 27, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000 NET INCOME (LOSS) SUMMARY GENERAL. For the period January 1, 2001 through July 27, 2001, the Company had net income of $2.3 million, or $0.17 per weighted average share, excluding aggregate net losses from investment activities and the interest rate agreement of $(4.3) million, or $(0.31) per share, and the incentive fee of $(1.2) million, or $(0.09) per share. For the period January 1, 2001 through July 27, 2001, the weighted average number of shares of Common Stock outstanding was 14,038,983; no distributions or dividends were declared or paid and return on average stockholders' equity was (4.87%) on an actual basis. For the year ended December 31, 2000, the Company had net income of $2.4 million or $0.17 per weighted average share, before giving effect to charges relating to the impairment of certain Subordinate Interests. The impairment charge of $(17.6) million or $(1.22) per share resulted in the Company reporting a net loss of $(15.2) million or $(1.05) per share. For the year ended December 31, 2000, the weighted average number of shares of Common Stock outstanding was 14,369,081; no distributions or dividends were declared or paid; and return on average equity was (18.03)% (after giving effect to the impairment charges). GAINS/LOSSES FROM INVESTMENT ACTIVITIES. For the period January 1, 2001 through July 27, 2001, the Company sold securities and recorded a net realized loss of $(4.2) million, or $(0.30) per share. Also during this period, the Company recorded a $1.2 million increase in other comprehensive income from the unrealized net gain on securities resulting in an overall net loss in stockholders' equity from securities of $(3.0) million. For the year ended December 31, 2000, the Company realized a net loss of $(1.1) million or $(0.08) per share from the sale of securities, recognized an unrealized loss of $(2.6) million or $(0.18) per share on the change in the estimated fair value of an interest rate cap agreement in effect at year-end and recorded an impairment charge of $(17.6) million or $(1.22) per share relating to the impairment of certain Subordinate Interests. See "--Losses from Impairment Charges." Also during the year, the Company recorded an $(8.7) million reduction in other comprehensive loss from the unrealized net gain on securities for an aggregate net loss in stockholders' equity from securities of $(12.6) million. The unrealized net gain recorded during the year ended December 31, 2000 included a credit of $17.6 million for the recognition of the previously mentioned impairment charge - such recognition had no effect on stockholders' equity. LOSSES FROM IMPAIRMENT CHARGES. The Company was notified in June 2000 of a default in a $50.0 million mortgage loan in a trust fund of which the Company owns Subordinated Interests. The securities that are affected by this event are subordinated classes of Commercial Mortgage Pass-Through Certificates, Series 1997-D5 that represent beneficial ownership interests in a trust fund created by ASC, an affiliate of Nomura, at the time of the offering. Thereafter, a representative of Nomura notified a representative of the Company that the amount of the recovery of the securities might be negligible. Accordingly, management increased the unrealized loss on those securities at that time by approximately $(9.1) million representing the remaining total aggregate carrying value of those securities, pending further developments. On October 23, 2000 the Company filed suit in the Southern District of New York against ASC, Nomura Asset and Nomura alleging that the defendants defrauded the Company into purchasing approximately $19.0 million worth of ASC securities by failing to disclose among other things, that one of largest loans in the mortgage pool was seriously troubled. On December 8, 2000, the defendants filed a motion to dismiss the action. The Company is seeking rescission of the purchase of the securities. During the quarter ended December 31, 2000, the Company recognized the probable other-than-temporary impairment of those securities by charging the statement of operations and crediting accumulated other comprehensive loss on the balance sheet for the aggregate cumulative loss of $(17.6) million; such recognition had no further impact on stockholders' equity from the time of the earlier increase in unrealized loss. On September 5, 2001, defendants' motion to dismiss the action was granted with respect to the claims brought under Sections 12(a)(2) and 15 of the Securities Act of 1933 and denied with respect to the common law fraud claims and claims brought under Sections 10(b) and 20(a) of Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. Discovery is proceeding with regard to the surviving claims. A recovery of this investment may be possible, but management is unable to predict the likelihood of this occurrence. TAXABLE INCOME (LOSS) For the tax years ended December 31, 2001 and 2000, net operating losses as calculated for tax purposes ("NOLs") are estimated at approximately $(1.4) million and $(6.2) million, respectively. NOLs generally may be carried forward for 20 years. The Company believes that during 1999 it experienced an "ownership change" within the meaning of Section 382 of the Code. Consequently, its use of NOLs generated before the ownership change to reduce taxable income after the ownership change will be subject to limitations under Section 382. Generally, the use of NOLs in any year is limited to the value of the Company's stock on the date of the ownership change multiplied by the long-term tax exempt rate (published by the IRS) with respect to that date. The Company believes that the annual limitation with respect to the use of its pre-ownership change NOLs is approximately $3.0 million. The Company believes that as of December 31, 2001, approximately $92.5 million of the estimated cumulative NOL of $120.1 million is subject to the annual limitation. Taxable income (loss) requires an annual calculation; consequently, for the tax year ended December 31, 2001, taxable income (loss) may be different from GAAP net income (loss) primarily as a result of differing treatment of unrealized net gains (losses) on securities transactions. For the Company's tax purposes, unrealized net gains (losses) will be recognized at the end of the year and will be aggregated with operating gains (losses) to produce total taxable income (loss) for the year. For the tax years ended December 31, 2001 and 2000, the Company had unrealized net gains of approximately $3.9 million and $8.7 million, respectively. The distinction between taxable income (loss) and GAAP net income (loss) is important to the Company's stockholders because the Company does not expect to be treated as a REIT for 2002, and taxes are computed on the basis of taxable income. INTEREST INCOME AND AVERAGE INTEREST EARNING ASSET YIELDS Historically, the Company earned interest income primarily from its portfolio of investments and cash equivalents. The table below shows, for the period January 1, 2001 through July 27, 2001 and for the year ended December 31, 2000, the Company's average balance of cash equivalents, investments, the yields earned on each type of interest earning asset, the yield on average interest earning assets and total interest income.
Total Yield on Yield on Average Average Yield on Average Average Average Amortized Interest Average Amortized Interest Total Cash Cost of Earning Cash Cost of Earning Interest Equivalents Investments Assets Equivalents Investments Assets Income (dollars in thousands) For the period January 1, 2001 through July 27, 2001 $19,109 $169,793 $188,902 4.67% 7.30% 7.04% $7,757 For the year ended December 31, 2000 $20,469 $223,211 $243,680 6.01% 7.70% 7.57% $18,444
During 2001, the Company reduced its portfolio of Mortgage Securities and Mortgage Derivatives and the leverage financing used to maintain the portfolio in connection with the liquidation or sale of the Company. During 2000, the Company was engaged in an effort to increase its return on stockholders' equity without exposing itself to substantial credit and interest rate risk by increasing its portfolio of Agency Certificates and Mortgage Derivatives. INTEREST EXPENSE AND THE AVERAGE COST OF FUNDS Historically, the Company incurred interest expense primarily from borrowed funds under short-term repurchase agreements that finance most of its portfolio of investments. Interest expense is calculated in the same manner for tax and GAAP purposes. The Company generally has structured its borrowings to closely correlate the Company's cost of borrowed funds with changes in one-month LIBOR. The table below shows, for the period January 1, 2001 through July 27, 2001 and the year ended December 31, 2000, the Company's average borrowed funds, interest expense and average cost of funds compared to average one and six-month LIBOR.
Average Average Average One-Month Cost of Cost of LIBOR Funds Funds Relative Relative Relative to to to Average Average Average Average Average Average Average Borrowed Interest Cost of One-Month Six-Month Six-Month One-Month Six-Month Funds Expense Funds LIBOR LIBOR LIBOR LIBOR LIBOR (dollars in thousands) For the period January 1, 2001 through July 27, 2001 $126,104 $4,060 5.47% 4.74% 4.53% 0.21% 0.72% 0.94% For the year ended December 31, 2000 $162,123 $10,654 6.46% 6.41% 6.65% (0.24)% 0.05% (0.19)%
During 2001, interest rates decreased and, during 2000, interest rates increased due primarily to the effect of interest rate setting actions taken by the Federal Reserve Board. INTEREST RATE AGREEMENTS The Company has followed an interest-rate risk-management strategy designed to protect against the adverse effects of major interest rate changes through the use of derivative interest rate agreements, such as a purchased interest rate cap ("cap"). As a result of the reduction in interest rates in January 2001, the Company closed out the existing cap, with a notional amount of $100.0 million, for $0.3 million in cash and recognized a net loss of $(0.1) million, or $(0.01) per share in the statement of operations that is comprised of a realized loss of $(2.7) million and an unrealized gain of $2.6 million from the reversal of the unrealized loss on the cap at December 31, 2000 due to its sale. During the second quarter of 2000, the Company purchased this cap with a notional amount of $100.0 million for a premium of $3.0 million to reduce the risk of rising interest rates on the cost of the short-term repurchase agreements used to finance its investments. The cap agreement had a term of three years and provided for monthly payments of interest to the Company to the extent that the one-month LIBOR exceeded 6.54% as applied to the notional amount. At December 31, 2000, the cap had an estimated fair value of $0.4 million and the Company recorded an unrealized loss of $(2.6) million in the statement of operations. As a result of the reduction in interest rates, the Company closed out the cap in January 2001 for $0.3 million and recognized an additional loss of $(0.1) million in the statement of operations. The Company did not enter into any other interest rate agreements during 2001 and 2000. GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses ("operating expense" or "G&A expense") consist of management and incentive fees incurred to Mariner and professional and other expenses. Management Incentive Other G&A Total Fees Fees Expense G&A Expense (dollars in thousands) For the period January 1, 2001 through July 27, 2001 $350 $1,219 $959 $2,528 For the year ended December 31, 2000 $294 $ -- $1,323 $1,617 NET INCOME (LOSS) AND RETURN ON AVERAGE STOCKHOLDERS' EQUITY Net loss was $(3.2) million for the period January 1, 2001 through July 27, 2001 compared to net loss of $(15.2) million for the year ended December 31, 2000. Return on average stockholders' equity for the period January 1, 2001 through July 27, 2001 was (4.87)% compared to (18.03)% for the year ended December 31, 2000. The table below shows, on an actual basis, for the period January 1, 2001 through July 27, 2001 and the year ended December 31, 2000, the Company's net interest income, losses from investment activities, losses from impairment charges and G&A expense each as a percentage of average stockholders' equity and the return on average stockholders' equity.
Return on Losses from Losses from Average Net Interest Investment Impairment G&A Stockholders' Income Activities Charges Expense Equity For the period January 1, 2001 through July 27, 2001 5.67% (6.66)% -- (3.88)% (4.87)% For the Year Ended December 31, 2000 9.24% (4.41)% (20.94)% (1.92)% (18.03)%
DISTRIBUTIONS AND TAXABLE INCOME The Company elected to be treated as a REIT under the Code for 2001 and 2000. Accordingly, the Company would normally distribute substantially all of its taxable income for each year to stockholders, including income resulting from gains on sales of securities. For the tax years ended December 31, 2001 and 2000, the Company determined that it had no taxable income. On December 28, 2001, the Company made a cash liquidation distribution of $3.00 per outstanding share to stockholders. In 2000, the Company did not make any distributions. YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999 NET INCOME (LOSS) SUMMARY GENERAL. For the year ended December 31, 2000, the Company had net income of $2.4 million or $0.17 per weighted average share, before giving effect to charges relating to the impairment of certain Subordinate Interests. The impairment charge of $(17.6) million or $(1.22) per share resulted in the Company reporting a net loss of $(15.2) million or $(1.05) per share. For the year ended December 31, 2000, the weighted average number of shares of Common Stock outstanding was 14,369,081 and return on average stockholders' equity was (18.03)% (after giving effect to the impairment charges). For the year ended December 31, 1999, the Company had a net loss of $(11.0) million, or $(0.65) per weighted average share; the weighted average number of shares of Common Stock outstanding was 16,925,143, distributions were $2.00 per share, or $35.6 million in total and return on average stockholders' equity was (12.39)%. LOSSES FROM INVESTMENT ACTIVITIES. For the year ended December 31, 2000, the Company realized a net loss of $(1.1) million or $(0.08) per share from the sale of securities and recognized an unrealized loss of $(2.6) million or $(0.18) per share on the change in the estimated fair value of an interest rate cap agreement in effect at year-end. For the year ended December 31, 1999, the Company realized a net loss of $(19.8) million or $(1.17) per share as a result of losses incurred in sales of securities and early terminations of long-term repurchase agreements. LOSSES FROM IMPAIRMENT CHARGES. The Company was notified in June 2000 of a default in a $50.0 million mortgage loan in a trust fund of which the Company owns Subordinated Interests. The securities that are affected by this event are subordinated classes of Commercial Mortgage Pass-Through Certificates, Series 1997-D5 that represent beneficial ownership interests in a trust fund created by ASC, an affiliate of Nomura, at the time of the offering. Thereafter, a representative of Nomura notified a representative of the Company that the amount of the recovery of the securities might be negligible. Accordingly, management increased the unrealized loss on those securities at that time by approximately $(9.1) million representing the remaining total aggregate carrying value of those securities, pending further developments. On October 23, 2000 the Company filed suit in the Southern District of New York against ASC, Nomura Asset and Nomura alleging that the defendants defrauded the Company into purchasing approximately $19.0 million worth of ASC securities by failing to disclose among other things, that one of largest loans in the mortgage pool was seriously troubled. On December 8, 2000, the defendants filed a motion to dismiss the action. The Company is seeking rescission of the purchase of the securities. During the quarter ended December 31, 2000, the Company recognized the probable other-than-temporary impairment of those securities by charging the statement of operations and crediting accumulated other comprehensive loss on the balance sheet for the aggregate cumulative loss of $(17.6) million; such recognition had no further impact on stockholders' equity from the time of the earlier increase in unrealized loss. The Company did not take any impairment charges for the year ended December 31, 1999. TAXABLE INCOME (LOSS) AND GAAP NET INCOME (LOSS) For the years ended December 31, 2000 and 1999, a net operating loss as calculated for tax purposes is estimated at approximately $(6.2) million and $(60.0) million, respectively, or $(0.44) and $(3.55), respectively, per weighted average share. NOLs generally may be carried forward for 20 years. The Company believes that during 1999 it experienced an "ownership change" within the meaning of Section 382 of the Code. Consequently, its use of NOLs generated before the ownership change to reduce taxable income after the ownership change will be subject to limitations under Section 382. Generally, the use of NOLs in any year is limited to the value of the Company's stock on the date of the ownership change multiplied by the long-term tax exempt rate (published by the IRS) with respect to that date. The Company believes that the annual limitation with respect to the use of its pre-ownership change NOLs is approximately $3.0 million. The Company believes that as of December 31, 2000, approximately $91.0 million of the estimated cumulative NOL is subject to the annual limitation. Taxable income (loss) requires an annual calculation; consequently, for the year ended December 31, 2000, taxable income (loss) may be different from GAAP net income (loss) primarily as a result of differing treatment of unrealized net gains (losses) on securities transactions. For the Company's tax purposes, unrealized net gains (losses) will be recognized at the end of the year and will be aggregated with operating gains (losses) to produce total taxable income (loss) for the year. For the years ended December 31, 2000 and 1999, the Company had unrealized net gains of approximately $8.7 million and $2.3 million, respectively. INTEREST INCOME AND AVERAGE INTEREST EARNING ASSET YIELDS The Company had average interest earning assets of $243.7 million for the year ended December 31, 2000 compared to $393.4 million for the year ended December 31, 1999. Historically, the Company earned interest income primarily from its portfolio of investments and cash equivalents. The table below shows, for the years ended December 31, 2000 and 1999, the Company's average balance of cash equivalents, investments, the yields earned on each type of earning asset, the yield on average earning assets and total interest income.
Total Yield on Yield on Average Average Yield on Average Average Average Amortized Interest Average Amortized Interest Total Cash Cost of Earning Cash Cost of Earning Interest Equivalents Investments Assets Equivalents Investments Assets Income (dollars in thousands) For the Years Ended: December 31, 2000 $20,469 $223,211 $243,680 6.01% 7.70% 7.57% $18,444 December 31, 1999 $34,990 $358,370 $393,360 5.22% 7.85% 7.61% $29,944
During 2000, the Company was engaged in an effort to increase its return on stockholders' equity without exposing itself to substantial credit and interest rate risk by increasing its portfolio of Agency Certificates and Mortgage Derivatives while during 1999, the Company's portfolio contained a greater percentage of less liquid and higher yielding securities. INTEREST EXPENSE AND THE AVERAGE COST OF FUNDS Historically, the Company incurred interest expense primarily from borrowed funds under short-term repurchase agreements that finance most of its portfolio of investments. Interest expense is calculated in the same manner for tax and GAAP purposes. The Company generally has structured its borrowings to closely correlate the Company's cost of borrowed funds with changes in one-month LIBOR. For the year ended December 31, 2000, the Company had average borrowed funds under short-term repurchase agreements of $162.1 million and interest expense of $10.7 million with an average cost of funds of 6.46% compared to average borrowed funds under short-term repurchase agreements of $302.7 million and interest expense of $16.8 million with an average cost of funds of 5.60% for the year ended December 31, 1999. The Company's average cost of funds was 0.05% above one-month LIBOR for the year ended December 31, 2000 compared to 0.30% above one-month LIBOR for the year ended December 31, 1999. During the year ended December 31, 2000, average one-month LIBOR, which was 6.41%, was 0.24% lower than average six-month LIBOR, which was 6.65%. During the year ended December 31, 1999, average one-month LIBOR, which was 5.30%, was 0.10% lower than average six-month LIBOR, which was 5.40%. The table below shows, for the years ended December 31, 2000 and 1999, the Company's average borrowed funds, interest expense and average cost of funds compared to average one and six-month LIBOR.
Average Average Average One-Month Cost of Cost of LIBOR Funds Funds Relative Relative Relative Average to to to Average Cost Average Average Average Average Average Borrowed Interest of One-Month Six-Month Six-Month One-Month Six-Month Funds Expense Funds LIBOR LIBOR LIBOR LIBOR LIBOR (dollars in thousands) For the Years Ended: December 31, 2000 $162,123 $10,654 6.46% 6.41% 6.65% (0.24)% 0.05% (0.19)% December 31, 1999 $302,736 $16,812 5.60% 5.30% 5.40% (0.10)% 0.30% 0.20%
During 2000, interest rates rose sharply during the first half of the year primarily in connection with the interest rate setting actions taken by the Federal Reserve Board. The higher cost of funds level that was attained as a result of the effect of these actions remained virtually unchanged for the remainder of the year and was the significant factor contributing to the cost of funds increase in 2000 over 1999. INTEREST RATE AGREEMENTS The Company has followed an interest-rate risk-management strategy designed to protect against the adverse effects of major interest rate changes through the use of derivative interest rate agreements, such as a purchased interest rate cap. During the second quarter of 2000, the Company purchased a cap with a notional amount of $100.0 million for a premium of $3.0 million to reduce the risk of rising interest rates on the cost of the short-term repurchase agreements used to finance its investments. The cap agreement had a term of three years and provided for monthly payments of interest to the Company to the extent that the one-month LIBOR exceeded 6.54% as applied to the notional amount. At December 31, 2000, the cap had an estimated fair value of $0.4 million and the Company recorded an unrealized loss of $(2.6) million in the statement of operations. The Company did not enter into any other interest rate agreements during 2000 and 1999. NET INTEREST INCOME Net interest income, which equals total interest income less total interest expense, amounted to $7.8 million for the year ended December 31, 2000 compared to $13.1 million for the year ended December 31, 1999. Net interest rate spread, which equals the yield on the Company's interest earning assets (excluding cash and cash equivalents) less the average cost of funds for the period was 1.24% for the year ended December 31, 2000 compared to 2.25% for the year ended December 31, 1999. The table below shows the components of net interest income, yield on average interest earning assets and average cost of funds for the years ended December 31, 2000 and 1999.
Yield on Average Average Interest Interest Average Balance Amortized Income Average Income on Total Amortized of Total Average Net Cost of on Cash Cash Interest Cost of Repurchase Interest Cost of Interest Investments Investments Equivalents Equivalents Income Investments Agreements Expense Funds Income (dollars in thousands) For the Years Ended: December 31, 2000 $223,211 $17,194 $20,469 $1,250 $18,444 7.70% $162,123 $10,675 6.46% $ 7,769 December 31, 1999 $358,370 $28,139 $34,990 $1,805 $29,944 7.85% $302,736 $16,812 5.60% $13,132
The overall decrease in net interest income was due primarily to the Company's substantially reduced investment portfolio and higher average cost of funds, partially offset by the reduced level of financing. For the year ended December 31, 2000, the sharp increase in short-term borrowing rates coupled with an emphasis on lower risk Agency Certificates lowered the net interest rate spread from the prior year. CREDIT CONSIDERATIONS During 2000, the Company recognized the probable other-than-temporary impairment in the value of certain Subordinate Interests as a result of a default in one of the underlying Mortgage Loans. See "--Net Income (Loss) Summary -- Losses from Impairment Charges." The impairment in value recognized by the Company represents the maximum amount; however, the ultimate amount of the impairment loss may be lower but is indeterminable at this time. At December 31, 2000 and December 31, 1999, the Company had limited its exposure to credit losses on its portfolio (excluding the impaired securities) by holding 94% and 73%, respectively, of its investments in Agency Certificates (including IOs, fixed/floating rate mortgage securities and fixed rate pass-through mortgage securities). GENERAL AND ADMINISTRATIVE EXPENSES G&A expense for the year ended December 31, 2000 consisted primarily of management fees paid to Mariner of $0.3 million and professional and other expenses of $1.3 million. For the year ended December 31, 2000, the Company incurred no incentive fee under the Mariner management agreement and did not incur salary expense. G&A expense for the year ended December 31, 1999 consisted of consulting fees paid to BlackRock of $1.1 million, salary expense of $0.6 million, management fees paid to the Former Manager of $0.5 million and professional and other expenses of $2.1 million. G&A expense significantly decreased in 2000 compared to 1999 due primarily to the restructuring of the management arrangement in connection with engaging Mariner as external manager. There were no differences in the calculation of G&A expense for taxable and GAAP income purposes. The "Efficiency Ratio" is the G&A expense divided by the net interest income.
G&A EXPENSE RATIOS (dollars in thousands) Total G&A Expense/ Total G&A Average Expense/ Interest Average Management Consulting Other G&A Total G&A Earning Stockholders' Efficiency Fees Fees Expense Expense Assets Equity Ratio For the Years Ended: December 31, 2000 $294 $ -- $1,323 $1,617 0.66% 1.92% 20.81% December 31, 1999 $543 $1,125 $2,658 $4,326 1.09% 4.86% 32.94%
NET (LOSS) AND RETURN ON AVERAGE STOCKHOLDERS' EQUITY Net loss was $(15.2) million for the year ended December 31, 2000 compared to net loss of $(11.0) million for the year ended December 31, 1999. Return on average stockholders' equity for the year ended December 31, 2000 was (18.03)% compared to (12.39)% for the year ended December 31, 1999. The table below shows for the years ended December 31, 2000 and 1999, the Company's net interest income, losses from investment activities, losses from impairment charges and G&A expense each as a percentage of average stockholders' equity, and the return on average stockholders' equity. Return on Losses from Losses from Average Net Interest Investment Impairment G&A Stockholders' Income Activities Charges Expense Equity For the Years Ended: December 31, 2000 9.24% (4.41)% (20.94)% (1.92)% (18.03)% December 31, 1999 14.76% (22.28)% -- (4.86)% (12.39)% DISTRIBUTIONS AND TAXABLE INCOME The Company elected to be taxed as a REIT under the Code for 2000 and 1999. For the years ended December 31, 2000 and 1999, the Company determined that it had no taxable income. In 2000, the Company did not make any distributions, and in 1999 the Company made return of capital distributions of $35.6 million. FINANCIAL CONDITION INVESTMENTS As of December 31, 2001 (stated at estimated net realizable value) and 2000 (stated at estimated fair value), the Company's portfolio consisted of: As of December 31, ------------------ 2001 2000 ---- ---- Dollar Amount Dollar Amount Securities (in millions) Percentage (in millions) Percentage ---------- ------------- ---------- ------------- ---------- Agency Certificates........ $ 15.3 88.4% $ 275.2 86.5% Subordinate Interests...... -- -- 7.3 2.3% IOs........................ -- -- 31.3 9.8% Mortgage Loans............. 2.0 11.6% 2.7 0.8% Other fixed-income assets.. -- -- 1.8 0.6% ------------- ---------- ------------- ---------- Total.................. $ 17.3 100.0% $ 318.3 100.0% ============= ========== ============= ========== During 2001, in connection with the liquidation or sale of the Company, the Company reduced its portfolio of Mortgage Securities and the leverage financing used to maintain the portfolio. The Company has continued to liquidate its assets in the last quarter of 2001 pursuant to the Plan of Liquidation and Dissolution. The proceeds from sales of assets are used to repay the repurchase agreements with the excess available for liquidating distributions to stockholders. See "Distributions and Taxable Income; REIT Status." The Company increased its portfolio of Mortgage Assets during the year ended December 31, 2000 by relevering its portfolio of Agency Certificates and IOs in an effort to increase its return on stockholders' equity without exposing itself to substantial credit and interest rate risk. At December 31, 2001 and 2000, the Company had on its balance sheet $0.0 million and $4.5 million, respectively, of total unamortized discount (which is the difference between the remaining principal value and the current historical amortized cost of investments acquired at a price below principal value) and $0.2 million and $1.2 million, respectively, of total unamortized premium (which is the difference between the remaining principal amount and the current historical amortized cost of investments acquired at a price above principal value) included as part of the amortized cost of the Company's Mortgage Assets. Unamortized discount balances are accreted as an increase in interest income over the life of Mortgage Assets purchased at a discount to principal value and unamortized premium balances are amortized as a decrease in interest income over the life of Mortgage Assets purchased at a premium to principal value. Mortgage principal repayments received were $30.8 million and $22.7 million for the period January 1, 2001 through July 27, 2001 and the year ended December 31, 2000, respectively. The tables below summarize the Company's investments at December 31, 2001 and 2000. SECURITIES (EXCLUDING IOs) (dollars in thousands)
Estimated Net Realizable Amortized or Fair Cost to Value to Weighted Current Current Estimated Net Current Average Principal Net Premium Amortized Principal Realizable or Principal Life Amount (Discount) Cost Amount Fair Value Amount (Years) December 31, 2001 $ 14,855 $ 218 $ 15,073 101.47% $ 15,305 103.03% 3.0 December 31, 2000 $ 284,768 $ (3,419) $ 281,349 98.80% $ 284,263 99.82% 4.8
MORTGAGE LOANS (dollars in thousands)
Estimated Net Realizable Amortized or Fair Cost to Value to Weighted Current Current Estimated Net Current Average Principal Amortized Principal Realizable or Principal Life Amount Net Premium Cost Amount Fair Value Amount (Years) December 31, 2001 $ 2,004 -- $ 2,004 100.00% $ 2,004 100.00% 16.0 December 31, 2000 $ 2,648 $ 52 $ 2,700 101.98% $ 2,700 101.98% 17.1
IO SECURITIES (dollars in thousands)
Estimated Amortized Fair Cost to Value to Weighted Current Current Current Average Notional Amortized Notional Estimated Notional Life Amount Cost Amount Fair Value Amount (Years) December 31, 2001 -- -- -- -- -- -- December 31, 2000 $ 204,337 $ 37,886 18.54% $ 31,298 15.32% 6.8
The table below shows gross unrealized gains and losses on all securities in the Company's portfolio at December 31, 2001 (stated at estimated net realizable value) and December 31, 2000 (stated at estimated fair value). UNREALIZED GAINS AND LOSSES At December 31, 2001 2000 ---- ---- (dollars in thousands) Unrealized Gain $ 233 $ 6,405 Unrealized Loss -- (10,079) ------------ ------------ Net Unrealized Loss $ 233 $ (3,674) ============ ============ Net Unrealized Gain (Loss) as % of Investments Principal/Notional Amount 1.38% (0.75)% Net Unrealized Gain (Loss) as % of Investments Amortized Cost 1.36% (1.14)% The following table sets forth a schedule of Pass-Through Certificates and Mortgage Loans owned by the Company at December 31, 2001 (stated at estimated net realizable value) and 2000 (stated at estimated fair value) classified by issuer and by ratings categories. PASS-THROUGH CERTIFICATES AND MORTGAGE LOANS BY ISSUER AND CREDIT RATING (dollars in thousands)
December 31, 2001 December 31, 2000 ----------------- ----------------- Carrying Value Portfolio Mix Carrying Value Portfolio Mix -------------- ------------- -------------- ------------- Agency Certificates.............. $ 15,305 88.4% $275,181 86.5% Privately Issued Certificates: A Rating....................... -- -- 7,312 2.3% BB/Ba Rating and Other......... -- -- 1,770 0.6% IOs.............................. -- -- 31,298 9.8% Mortgage Loans................... 2,004 11.6% 2,700 0.8% -------- ----- -------- ----- Total............. $ 17,309 100.0% $318,261 100.0% ======== ===== ======== =====
The following tables set forth information about the Company's portfolio of Subordinate Interests, IOs, and other fixed-income assets as of December 31, 2000 (stated at estimated fair value). As of December 31, 2001, the Company did not own any IOs and the estimated net realizable value of the Company's Subordinate Interests other fixed-income assets was $0.0. SUBORDINATE INTERESTS (dollars in thousands) Description December 31, 2000 ----------- ----------------- Commercial $ 7,312 IO SECURITIES (dollars in thousands) Description Coupon December 31, 2000 ----------- ------ ----------------- Residential Fixed $ 25,112 Commercial Fixed $ 6,186 OTHER FIXED-INCOME ASSETS (dollars in thousands) Description December 31, 2000 ----------- ----------------- CBO/CLO $ 1,770 LIQUIDITY AND CAPITAL RESOURCES Liquidity measures the Company's ability to turn non-cash assets into cash during the liquidation period to satisfy its commitments to repay existing borrowings, to pay ongoing general and administrative expenses including estimated costs of liquidation, and to make distributions to stockholders. In January 2002, the Company liquidated all of the remaining Agency Certificates that it held on December 31, 2001. Proceeds of the sales added $15.3 million to the Company's cash balances. In addition, collections of interest and principal paydowns receivables at December 31, 2001 have subsequently increased liquidity. The Company will continue to generate liquidity through Mortgage Loan principal repayments and net earnings held prior to distribution to stockholders. The Company believes that its cash on hand and earnings from its investments in Mortgage Loans will be adequate to support the Company and pay its obligations during the liquidation period. The Company's debt has consisted entirely of borrowings collateralized by a pledge of the Company's investments. These borrowings appear on the statement of net assets in liquidation and balance sheet as repurchase agreements. Substantially all of the Company's investments are currently accepted as collateral for such borrowings. The Company has not established, and currently does not intend to establish, permanent lines of credit. At December 31, 2001 and December 31, 2000, the Company had borrowings outstanding from one and three lenders, respectively. Such borrowings are generally short-term (up to 30-day terms) and may be renewed by the lender at its discretion. The availability of financing for the Company's portfolio has been stable during 2001. The Company does not intend to obtain new sources of short-term financing on its portfolio. At December 31, 2001, the Company had outstanding $2.0 million of repurchase agreements with a weighted average remaining maturity of 28 days compared to $239.9 million outstanding at December 31, 2000 with a weighted average remaining maturity of 11 days. All of the Company's borrowings have a cost of funds that generally moves in relation to the one-month LIBOR. At December 31, 2001 and December 31, 2000, the weighted average cost of funds for all of the Company's borrowings was 3.2% and 6.7%, respectively. This decrease was due primarily to the effect of interest rate setting actions taken by the Federal Reserve Board. At December 31, 2001, investments actually pledged had an estimated fair value of $2.0 million compared to $249.5 million at December 31, 2000. In 2001, the Company did not repurchase any shares of common stock under its stock repurchase program. As of December 31, 2001, an aggregate 6,079,766 shares of the Company's issued common stock had been reacquired at an aggregate cost of $32.8 million. DISTRIBUTIONS AND TAXABLE INCOME; REIT STATUS At its inception, the Company elected to be taxed as a REIT under the Code commencing with its short taxable year ended December 31, 1997. The Company qualified as a REIT for the taxable years ended December 31, 1997 through 2001. The Company does not expect to qualify as a REIT for the year beginning January 1, 2002. In accordance with the Plan of Liquidation and Dissolution, on November 8, 2001, the Board of Directors filed a petition with the Delaware Court of Chancery for permission to make an initial distribution to stockholders of $3.00 per outstanding common share. On November 28, 2001, the Delaware Court of Chancery approved this initial distribution to stockholders. On December 28, 2001, a distribution of $3.00 per outstanding share of common stock was made to stockholders of record as of December 17, 2001. As of December 31, 2001, the estimated net realizable value of the Company's net assets in liquidation was $1.31 per share. After providing for expenses and subject to court approval, the Company expects to distribute the majority of the remaining net assets in liquidation over the next three years with a final liquidating distribution to occur thereafter. The total amount of distributions to stockholders is subject to change based on numerous factors, including operating expenses, the Delaware Court of Chancery modifying the distribution amounts and timing currently envisioned by the Board of Directors under the Plan of Liquidation and Dissolution, unanticipated claims or expenses and income received, if any, from the pending litigation against ASC, Nomura Asset and Nomura, as well as other factors beyond the control of the Company. RECENT ACCOUNTING PRONOUNCEMENTS Effective January 1, 2001, the Company adopted the provisions of SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" as amended by SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities - an Amendment of Statement No. 133." The adoption of the provisions of these accounting pronouncements with respect to the Company's sole derivative instrument at that time, the interest rate agreement, had no impact on the Company's financial condition or results of operations. CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS Certain statements contained under "Item 1. Business" and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations," and other statements contained herein regarding matters that are not historical facts, are forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995). Because such forward-looking statements include risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements. Factors that could cause actual results to differ materially include, but are not limited to, those described below: o On August 3, 2001, the Company filed a certificate of dissolution with the Secretary of State of the State of Delaware, and the dissolution of the Company was effective upon such filing. The Company no longer conducts normal business operations and now operates solely for the purpose of providing for the satisfaction of its obligations, adjusting and winding-up its business and affairs and distributing its remaining net assets. o The Company does not expect to qualify as a REIT for the year beginning 2002. o If, in 2002, the Company fails to qualify as a REIT or the Company revokes its election to be taxed as a REIT, it will no longer be entitled to deduct dividends paid to stockholders from its taxable income. In this case, the Company would be subject to federal income tax at corporate rates (including any applicable alternative minimum tax) with respect to gains from liquidating sales of assets and income from operations for that year and for subsequent taxable years. These federal income taxes would reduce the amounts otherwise distributable to its stockholders. o The amount and timing of the liquidation proceeds depends largely on factors beyond the control of the Company, including, without limitation, the approval of the Delaware Court of Chancery, the availability of financing to prospective purchasers, the timing of the sale of the of the Company's remaining assets, the amount and nature of any unknown contingent liabilities, and the ability of the Company to collect its receivables and recoveries, including income received, if any, from the pending litigation against ASC, Nomura Asset and Nomura. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. MARKET RISK Market risk is the exposure to loss resulting from changes in interest rates, foreign currency exchange rates, commodity prices and equity prices. The primary market risk exposure that the Company has been subject to is the movement in interest rates with respect to its portfolio of Mortgage Securities, which is highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political considerations and other factors beyond the control of the Company. Changes in the general level of interest rates can affect, among other things, the spread between the Company's interest-earning assets and interest-bearing liabilities and the value of the Company's Mortgage Securities. However, during 2001, the Company mitigated this exposure by (1) substantially reducing its overall portfolio of Mortgage Securities and the leverage financing used to maintain the portfolio and (2) selling all of its fixed rate mortgage pass-through certificates. At December 31, 2001, approximately 88% of the carrying value of the Company's portfolio was represented by two short-term adjustable rate Agency Certificates with the balance being a pool of fixed rate single-family conventional mortgage whole loans. In January 2002, the Company sold the remaining adjustable rate Agency Certificates at their December 31, 2001 value, leaving only the pool of mortgage whole loans in its portfolio. The remaining mortgage whole loans provide for an aggregate fixed contract rate of approximately 10%, are fully amortizing, have a weighted average maturity of 16 years and a remaining principal balance of $2.0 million. Declining interest rates would generally increase the value of these mortgage whole loans while concurrently increasing the potential for prepayment; increasing interest rates would generally have the converse effects. However, no significant prepayment activity has occurred in the current low interest rate environment with regard to these mortgage whole loans. Although these mortgage whole loans are subject to interest rate risk and prepayment risk, the Company believes that these risks will not create a significant impact on the overall value of the mortgage whole loans. Additionally, the Company is exposed to interest rate risk as an investor in an overnight reverse repurchase agreement and as a borrower under a short-term repurchase agreement that matures monthly. Due to their short term maturities, the interest rate risk to the Company is not significant. Finally, the Company is a party to certain other financial instruments, including receivables for interest and principal paydowns, accounts payable and other accrued expenses that are not interest rate sensitive. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The financial statements of the Company and the related notes, together with the Independent Auditors' Report thereon, are set forth beginning on page F-1 of this Form 10-K. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not Applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. DIRECTORS The Company's Certificate of Incorporation and bylaws provide that the Board of Directors will consist of five directors, divide the Board of Directors into three classes, Class I, II and III, with the classes serving staggered three-year terms, and provide that the number of directors may be changed by a majority vote of the entire Board of Directors. The Company's bylaws provide that, except in the case of a vacancy, a majority of the members of the Board of Directors will at all times be independent directors that are not affiliated directly or indirectly with any person or entity, if any, responsible for directing or performing the day-to-day business affairs of the Corporation, and that any vacancies may be filled by a majority vote of the remaining directors. The Company's directors are as follows: DIRECTOR NAME AGE POSITION SINCE Ronald J. Artinian........ 53 Director - Class.II 2000 Mark W. Hobbs............. 46 Director - Class I 2000 Arthur House.............. 59 Director - Class II 2000 Jonathan Ilany............ 48 Director - Class III 1998 William J. Michaelcheck... 55 Chief Executive Officer, 1999 Chairman and Director - Class III The Company is not aware of any family relationship between any director or executive officer. RONALD J. ARTINIAN is a private investor in First Real Estate Investment Trust of New Jersey and, since 1992, has been a member of its Board of Trustees and a member of its Executive and Audit Committees. Before his involvement with First Real Estate Investment Trust of New Jersey, Mr. Artinian held various positions at Smith Barney Inc. from 1989 to 1998, including Senior Managing Director - National Manager of Taxable Fixed Income, and was the Executive Vice President - National Manager of Taxable Fixed Income for Lehman Brothers Inc. from 1976 to 1989. MARK W. HOBBS has been a director of LASER since October 2000, and is currently President and Chief Operating Officer of J Net Enterprises, Inc., a NYSE-listed company. From 1995 until his appointment to J Net Enterprises in June 2000, Mr. Hobbs was a partner in Mariner Investment Group, an affiliate of Mariner. Prior to Mariner Investment Group, Mr. Hobbs was involved in private investing and financial consulting from 1991 to 1995. From 1982 to 1991, Mr. Hobbs was President of Rosewood Financial, Inc., a private investment management company. ARTHUR HOUSE has been a director of LASER since October 2000, and is currently President and Chief Executive Officer of Meridian Worldwide LLC, an international public affairs firm. Mr. House was formerly Senior Vice President, Corporate Affairs at Tenneco Inc., from June 1992 to September 1997. JONATHAN ILANY has been a director of the Company since 1998 and an employee of Mariner Investment Group since September 2000. Prior to joining Mariner Investment Group, Mr. Ilany was the Chief Executive Officer and a director of Angiosonics, Inc., a private medical device company with operations in the United States and Israel. Before joining Angiosonics, Inc. in 1996, Mr. Ilany had been, since 1987, a Senior Managing Director of Bear, Stearns & Co. Inc. ("Bear Stearns") and served on the Board of Directors of The Bear Stearns Companies Inc. until 1995. WILLIAM J. MICHAELCHECK has been the President and Chief Executive Officer of the Company since November 1999 and the Chairman and sole member of Mariner since its inception in October 1999. Mr. Michaelcheck has been the Chairman and sole stockholder of Mariner Investment Group since 1992. Formerly, he was Executive Vice President of The Bear Stearns Companies and a Senior Managing Director of Bear Stearns, where he was co-head of the Fixed-Income Department and also responsible for a large segment of the firm's trading activities and risk management. Mr. Michaelcheck joined Bear Stearns in 1979 as co-creator of the Government Bond Department, becoming a General Partner in 1981 and a Senior Managing Director when Bear Stearns became a publicly-held corporation. He was named Executive Vice President in 1987, and served on the firm's Executive Committee and Management and Compensation Committee until leaving Bear Stearns in October 1992. EXECUTIVE OFFICERS See the information appearing under the caption "Executive Officers" of the Registrant in Part I of the Form 10-K. COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934 Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act") requires the Company's executive officers and directors, and persons who own more than 10% of the Company's common stock to file reports of ownership and changes in ownership with the SEC and the New York Stock Exchange. Officers, directors and greater than ten-percent stockholders are required by SEC regulations to furnish the Company with copies of all such reports they file. Based solely on a review of the copies of such reports furnished to the Company, or written representations that no Form 5 was required, the Company believes that all Section 16(a) filing requirements applicable to its officers, directors and greater than ten-percent beneficial owners were complied with through December 31, 2001. ITEM 11. EXECUTIVE COMPENSATION. From November 1, 1999 to November 1, 2001, Mariner served as the external manager of the Company. Under the most recent management agreement with Mariner which was entered into on November 1, 2000 and terminated on November 1, 2001, LASER did not pay any compensation to the Company's executive officers for their services, as they were employed by Mariner. Upon the termination of the management agreement on November 1, 2001, the Company became self managed and entered into employment agreements with William J. Michaelcheck, the President and Chief Executive Officer of the Company, and Charles R. Howe, II, the Vice President, Treasurer and Secretary of the Company, each at a salary of $10,000 per month. The Company paid no other compensation to its executive officers in 2001. Messrs. Michaelcheck and Howe continue to have significant responsibilities at Mariner. GRANTS OF AWARDS During 2001, no deferred stock awards were granted. No stock options or stock appreciation rights were outstanding as of December 31, 2001 and none were owned by any of the Company's executive officers during 2001. COMPENSATION OF DIRECTORS The Company pays each independent director compensation of $10,000 per annum and a fee of $500 for each meeting of the Board of Directors that he attends. The Company reimburses each director for ordinary and necessary expenses related to such director's attendance at Board of Directors and committee meetings. During 2001, no options were granted to any directors under the Company's Long-Term Stock Incentive Plan, which was terminated upon the effectiveness of the Reincorporation. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION Messrs. Artinian, Hobbs and House currently are independent directors and serve on the Compensation Committee. No interlocking relationship exists between members of the Company's Board of Directors or the Compensation Committee or officers responsible for compensation decisions and the Board of Directors or compensation committee of any other company, nor has such interlocking relationship existed in the past. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information known to the Company with respect to beneficial ownership of its common stock as of March 26, 2002, by (i) each executive officer and director, (ii) any person known to the Company to be the beneficial owner of five percent or more of the common stock and (iii) all directors and executive officers as a group. Unless otherwise indicated in the footnotes to the table, the beneficial owners named have, to the knowledge of the Company, sole voting and investment power with respect to the shares beneficially owned, subject to community property laws where applicable. SHARES BENEFICIALLY OWNED NAME AND ADDRESS OF BENEFICIAL OWNER (1) NUMBER ------------------------------------ OF SHARES PERCENT William J. Michaelcheck (2)................................ 836,900 5.96% Charles R. Howe, II (2).................................... 836,900 5.96% Jonathan Ilany (2)......................................... 836,900 5.96% Ronald J. Artinian......................................... 6,000 * Mark W. Hobbs.............................................. 0 * Arthur House............................................... 0 * Highfields Capital Management L.P. (3)..................... 3,275,900 23.33% Legg Mason, Inc. (4)....................................... 1,938,330 13.81% Warren E. Buffett (5)...................................... 1,360,000 9.69% SLS Management (6)......................................... 1,137,600 8.10% SSF Investments, L.P (7)................................... 962,800 6.86% Jay Buck (8)............................................... 899,500 6.41% Mariner Investment Group, Inc. (2)......................... 836,900 5.96% Lloyd I. Miller, III (9)................................... 731,400 5.21% All directors and executive officers as a group (6 persons) 842,900 6.00% _______________ * Less than one percent (1) The address of each of the executive officers, and directors of LASER is c/o LASER Mortgage Management, Inc., c/o Mariner Investment Group, Inc. 780 Third Avenue, 16th Floor, New York, New York, 10017. The address of Highfields Capital Management L.P. is 200 Clarendon Street, 51st Floor, Boston, Massachusetts 02117. The address of Legg Mason, Inc. is 100 Light Street, Baltimore, Maryland 21202. The address of Warren E. Buffett is 1440 Kiewit Plaza, Omaha, Nebraska 68131. The address of SLS Management, LLC is 140 West 57th Street, New York, New York 10019. The address of SSF Investments, L.P. is 645 Fifth Avenue, 21st Floor, New York, New York 10022. The address of New Ellington Partners LP is 53 Forest Avenue, Old Greenwich, Connecticut 06870. The address of Jay Buck is 104 Field Point Road, Greenwich, Connecticut 06830. The address of Mariner Investment Group, Inc. is 780 Third Avenue, 16th Floor, New York, New York 10017. The address of Lloyd I. Miller is 4550 Gordon Drive, Naples, Florida 34102. (2) Based on Schedule 13D filed on November 12, 1999. Includes all of the shares of common stock owned beneficially by clients advised by Mariner Investment Group, Inc., of which Mr. Michaelcheck is the sole stockholder, Mr. Howe is the Chief Financial Officer and Mr. Ilany is an employee. (3) Based on Schedule 13G filed on February 16, 1999. Includes all of the shares of common stock owned beneficially by Highfields Capital Ltd., Highfields Capital I LP and Highfields Capital II LP. Mr. Richard L. Grubman and Jonathon S. Jacobson are the managing members of Highfields Associates, which directs the affairs of Highfields Capital I LP and Highfield Capital II LP., and Highfields GP LLC, the general partner of Highfields Capital Management LP. (4) Based on Schedule 13G filed on February 12, 1999. Includes all of the shares of common stock owned beneficially by certain mutual funds advised by Legg Mason, Inc. (5) Based on Schedule 13G/A filed on February 14, 2002. (6) Based on Schedule 13G/A filed on February 13, 2002. Includes all of the shares of common stock owned beneficially by other entities. (7) Based on Schedule 13G/A filed on February 14, 2002. (8) Based on Schedule 13G filed on July 24, 2000. Includes all of the shares of common stock owned beneficially by Rockwood Asset Management Inc., Rockwood Partners and Demeter Asset Management, controlled by Mr. Buck. (9) Based on Schedule 13G filed on February 28, 2002. Includes all of the shares of common stock owned beneficially by certain family trusts Mr. Miller is the investment advisor to the trustee of the trusts. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. From November 1, 1999 to November 1, 2001, Mariner served as the external manager of the Company and was responsible for the day-to-day management of the Company's investments and operations. Under the most recent management agreement, which was entered into on November 1, 2000 and terminated on November 1, 2001, Mariner became entitled to be paid an incentive fee upon the earlier of (1) the termination date of the management agreement or (2) the date on which the Board of Directors adopted resolutions approving the liquidation and dissolution, referred to as the anniversary date, which it did on April 25, 2001, equal to the number of shares outstanding on the applicable date, multiplied by: o 10% of the difference between the 15-day average closing market price (plus any distributions per share other than common stock) of the Company's common stock preceding November 1, 2001 (or such earlier anniversary date, as set forth in the agreement) and $3.317 per share (which approximates the average closing price of the Company's common stock for the fifteen days ended October 31, 2000) up to the equivalent of $3.50 per share; o 15% of the difference between the 15-day average closing market price (plus any distributions per share other than common stock) of the Company's common stock preceding November 1, 2001 or on the anniversary date, whichever is earlier, and $3.50 per share up to $4.00 per share; and o 20% of the difference between the 15-day average closing market price (plus any distributions per share other than common stock) of the Company's common stock preceding November 1, 2001 or on the anniversary date, whichever is earlier, and $4.00 per share. Based upon this calculation, an incentive fee of $1,219,285 was paid to Mariner on May 1, 2001. Mariner was not entitled to receive any other fee upon the adoption of the Plan of Liquidation and Dissolution. In accordance with the terms of the management agreement, Mariner continued to receive its base management fee of $50,000 per month until the termination of the management agreement. Upon the termination of the most recent management agreement on November 1, 2001, the Company became self managed and entered into employment agreements with William J. Michaelcheck, the President and Chief Executive Officer of the Company, and Charles R. Howe, II, the Vice President, Treasurer and Secretary of the Company, each at a salary of $10,000 per month. Messrs. Michaelcheck and Howe previously were responsible for managing the Company's portfolio at Mariner and continue to have significant responsibilities at Mariner. On November 1, 2001, the Company also entered into a support services agreement with Mariner Investment Group, an affiliate of Mariner, under which Mariner Investment Group will provide the Company with office space and services, bookkeeping and accounting services and such other services as may be agreed upon from time to time by the Company and Mariner Investment Group for a fee of $30,000 per month. William J. Michaelcheck, the Chairman of Mariner, and the Chairman and sole stockholder of Mariner Investment Group, is LASER's President and Chief Executive Officer. Charles R. Howe, II, is the Chief Financial Officer of Mariner, and Mariner Investment Group, is LASER's Vice President, Treasurer and Secretary. Jonathan Ilany, a Director of LASER, is an employee of Mariner Investment Group. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a) The following documents are filed as a part of this report on Form 10-K: 1. Financial Statements. The financial statements of the Company and the related notes, together with the Independent Auditors' Report thereon, are set forth beginning on page F-1 of this Form 10-K. 2. Schedules to Financial Statements: All financial statement schedules have been omitted because they are either inapplicable or the information required is provided in the Company's Financial Statements and Notes thereto, included in Part II, Item 8 of this Annual Report on Form 10-K. 3. Exhibits: See "Exhibit Index." (b) On December 3, 2001, the Company filed a Current Report on Form 8-K pursuant to Item 5 announcing that the Delaware Court of Chancery approved an initial distribution to the Company's stockholders of $3.00 per outstanding share of common stock. (c) On December 7, 2001, the Company filed a Current Report on Form 8-K pursuant to Item 5 announcing that it would make an initial cash liquidation distribution of $3.00 per outstanding share of common stock on December 28, 2001 to its stockholders. GLOSSARY As used herein, the capitalized and other terms listed below have the meanings indicated. "Agency Certificates" means Federal Home Loan Mortgage Corporation Certificates, Federal National Mortgage Association Certificates and Government National Mortgage Association Certificates. "ASC" means Asset Securitization Corporation, an affiliate of Nomura. "BlackRock" means BlackRock Financial Management, Inc. "Board of Directors" means the Board of Directors of the Company. "Cap" means a purchased interest rate cap. "Code" means the Internal Revenue Code of 1986, as amended. "Common Stock" means shares of the Company's common stock, $.001 par value per share. "Company" means LASER Mortgage Management, Inc., a Delaware corporation. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Former Manager" means LASER Advisers Inc., a Delaware corporation. "G&A Expense" means general and administrative expenses. "GAAP" means generally accepted accounting principles. "GAAP income (loss)" means income calculated according to GAAP. "Investment Company Act" means the Investment Company Act of 1940, as amended. "Interest-Only Security" or "IO" means a type of Mortgage Security which receives a portion of the interest payments from an underlying pool of Mortgage Loans but will receive little or no principal payments and hence will have little or no face value. "IRS" means the United States Internal Revenue Service. "LASER Maryland" means Laser Mortgage Management Inc., a Maryland corporation. "LIBOR" means London Interbank Offered Rate. "Mariner" means Mariner Mortgage Management, L.L.C. "Mariner Investment Group" means Mariner Investment Group, Inc. "Mortgage Assets" means (i) Mortgage Securities and (ii) Mortgage Loans. "Mortgage Derivatives" means Mortgage Securities which provide for the holder to receive interest only, principal only, or interest and principal in amounts that are disproportionate to those payable on the underlying Mortgage Loans. "Mortgage Loans" means mortgage loans secured by first or second liens on single-family residential, multi-family residential, commercial or other real property. "Mortgage Securities" means (i) Pass-Through Certificates, (ii) collateralized mortgage obligations, and (iii) other securities representing interests in, or obligations backed by, pools of Mortgage Loans. "NOL" means net operating losses as calculated for tax purposes. "Nomura" means Nomura Securitization International, Inc. "Nomura Asset" means Nomura Asset Capital Corporation. "NYSE" means the New York Stock Exchange. "Operating Expense" means general and administrative expenses. "Pass-Through Certificates" means securities (or interests therein) other than Mortgage Derivative Securities and Subordinate Interests evidencing undivided ownership interests in a pool of Mortgage Loans, the holders of which receive a "pass-through" of the principal and interest paid in connection with the underlying Mortgage Loans in accordance with the holders' respective, undivided interests in the pool. Pass-Through Certificates include Agency Certificates, as well as other certificates evidencing interests in loans secured by single-family residential, multi-family residential, commercial and/or other real property. "Privately-Issued Certificates" means privately-issued Pass-Through Certificates issued by a third party issuer which is not an Agency Certificate. "Reincorporation" means the Reincorporation of LASER Maryland in Delaware, approved by the stockholders of LASER Maryland at the July 27, 2001 annual meeting. "REIT" means Real Estate Investment Trust. "REIT Provisions of the Code" means Sections 856 through 860 of the Code. "SFAS" means Statement of Financial Accounting Standards. "Subordinate Interests" means a class of Mortgage Securities that is junior to other classes of Mortgage Securities in the right to receive payments from the underlying Mortgage Loans. LASER MORTGAGE MANAGEMENT, INC. INDEX TO FINANCIAL STATEMENTS PAGE INDEPENDENT AUDITORS' REPORT.................................................F-2 FINANCIAL STATEMENTS: Statement of Net Assets in Liquidation as of December 30, 2001 (Liquidation Basis) and Balance Sheet as of December 31, 2000 (Going Concern Basis)...................................................F-3 Statement of Changes in Net Assets in Liquidation for the period from July 28, 2001 through December 31, 2001 (Liquidation Basis)........F-4 Statements of Operations and Comprehensive Income for the period from January 1, 2001 through July 27, 2001 and for the years ended December 31, 2000 and 1999 (Going Concern Basis)........................F-5 Statements of Stockholders' Equity for the period from January 1, 2001 through July 27, 2001 and for the years ended December 31, 2000 and 1999 (Going Concern Basis)..........................................F-6 Statement of Cash Flows for the period from July 28, 2001 through December 31, 2001 (Liquidation Basis)...................................F-7 Statements of Cash Flows for the period from January 1, 2001 through July 27, 2001 and for the years ended December 31, 2000 and 1999 (Going Concern Basis)...................................................F-8 Notes to Financial Statements...........................................F-9 INDEPENDENT AUDITORS' REPORT To the Stockholders of LASER Mortgage Management, Inc. We have audited the accompanying statement of net assets in liquidation of LASER Mortgage Management, Inc. (the "Company") as of December 31, 2001 and the related statements of changes in net assets in liquidation and cash flows for the period from July 28, 2001 through December 31, 2001. In addition, we have audited the accompanying balance sheet of the Company as of December 31, 2000 and the related statements of operations and comprehensive income, stockholders' equity and cash flows for the period from January 1, 2001 through July 27, 2001, and for the years ended December 31, 2000 and 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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. As discussed in Note 1 to the financial statements, on July 27, 2001, the stockholders of LASER Maryland (as defined in Note 1 to the financial statements), at the annual meeting, approved the reincorporation of LASER Maryland in Delaware, through the merger of LASER Maryland with and into the Company, and the subsequent liquidation and dissolution of the Company under the terms and conditions of the Plan of Liquidation and Dissolution. As a result, the Company changed its basis of accounting from the going concern basis to the liquidation basis effective as of July 28, 2001. In our opinion, such financial statements present fairly, in all material respects, the net assets in liquidation of the Company as of December 31, 2001, the changes in its net assets in liquidation and its cash flows for the period from July 28, 2001 through December 31, 2001, its financial position as of December 31, 2000 and the results of its operations and its cash flows for the period from January 1, 2001 through July 27, 2001, and for the years ended December 31, 2000 and 1999, in conformity with accounting principles generally accepted in the United States of America. March 28, 2002 Deloitte & Touche LLP LASER MORTGAGE MANAGEMENT, INC. STATEMENT OF NET ASSETS IN LIQUIDATION AS OF DECEMBER 31, 2001 (LIQUIDATION BASIS) AND BALANCE SHEET AS OF DECEMBER 31, 2000 (GOING CONCERN BASIS) -------------------------------------------------------------------------------- AS OF DECEMBER 31, 2001 DECEMBER 31, 2000 -------------------------------------------------------------------------------- ASSETS Cash and cash equivalents................... $ 2,960,185 $ 3,542,209 Investment in securities.................... 15,305,268 315,560,905 Investment in mortgage loans................ 2,004,114 2,699,838 Interest rate agreement..................... -- 380,000 Interest and principal paydowns receivable.. 1,649,692 4,328,489 Prepaid expenses............................ -- 1,416,792 --------------- --------------- Total assets...................... 21,919,259 $ 327,928,233 --------------- =============== LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Repurchase agreements..................... 2,028,000 $ 239,877,000 Payable for securities acquired........... -- 23,321,844 Accrued interest payable.................. 30,576 560,130 Accounts payable and accrued expenses..... 892,513 729,703 Reserve for estimated liquidation costs... 524,937 -- --------------- --------------- Total liabilities................. 3,476,026 264,488,677 --------------- --------------- Stockholders' Equity: Common stock: par value $.001 per share; 100,000,000 shares authorized; 20,118,749 shares issued................. 20,119 Additional paid-in capital................ 283,012,967 Accumulated other comprehensive loss...... (3,673,678) Accumulated distributions and losses...... (183,071,421) Treasury stock at cost (6,079,766 shares). (32,848,431) --------------- Total stockholders' equity........ 63,439,556 --------------- Total liabilities and stockholders' equity.............. $ 327,928,233 =============== Net assets in liquidation......... $ 18,443,233 =============== See notes to financial statements. LASER MORTGAGE MANAGEMENT, INC. STATEMENT OF CHANGES IN NET ASSETS IN LIQUIDATION FOR THE PERIOD FROM JULY 28, 2001 THROUGH DECEMBER 31, 2001 (LIQUIDATION BASIS) -------------------------------------------------------------------------------- Interest Income: Securities and mortgage loans............................ $ 1,963,752 Cash and cash equivalents................................ 225,897 --------------- Total interest income............................. 2,189,649 Interest Expense: Repurchase agreements.................................... 419,590 --------------- Net interest income........................................ 1,770,059 Net gain on securities..................................... 607,650 General and administrative expenses........................ 552,796 --------------- Increase in net assets in liquidation from operating activites................................................. 1,824,913 --------------- Liquidation distribution to stockholders................... (42,116,949) --------------- Adjustments to reflect the change to liquidation basis accounting: Reduction to reflect estimated net realizable value of securities.............................................. (938,188) Write-off of prepaid expenses............................ (1,098,222) Reserve for estimated liquidation costs.................. (700,000) --------------- Adjustment to liquidation basis accounting....... (2,736,410) --------------- Net assets in liquidation at beginning of period........... 61,471,679 --------------- Net assets in liquidation at end of period................. $ 18,443,233 =============== See notes to financial statements.
LASER MORTGAGE MANAGEMENT, INC. STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (GOING CONCERN BASIS) --------------------------------------------------------------------------------------------------------------------------- FOR THE PERIOD FROM YEAR ENDED YEAR ENDED JANUARY 1, 2001 DECEMBER 31, DECEMBER 31, THROUGH 2000 1999 JULY 27, 2001 --------------------------------------------------------------------------------------------------------------------------- Interest Income: Securities and mortgage loans.................... $ 7,231,003 $ 17,194,218 $ 28,139,101 Cash and cash equivalents........................ 525,563 1,249,762 1,805,346 ----------- ------------ ------------ Total interest income...................... 7,756,566 18,443,980 29,944,447 ----------- ------------ ------------ Interest Expense: Repurchase agreements............................ 4,059,974 10,654,039 16,812,335 Other -- 20,629 -- ----------- ------------ ------------ Total interest expense..................... 4,059,974 10,674,668 16,812,335 ----------- ------------ ------------ Net interest income................................. 3,696,592 7,769,312 13,132,112 Net realized loss on securities..................... (4,218,425) (1,125,623) (19,828,790) Net loss on interest rate agreement................. (120,000) (2,580,000) -- Impairment loss on securities....................... -- (17,596,917) -- General and administrative expenses................. 2,527,690 1,617,097 4,325,681 ----------- ------------ ------------ Net loss............................................ $(3,169,523) $(15,150,325) $(11,022,359) ----------- ------------ ------------ Other Comprehensive Income: Unrealized net gain (loss) on securities: Unrealized holding loss arising during the period (3,016,779) (9,973,400) (17,505,679) Add: reclassification adjustment for net realized loss included in net loss.......................... 4,218,425 8,722,540 19,828,790 ----------- ------------ ------------ Other comprehensive income.......................... 1,201,646 8,749,140 2,323,111 ----------- ------------ ------------ Comprehensive loss.................................. $(1,967,877) $(6,401,185) $(8,699,248) =========== ============ ============ NET LOSS PER SHARE: Basic............................................ $ (0.23) $ (1.05) $ (0.65) =========== =========== ============ Diluted.......................................... $ (0.23) $ (1.05) $ (0.65) =========== =========== ============ WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING: Basic............................................ 14,038,983 14,369,081 16,925,143 =========== ============ ============ Diluted.......................................... 14,038,983 14,369,081 16,925,143 =========== ============ ============ See notes to financial statements.
LASER MORTGAGE MANAGEMENT, INC. STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE PERIOD FROM JANUARY 1, 2001 THROUGH JULY 27, 2001 AND FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999(GOING CONCERN BASIS) ------------------------------------------------------------------------------------------------------------------------------------ ACCUMULATED OTHER ADDITIONAL COMPREHENSIVE ACCUMULATED TREASURY TOTAL COMMON PAID-IN INCOME DISTRIBUTIONS AND STOCK STOCKHOLDERS' STOCK CAPITAL (LOSS) LOSSES AT COST EQUITY ------------------------------------------------------------------------------------------------------------------------------------ BALANCE, DECEMBER 31, 1998............ $20,100 $282,921,970 $ (14,745,929) $(121,290,971) $(19,348,394) $127,556,776 ------------- ------------ Comprehensive loss: Net loss -- -- -- (11,022,359) -- (11,022,359) ------------ Other comprehensive income: Unrealized holding loss arising during the year.................. -- -- (17,505,679) -- -- (17,505,679) Reclassification adjustment for net realized loss included in net loss......................... -- -- 19,828,790 -- -- 19,828,790 ------------- ------------ Other comprehensive income........ -- -- 2,323,111 2,323,111 ------------ Comprehensive loss.................. (8,699,248) Common stock issued................... 19 90,997 -- -- -- 91,016 Repurchase of common stock............ -- -- -- -- (10,349,101) (10,349,101) Dividends/Distributions declared - $2.00 per share...................... -- -- -- (35,607,766) -- (35,607,766) ------- ------------ ------------- ------------- ------------ ------------ BALANCE, DECEMBER 31, 1999............ 20,119 283,012,967 (12,422,818) (167,921,096) (29,697,495) 72,991,677 ------------- ------------ Comprehensive loss: Net loss -- -- -- (15,150,325) -- (15,150,325) ------------ Other comprehensive income: Unrealized holding loss arising during the year.................. -- -- (9,973,400) -- -- (9,973,400) Reclassification adjustment for net realized loss included in net loss......................... -- -- 18,722,540 -- -- 18,722,540 ------------- ------------ Other comprehensive income........ -- -- 8,749,140 -- -- 8,749,140 ------------- ------------ Comprehensive loss.................. (6,401,185) Repurchase of common stock............ -- -- -- -- (3,150,936) (3,150,936) ------- ------------ ------------- ------------- ------------ ------------ BALANCE, DECEMBER 31, 2000............ 20,119 283,012,967 (3,673,678) (183,071,421) (32,848,431) 63,439,556 ------------- ------------ Comprehensive loss: Net loss -- -- -- (3,169,523) -- (3,169,523) ------------ Other comprehensive income: Unrealized holding loss arising during the period............... -- -- (3,016,779) -- -- (3,016,779) Reclassification adjustment for net realized loss included in net loss......................... -- -- 4,218,425 -- -- 4,218,425 ------------- ------------ Other comprehensive income........ -- -- 1,201,646 -- -- 1,201,646 ------------ Comprehensive loss.................. (1,967,877) ------- ------------ ------------- ------------- ------------ ------------ BALANCE, JULY 27, 2001................ $20,119 $283,012,967 $ (2,472,032) $(186,240,944) $(32,848,431) $ 61,471,679 ======= ============ ============= ============= ============ ============ See notes to financial statements
LASER MORTGAGE MANAGEMENT, INC. STATEMENTS OF CASH FLOWS FOR THE PERIOD FROM JULY 28, 2001 THROUGH DECEMBER 31, 2001 (LIQUIDATION BASIS) ----------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Increase in net assets in liquidation from operating activities................ $ 1,824,913 Adjustments to reconcile increase in net assets in liquidation from operating activities to net cash provided by operating activities: Amortization of mortgage premiums and discounts, net........................... (44,472) Net gain on securities......................................................... (607,650) Decrease in interest receivable................................................ 416,991 Decrease in accrued interest payable........................................... (671,397) Increase in accounts payable and accrued expenses.............................. 66,500 Decrease in reserve for estimated liquidation costs ........................... (175,063) ------------ Net cash provided by operating activities...................................... 809,822 ------------ CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of securities............................................... 45,069,534 Principal payments on securities and mortgage loans............................ 20,969,010 ------------ Net cash provided by investing activities...................................... 66,038,544 ------------ CASH FLOWS FROM FINANCING ACTIVITIES Repayments of repurchase agreements............................................ (44,363,576) Liquidation distribution to stockholders....................................... (42,116,949) ------------ Net cash used in financing activities.......................................... (86,480,525) ------------ Net decrease in cash and cash equivalents...................................... (19,632,159) Cash and cash equivalents at beginning of period............................... 22,592,344 ------------ Cash and cash equivalents at end of period..................................... $ 2,960,185 ============ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Interest paid.................................................................. $ (1,090,987) ============ SUPPLEMENTAL DISCLOSURE OF NON-CASH OPERATING ACTIVITIES: Adjustment to liquidation basis accounting.................................... $ (2,736,410) ============= See notes to financial statements
LASER MORTGAGE MANAGEMENT, INC. FOR THE PERIOD JANUARY 1, 2001 YEAR ENDED YEAR ENDED STATEMENTS OF CASH FLOWS THROUGH DECEMBER 31, DECEMBER 31, (GOING CONCERN BASIS) JULY 27, 2001 2000 1999 --------------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (3,169,523) $ (15,150,325) $ (11,022,359) Adjustments to reconcile net loss to net cash provided by operating activities: Amortization of mortgage premiums and discounts, net............... (186,354) (835,665) 2,590,314 Unrealized (gain) loss on interest rate agreement.................. (2,580,000) 2,580,000 -- Impairment loss on securities...................................... -- 17,596,917 -- Net realized loss on sale of securities and interest rate agreement 6,918,425 1,125,623 19,828,790 Change in assets and liabilities: Decrease (increase) in interest receivable......................... 2,280,392 (2,048,041) 9,613,217 Decrease in margin deposits on repurchase agreements............... -- 425,000 6,692,098 Decrease (increase) in prepaid expenses............................ 318,570 (1,416,792) -- Increase (decrease) in accrued interest payable.................... 141,843 410,870 (2,296,977) Increase (decrease) in accounts payable and accrued expenses....... 96,310 (351,357) 523,514 Decrease in payable to manager..................................... -- (42,754) (1,082,246) ---------------- ---------------- ---------------- Net cash provided by operating activities............................ 3,819,663 2,293,476 24,846,351 ---------------- ---------------- ---------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of securities............................................. (55,048,842) (511,979,144) (42,695,021) (Decrease) increase in payable for securities acquired............. (23,321,844) 23,321,844 -- Purchase of interest rate agreement................................ -- (2,960,000) -- Proceeds from sale of securities................................... 255,982,732 261,390,441 681,131,529 Proceeds from sale of interest rate agreement...................... 260,000 -- -- Principal payments on securities and mortgage loans................ 30,843,850 22,702,504 66,622,098 ---------------- ---------------- ---------------- Net cash provided by (used in) investing activities.................. 208,715,896 (207,524,355) 705,058,606 ---------------- ---------------- ---------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from repurchase agreements................................ 1,960,972,986 1,706,908,627 3,512,626,247 Repayments of repurchase agreements................................ (2,154,458,410) (1,511,049,627) (4,210,993,157) Payments for repurchase of common stock, net of issuances.......... -- (3,150,936) (10,258,085) Distributions paid to stockholders................................. -- -- (35,607,766) ---------------- ---------------- ---------------- Net cash (used in) provided by financing activities.................. (193,485,424) 192,708,064 (744,232,761) ---------------- ---------------- ---------------- Net increase (decrease) in cash and cash equivalents................. 19,050,135 (12,522,815) (14,327,804) Cash and cash equivalents at beginning of period..................... 3,542,209 16,065,024 30,392,828 ---------------- ---------------- ---------------- Cash and cash equivalents at end of period........................... $ 22,592,344 $ 3,542,209 $ 16,065,024 ================ ================ ================ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Interest paid...................................................... $ (3,918,131) $ (10,054,489) $ (19,109,312) ================ ================ ================ NONCASH FINANCING ACTIVITIES: Net change in unrealized gain on available-for-sale securities... $ 1,201,646 $ 8,749,140 $ 2,323,111 ================ ================ ================ See notes to financial statements.
LASER MORTGAGE MANAGEMENT, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2001 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES LASER Mortgage Management, Inc. (the "Company") was incorporated in Delaware on May 1, 2001, as a wholly-owned subsidiary of LASER Mortgage Management, Inc., a Maryland corporation ("LASER Maryland"), and is the successor by merger to LASER Maryland. LASER Maryland was incorporated in Maryland on September 3, 1997 and commenced its operations on November 26, 1997. On May 30, 2001, the Company's Board of Directors and sole stockholder, LASER Maryland, approved the liquidation and dissolution of the Company under the terms and conditions of the Plan of Liquidation and Dissolution, subject to the approval of the Plan of Liquidation and Dissolution by the stockholders of LASER Maryland. On July 27, 2001, the stockholders of LASER Maryland, at the annual meeting, approved the reincorporation of LASER Maryland in Delaware (the "Reincorporation"), through the merger of LASER Maryland with and into the Company, and the subsequent liquidation and dissolution of the Company under the terms and conditions of the Plan of Liquidation and Dissolution. On July 31, 2001, LASER Maryland completed the Reincorporation by merging with and into the Company. As of the effective date of the Reincorporation, LASER Maryland ceased to exist. On August 3, 2001, the Company filed a certificate of dissolution with the Secretary of State of the State of Delaware, and the dissolution of the Company was effective upon such filing. The Company has ceased to conduct normal business operations and now operates solely for the purpose of providing for the satisfaction of its obligations, adjusting and winding-up its business and affairs and distributing its remaining net assets. References herein to "LASER" or the "Company" include LASER Maryland prior to the date of the Reincorporation, as applicable. In accordance with the Plan of Liquidation and Dissolution, on November 8, 2001, the Board of Directors filed a petition with the Delaware Court of Chancery for permission to make an initial distribution to stockholders of $3.00 per outstanding common share. On November 28, 2001, the Delaware Court of Chancery approved this initial distribution to stockholders. On December 28, 2001, a distribution of $3.00 per outstanding share of common stock was made to stockholders of record as of December 17, 2001. As of December 31, 2001, the estimated net realizable value of the Company's net assets in liquidation was $1.31 per share. After providing for expenses and subject to court approval, the Company expects to distribute the majority of the remaining net assets in liquidation over the next three years with a final liquidating distribution to occur thereafter. The total amount of distributions to stockholders is subject to change based on numerous factors, including operating expenses, the Delaware Court of Chancery modifying the distribution amounts and timing currently envisioned by the Board of Directors under the Plan of Liquidation and Dissolution, unanticipated claims or expenses and income received, if any, from the pending litigation against Asset Securitization Corporation ("ASC"), Nomura Asset Capital Corporation ("Nomura Asset") and Nomura Securitization International, Inc. ("Nomura"), as well as other factors beyond the control of the Company. The Company was organized to create and manage an investment portfolio of primarily mortgage-backed securities and mortgage loans that, in combination with financing and hedging activities, would generate income for distribution to its stockholders while preserving the Company's capital base. At its inception, the Company elected to be taxed as a real estate investment trust (a "REIT") under the Internal Revenue Code of 1986, as amended (the "Code"), commencing with its short taxable year ended December 31, 1997. The Company qualified as a REIT for the taxable years ended December 31, 1997 through 2001. The Company does not expect to qualify as a REIT for the year beginning January 1, 2002. BASIS OF PRESENTATION - As described above, stockholders approved the Plan of Liquidation and Dissolution of the Company on July 27, 2001. As a result, the Company adopted liquidation basis accounting effective July 28, 2001. Accordingly, the Company's assets are stated at their estimated net realizable values and liabilities are stated at their estimated settlement amounts, including an accrual for estimated expenses associated with the liquidation of the Company. Before the adoption of liquidation basis accounting, the Company operated as a continuing business and followed going concern basis accounting. Because substantially all of the existing assets and liabilities of the Company were carried at approximate fair value in accordance with generally accepted accounting principles ("GAAP"), the adoption of liquidation basis accounting did not have a material impact on the Company's financial statements other than requiring the Company to charge stockholders' equity for the: reduction in the carrying value of securities to reflect their estimated net realizable value, write-off of the remaining balance of prepaid expenses, and reserve for estimated expenses associated with the liquidation of the Company. However, the valuation of assets and liabilities at their estimated net realizable values and estimated settlement amounts, respectively, necessarily requires estimates and assumptions. Changes in market conditions, actual costs associated with the liquidation, and other factors may affect the amounts ultimately realized or settled, and those amounts may differ, perhaps materially, from the carrying values on the Company's financial statements. A summary of the Company's significant accounting policies follows: CASH EQUIVALENTS - Cash equivalents consist of an overnight reverse repurchase agreement. The amount reported on the statement of net assets in liquidation or balance sheet, as appropriate, represents the amount advanced under the agreement. INVESTMENTS - The Company invested primarily in mortgage-backed securities and mortgage loans. The mortgage-backed securities included privately issued or U.S. government or agencies issued mortgage pass-through certificates, collateralized mortgage obligations and other securities representing interests in, or obligations backed by, pools of mortgage loans (collectively, "Mortgage Securities"). The Company also invested in other debt and equity securities ("Other Securities" and, together with Mortgage Securities, "Securities"). The mortgage loans are secured by first or second liens on single-family residential, multi-family residential, commercial or other real property ("Mortgage Loans" and, together with Securities, "Investments"). Before the adoption of liquidation basis accounting and in accordance with the provisions of Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities", the Company classified its Securities as available-for-sale. The available-for-sale classification required that those Securities be carried at estimated fair value, with unrealized gains and losses reported on the balance sheet as a separate component of stockholders' equity within accumulated other comprehensive loss. This classification was appropriate since the Company may have needed to sell, from time to time, any of its Securities as part of its overall management of its balance sheet even though the Company generally intended to hold most of its Securities until maturity. After the adoption of liquidation basis accounting, the Company's Investments are carried at estimated net realizable value on the statement of net assets in liquidation, with unrealized gains and losses reported on the statement of changes in net assets in liquidation. The Company's Mortgage Loans are carried at estimated net realizable value on the statement of net assets in liquidation, with unrealized gains and losses reported on the statement of changes in net assets in liquidation. Before the adoption of liquidation basis accounting, the Company's Mortgage Loans were carried on the balance sheet at their unpaid principal balance, net of unamortized discount or premium. Interest income is accrued based on the outstanding principal or notional amount of the Investments and their contractual terms. Premiums and discounts associated with the purchase of the Investments are amortized into interest income over the lives of the Investments using the effective yield method. Realized gains and losses on Investment transactions are determined on the specific identification basis and have been recorded on the statement of changes in net assets in liquidation or the statement of operations, as appropriate. INTEREST RATE AGREEMENTS - The Company has followed an interest-rate risk-management strategy designed to protect against the adverse effects of major interest rate changes and used derivative interest rate agreements, such as a purchased interest rate cap ("cap"). A cap is a contractual agreement for which the Company pays an initial premium in return for subsequent cash flows to the Company to the extent that a specific interest rate index exceeds the contractual fixed rate, applied to a notional amount. The amount of the risk of loss on a cap is the premium paid. The cap was recorded and carried at estimated fair value with changes in fair value reported on the statement of operations. Interest payments received were recorded as a component of net interest income on the statement of operations. REPURCHASE AGREEMENTS - The Company utilized repurchase agreements to finance most of its Investments. The repurchase agreements are collateralized by certain of the Company's Investments and bear interest rates that generally move in close relation to the one-month London Interbank Offered Rate ("LIBOR"). The amount reported on the statement of net assets in liquidation or balance sheet, as appropriate, represents the contractual amount to be repaid under such agreements. RESERVE FOR ESTIMATED LIQUIDATION COSTS - Under liquidation basis accounting, the Company is required to estimate and accrue the costs associated with the liquidation. The amount recorded in the statement of net assets in liquidation represents estimated professional fees and other expenses expected to be incurred in connection with liquidation activities and paid out over the course of the liquidation. The ultimate amount paid might vary significantly due to, among other things, the timing of the liquidation. SECURITIES SOLD, NOT YET PURCHASED - Securities sold, not yet purchased represent an obligation to replace borrowed Securities that were sold. The Company had carried the obligation at its estimated fair value on the balance sheet, with changes in fair value reported on the statement of operations. While the transaction was open, the interest accruing on the borrowed Securities represented an expense to the Company and was recorded as other interest expense on the statement of operations. FAIR VALUE OF FINANCIAL INSTRUMENTS -The fair values of the Company's Investments and interest rate agreement were based on prices and valuations provided by dealers who make markets in these financial instruments. The fair values reported reflect estimates and may not necessarily be indicative of the amounts the Company could realize in a current market exchange. The carrying values of cash equivalents, interest receivable and payable, repurchase agreements and other financial assets and liabilities approximates their estimated fair value because of the short-term nature of these financial instruments. Estimated net realizable value approximates estimated fair value as presented in these financial statements. INCOME TAXES - At its inception, the Company elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended, commencing with its short taxable year ended December 31, 1997. As such, the Company generally has been entitled to a deduction for all dividends it paid to its stockholders for a taxable year. As a result, the Company has not been subject to federal income taxation with respect to its distributed income. Qualification as a REIT requires that the Company satisfy a number of asset, income and distribution tests. The Company qualified as a REIT for the taxable years for the years ended December 31, 1997 through 2001. The Company does not expect to qualify as a REIT for the year beginning January 1, 2002. USE OF ESTIMATES - The preparation of financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates. RECENT ACCOUNTING PRONOUNCEMENTS - Effective January 1, 2001, the Company adopted the provisions of SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" as amended by SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities - an Amendment of Statement No. 133." The adoption of the provisions of these accounting pronouncements with respect to the Company's sole derivative instrument at that time, the interest rate agreement, had no impact on the Company's financial condition or results of operations. 2. MORTGAGE SECURITIES The following tables show the Company's Mortgage Securities as of December 31, 2001 (stated at estimated net realizable value) and as of December 31, 2000 (stated at estimated fair value), excluding interest-only mortgage derivatives ("IOs"). DECEMBER 31, 2001 AGENCY FLOATING RATE MORTGAGE SECURITIES ------------- Current principal amount $14,854,868 Unamortized discount -- Unamortized premium 217,674 ----------- Amortized cost 15,072,542 Gross unrealized gains 232,726 Gross unrealized losses -- ----------- Estimated net realizable value $15,305,268 =========== DECEMBER 31, 2000 AGENCY FIXED/ FLOATING RATE NON- MORTGAGE MORTGAGE MORTGAGE SECURITIES SUBORDINATES SUBORDINATES TOTAL Current principal amount $271,728,664 $7,316,580 $ 5,722,553 $284,767,797 Unamortized discount (3,939,630) -- (600,000) (4,539,630) Unamortized premium 1,117,677 2,684 -- 1,120,361 ------------ ---------- ----------- ------------ Amortized cost 268,906,711 7,319,264 5,122,553 281,348,528 Gross unrealized gains 6,290,740 -- -- 6,290,740 Gross unrealized losses (16,251) (7,256) (3,352,893) (3,376,400) ------------ ---------- ----------- ------------ Estimated fair value $275,181,200 $7,312,008 $ 1,769,660 $284,262,868 ============ ========== =========== ============ The Company did not hold any IOs in its portfolio as of December 31, 2001. The following table shows the IOs as of December 31, 2000 (stated at estimated fair value). DECEMBER 31, 2000 FIXED RATE FIXED RATE RESIDENTIAL COMMERCIAL TOTAL Current notional amount $ 104,492,206 $ 99,844,649 $ 204,336,855 ============= ============= =============== Amortized cost $ 31,815,356 $ 6,070,699 $ 37,886,055 Gross unrealized gains -- 114,987 114,987 Gross unrealized losses (6,703,005) -- (6,703,005) ------------- ------------- --------------- Estimated fair value $ 25,112,351 $ 6,185,686 $ 31,298,037 ============= ============= =============== The Company was notified in June 2000 of a default in a $50.0 million mortgage loan in a trust fund of which the Company owns subordinated interests. The Securities that are affected by this event are subordinated classes of Commercial Mortgage Pass-Through Certificates, Series 1997-D5 that represent beneficial ownership interests in a trust fund created by ASC, an affiliate of Nomura, at the time of the offering. Thereafter, a representative of Nomura notified a representative of the Company that the amount of the recovery of the Securities may be negligible. Accordingly, management increased the unrealized loss on those Securities at that time by approximately $(9.1) million representing the remaining total aggregate carrying value of those Securities, pending further developments. On October 23, 2000 the Company filed suit in the Southern District of New York against ASC, Nomura Asset and Nomura alleging that the defendants defrauded the Company into purchasing approximately $19.0 million worth of ASC securities by failing to disclose, among other things, that one of largest loans in the mortgage pool was seriously troubled. The Company is seeking rescission of the purchase of the Securities. During the quarter ended December 31, 2000, the Company recognized the probable other-than-temporary impairment of those Securities by charging the statement of operations and crediting accumulated other comprehensive loss on the balance sheet for the aggregate cumulative loss of $(17,596,917); such recognition had no further impact on stockholders' equity from the time of the earlier increase in unrealized loss. On December 8, 2000, the defendants filed a motion to dismiss the action. On September 5, 2001, such motion was granted with respect to the claims brought under Sections 12(a)(2) and 15 of the Securities Act of 1933 and denied with respect to the common law fraud claims and claims brought under Sections 10(b) and 20(a) of Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. Discovery is proceeding with regard to the surviving claims. A recovery of this Investment may be possible, but management is unable to predict the likelihood of this occurrence. 3. MORTGAGE LOANS The following table shows the Company's Mortgage Loans at December 31, 2001 (stated at estimated net realizable value) and December 31, 2000 (stated at amortized cost). 2001 2000 Principal amount $ 2,004,114 $ 2,647,455 Unamortized premium -- 52,383 ---------------- ---------------- Net carrying value amount $ 2,004,114 $ 2,699,838 ================ ================ As of December 31, 2000, the amortized cost of the Mortgage Loans approximated their estimated fair value. 4. INTEREST RATE AGREEMENT CAPS The Company used a cap during 2000, and continuing into January 2001, to reduce the risk of rising interest rates on the cost of the short-term repurchase agreements used to finance its Investments. As a result of the reduction in interest rates in January 2001, the Company closed out the existing cap, with a notional amount of $100,000,000, for $260,000 in cash and recognized a net loss of $(120,000) on the statement of operations that is comprised of a realized loss of $(2,700,000) and an unrealized gain of $2,580,000 from the reversal of the unrealized loss on the cap at December 31, 2000 due to its sale. During the second quarter of 2000, the Company purchased this cap for a premium of $2,960,000. The cap agreement had a term of three years and provided for monthly payments of interest to the Company to the extent that the one-month LIBOR exceeded 6.54%, as applied to the notional amount. By December 31, 2000, the Company had recorded an unrealized loss of $(2,580,000) on the statement of operations with respect to the cap to reflect its estimated fair value of $380,000 in the balance sheet at that time. 5. REPURCHASE AGREEMENTS Most of the Company's Investments were financed by repurchase agreements. The repurchase agreements are collateralized by the market value of the Company's Investments and bear interest rates that generally move in close relation to one-month LIBOR. The Company has been liquidating its assets pursuant to the Plan of Liquidation and Dissolution. The proceeds from sales of assets are used to repay the repurchase agreements. At December 31, 2001 and December 31, 2000, the Company had $2,028,000 and $239,877,000, respectively, of repurchase agreements outstanding with a weighted average borrowing rate of 3.24% and 6.66%, respectively, and a weighted average remaining maturity of 28 days and 11 days, respectively. The repurchase agreement outstanding at December 31, 2001 matures in 28 days. The associated accrued interest expense payable on the outstanding repurchase agreements amounted to $30,576 and $560,130 at December 31, 2001 and December 31, 2000, respectively. At December 31, 2001 and December 31, 2000, the repurchase agreements were collateralized by Investments that had an estimated value of approximately $2,004,000 (stated at estimated net realizable value) and $249,500,000 (stated at estimated fair value), respectively. During the first quarter of 1999, to improve its liquidity, the Company terminated a $500,000,000, five year repurchase agreement and recognized a loss of approximately $(8,500,000) in net realized loss on securities on the statement of operations. 6. RESERVE FOR ESTIMATED LIQUIDATION COSTS At the time of the adoption of liquidation basis accounting, the Company recorded $700,000 for estimated professional fees and other expenses anticipated over the course of the liquidation. At December 31, 2001, the reserve for estimated liquidation costs amounted to $524,937. During the period July 28, 2001 through December 31, 2001, the Company paid $175,063 of liquidation costs. During the period January 1, 2001 through July 27, 2001, the Company incurred approximately $1.4 million of costs directly related to the liquidation of the Company. Such costs were recorded in general and administrative expenses on the statement of operations. 7. STOCKHOLDERS' EQUITY COMMON STOCK - At each of December 31, 2001 and 2000, the Company had 100,000,000 common shares authorized and 20,118,749 common shares issued. During the year ended December 31, 1999, an aggregate of 80,000 shares of common stock was issued as deferred stock awards to certain employees of the Company at a value of $91,016 (see note 8). DIVIDENDS/DISTRIBUTIONS - On December 28, 2001, a cash liquidation distribution of $3.00 per outstanding share of common stock, or $42,116,949, was made in accordance with the Company's Plan of Liquidation and Dissolution. During the year ended December 31, 1999, the Company declared and subsequently paid dividends and distributions in cash of $2.00 per outstanding common share or $35,607,766. TREASURY STOCK - In November 1998, the Board of Directors of the Company increased the amount of common stock authorized to be repurchased under the Company's stock repurchase program to $40.0 million. Pursuant to the common stock repurchase program, the Company repurchased 825,600 shares and 2,953,700 shares of common stock for $3,150,936 and $10,349,101 and during the years ended December 31, 2000 and 1999, respectively. No shares of common stock were repurchased during 2001. At December 31, 2001 and 2000, an aggregate 6,079,766 shares of the Company's issued common stock had been reacquired at an aggregate cost of $32,848,431. 8. LONG-TERM STOCK INCENTIVE PLAN LASER Maryland had adopted a Long-Term Stock Incentive Plan for directors, executive officers and key employees (the "Incentive Plan"). The Incentive Plan authorized the Compensation Committee of the Board of Directors to grant awards, including incentive stock options as defined under Section 422 of the Code, options not so qualified and deferred common stock. The Incentive Plan authorized an aggregate of 2,066,666 shares of LASER Maryland's common stock for the granting of options or other awards. Upon the effectiveness of the Reincorporation, the Incentive Plan was terminated. There were no outstanding awards under the Incentive Plan during 2001 and none were outstanding or reserved for issuance at December 31, 2000. During the years ended December 31, 2000 and 1999, stock options of 10,000 and 210,000, respectively, were terminated. During the year ended December 31, 1999, 18,750 shares of deferred common stock awards were issued at cost of $91,016 (see note 7) and all other deferred common stock awards previously granted to employees who had subsequently left the Company were terminated. 9. LOSS PER SHARE ("LPS") Basic LPS is computed by dividing the net loss attributable to common shares by the weighted average number of common shares outstanding during the period. The calculation of diluted LPS considers the effect of all dilutive potential common shares that were outstanding during the period under the Company's Incentive Plan. Basic and diluted LPS for the period January 1, 2001 through July 27, 2001 and for the years ended December 31, 2000 and 1999 was as follows: FOR THE PERIOD JANUARY 1, 2001 THROUGH JULY 27, 2001 NET LOSS SHARES PER-SHARE (NUMERATOR) (DENOMINATOR) AMOUNT Basic LPS $ (3,169,523) 14,038,983 $ (0.23) ============= =============== ============= Diluted LPS $ (3,169,523) 14,038,983 $ (0.23) ============= =============== ============= FOR THE YEAR ENDED DECEMBER 31, 2000 NET LOSS SHARES PER-SHARE (NUMERATOR) (DENOMINATOR) AMOUNT Basic LPS $ (15,150,325) 14,369,081 $ (1.05) ============= =============== ============= Diluted LPS $ (15,150,325) 14,369,081 $ (1.05) ============= =============== ============= FOR THE YEAR ENDED DECEMBER 31, 1999 NET LOSS SHARES PER-SHARE (NUMERATOR) (DENOMINATOR) AMOUNT Basic LPS $ (11,022,359) 16,925,143 $ (0.65) ============= =============== ============= Diluted LPS $ (11,022,359) 16,925,143 $ (0.65) ============= =============== ============= For the period January 1, 2001 through July 27, 2001, there were no deferred common shares reserved for issuance and there were no outstanding options to purchase common shares of the Company. For the years ended December 31, 2000 and 1999, there were no deferred common shares reserved for issuance. For the years ended December 31, 2000 and 1999, options to purchase 7,500, and 100,000 shares of the Company's common stock were outstanding, respectively, and were excluded from the computation of diluted LPS for the year then ended because they were anti-dilutive. 10. MANAGEMENT AGREEMENTS From November 1, 1999 to November 1, 2001, Mariner Mortgage Management, L.L.C. ("Mariner") served as the external manager of the Company and was responsible for the day-to-day management of the Company's investments and operations. Under the most recent management agreement, which was entered into on November 1, 2000 and terminated on November 1, 2001, Mariner became entitled to be paid an incentive fee upon the earlier of (1) the termination date of the management agreement or (2) the date on which the Board of Directors adopted resolutions approving the liquidation and dissolution, referred to as the anniversary date, which it did on April 25, 2001, equal to the number of shares outstanding on the applicable date, multiplied by: o 10% of the difference between the 15-day average closing market price (plus any distributions per share other than common stock) of the Company's common stock preceding November 1, 2001 (or such earlier anniversary date, as set forth in the agreement) and $3.317 per share (which approximates the average closing price of the Company's common stock for the fifteen days ended October 31, 2000) up to the equivalent of $3.50 per share; o 15% of the difference between the 15-day average closing market price (plus any distributions per share other than common stock) of the Company's common stock preceding November 1, 2001 or on the anniversary date, whichever is earlier, and $3.50 per share up to $4.00 per share; and o 20% of the difference between the 15-day average closing market price (plus any distributions per share other than common stock) of the Company's common stock preceding November 1, 2001 or on the anniversary date, whichever is earlier, and $4.00 per share. Based upon this calculation, an incentive fee of $1,219,285 was paid to Mariner on May 1, 2001. Mariner was not entitled to receive any other fee upon the adoption of the Plan of Liquidation and Dissolution. In accordance with the terms of the management agreement, Mariner continued to receive its base management fee of $50,000 per month until the termination of the management agreement. For the period November 1, 1999 to November 1, 2000, the annual base fee under the terms of the management agreement then in effect, was payable monthly in cash and based on 0.45% of the aggregate value of the Company's outstanding equity as of the end of such month; the annual incentive fee calculation for that period was similar to the computation described above. The table below shows the base fees incurred to the Company pursuant to the terms of the Mariner management agreement. FOR THE PERIOD: BASE FEES INCURRED July 28, 2001 through November 1, 2001 $ 150,000 January 1, 2001 through July 27, 2001 $ 350,000 January 1, 2000 through December 31, 2000 $ 294,193 November 1, 1999 through December 31, 1999 $ 42,754 No incentive fees were incurred during the period July 28, 2001 through December 31, 2001 or during the years ended December 31, 2000 and 1999. As described above, an incentive fee of $1,219,285 was paid to Mariner during the period January 1, 2001 through July 27, 2001. Upon the termination of the most recent management agreement on November 1, 2001, the Company became self managed and entered into employment agreements with William J. Michaelcheck, the President and Chief Executive Officer of the Company, and Charles R. Howe, II, the Vice President, Treasurer and Secretary of the Company, each at a salary of $10,000 per month. Messrs. Michaelcheck and Howe previously were responsible for managing the Company's portfolio at Mariner and continue to have significant responsibilities at Mariner. On November 1, 2001, the Company also entered into a support services agreement with Mariner Investment Group, Inc. ("Mariner Investment Group"), an affiliate of Mariner, under which Mariner Investment Group will provide the Company with office space and services, bookkeeping and accounting services and such other services as may be agreed upon from time to time by the Company and Mariner Investment Group for a fee of $30,000 per month. Prior to November 1, 1999, the Company was engaged in a consulting arrangement with BlackRock Financial Management, Inc. ("BlackRock") and in a management agreement with LASER Advisers, Inc. (the "Former Manager"). The management agreement with the Former Manager was terminated effective February 28, 1999. During the time the management agreement was in effect, it provided for an annual base management fee of 1.0% of average stockholders' equity, as defined, and a quarterly incentive fee in an amount equal to 20% of the excess quarterly net income of the Company over a hurdle, all as defined. For the year ended December 31, 1999, the Company incurred consulting fees to BlackRock in the amount of $1,125,000; $500,000 was payable at December 31, 1999. Under the management agreement with the Former Manager, the Company incurred base management fees of approximately $500,000 for the year ended December 31, 1999. 11. TAXABLE INCOME (LOSS) At its inception, the Company elected to be taxed as a REIT under the Internal Revenue of 1986, as amended, commencing with its short taxable year ended December 31, 1997. As such, the Company generally has been entitled to a deduction for all dividends it paid to its stockholders for a taxable year. As a result, the Company has not been subject to federal income taxation with respect to its distributed income. Qualification as a REIT requires that the Company satisfy a number of asset, income and distribution tests. The Company qualified as a REIT for the taxable years ended December 31, 1997 through 2001. Because less than 75% of the Company's gross income for the 2002 taxable year is expected to derive from certain required REIT investments, the Company does not expect to qualify as a REIT for the year beginning January 2002. If, in 2002, the Company fails to qualify as a REIT, it will no longer be entitled to deduct dividends paid to stockholders from its taxable income. In this case, the Company would be subject to federal income tax at corporate rates (including any applicable alternative minimum tax) with respect to gains from liquidating sales of assets and income from operations for that year and for subsequent taxable years. The federal income taxes would reduce the amounts otherwise distributable to its stockholders. Revenue Procedure 99-17 provided securities and commodities traders with the ability to elect mark-to-market treatment for 1998 by including a statement with their timely filed 1998 tax return. The election applies for all future years as well unless revoked with the consent of the Internal Revenue Service ("IRS"). The Company elected mark-to-market treatment as a securities trader, and accordingly, recognizes gains and losses prior to the actual disposition of its Securities. Moreover, some if not all of those gains and losses, as well as some if not all gains or losses from actual dispositions of Securities, will be treated as ordinary in nature, and not capital, as they would be in the absence of this election. There is no assurance, however, that the Company's election will not be challenged on the ground that it is not in fact a trader in Securities, or that it is only a trader with respect to some, but not all, of its Securities. As such, there is a risk that the Company will not be able to mark to market its Securities, or that it will be limited in its ability to recognize certain losses. Taxable income (loss) requires an annual calculation; consequently, for the tax year ended December 31, 2001, taxable income (loss) may be different from GAAP net income (loss) as a result of differing treatment of the change in unrealized net gains (losses) on Securities transactions. For the Company's tax purposes, the change in unrealized net gains (losses) will be recognized at the end of the year and will be aggregated with operating income (losses) to produce total taxable income (loss) for the year. For the tax year ended December 31, 2001, the Company had unrealized net gains of $3,906,403. For the tax years ended December 31, 2001, 2000 and 1999, net operating losses as calculated for tax purposes ("NOLs") are estimated at approximately $(1,400,000), $(6,200,000) and $(60,000,000), respectively. NOLs generally may be carried forward for 20 years. The Company believes that during 1999 it experienced an "ownership change" within the meaning of Section 382 of the Code. Consequently, the Company's use of NOLs generated before the ownership change to reduce taxable income after the ownership change will be subject to limitations under Code Section 382. Generally, Code Section 382 limits the use of NOLs in any year to the value of the Company's common stock on the date of the ownership change multiplied by the long-term tax-exempt rate (published by the IRS) with respect to that date. The Company believes that the annual limitation with respect to the use of its NOLs is approximately $3,000,000. The Company believes that as of December 31, 2001, approximately $92,500,000 of the estimated cumulative NOL of $120,100,000 is subject to the annual limitation. 12. SUMMARIZED QUARTERLY RESULTS (UNAUDITED) The quarterly results of operations for the period January 1, 2001 through July 27, 2001 and the year ended December 31, 2000 follow:
QUARTER ENDED QUARTER ENDED PERIOD JULY 1, 2001 MARCH 31, 2001 JUNE 30, 2001 THROUGH JULY 27, 2001 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME DATA: Interest income: Securities and mortgage loans. $ 5,099 $ 1,659 $ 473 Cash and cash equivalents..... 209 254 63 ---------- ---------- ----------- Total interest income......... 5,308 1,913 536 ---------- ---------- ----------- Interest expense: Repurchase agreements......... 3,204 703 153 ---------- ---------- ----------- Net interest income............. 2,104 1,210 383 Net realized loss on sale of securities..................... (2,294) (1,900) (24) Net loss on interest rate agreement...................... (120) -- -- General and administrative expenses....................... 1,787 570 171 ---------- ---------- ----------- Net (loss) income............... $ (2,097) $ (1,260) $ 188 ---------- ---------- ----------- Other Comprehensive Income: Unrealized net gain on securities: Unrealized holding (loss) gain arising during period... (2,206) (870) 60 Add: reclassification adjustment for net realized loss included in net (loss) income..................... 2,293 1,900 24 ---------- ---------- ----------- Other comprehensive income.... 87 1,030 84 ---------- ---------- ----------- Comprehensive (loss) income..... $ (2,010) $ (230) $ 272 ========== ========== =========== Net (loss) income per share: Basic......................... $ (0.15) $ (0.09) $ 0.01 ========== ========== =========== Diluted....................... $ (0.15) $ (0.09) $ 0.01 ========== ========== =========== Weighted average number of shares outstanding: Basic......................... 14,038,983 14,038,983 14,038,983 Diluted....................... 14,038,983 14,038,983 14,038,983
QUARTER ENDED QUARTER ENDED QUARTER ENDED QUARTER ENDED MARCH 31, 2000 JUNE 30, 2000 SEPTEMBER 30, 2000 DECEMBER 31, 2000 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME DATA: Interest income: Securities and mortgage loans. $ 1,884 $ 3,362 $ 6,005 $ 5,943 Cash and cash equivalents..... 505 551 121 73 ---------- ---------- ---------- ---------- Total interest income......... 2,389 3,913 6,126 6,016 ---------- ---------- ---------- ---------- Interest expense: Repurchase agreements......... 580 1,754 3,874 4,447 Other......................... -- 242 -- (222) ---------- ---------- ---------- ---------- Total interest expense........ 580 1,996 3,874 4,225 ---------- ---------- ---------- ---------- Net interest income............. 1,809 1,917 2,252 1,791 Net realized (loss) gain on sale of securities............. (2,405) 393 371 516 Unrealized loss on interest rate agreement................. -- -- -- (2,580) Impairment loss on securities... -- -- -- (17,597) General and administrative expenses....................... 792 (186) 319 692 ---------- ---------- ---------- ---------- Net (loss) income............... $ (1,388) $ 2,496 $ 2,304 $ (18,562) ---------- ---------- ---------- ---------- Other Comprehensive Income (Loss): Unrealized net gain (loss) on securities: Unrealized holding gain (loss) arising during period. 74 (10,803) 139 617 Add: reclassification adjustment for net realized loss (gain) included in net (loss) income during period.. 2,405 (393) (371) 17,081 Other comprehensive income (loss).................. 2,479 (11,196) (232) 17,698 ---------- ---------- ---------- ---------- Comprehensive income (loss)..... $ 1,091 $ (8,700) $ 2,072 $ (864) ========== ========== ========== ========== Net (loss) income per share: Basic......................... $ (0.09) $ 0.17 $ 0.16 $ (1.32) ========== ========== ========== ========== Diluted....................... $ (0.09) $ 0.17 $ 0.16 $ (1.32) ========== ========== ========== ========== Weighted average number of shares outstanding: Basic......................... 14,847,825 14,557,790 14,038,983 14,038,983 ========== ========== ========== ========== Diluted....................... 14,847,825 14,557,790 14,038,983 14,038,983 ========== ========== ========== ==========
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, in the City of New York, State of New York. LASER MORTGAGE MANAGEMENT, INC. By: /s/ Charles R. Howe, II ------------------------------------ Name: Charles R. Howe, II Title: Vice President, Chief Financial Officer and Treasurer Dated: March __, 2002 Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed below by the following persons in the capacities and on the date indicated. SIGNATURE TITLE DATE --------- ----- ---- Chief Executive Officer, Chairman March __, 2002 ------------------------- and Director William J. Michaelcheck (Principal Executive Officer) /S/ CHARLES R. HOWE, II Vice President, Chief Financial March 27, 2002 ------------------------- Officer and Treasurer Charles R. Howe, II (Principal Financial and Accounting Officer) /S/ RONALD J. ARTININAN Director March 27, 2002 ------------------------- Ronald J. Artinian /S/ MARK HOBBS Director March 27, 2002 ------------------------- Mark Hobbs /S/ ARTHUR HOUSE Director March 27, 2002 ------------------------- Arthur House /S/ JONATHAN ILANY Director March 27, 2002 ------------------------- Jonathan Ilany EXHIBIT INDEX EXHIBIT NUMBER EXHIBIT -------------- ------- 2.1 The Articles of Merger (Incorporated by reference to Exhibit 2.1 to Registrant's Quarterly Report on Form 10-Q dated June 30, 2001.) 2.2 The Certificate of Ownership and Merger (Incorporated by reference to Exhibit 2.2 to Registrant's Quarterly Report on Form 10-Q dated June 30, 2001.) 2.3 Plan of Liquidation and Dissolution of LASER Mortgage Management, Inc. (Incorporated by reference to Exhibit 2.3 to Registrant's Quarterly Report on Form 10-Q dated June 30, 2001.) 3.1 Restated Certificate of Incorporation of LASER Mortgage Management, Inc., a Delaware corporation (Incorporated by reference to Exhibit 3.1 to Registrant's Quarterly Report on Form 10-Q dated June 30, 2001.) 3.2 Bylaws of LASER Mortgage Management, Inc., a Delaware corporation (Incorporated by reference to Exhibit 3.2 to Registrant's Quarterly Report on Form 10-Q dated June 30, 2001.) 10.1 Management Agreement between the Registrant and LASER Advisers, Inc. (Incorporated by reference to Exhibit 10.2 to the Registrant's Annual Report on Form 10-K for the year ending December 31, 1997) 10.2 Termination Agreement dated as of February 28, 1999 between the Registrant and LASER Advisers Inc. (Incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K dated February 28, 1999) 10.3 Consulting Agreement dated as of February 28, 1999 between the Registrant and BlackRock Financial Management, Inc. (Incorporated by reference to Exhibit 10.2 to the Registrant's Current Report on Form 8-K dated February 28, 1999) 10.4 Management Agreement between the Registrant and Mariner Mortgage Management, L.L.C. (Incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K dated November 5, 1999) 10.5 First Amendment to the Management Agreement dated as of November 1, 2000 by and between the Registrant and Mariner Mortgage Management, L.L.C. (Incorporated by reference to Exhibit 10.1 to Registrant's Current Report on Form 8-K dated November 3, 2000.) 10.6 Support Services Agreement dated as of November 1, 2001 between the Registrant and Mariner Investment Group, Inc. (Incorporated by reference to Exhibit 10.1 to Registrant's Quarterly Report on Form 10-Q dated September 30, 2001.) 10.7 Employment Agreement dated as of November 1, 2001 between the Registrant and William J. Michaelcheck (Incorporated by reference to Exhibit 10.2 to Registrant's Quarterly Report on Form 10-Q dated September 30, 2001.) 10.8 Employment Agreement dated as of November 1, 2001 between the Registrant and Charles R. Howe, II (Incorporated by reference to Exhibit 10.3 to Registrant's Quarterly Report on Form 10-Q dated September 30, 2001.) Form of Indemnification Agreement between the Registrant and each of Ronald 10.9* J. Artinian, Mark Hobbs, Arthur House, Jonathan Ilany, William J. Michaelcheck, Charles R. Howe, II, Thomas Arleo, A. George Kallop, William Petersen, and Dennis Winter Certificate of Dissolution (Incorporated by reference to Exhibit 99.1 to 99.1 Registrant's Quarterly Report on Form 10-Q dated September 30, 2001.) *Filed herewith.