SECURITIES & EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 1O-QSB
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended March 31, 2000.
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 No.0-23965
CENTENNIAL BANC SHARE CORP..
----------------------------
(Exact name of Registrant as specified in its charter)
Colorado 84-1374481
-------- ----------
(State or other (IRS Employer File Number)
jurisdiction of
incorporation)
6795 E. Tennessee Ave., 5th Floor 80224
- --------------------------------- -----
(Address of principal executive offices) (zip code)
(303) 840-2000
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) had 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 ___
The number of shares outstanding of Registrant's common stock, par value
$.0000001 per share, as of March 31, 2000 were 14,487,000 common shares.
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM I. Financial Statements
See attached financial statements
ITEM 2. Managements Discussion and Analysis of Financial Condition and Results
of Operations.
Forward-Looking Statements
The following discussion contains forward-looking statements regarding the
Company, its business, prospects and results of operations that are subject to
certain risks and uncertainties posed by many factors and events that could
cause the Company's actual business, prospects and results of operations to
differ materially from those that may be anticipated by such forward-looking
statements. Factors that may affect such forward-looking statements include,
without limitation: the Company's ability to successfully develop new products
for new markets; the impact of competition on the Company's revenues, changes in
law or regulatory requirements that adversely affect or preclude customers from
using the Company's products for certain applications; delays in the Company's
introduction of new products or services; and failure by the Company to keep
pace with emerging technologies.
When used in this discussion, words such as "believes", "anticipates",
"expects", "intends" and similar expressions are intended to identify
forward-looking statements, but are not the exclusive means of identifying
forward-looking statements. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date of this
report. The Company undertakes no obligation to revise any forward-looking
statements in order to reflect events or circumstances that may subsequently
arise. Readers are urged to carefully review and consider the various
disclosures made by the Company in this report and other reports filed with the
Securities and Exchange Commission that attempt to advise interested parties of
the risks and factors that may affect the Company's business.
Results of Operations
The Company continues to be unprofitable, although revenues from operations
are significantly higher from the previous year. The Company's mortgage
operations themselves are profitable. The unprofitability of the combined
companies is as a result of the Company using internally generated funds to
develop its Application Service Provider (ASP) and Internet operations. In
viewing our financials, remember that we did not acquire Entrust Mortgage until
April, 1999. Therefore, Entrust Mortgage is not included in 1999 financial
information. For the three months ended March 31, 2000, the Company had revenues
of $1,357,436, compared to revenues of $234,648 for the same period ended March
31, 1999. Total expenses for the three months ended March 31, 2000 were
$1,462,007, compared to expenses of $252,697 for the same period ended March 31,
1999. The major components of operating expenses are independent contractor
fees, office salaries and associated payroll costs, general and health insurance
costs, rent and telephone expenses.
<PAGE>
As a result, the Company had a net loss of $104,571 for the three months
ended March 31, 2000, compared to $14,528 for the same period ended March 31,
1999. The net loss per share for the three months ended March 31, 2000 was
$0.02, compared to a net loss of $0.01 for the same period ended March 31, 1999.
During the reporting period, the Company significantly increased its loan
origination staff and mortgage infrastructure to handle the increased business.
Additionally, the Company began development of its Internet application service
provider. The Company increased mortgage originations significantly from the
previous year. The Company generated wholesale mortgage originations as Entrust
Mortgage and retail originations as Mortgage 2000.
The Company entered into a contract with a major financial institution to
offer unsecured lines of credit to consumers with marginal credit scores and for
loan amounts up to $50,000. This loan features thirty minute approval and
immediate funding. The loan is offered online through the Company's easyQual.com
web page or by phone in which calls come into an easyQual.com toll free number,
but the calls are handled by the Company's partner call center at no cost to the
Company.
The Company's strategy is to deliver into the U.S. mortgage industry an
automated underwriting and loan application processing program. The present
mortgage industry conducts its business through many manual steps, in an
antiquated system prone to mistakes. The pre-approval process by itself requires
a 24 to 48 hour turn around on average. The Company's system will be set up to
permit the mortgage customer to process an application much quicker, typically
one to three minutes. Currently, the pre-approval and stipulations for a
mortgage in the industry typically need one to two days to complete before
sending out. The more loan programs offered by the mortgage company, the more
complexity sets in, pushing those averages out.
In the competitive loan environment providing a diverse range of programs,
for every 10 applications that the underwriter pre-approves, a significant
number are pre-approved for the wrong program. On average five pre-approvals per
day have to be redone.
On average, out of every 10 loans submitted, one-half are pre-qualified and
generate a customer list of stipulations. Of the customers receiving a list of
stipulations, only one half return a full package. The time delays to get
pre-approval encourage the customer to shop around for other product. Document
completion by the customer (assisted by the broker) can take another 7 to 10
days on average. Of the customers responding to the stipulations completely,
one-half actually close their loans. On average, out of ten initial mortgage
loan applications submitted, fewer than one (.833) is funded in an industry
completion process of 18 days.
With the Company's planned system, the industry standard would change. Out
of ten initial loan applications, the Company projects three will close in a
major positive shift in cost and time. In the Company's system, the loan
application is a "smart application." One long, tedious form no longer fits
every customer. As the computer asks the broker (or customer) a question, the
response determines the next question. Each new question fits the applicant's
prior responses in a design to limit questions to what is directly relevant.
Broker data input time is thereby reduced.
<PAGE>
By integrating the smart application into an automated underwriting
program, the Company's search engine would be able to examine a thousand loan
programs, if necessary, to find an exact match for each customer profile without
mistakes. Pre-approval and document stipulations are complete in about 60
seconds, not two days.
With the Company's planned system, management evaluation of a sales
person's prospect is eliminated. Back office data entry is also eliminated.
Applications that would sit for two days in a back office file disappear as
well. There is only one human interface in the underwriting process involving a
review of the authenticity of tax returns and the other stipulated documents.
With the Company's planned system, the cost of back office personnel would go
down, providing margins for employing a higher quality personnel using systems
that ensure an efficient document review process. Consequently, everything is
speeded up without error.
The Company's planned system turns an inexperienced loan officer into a
seemingly experienced loan officer, able to provide the customer with definite
answers instantaneously without the customary mistakes. With every requirement
of the loan process scripted, the customer gets accurate information from the
broker who no longer has to constantly call the home office for answers. With
the Company's planned system, a loan officer's time is released to sell rather
than study dozens of loan programs offered by the firm. The system also removes
the insecurity that currently prevails when an inexperience sales person
attempts to describe complex loan options. In addition, the current limits on
the number of loans a top producer or any producer can manage is dramatically
expanded. The confidence that the lender has for the integrity of the
underwriting/loan process is enhanced as well.
Automated underwriting can be found currently in limited pockets of the
industry. For the "prime market"--offering standard, government generated
mortgages to the creditworthy customer--automated underwriting is now available
on a limited basis. The "prime market," however, represents one-fourth of the
total mortgage business. For the "sub-prime" market involving more complexity,
including credit issues and the need for individual loan tailoring, the manual
mortgage system prevails everywhere in the industry.
The sub-prime market representing three-fourths of the total U.S. mortgage
origination business provides three to four times the profit margins of the
prime market. That is the market in which the Company seeks to create a new
standard and by its standard and to establish a new industry leadership.
The Company's market roll-out of this new system is expected to target both
the wholesale and retail mortgage industry. Bringing the Company's automated
system into the small to medium brokerage office currently operating in every
rural and urban region of the United States should be the basis of substantial
business. Small mortgage brokers dominate this industry.
The Company's plan for the U.S. wholesale mortgage industry uses
relationships with brokerage office which do require to giving up autonomy,
name, ownership or loan programs to participate in the Company's mortgage
origination program.
<PAGE>
Upon the funding of its program, which is expected in the fourth quarter,
the Company intends to begin operating this system to the mortgage industry
through industry publications and other media outlets, a web site, an industry
newsletter and a team of account executives.
The Company has begun development of Focvs Technologies, which is to be its
ASP company. Focvs will provide full service software application service to
select vertical markets. The first two selected marketes are the mortgage
brokerage community and small financial planners.
The Company's ASP will provide contractual services, offering to display,
host, manage, and lease access to software applications from a centrally managed
Network Operations Center to select vertical markets. The Company's ASP is
anticipated to minimize the cost of ownership, to provide total mobility, to
eliminate the cost of retaining skilled IT staff, and to provide instantaneous
scalability. The ASP market has been touted by many Internet experts as the next
major Internet expansion area. Focvs' initial clients are expected to come from
the Entrust Mortgage broker client base and from other affinity relationships of
the Company. Focvs has already negotiated ASP pricing models with most of its
required software providers and expects to offer its customers software usage at
a much lower cost than current competitive pricing structures. Focvs expects to
begin generating revenues during the third fiscal quarter of the year.
Liquidity and Capital Resources
As of the end of the reporting period, the Company had cash or cash
equivalents of $538,635, compared to $13,145 for the previous year.
Net cash provide by operating activities of the Company was $137,714 for
the three months ended March 31, 2000, compared to net cash used of $104,775 for
the three months ended March 31, 1999.
Cash flows used for investing activities provided $162,224 for the three
months ended March 31, 2000, compared to $5,720 for the three months ended March
31, 1999.
Cash flows from financing activities accounted for $550,000 for the three
months ended March 31, 2000, compared to $12,547 for the three months ended
March 31, 1999.
The Company's cash and cash equivalents are not sufficient to meet its
comprehensive business plan. The Company does have sufficient cash and cash
equivalents to meet its mortgage company requirements. The Company plans to
raise additional capital through a private placement to fund the completion of
its ASP project. During the reporting period, the Company raised no funds.
Other than as disclosed herein, there are no plans, proposals,
arrangements, or understandings with respect to the sale or issuance of
additional securities by the Company.
The Company does not intend to pay dividends in the foreseeable future.
<PAGE>
Year 2000 Compliance
The Company 's IT systems and non-IT systems requiring Year 2000
modification have been completed. In addition, the Company does not foresee a
need to deal with the possibility that some suppliers or vendors might fail to
provide goods and services on a timely basis as a result of Year 2000 problems.
PART II- OTHER INFORMATION
ITEM 1. Legal Proceedings
During the reporting period, the Company filed a lawsuit in the Colorado
District Court for the City and County of Denver against Stephen B. Torres, J.
Scott Oler, Berkley Rasband, and Vision One Technologies, Inc. seeking damages
and injunctive relief in connection with the Company's acquisition of the assets
of Vision One Technologies, Inc. The Company has alleged deceit based upon
fraud, fraud in connection with the purchase of securities, misappropriation of
trade secrets, among other claims. The Company is seeking actual and punitive
damages, as well as injunctive relief against the defendants. The case in the
preliminary stages and no answer has been filed by the defendants.
Otherwise, no legal proceedings of a material nature to which the Company
is a party were pending during the reporting period, and the Company knows of no
legal proceedings of a material nature pending or threatened or judgments
entered against any director or officer of the Company in his capacity as such.
ITEM 2. Changes in Securities and Use of Proceeds.
The Company made a three-for-one forward split of its common shares which
was approved by its Board of Directors in January, 2000 and effective as of
March 14, 2000.
ITEM 3. Defaults upon Senior Securities. None.
ITEM 4. Submission of Matters to a Vote of Security Holders. None
ITEM 5. Other Information. None.
ITEM 6. Exhibits and Reports on Form 8-K.
Exhibit No. 27.1 - Financial Data Schedule
No reports on Form 8-K were filed as of the most recent fiscal quarter.
<PAGE>
SIGNATURES
In accordance with 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.
CENTENNIAL BANC SHARE CORP.
Dated: 5/12/00 By: /s/ Patricia W. Saunders
- -------------- ----------------------------
Patricia W. Saunders
Chief Financial and Accounting Officer
Director
<PAGE>
<TABLE>
<CAPTION>
CENTENNIAL BANC SHARE CORPORATION
Consolidated Balance Sheet
For the Three Months Ended March 31, 2000
(Unaudited)
Three Months Three Months
Ended Ended
March 31, 2000 March 31, 1999
-------------- --------------
ASSETS:
- -------
<S> <C> <C>
Current assets:
Cash $ 538,635 $ 13,145
Accounts Receivable 156,009 --
Note Receivable - Note 2 279,958 --
FNET 2000 100 --
Loans Receivable 3,764,902 --
----------- -----------
Total current assets 4,739,604 13,145
Fixed assets - Note 1
Computers & Equipment 301,394 --
Furniture & Fixtures 167,795 23,862
Leasehold Improvements 12,424 --
----------- -----------
Total fixed assets 481,613 23,862
Less accumulated depreciation (65,898) (2,283)
----------- -----------
Net fixed assets 415,715 21,579
Other assets:
Prepaid Expenses 152,076 --
Marketable Security 148,000 --
Title Co. Advances 34,550 --
Intangible Assets 1,865,641 --
Deposit 12,928 1,828
----------- -----------
2,213,195 1,828
Less Amortization (101,619) --
----------- -----------
Total other assets 2,111,576 1,828
TOTAL ASSETS $ 7,266,895 $ 36,552
=========== ===========
<PAGE>
CENTENNIAL BANC SHARE CORPORATION
Consolidated Balance Sheet
For the Three Months Ended March 31, 2000
(Unaudited)
(Continued)
LIABILITIES AND EQUITY
- ----------------------
Current liabilities:
Accounts payable $ 108,532 $ --
Accrued Expenses 64,425 1,271
Loans Payable 40,745 --
Impounds 12,044 --
Note Payable - Note 3 50,000 --
Debenture Payable 500,000 --
Warehouse Line Payable 3,416,164 --
----------- -----------
Total current liabilities 4,191,910 1,271
Stockholder's equity:
Preferred stock, $.0000001 Par Value
1,000,000 Shares Authorized. None Issued -- --
Common stock, $.0000001 Par Value
50,000,000 Shares Authorized, 14,487,000 were
issued and outstanding for 2000 and 1,165,965 were 1 1
issued and outstanding for1999
Additional Paid-In Cash 4,519,259 123,057
Retained Earnings (Deficit) (1,444,275) (87,777)
----------- -----------
Total Stockholders' Equity 3,074,985 35,281
TOTAL LIABILITIES & STOCKHOLDER'S EQUITY: $ 7,266,895 $ 36,552
=========== ===========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
CENTENNIAL BANC SHARE CORPORATION
Consolidated Statement of Operations
For the Three Months Ended March 31, 2000
(Unaudited)
Three Months Three Months
Ended Ended
Mar. 31, 00 Mar. 31, 99
----------- -----------
REVENUE:
Loan Origination Fees $ 1,354,068 $ 234,648
Interest Income 1,230 401
Miscellaneous Income 2,138 3,120
----------- -----------
Total Revenue 1,357,436 238,169
OPERATING EXPENSES:
Loan Origination Costs 1,339,504 211,322
General & Administrative 122,503 41,375
----------- -----------
Total Operating Expenses 1,462,007 252,697
----------- -----------
NET DEFICIT $ (104,571) $ (14,528)
=========== ===========
NET LOSS PER COMMON STOCK $ (0.02) $ (0.01)
=========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING 4,554,000 1,112,625
=========== ===========
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
CENTENNIAL BANC SHARE CORPORATION
STOCKHOLDER'S EQUITY
March 31, 2000
(Unaudited)
COMMON STOCKS Additional Retained Total
--------------------- Paid- In Earnings Stockholder's
Shares Amount Capital (Deficit) Equity
------ ------ ------- --------- ------
<S> <C> <C> <C> <C> <C>
Issuance of Stock for Cash & Services 1,147,500 $ 1 $ 108,510 $ -- $ 108,511
Net Deficit 12/31/97 (3,080) (3,080)
----------- ----------- ----------- ----------- -----------
Balance December 31, 1997 1,147,500 1 108,510 (3,080) 105,431
Issuance of Stock for Cash 4,300 -- 10,750 -- 10,750
Cancelled Stock (2,500) -- (6,250) -- (6,250)
Issuance of Stock for Cash 16,665 -- 24,998 24,998
Net Deficit 12/31/98 -- (67,566) (67,566)
----------- ----------- ----------- ----------- -----------
Balance December 31, 1998 1,165,965 1 138,008 (70,646) 67,363
----------- ----------- ----------- ----------- -----------
April and Dec 1999 Issuance for Acquisition 1,700,000 -- 2,889,412 -- 2,889,412
Forward Split of Shares 1,170,302 -- -- -- --
Issuance for Cash 173,333 -- 520,000 -- 520,000
Issuance for Cash 244,400 -- 371,839 371,839
Issuance for Services 100,000 -- 50,000 50,000
Net Deficit 12/31/99 -- -- -- (1,269,058) (1,269,058)
----------- ----------- ----------- ----------- -----------
Balance December 31, 1999 4,554,000 1 3,969,259 (1,339,704) 2,629,556
----------- ----------- ----------- ----------- -----------
Issuance of Stock for Services 200,000 100,000 100,000
Forward Split of Shares 9,508,000 -- -- -- --
Issuance of Stock for Cash 225,000 -- 450,000 -- 450,000
Net Defict 3/31/2000 -- -- -- (104,571) (104,571)
----------- ----------- ----------- ----------- -----------
Balance March 31, 2000 14,487,000 $ 1 $ 4,519,259 $(1,444,275) $ 3,074,985
=========== =========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
CENTENNIAL BANC SHARE CORPORATION
Consolidated Statement of Cash Flow
For the Three Months Ended March 31, 2000
(Unaudited)
Three Months Three Months
Ended Ended
March 31, 2000 March 31, 1999
-------------- --------------
Cash Flows from Operating Activities:
Net Income (Loss) $(104,571) $ (14,528)
Depreciation and Amortization 63,615 2,283
Changes in Assets & Liabilities:
Notes Receivable (279,958) 4,700
Loans Receivable (48,738)
Accounts Receivable (156,009) --
Certificate of Deposits -- (65,000)
Deposits (11,100) --
Accounts Payable 108,532 (2,508)
Notes Payable 62,044 (35,007)
Loans Payable 40,745 --
Debenture 500,000 --
Accrued Expenses 63,154 5,285
--------- ---------
Net Cash Provided by Operating Activities 237,714 (104,775)
Cash Flows Used for Investing Activities:
Capital Expenditures (162,224) (5,720)
--------- ---------
Net Cash Used for Investing Activities (162,224) (5,720)
Cash Flows from Financing Activities:
Issuance of Common Stocks 450,000 12,547
--------- ---------
Net Cash Provided by Financing 450,000 12,547
Net Increase in Cash & Cash Equivalents 525,490 (97,948)
Cash & Cash Equivalents at Beginning of Period 13,145 111,093
--------- ---------
Cash & Cash Equivalents at End of Period $ 538,635 $ 13,145
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash Paid During the Year for:
Interest 10,754 1,479
Income Taxes -- --
========= =========
NON-CASH TRANSATIONS
Common stock issued in exchange for services $ 100,000 $ --
========= =========
The accompanying notes are an integral part of these financial statements.
<PAGE>
CENTENNIAL BANC SHARE CORP.
Notes to Financial Statements
For the Three Months Ended March 31, 2000
(Unaudited)
Note 1 - Organization and Summary of Significant Accounting Policies:
- ---------------------------------------------------------------------
Organization - Nature of Operations
- -----------------------------------
The Company was formed on November 8, 1996, and incorporated under the laws of
the State of Colorado. The Company spent several months of preparation and
research before beginning formal operations on March 10, 1997. No financial
transactions occurred in 1996. The Company is primarily engaged in mortgage
banking.
The Company is a Colorado Corporation organized for the purpose of developing
and maintaining the business associated with mortgage banking. The Company name
has been approved by the State of Colorado division of banking. The Company is
an approved banker, which has a correspondent relationship with several large
wholesale banks. On April 30, 1999 the Company purchased 100% of Entrust
Mortgage, Inc. for Eight Hundred Thousand shares of restricted 144 common stock.
Entrust Mortgage, Inc. became a wholly owned subsidiary of Centennial Banc Share
Corp. and is included in these consolidated financial statements utilizing the
purchase method of accounting.
Entrust Mortgage, Inc. was incorporated under the laws of the State of Colorado
on March 4, 1999. The Company originates residential loans in over thirty states
and sells them to investors.
The Company originates residential real estate loans and assigns them to various
lenders. The Company receives fees from borrowers and yield spread premiums on
loans sold to lenders. Management believes that the Company is not economically
dependent on any one lender because the Company does assign loans to numerous
lenders and has ability to select lenders for assignment.
The Company has entered into various loan purchase and sale agreements. The
Company acts as a loan correspondent for lenders for certain loans closed and
funded by the company and sold to the lenders. The transfers of the mortgage
loans that are subject to these agreements are subject to the warranties,
representations and provisions in the agreement. Certain lenders have the right
to require the Company to repurchase a mortgage loan for any of the following
reasons: (a) if a representation and warranty given by the Company as to a
particular mortgage loan is breached, (b) if there has been a breach of any
other terms and conditions of the agreement, and (c) if final post-closing
documentation is improper or incomplete after a reasonable period of time, the
determination of which is at the bank's discretion. At the lender's option, the
Company shall be required either promptly to cure such a breach in all material
respects or to repurchase the mortgage loan at a price equal to the following:
The principle balance of the mortgage loan plus interest at the mortgage loan
rate from the date to which the interest has last been paid to the date of
repurchase.
<PAGE>
CENTENNIAL BANC SHARE CORP.
Notes to Financial Statements
For the Three Months Ended March 31, 2000
(Unaudited)
Note 1 - Organization and Summary of Significant Accounting Policies (Cont):
- ----------------------------------------------------------------------------
Capital Stock Transactions
- --------------------------
The authorized capital stock of the corporation is 50,000,000 shares of common
stock at $.0000001 and 1,000,000 shares of preferred stock at $.0000001 par
value. No preferred stock has been issued.
Cash and Cash Equivalents:
- --------------------------
The Company considers all highly liquid debt instruments, purchased with an
original maturity of ninety (90) days or less, to be cash equivalents.
Concentration of Credit Risk
- ----------------------------
Financial instruments, which potentially subject the Company to concentration of
credit risk, consist primarily of mortgage notes receivable. The Company grants
credit to mortgage borrowers nationwide. Concentrations of credit with respect
to trade receivables are limited due to the large number of customers comprising
the Company's customer base and the fact that the commissions and fees paid to
the Company are remitted to the Company within a short period after the closing.
As of March 31, 2000, the Company has one account with $376,405, which could
have a significant concentration of credit risk with regard to this financial
instrument.
Pervasiveness of Estimates
- --------------------------
The preparation of a financial statement in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statement. Actual results could differ from those estimates.
Geographic Area of Operations and Interest Rates
- ------------------------------------------------
The Company originates residential loans in over thirty states and most
geographic areas of the United States. The potential for severe financial impact
which can result from negative effects of economic conditions within the market
of geographic areas are limited due to the Company's diverse geographic
origination's. The interest rates at which borrowers can refinance or obtain new
financing for real estate acquired has a direct effect on the demand for the
Company's services. Changes in interest rates could result in potential severe
impacts on future operations of the Company.
<PAGE>
CENTENNIAL BANC SHARE CORP.
Notes to Financial Statements
For the Three Months Ended March 31, 2000
(Unaudited)
Note 1 - Organization and Summary of Significant Accounting Policies (Cont):
- ----------------------------------------------------------------------------
Property and Equipment
- ----------------------
Property and equipment is stated at cost. The cost of ordinary maintenance and
repairs is charged to operations while renewals and replacements are
capitalized. Depreciation is computed on the straight -line method over the
following estimated useful lives:
Furniture and fixtures 7 years
Computers & Equipment 5 years
Leasehold Improvements 7 years
Intangible Assets
- -----------------
Intangible assets consist of the following at December 31, 1999:
Estimated Useful Life
---------------------
Client Contracts 1,200,000 20 years
Corporate Set-up 65,641 7 years
Technology Rights 200,000 10 years
State Approvals 400,000 40 years
Intangible assets represents the excess of acquisition costs over the fair
market value of the net assets of acquired business and is being amortized on a
straight-line basis over their estimated useful lives ranging from seven to
forty years. In accordance with APB 17, "Intangible Assets", the Company
continues to evaluate the amortization period to determine whether events or
circumstances warrant revised amortization periods. Additionally, the Company
considers whether the carrying value of such assets should be reduced based on
the future benefits of its intangible assets.
Revenue Recognition:
- --------------------
Premiums, discounts and loan fees on warehouse loans held for sale are
recognized in income when the related loans are sold. Premiums, yield spreads
and loan fees on other loans are recognized when earned.
Fair value of Financial Instruments
- -----------------------------------
The carrying amount of cash, accounts receivable, accounts payable and accrued
expenses are considered to be representative of their respective fair values
because of the short-term nature of these financial instruments. The carrying
amount of the notes payable are reasonable estimates of fair value as the loans
bear interest based on market rates currently available for debt with similar
terms.
The fair value estimates presented herein are based on relevant information
available to management as of December 31, 1999 and 1998. Management is not
aware of any factors that would significantly affect these estimated fair value
amounts.
<PAGE>
CENTENNIAL BANC SHARE CORP.
Notes to Financial Statements
For the Three Months Ended March 31, 2000
(Unaudited)
Note 2 - Notes Receivable
- -------------------------
Notes receivable as of December 31, 1999 consist of the following:
Note receivable from EMB Mortgage dated 1/21/98 with an
interest rate of prime plus 4.25% annually. Payable upon demand. $100,000
Note receivable from EMB Mortgage dated 3/18/99 with no
interest rate. Payable upon demand. 90,512
Note receivable from Jim Saunders and Scott Sax with an
interest rate of 10% annually. To mature on 12/31/2000 58,446
Note receivable from J. Dean Burden dated 5/28/99 with no
interest rate. Payable upon sale of Mr. Burden's stock. 31,000
--------
Total Notes Receivable $279,958
========
Note 3 - Note Payable
- ---------------------
Notes payable as of March 31, 2000 consist of the following:
Note payable to Jim Saunders dated May 28, 1999. No interest
rate and due upon demand. $ 36,682
Note payable to First Bank dated Dec. 1, 1998. With an annual
interest rate of 10.5% with a maturity date of Nov. 1, 2000. 13,318
---------
Total notes payable $ 50,000
=========
Debenture
In 1999, $500,000 worth of Debentures were sold to one individual. This
Debenture is due in May 2000, has an interest rate of ten percent per annum, and
is convertible into common shares at $2.00 per share at any time during its
term. Either party has the option to extend the due date of the Debenture, as
well as its convertibility, for an additional six months past its due date.
Note 4 - Officer's Compensation
- -------------------------------
During the organization meeting of the corporation 1,107,500 shares of common
stock were issued to the officers and directors of the Company at par value for
past service rendered. During the period from January 1 to December 31, 1997 no
further compensation was issued to the officers or directors for their
contributed services during the preparation and research period.
<PAGE>
CENTENNIAL BANC SHARE CORP.
Notes to Financial Statements
For the Three Months Ended March 31, 2000
(Unaudited)
Note 5 - Impact of Recently Issued Accounting Standards
- -------------------------------------------------------
SFAS No. 131 requires disclosure of certain information regarding operating
segments, products, and services, geographic areas of operation and major
customers. SFAS No. 134 accounting for mortgage-backed securities retained after
the securitization of mortgage loans held for sale by a mortgage banking
enterprise. Adoption of these statements is expected to have no impact on the
Company's financial position, results of operation, or cash flows.
Note 6 - Marketable Security
- ----------------------------
The Company owns 200,000 shares of EMB Corp. common stock; a NASDAQ bulletin
board company traded under EMBU. The shares were issued on December 23, 1997,
and were subject to Rule 144 of the Securities Act of 1933. The shares are
listed at their fair market value, which is the initial cost basis of the
security.
Note 7 - Commitments
- --------------------
The Company leases its' offices under long-term leases that are accounted for as
operating leases. Future minimum rental payments on all non-cancelable operating
leases with initial or remaining lease terms in excess of one year are as
follows:
Year Ending Offices
----------- -------
March 12, 2000 $ 141,994
March 12, 2001 108,650
---------
$ 250,644
=========
Note 8 - Income Taxes
- ---------------------
Significant components of the Company's deferred tax liabilities and assets are
as follows:
Deferred Tax Liability $ 0
===========
Deferred Tax Assets
Net Operating Loss Carryforwards $ 1,444,275
Book/Tax Differences in Bases of Assets 167,517
Less Valuation Allowance (1,611,792)
-----------
Total Deferred Tax Assets $ 0
===========
Net Deferred Tax Liability $ 0
===========
<PAGE>
CENTENNIAL BANC SHARE CORP.
Notes to Financial Statements
For the Three Months Ended March 31, 2000
(Unaudited)
Note 8 - Income Taxes (Cont)
- ----------------------------
As of March 31, 2000, the Company had a net operating loss carryfoward for
federal tax purposes approximately equal to the accumulated deficit recognized
for book purposes, which will be available to reduce future taxable income. The
full realization of the tax benefit associated with the carryforward depends
predominantly upon the Company's ability to generate taxable income during the
carryforward period, Because the current uncertainty of realizing such tax
assets in the future, a valuation allowance has been recorded equal to the
amount of the net deferred tax asset, which caused the Company's effective tax
rate to differ from the statutory income tax rate. The net operating loss
carryforward, if not utilized, will begin to expire in the year 2010.
Note 9 - Loans Receivable and Warehouse Line Payable
- ----------------------------------------------------
Loan receivable represents loans that have been placed for purchase as of March
31, 2000. The Warehouse Line Payable is the amount of money set aside to finance
these Loans receivable. These items are offset items.
Note 10 - Subsequent Events
- ---------------------------
The Company was victimized by a fraud, which caused the Company to significantly
increase the Company's infrastructure and overhead for the period of time until
the fraud was uncovered. The Company has begun legal proceedings to recover the
losses suffered from the fraud. The principal perpetrator of the fraud has been
indicted and is in custody by authorities.
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<FISCAL-YEAR-END> DEC-31-2000 DEC-31-1999
<PERIOD-START> JAN-01-2000 JAN-01-1999
<PERIOD-END> MAR-31-2000 MAR-31-1999
<CASH> 538,635 13,145
<SECURITIES> 0 0
<RECEIVABLES> 4,200,969 0
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<CURRENT-ASSETS> 4,739,604 13,145
<PP&E> 481,613 23,862
<DEPRECIATION> (65,898) (2,283)
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0 0
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