<PAGE>
PART 1
ITEM I. FINANCIAL STATEMENTS
CENTENNIAL MORTGAGE INCOME FUND
A Limited Partnership
Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
Assets March 31, December 31,
1995 1994
----------------------------
<S> <C> <C>
Cash and cash equivalents $ 2,363,000 $ 2,267,000
Real estate loans receivable, earning 273,000 282,000
Real estate loans receivable, nonearning 2,092,000 2,319,000
Real estate loans receivable from
unconsolidated investees (note 4) 3,924,000 4,040,000
----------------------------
6,289,000 6,641,000
Less allowance for possible loan losses 923,000 1,157,000
----------------------------
Net real estate loans receivable 5,366,000 5,484,000
Real estate owned, net,
held for sale (note 3) 10,820,000 11,435,000
Real estate owned, insubstance
foreclosed (note 3) 2,160,000 2,385,000
----------------------------
12,980,000 13,820,000
Less allowance for possible losses on
real estate owned 3,894,000 4,013,000
----------------------------
Net real estate owned 9,086,000 9,807,000
Accrued interest receivable 41,000 42,000
Other assets, net 650,000 88,000
----------------------------
$ 17,506,000 $ 17,688,000
============================
</TABLE>
See accompanying notes to consolidated financial statements
2
<PAGE>
CENTENNIAL MORTGAGE INCOME FUND
A Limited Partnership
Consolidated Balance Sheets
(Continued)
(Unaudited)
<TABLE>
LIABILITIES AND PARTNERS' EQUITY
<CAPTION>
<S> <C> <C>
Notes payable (note 5) $ 4,019,000 $ 4,019,000
Notes payable to affiliates
(notes 2 & 4) 123,000 144,000
Accounts payable and accrued liabilities 60,000 55,000
Interest and taxes payable on real
estate owned 172,000 180,000
Payable to affiliates 5,000 9,000
Deferred profit on equity participation 559,000 559,000
--------------------------
Total liabilities 4,938,000 4,966,000
Partners' equity (deficit) -- 38,729
limited partnership units outstanding as
of March 31, 1995 and December 31, 1994
General partners (525,000) (525,000)
Limited partners 13,093,000 13,247,000
----------------------------
Total partners' equity 12,568,000 12,722,000
Contingencies (note 6)
----------------------------
$ 17,506,000 $ 17,688,000
============================
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE>
CENTENNIAL MORTGAGE INCOME FUND
A Limited Partnership
Consolidated Statements of Operations
(Unaudited)
<TABLE>
For the three months ended March 31, 1995 and 1994
<CAPTION>
1995 1994
----------------------------
<S> <C> <C>
Revenue:
Interest income on loans to
affiliates, including fees $ --- $ 37,000
Interest income on loans to
nonaffiliates, including fees 25,000 107,000
Interest-bearing deposits 22,000 22,000
Operations of real estate owned 213,000 180,000
Gain on sale of real estate owned 72,000 ---
-----------------------------
Total revenue 332,000 346,000
Expenses:
Provision for possible losses --- 43,000
Share of losses in unconsolidated
investees 153,000 ---
Operating expenses from operations
of real estate owned 62,000 60,000
Operating expenses from operations
of real estate owned paid to affiliates 13,000 14,000
Expenses associated with non-operating
real estate owned 46,000 70,000
Depreciation and amortization expense 29,000 27,000
Interest expense 139,000 134,000
General and administrative, affiliates 34,000 34,000
General and administrative, nonaffiliates 23,000 29,000
Mortgage investment servicing fees 13,000 13,000
-----------------------------
Total expenses 512,000 424,000
-----------------------------
Net loss before minority interest (180,000) (78,000)
Minority interest 26,000 223,000
-----------------------------
Net earnings (loss) $ (154,000) $ 145,000
=============================
Net earnings (loss) per limited
partnership unit $ (3.98) $ 3.74
=============================
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE>
CENTENNIAL MORTGAGE INCOME FUND
A Limited Partnership
Consolidated Statement of Partners' Equity
(Unaudited)
<TABLE>
For the three months ended March 31, 1995
<CAPTION>
General Limited Total Partners'
Partners Partners Equity
----------------------------------------
<S> <C> <C> <C>
Balance at
December 31, 1994 $ (525,000) $ 13,247,000 $ 12,722,000
Net loss --- (154,000) (154,000)
----------------------------------------
Balance at
March 31, 1995 $ (525,000) $ 13,093,000 $ 12,568,000
========================================
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
CENTENNIAL MORTGAGE INCOME FUND
A Limited Partnership
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
For the three months ended March 31, 1995 and 1994
<CAPTION>
1995 1994
-----------------------------
<S> <C> <C>
Cash flow from operating activities:
Net earnings (loss) $ (154,000) $ 145,000
Adjustments to reconcile net
earnings (loss) to cash used
in operating activities:
Provision for possible losses --- 43,000
Interest accrued to principal (6,000) ---
Depreciation and amortization 29,000 27,000
Minority interest (26,000) (223,000)
Gain on sale of real estate owned (72,000) ---
Equity in losses of unconsolidated
investees 153,000 ---
Changes in assets and liabilities:
(Increase) decrease in accrued
interest receivable 1,000 (37,000)
(Increase) decrease in other assets (565,000) 28,000
Increase (decrease) in accounts
payable and accrued liabilities 5,000 (29,000)
Increase (decrease) in interest and taxes
payable on real estate owned (8,000) 79,000
Decrease in payable to affiliates (4,000) (1,000)
Increase (decrease) in deferred profit --- (75,000)
------------------------------
Net cash used in operating activities (647,000) (43,000)
Cash flows from investing activities:
Principal collected on loans 9,000 476,000
Advances on loans made to affiliates (36,000) (1,250,000)
Advances on loans to customers (1,000) (21,000)
Proceeds from sale of real estate owned 766,000 188,000
------------------------------
Net cash provided by (used in)
operating activities 738,000 (607,000)
Cash flows from financing activities:
Proceeds from notes payable to affiliates 5,000 12,000
------------------------------
Net cash provided by financing activities 5,000 12,000
------------------------------
Net increase (decrease) in cash 96,000 (638,000)
Beginning cash and cash equivalents 2,267,000 3,279,000
Ending cash and cash equivalents $ 2,363,000 $ 2,641,000
==============================
</TABLE>
6
<PAGE>
<TABLE>
<S> <C> <C>
Supplemental schedule of cash
flow information:
Cash paid during the quarter for:
Interest $ 100,000 $ 125,000
Supplemental schedule of noncash
investing and financing activities:
Decrease in allowance for loan losses
and real estate loans receivable
through foreclosure $ 233,000 $ ---
Decrease in real estate owned through
transfer of ownership (note 4) --- 2,543,000
Decrease in allowance for losses on real
estate owned through sale or transfer
of ownership (note 4) 64,000 709,000
Decrease in notes payable through
transfer of ownership (note 4) --- 655,000
Decrease in interest and taxes
payable on real estate owned through
transfer of ownership (note 4) --- 122,000
Increase in real estate loans from affiliates
through transfer of ownership (note 4) --- 1,057,000
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE>
CENTENNIAL MORTGAGE INCOME FUND
A Limited Partnership
Notes to Consolidated Financial Statements
(Unaudited)
March 31, 1995 and 1994
(1) BUSINESS
Centennial Mortgage Income Fund (the "Partnership") has
historically invested in commercial, industrial and residential
income-producing real property through mortgage investments
consisting of participating first mortgage loans, other equity
participation loans, construction loans, and wrap-around and other
junior loans. The Partnership's underwriting policy for granting
credit was to fund loans secured by first and second deeds of trust
on real property. The Partnership's area of concentration is in
California.
Management believes that the real estate industry in California
continues to stabilize. Sources of financing for borrowers have
become more readily available, however, due to decreased real
estate market values the Partnership's borrowers continue to have
difficulty obtaining long-term financing to pay off existing loans.
As these loans become delinquent, management of the Partnership
might elect to foreclose, thereby increasing real estate owned
balances. As a result of past foreclosures, the Partnership has
become a direct investor in this real estate and intends to manage
operating properties and develop raw land until such time as the
Partnership is able to sell this real estate owned.
As required by the Partnership Agreement, the Partnership is
currently in the repayment stage, and as a result, cash proceeds
from mortgage investments are no longer available for reinvestment.
(2) BASIS OF PRESENTATION
The consolidated financial statements are unaudited and reflect all
adjustments, consisting only of normal recurring accruals, which
are, in the opinion of management, necessary for a fair statement
of the results of operations for the interim periods. Results for
the three months ended March 31, 1995 and 1994 are not necessarily
indicative of results which may be expected for any other interim
period, or for the year as a whole.
Information pertaining to the three months ended March 31, 1995 and
1994 is unaudited and condensed inasmuch as it does not include all
related footnote disclosures.
The condensed consolidated financial statements do not include all
information and footnotes necessary for fair presentation of
financial position, results of operations and cash flows in
conformity with generally accepted accounting principles. Notes to
consolidated financial statement included in Form 10-K for the year
ended December 31, 1994 on file with the Securities and Exchange
Commission, provide additional disclosures and a further
description of accounting policies.
8
<PAGE>
CENTENNIAL MORTGAGE INCOME FUND
A Limited Partnership
Notes to Consolidated Financial Statements
(Continued)
(Unaudited)
March 31, 1995 and 1994
NET EARNINGS (LOSS) PER LIMITED PARTNERSHIP UNIT
Net earnings (loss) per limited partnership unit for financial
statement purposes was based on the weighted average number of
limited partnership units outstanding of 38,729 for all periods
presented.
IMPAIRED LOANS
Effective January 1, 1995, the Partnership adopted Statement of
Financial Accounting Standards No. 114, "Accounting by Creditors
for Impairment of a Loan" ("SFAS 114"), as amended by Statement of
Financial Accounting Standards No. 118, "Accounting by Creditors
for Impairment of a Loan - Income Recognition and Disclosures"
("SFAS 18"). Under SFAS 114 a loan is impaired when it is
"probable" that a creditor will be unable to collect all amounts
due (i.e. both principal and interest) according to the contractual
terms of the loan agreement. The measurement of impairment may be
based on (i) the present value of the expected future cash flows of
the impaired loan discounted at the loan's original effective
interest rate, (ii) the observable market price of the impaired
loan, or (iii) the fair value of the collateral of a collateral-
dependent loan. SFAS 114 does not apply to large groups of smaller
balance homogeneous loans that are collectively evaluated for
impairment. The adoption of SFAS 114, as amended by SFAS 118, had
no material impact on the Partnership's consolidated financial
statements as the Partnership's existing policy of measuring loan
impairment is consistent with methods prescribed in these
standards.
The Partnership considers a loan to be impaired when based upon
current information and events, it believes it is probable that the
Partnership will be unable to collect all amounts due according to
the contractual terms of the loan agreement. In determining
impairment, the Partnership considers large non-homogeneous loans
including nonaccrual loans, troubled debt restructurings and
performing loans which exhibit, among other characteristics, high
loan-to-value ratios, low debt-coverage ratios, or other
indications that the borrowers are experiencing increased levels of
financial difficulty. The Partnership bases the measurement of
collateral-dependent impaired loans on the fair value of the loan's
collateral. The amount by which the recorded investment of the
loan exceeds the measure of the impaired loan's value is recognized
by recording a valuation allowance.
At March 31, 1995, the carrying value of loans that are considered
to be impaired under SFAS 114 total $2,092,000 (of which $2,092,000
were on non-accrual status). At March 31, 1995, the allowance for
possible loan losses determined in accordance with the provisions
9
<PAGE>
CENTENNIAL MORTGAGE INCOME FUND
A Limited Partnership
Notes to Consolidated Financial Statements
(Continued)
(Unaudited)
March 31, 1995 and 1994
of SFAS 114, related to loans considered to be impaired under SFAS
114 totaled $913,000. There were no loans considered impaired
under SFAS 114 for which there is no related allowance for possible
loan losses at March 31, 1995. For the three months ended March
31, 1995 the Partnership recognized interest income on impaired
loans of $11,000, which includes $11,000 of interest income
recognized using the cash basis method of income.
NEWLY ISSUED ACCOUNTING PRONOUNCEMENTS
In March 1995, the FASB issued Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS 121").
SFAS 121 provides guidance for recognition and measurement of
impairment of long-lived assets, certain identifiable intangibles
and goodwill related both to assets to be held and used by an
entity and assets to be disposed of. SFAS 121 is effective for
financial statements for fiscal years beginning after December 15,
1995. Although the Partnership has not yet adopted SFAS 121,
management does not expect such adoption to have a material impact
on the Partnership's consolidated financial statements.
<TABLE>
(3) REAL ESTATE OWNED
Real estate owned consists of the following:
<CAPTION>
(dollars in thousands)
March 31, December 31,
1995 1994
--------------------------
<S> <C> <C>
1. Shopping center in Upland, CA $ 5,096 $ 5,096
2. 19 acres in Sacramento, CA 2,571 2,571
3. Auto retail center in Corona, CA 2,579 2,579
4. 23 acres in Riverside, CA 1,012 1,012
5. 8 condominiums in Oxnard, CA 2,160 2,385
6. 55 percent interest in an office
building in Sacramento, CA --- 589
-----------------------
Subtotal 13,418 14,232
Less accumulated depreciation 438 412
-----------------------
Total real estate owned $ 12,980 $ 13,820
=======================
</TABLE>
10
<PAGE>
CENTENNIAL MORTGAGE INCOME FUND
A Limited Partnership
Notes to Consolidated Financial Statements
(Continued)
(Unaudited)
March 31, 1995 and 1994
Property No. 5 has been accounted for as insubstance foreclosure,
the Partnership has possession of the property; however, the
Partnership does not currently hold legal title to this property.
(4) TRANSACTIONS WITH AFFILIATES
The Partnership Agreement provides for payment to the general
partners of application and commitment fees in connection with
mortgage loans which are to be paid solely by borrowers and cannot,
with respect to any single mortgage investment, exceed 3 percent of
the gross proceeds of the offering (including a pro rata amount of
all expenses and any applicable reserves) invested or committed to
such mortgage investment. In the event repayments of principal on
mortgage investments which do not constitute mortgage reductions
are used to make additional mortgage loans, the general partners
or their affiliates may receive additional application and
commitment fees, subject, however, to the restriction that the
total aggregate of such fees received by the general partners or
their affiliates may not exceed 7 percent of the gross proceeds of
the offering. No application and commitment fees were incurred for
the quarters ended March 31, 1995 and 1994. Application and
commitment fees incurred from inception to March 31, 1995 totaled
$2,232,000.
Additionally, CMIF, Inc. and Centennial Corporation, affiliates of
the general partners, are entitled to receive from the Partnership,
mortgage investment servicing fees for loans serviced equal to an
annual rate of 1/4 of 1 percent of the committed amount to be
funded by the Partnership. The Partnership incurred $13,000 and
$13,000 of mortgage investment servicing fees for the quarters
ended March 31, 1995 and 1994, respectively, payable to CMIF, Inc.
and Centennial Corporation.
Under the Partnership Agreement, the general partners are to
receive compensation for their services in supervising the affairs
of the Partnership. This partnership management compensation shall
be equal to 10 percent of the cash available for distribution, as
defined in the Partnership Agreement. The general partners will
not receive this compensation until the limited partners have
received a 12 percent per annum cumulative return of their adjusted
invested capital, but are entitled to receive a 5 percent interest
in cash available for distribution in any year until this provision
has been met. Adjusted invested capital is defined as the original
capital invested less distributions from mortgage reductions.
Payments to the general partners have been limited to 5 percent of
cash available for distribution as the limited partners have not
yet received their 12 percent per annum cumulative return.
11
<PAGE>
CENTENNIAL MORTGAGE INCOME FUND
A Limited Partnership
Notes to Consolidated Financial Statements
(Continued)
(Unaudited)
March 31, 1995 and 1994
In the second quarter of 1990, the Partnership participated in
making a loan secured by a second trust deed to Centennial Estates,
Inc. ("CEI"). CEI is a wholly-owned subsidiary of The Centennial
Group, Inc. ("CGI") in which Ronald R. White and John B. Joseph
were directors/executive officers and major shareholders. Ronald
R. White and John B. Joseph were also executive officers of CEI.
The purpose of the loan was to develop 179 single-family
residential lots in Lancaster, California. The amount originally
committed was $5,009,000, of which the Partnership's share was
$2,500,000. The loan bore interest at prime plus 1.5 percent and
matured March 1, 1992. The loan was subsequently extended to
September 1, 1992, and the Partnership's share of the committed
loan amount was capped at $1,766,000. Subsequent to management's
evaluation of the property at December 31, 1992, management placed
the loan on nonaccrual effective January 1, 1993. During 1993, the
Partnership recorded this note as an insubstance foreclosure. In
February, 1994, LCR Development, Inc. ("LCR"), a corporation in
which the Partnership holds a 50 percent interest with the other 50
percent held by Centennial Mortgage Income Fund II ("CMIF II"),
purchased the underlying note secured by a first trust deed and
foreclosed on the property.
In connection with this transaction, the Partnership advanced
$1,250,000 to LCR under a note receivable secured by the first
trust deed on the 179 lots. The $1,250,000 loan bears interest at
prime plus 3 percent and matured June 1, 1994. The Partnership is
in the process of extending the note receivable.
The Partnership signed over its interest in the note secured by the
second trust deed to LCR to facilitate LCR's foreclosure. At time
of foreclosure, the Partnership's balance of the note secured by
the second trust deed recorded as insubstance foreclosure was
$2,543,000. The Partnership charged off $709,000 to the allowance
for losses, decreased notes payable by $655,000, decreased interest
and property taxes payable on real estate owned by $122,000 and
recorded its share of the note in the amount of $1,057,000.
Subsequent to foreclosure, the Partnership holds the note secured
by the first trust deed and holds a 50 percent participation in a
note secured by a second trust deed in the amount of $2,627,000.
The Partnership's share of the note secured by the second trust
deed at March 31, 1995 is $1,286,000 and the Partnership had
applied $211,000 of cumulative losses from unconsolidated investees
against the carrying value of the note as of that same date.
12
<PAGE>
CENTENNIAL MORTGAGE INCOME FUND
A Limited Partnership
Notes to Consolidated Financial Statements
(Continued)
(Unaudited)
March 31, 1995 and 1994
The balance sheets and statement of operations of LCR Development,
Inc. have not been consolidated in the Partnership's financial
statements. The Partnership accounts for its investment in this
corporation using the equity method. The following represents
condensed financial information for LCR Development, Inc. at March
31, 1995 and for the three months ended March 31, 1995:
<TABLE>
LCR DEVELOPMENT, INC.
BALANCE SHEET
<CAPTION>
Assets March 31,
1995
------------------
<S> <C>
Cash $ 4,000
Real property 3,852,000
Organization costs 3,000
------------------
$ 3,859,000
==================
</TABLE>
<TABLE>
<CAPTION>
Liabilities and Stockholders' Deficit March 31,
1995
--------------
<S> <C>
Notes payable to affiliates $ 3,877,000
Interest and property taxes
payable on real estate owned 403,000
---------------
Total liabilities 4,280,000
Stockholders' deficit (421,000)
---------------
$ 3,859,000
===============
</TABLE>
13
<PAGE>
CENTENNIAL MORTGAGE INCOME FUND
A Limited Partnership
Notes to Consolidated Financial Statements
(Continued)
(Unaudited)
March 31, 1995 and 1994
<TABLE>
LCR DEVELOPMENT, INC.
STATEMENT OF OPERATIONS
<CAPTION>
Three months
ended
March 31, 1995
------------------
<S> <C>
Interest expense $ 107,000
------------------
Net loss $ 107,000
==================
</TABLE>
In August 1990, the Partnership committed to participate in another
loan to CEI. The loan funded April 29, 1991. The funds were
provided for a land development loan on a 283-acre residential
tract in Bakersfield, California. The amount originally committed
was $7,000,000, of which the Partnership has a 50 percent
participation interest. The committed amount was subsequently
capped at $6,492,000. The loan bore interest at prime plus 3
percent and matured March 1, 1993. Subsequent to management's
evaluation of the property at December 31, 1992, management placed
the loan on nonaccrual effective January 1, 1993. During 1993, the
Partnership recorded this note as an insubstance foreclosure. A
notice of default was filed on March 17, 1994. In 1994, the
Partnership assigned the note receivable to BKS Development, Inc.
("BKS"), a corporation in which the Partnership holds a 50 percent
interest with the other 50 percent interest held by CMIF II. BKS
foreclosed on this property on August 8, 1994.
At time of foreclosure, the Partnership's carrying value of the
property recorded as insubstance foreclosure was $3,900,000. The
Partnership charged off $1,300,000 of this carrying value to the
allowance for losses, decreased notes payable by $449,000,
decreased interest and property taxes payable on real estate owned
by $204,000 and recorded its share of a new note due from BKS in
the amount of $1,947,000. The Partnership's share of the note
receivable at March 31, 1995 is $1,947,000 and the Partnership had
applied $348,000 of cumulative losses from unconsolidated investees
against the carrying value of the note as of that same date.
14
<PAGE>
CENTENNIAL MORTGAGE INCOME FUND
A Limited Partnership
Notes to Consolidated Financial Statements
(Continued)
(Unaudited)
March 31, 1995 and 1994
The balance sheet and statement of operations of BKS Development,
Inc. have not been consolidated in the Partnership's financial
statements. The Partnership accounts for its investment in this
corporation using the equity method. The following represents
condensed financial information for BKS at March 31, 1995 and for
the three months ended March 31, 1995:
<TABLE>
BKS DEVELOPMENT, INC.
BALANCE SHEET
<CAPTION>
Assets March 31,
1995
-------------------
<S> <C>
Cash $ 1,000
Real property 5,199,000
-------------------
$ 5,200,000
===================
Liabilities and Stockholders' Deficit March 31,
1995
-------------------
Bonds payable $ 899,000
Notes payable to affiliates 3,893,000
Interest and property taxes
payable on real estate owned 1,106,000
-----------------
Total liabilities 5,898,000
Stockholders' deficit (698,000)
------------------
$ 5,200,000
==================
</TABLE>
15
<PAGE>
CENTENNIAL MORTGAGE INCOME FUND
A Limited Partnership
Notes to Consolidated Financial Statements
(Continued)
(Unaudited)
March 31, 1995 and 1994
<TABLE>
BKS DEVELOPMENT, INC.
STATEMENT OF OPERATIONS
<CAPTION>
Three months
ended
March 31, 1995
-----------------
<S> <C>
Interest expense $ 172,000
Property taxes 26,000
-----------------
Net loss $ 198,000
=================
</TABLE>
Partnership management believes the terms of both LCR and BKS
transactions were fair to the Partnership at the time the loans
were made and were no more favorable than those obtainable from
unrelated third parties for comparable financing on comparable
property.
The Partnership owns an interest in Grand Plaza Auto Retail, Inc.,
the corporation which owns the auto retail center in Corona,
California jointly with an affiliated entity, Centennial Mortgage
Income Fund III ("CMIF III"). At March 31, 1995, the ownership
percentages are 86.7 for the Partnership and 13.3 for CMIF III.
The assets and liabilities of this corporation have been
consolidated in the accompanying consolidated financial statements.
Notes payable to affiliates includes $365,000 at March 31, 1995 and
December 31, 1994, respectively, and the Partnership had
cumulatively applied $252,000 and $247,000 of minority interest
from this corporate joint venture against the note payable to
affiliates balance as of the same dates. The notes payable to
affiliates balance reflects CMIF III's share of a note payable by
the corporation to the Partnership and CMIF III. The note bears
interest at 14 percent fixed and matures October 1, 1995.
The Partnership owns an interest in BNN Development, Inc., the
corporation which owns the 19 acres in Sacramento, California
jointly with an affiliated entity, CMIF III. At March 31, 1995,
the ownership percentages are 86.25 for the Partnership and 13.75
for CMIF III. The assets and liabilities of this corporation have
been consolidated in the accompanying consolidated financial
statements. Notes payable to affiliates includes $297,000 and
$293,000 at March 31, 1995 and December 31, 1994, respectively, and
the Partnership had cumulatively applied $287,000 and $267,000 of
16
<PAGE>
CENTENNIAL MORTGAGE INCOME FUND
A Limited Partnership
Notes to Consolidated Financial Statements
(Continued)
(Unaudited)
March 31, 1995 and 1994
minority interest from this corporate venture against the note
payable to affiliates balance as of the same dates. The notes
payable to affiliates balance reflects CMIF III's share of a note
payable by the corporation to the Partnership and CMIF III. The
note bears interest at 15 percent fixed and matures November 1,
1995.
During 1993, the Partnership invested in KJC Development, Inc.,
("KJC"). During 1994, KJC was used to form a mortgage lending
corporation which was subsequently closed in February of 1995. KJC
is jointly owned by the Partnership, CMIF II and CMIF III. The
Partnership owns 33.33 percent of the corporation and has recorded
no earnings or losses from this joint venture at March 31, 1995 as
the joint venture has incurred no earnings or losses. The mortgage
lending corporation funded short-term mortgage loans utilizing
working capital funds advanced from the joint owners of KJC. No
such loans were outstanding at March 31, 1995. The balance sheet
and statement of operations of KJC have not been consolidated in
the Partnership's financial statements and are not presented here
as they are immaterial to the Partnership. The Partnership
accounts for its investment in this corporation using the equity
method.
17
<PAGE>
CENTENNIAL MORTGAGE INCOME FUND
A Limited Partnership
Notes to Consolidated Financial Statements
(Continued)
(Unaudited)
March 31, 1995 and 1994
<TABLE>
(5) NOTES PAYABLE
Notes payable consist of the following:
<CAPTION>
(dollars in thousands)
March 31, December 31,
1995 1994
--------------------------
<S> <C> <C>
Note payable secured by 19 acres
in Sacramento, CA with interest
only payments due monthly;
interest rate of 12 percent fixed,
maturing September 1, 1996 $ 900 $ 900
Note payable secured by shopping
center in Upland, CA with
interest and principal payments
due monthly of $24,000; interest
rate of 11.25 percent fixed,
maturing November 1, 1996 2,469 2,469
Note payable secured by 23 acres in
Riverside, CA; Interest rate of 13.75
percent fixed, matured August 1, 1992 650 650
---------------------
Total notes payable $ 4,019 $ 4,019
=====================
</TABLE>
The Partnership acquired the 23 acres in Riverside by deed in lieu
of foreclosure, subject to the note payable discussed above. In
the third quarter of 1993, the lender filed a notice of default and
commenced judicial foreclosure proceedings on the property. The
original borrower on the note payable is negotiating with the
lender to perfect a nonjudicial foreclosure on the property.
Management believes that the lender will complete this nonjudicial
foreclosure and the Partnership will have minimal future liability.
Accordingly, the Partnership has not accrued interest expense on
this note.
(6) CONTINGENCIES
There are no material pending legal proceedings other than ordinary
routine litigation incidental to the Partnership's business.
18
<PAGE>
CENTENNIAL MORTGAGE INCOME FUND MARCH 31, 1995
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Partnership had net earnings (losses) and earnings (losses) per
limited partnership unit of $(154,000) and $(3.98), respectively,
for the quarter ended March 31, 995 and $145,000 and $3.74,
respectively, for the quarter ended March 31, 1994. The decrease
in earnings from March 31, 1994 to March 31, 1995 is primarily the
result of a decrease in minority interest and an increase in share
of losses in unconsolidated investees.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1995, the Partnership had $2,363,000 in cash and
interest-bearing deposits, and had performing loans with maturities
of less than one year totaling $51,000. The Partnership had no
unfunded loan commitments at March 31, 1995. Additional sources of
funds are expected to be from the sale of real estate owned, future
operations of real estate owned and payoffs of existing loans. The
Partnership funded disbursements on loans to affiliates during the
first quarter of 1995 totaling $36,000 and received payoffs and
paydowns on loans totaling $9,000. During the first quarter of
1995, the Partnership received proceeds from the sale of real
estate owned of $766,000.
The Partnership's notes payable commitments consist of interest and
non-balloon principal payments due of approximately $299,000
payable in 1995 which does not include payments on the notes
secured by the 23 acres in Riverside and the 7.83 acres in Perris.
In addition to the note payable commitments, the Partnership's
principal capital requirements include: (i) real property taxes on
real estate owned of approximately $114,000 payable and delinquent
in 1995 and (ii) selling, general and administrative costs. These
commitments are expected to be made from existing cash reserves,
future loan payoffs and the sale of real estate owned.
The Partnership is continuously evaluating various alternative
strategies for liquidating its real estate assets under current
market conditions. These alternative strategies include the
potential joint venture and/or build out of certain of the
Partnership's properties in order to increase their marketability
and maximize the return to the limited partners. In the event the
Partnership decides to implement some of these strategies, it may
require the investment of proceeds received from the payoff of
existing loans and the sale of other real estate assets. The
decision to invest additional cash in existing assets will only be
made if, based on management's best judgement at the time, there is
a clear indication that such investment should generate a
significantly greater return to the limited partners than any other
strategies available to the Partnership.
19
<PAGE>
CENTENNIAL MORTGAGE INCOME FUND MARCH 31, 1995
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Effective with the third quarter of 1991, the Partnership suspended
cash distributions to partners, due to a decline in liquidity and
the uncertainty of the cash requirements for existing and potential
real estate owned. Pursuant to the Partnership Agreement, 60
months after the closing of the offering, cash proceeds from
mortgage investments are no longer available for reinvestment by
the Partnership. Management believes that current and projected
liquidity is sufficient to fund operating expenses and to meet the
contractual obligations and cash flow operating requirements of the
Partnership. However, although no new mortgage investments shall
be made, the general partners expect that the cash proceeds from
mortgage reductions will be retained by the Partnership until such
time as the Partnership has sufficient cash to fulfill the
operating requirements of the real estate owned by the Partnership.
RESULTS OF OPERATIONS
Due to the downturn in the real estate industry in California and
its impact on the Partnership's borrowers, most of the
Partnership's loans have become non-performing and/or real estate
owned. As a result, interest income on loans to affiliates and
non-affiliates continues to decline. Interest income on loans to
affiliates, including fees was $37,000 for the quarter ended
March 31, 1994. There was no interest income on loans to
affiliates for the quarter ended March 31, 1995. Interest income
on loans to non-affiliates, including fees decreased to $25,000
from $107,000 for the quarters ended March 31, 1995 and 1994,
respectively. The decrease in interest income on loans from 1994
to 1995 is primarily due to a one time equity participation of
$75,000 received in 1994.
The outstanding principal balance of loans on nonaccrual at March
31, 1995 totaled $2,092,000 as compared with $2,084,000 at March
31, 1994. Loans on "nonaccrual" refers to loans upon which the
Partnership is no longer accruing interest. Management's policy is
to cease accruing interest on loans when interest and/or principal
repayments become 90 days past due. Had interest accrued
throughout the first quarter of 1995 and 1994 on the nonaccrual
loans, interest income would have been approximately $145,000 and
$52,000 higher than was actually reported for those periods.
The real estate owned balance at March 31, 1995 and 1994 was
$12,980,000 and $18,636,000, respectively. On April 28, 1992, the
American Institute of Certified Public Accountants issued Statement
of Position 92-3 ("SOP 92-3"), "Accounting for Foreclosed Assets."
SOP 92-3 indicates that foreclosed assets are presumed held for
sale and not for the production of income. Accordingly, foreclosed
assets held for sale are to be carried at the lower of cost or fair
value minus estimated costs to sell. The cost of such assets at
the time of foreclosure is the fair value of the asset foreclosed.
20
<PAGE>
CENTENNIAL MORTGAGE INCOME FUND MARCH 31, 1995
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Immediately after foreclosure, a valuation allowance is recognized
for estimated costs to sell through a charge to income. All of the
Partnership's real estate owned, including insubstance
foreclosures, is presumed held for sale. Effective December 31,
1992, the Partnership adopted SOP 92-3. There was no adjustment
resulting from the application of SOP 92-3.
The following sections entitled Nonaccrual and Nonperforming Loans
and Real Estate Owned provide a detailed analysis of these assets.
NONACCRUAL AND NONPERFORMING LOANS
Loans on nonaccrual and nonperforming status at March 31, 1995 are
summarized below:
During 1991, the Partnership renegotiated a loan with an original
committed amount of $1,500,000. Two new workout loans in which the
Partnership holds a 45 percent interest were funded with committed
amounts of $1,220,000 and $700,000. The loans are secured by a
first and second trust deed on a two-story office building and a
third trust deed on a residence all located in Sacramento,
California. Due to nonpayment, the Partnership filed a notice of
default on both loans. The borrower filed bankruptcy December 7,
1993. The Partnership reached a settlement agreement through the
bankruptcy court and foreclosed on the note secured by the first
deed of trust on August 5, 1994. The Partnership retained a note
secured by a second trust deed on the residence which has been
recorded as a performing loan. See Management's Discussion and
Analysis - Real Estate Owned - Office Building in Sacramento,
California.
In January 1989, the Partnership funded a $3,296,000 loan secured
by a first trust deed on an 81,000 square foot multi-tenant
industrial building in Vista, California. The Partnership retained
a 10 percent interest in this loan. In July 1991, the Partnership
funded a $250,000 loan to provide additional tenant improvement
funds for the same project. The Partnership retained a 100 percent
interest in the $250,000 loan, which was secured by a second trust
deed on the project. In April 1992, the Partnership agreed to
accommodate the borrower's refinance of the $3,296,000 loan with a
new $3,150,000 note from a different financial institution by
rolling the principal and accrued interest balance on the $250,000
note as well as the Partnership's interest in the principal and
interest balances of the $3,296,000 note into two new notes. The
first of these two new notes was a $250,000 note secured by a
second trust deed on the Vista project which was junior to the new
$3,150,000 note. The second new note was a $450,000 note secured
by a second trust deed on 23 undeveloped residentially zoned acres
of land in Riverside. Both new loans were placed on nonaccrual
shortly after the refinance due to the borrower's failure to make
payments. The lender on the Vista project foreclosed during the
21
<PAGE>
CENTENNIAL MORTGAGE INCOME FUND MARCH 31, 1995
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
first quarter of 1995. The Partnership accepted a grant deed in
lieu of foreclosure on the new $450,000 note in 1992. See
Management's Discussion and Analysis - Real Estate Owned - 23 acres
in Riverside, CA.
During 1988, the Partnership recorded an equity participation note
with an original committed amount of $350,000 secured by a second
trust deed on a 60-unit apartment complex in Riverside, California.
The loan is on nonaccrual due to past due interest. The complex is
82 percent leased and due to low rental rates and slow payments,
the first trust deed holder filed a notice of default on April 12,
1995. The principal balance and nonaccrued interest at March 31,
1995 are $270,000, and $49,000, respectively.
During 1992, funds were provided for a workout loan secured by a
third trust deed on a mini-storage facility in Citrus Heights,
California, with a committed amount of $792,000. The loan paid off
the Partnership's existing loan secured by a second trust deed,
allowed the recordation of new debt secured by a first and second
trust deed which reduced the senior debt by $677,000, paid a
portion of the loan secured by the existing first trust deed and
provided additional funds for tenant improvements to enlarge the
facility. During 1994, the borrower asked for a partial deferral
of interest payable for one year due to economic conditions.
Management agreed and placed the deferred interest on nonaccrual.
The principal balance, accrued and nonaccrued interest at March 31,
1995 are $758,000, $3,000 and $139,000, respectively.
During 1994, the Partnership renegotiated an equity participation
note with an original committed amount of $374,000 secured by a
second deed of trust on a 32,431 square foot shopping center in
Corona, California. The loan provides for interest due to be
payable at loan maturity; however, due to the amount of the senior
debt and the decrease in land values, the Partnership has placed
the loan on nonaccrual. The principal balance and nonaccrued
interest at March 31, 1995 are $312,000 and $43,000 respectively.
During 1991, the Partnership sold a pad on an existing piece of
real estate owned in Corona, California and carried back financing
in the amount of $600,000. The Partnership's share of the loan is
77 percent. Due to the loss of the major tenant, the borrower has
been unable to make monthly interest payments. Management has
worked out a forbearance agreement with the borrower for net cash
flow monthly payments. The remaining interest due has been placed
on nonaccrual. The principal balance, accrued and nonaccrued
interest at March 31, 1995 are $460,000, $37,000 and $26,000
respectively.
During 1989, the Partnership funded a loan with an original
committed amount of $343,000 to provide land development financing.
The loan matured June 1, 1993 and the borrower was unable to make
interest payments or pay off the loan. Given the depressed value
22
<PAGE>
CENTENNIAL MORTGAGE INCOME FUND MARCH 31, 1995
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
of the property and the amount of the delinquent bonds and taxes,
the Partnership has been negotiating with the borrower in an
attempt to discount the note to facilitate a sale or have the
borrower deed the property to the Partnership. Should the
negotiations not be completed and the property be lost to a tax
sale, management has established an allowance for losses sufficient
to cover the Partnership's equity in the property. The principal
balance and nonaccrual interest at March 31, 1995 are $292,000 and
$85,000, respectively.
Real Estate Owned
A description of the Partnership's real estate owned and loans
classified as insubstance foreclosure follows:
Shopping Center in Upland, California
During the third quarter of 1988, the Partnership foreclosed on a
loan and now owns the project. The Partnership originally
committed $5,600,000 for the rehabilitation of a 33,327 square foot
retail center and construction of an automotive service facility in
Upland, California. Cost overruns and construction delays
prevented the borrower from selling the project and thereby
performing on the loan. A pad was sold in 1989 which resulted in
a net paydown of $323,000. The property generated net operating
income before debt service of $86,000 during the first quarter of
1995 and its carrying value was $4,658,000 at March 31, 1995. The
property is currently 77 percent leased. The property is
encumbered by a note of $2,469,000, secured by a first trust deed
on the property. The Partnership has now listed this property for
sale.
19 Acres in Sacramento, California
During the third quarter of 1991, the Partnership took a deed in
lieu of foreclosure on a second trust deed and renegotiated the
first trust deed secured by 20 acres of undeveloped land in
Sacramento, California. The principal and nonaccrued interest
balances at foreclosure totaled $1,595,000. The Partnership paid
down the first trust deed approximately $1,080,000 and executed a
$900,000 12 percent fixed rate note payable to the original first
trust deed holder, which is secured by a new first trust deed on
the property. The note requires monthly interest-only payments and
the balance is due September 1, 1996. The Partnership continues to
finalize the entitlement processing, flood issues and provide for
utility services for the property. As economic conditions rebound
in California, and the demand for development land in the area
returns, the Partnership intends to list the property for
sale. At March 31, 1995, the carrying value of this asset was
$2,571,000.
23
<PAGE>
CENTENNIAL MORTGAGE INCOME FUND MARCH 31, 1995
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Auto Retail Center in Corona, California
During 1988, the Partnership funded a loan with an original
committed amount of $3,313,000 for the purpose of constructing a
39,185 square foot auto/retail center in Corona, California. The
loan matured on September 1, 1989. The borrower defaulted under a
forbearance agreement and the Partnership filed a notice of default
on December 14, 1990. The borrower filed for bankruptcy on
February 15, 1991. A pad was sold during April 1991 resulting in
the Partnership receiving a net paydown of $249,000. The
Partnership provided financing to the purchaser. The Partnership
took a grant deed on the property through the Bankruptcy Courts in
December 1991. The subject center is 100 percent completed and 80
percent leased. While the property generated net operating income
of $53,000 during the first quarter of 1995, the Partnership
continues to manage the property while occupancy stabilizes and
rental rates increase. The center has now been listed for sale.
The carrying value at March 31, 1995 is $2,579,000.
23 Acres in Riverside, California
The Partnership took a grant deed in consideration of its note
secured by a third trust deed on the property during the second
quarter of 1992 and paid off the second deed of trust. The
carrying value at March 31, 1995 is $1,012,000. The property is
encumbered by a 13.75 percent fixed rate note payable secured by a
first trust deed of $650,000 payable to another financial
institution which matured August 1, 1992. During 1993 and 1994,
management has attempted to negotiate with the FDIC as successor to
the financial institution to payoff or restructure the terms of the
note secured by the first trust deed and was not successful
resulting in the FDIC commencing foreclosure proceedings on the
property. Throughout the two year period, the land values have
continued to decline and lot improvement costs have significantly
increased. Management believes that the lender will complete this
foreclosure. Management has established an allowance for losses
sufficient to cover the loss which would be incurred as a result of
the foreclosure of this property.
8 Condominiums in Oxnard, California
During 1990, the Partnership funded a loan secured by a first trust
deed with an original committed amount of $3,000,000 for the
construction of 12 condominiums in Oxnard, California. The
Partnership recorded an insubstance foreclosure on these 12
condominiums. The borrower signed over control to the second trust
deed holder in December 1992, and the second trust deed holder, an
affiliate, has now abandoned the property. The condominiums are
located adjacent to the beach. The values of beach front property
have been hard hit in the local market due to the excess supply of
these types of properties. The Partnership has declined to assume
24
<PAGE>
CENTENNIAL MORTGAGE INCOME FUND MARCH 31, 1995
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
any of the original builder's liabilities which would be required
should the Partnership accept a deed in lieu of foreclosure on the
property. However, the Partnership does receive 100 percent of all
sales proceeds net of selling costs. As of March 31, 1995, the
Partnership had sold four condominiums and is attempting to sell
the remaining units. The carrying value at March 31, 1995 is
$2,160,000.
Office Building in Sacramento, California
During the third quarter of 1994, the Partnership foreclosed on the
loan secured by a first trust deed on an office building in
Sacramento (see nonaccrual and nonperforming loans). The
Partnership's $700,000 loan secured by a second trust deed on the
office building was foreclosed out and charged off. An additional
10 percent interest was purchased at a discount by the Partnership
from a participant in the fourth quarter of 1994 increasing its
interest to 55 percent. Management hired a leasing agent to
increase occupancy in the building and subsequently accepted an
offer on the property. The property closed escrow in January, 1995
with a total sales price of $1,150,000 and gain of $56,000.
INTEREST ON INTEREST-BEARING DEPOSITS
Interest on interest-bearing deposits totaled $22,000 and $22,000
for the three months ended March 31, 1995 and 1994, respectively.
Interest on interest-bearing deposits represents interest earned on
Partnership funds invested in time certificates and money market
deposits.
INCOME FROM OPERATIONS OF REAL ESTATE OWNED
Income from operations of real estate owned consists of operating
revenues of $213,000 and $180,000 for the three months ended March
31, 1995 and 1994, respectively. These revenues are from the
Upland shopping center and the auto retail center in Corona,
California. The increase in 1995 is due to a reversal of rents
previously charged off.
PROVISION FOR POSSIBLE LOSSES
The provision for possible losses was $43,000 the three months
ended March 31, 1994. There was no provision for losses for the
three months ended March 31, 1995. The 1994 provision relates
primarily to the loan secured by a third trust deed on a
mini-storage facility in Citrus Heights. The provision for
possible losses results from the change in the allowance for
possible losses and the allowance for possible losses on real
estate owned net of charge-offs, if any. Management believes that
25
<PAGE>
CENTENNIAL MORTGAGE INCOME FUND MARCH 31, 1995
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
the allowance for possible losses at March 31, 1995 is adequate to
absorb the known and inherent risk in the Partnership's loan and
real estate owned portfolio.
EXPENSES
Operating expenses from operations of real estate owned were
$62,000 and $60,000 for the three months ended March 31, 1995 and
1994, respectively. The expenses were associated with the Upland
shopping center, the auto retail center in Corona, the auto retail
center in San Bernardino and the 19 acres in Sacramento,
California.
Operating expenses from operations of real estate owned paid to
affiliates were $13,000 and $14,000 for the three months ended
March 31, 1995 and 1994, respectively. The operating expenses
consist of property management fees paid to an affiliate.
Expenses associated with non-operating real estate owned were
$46,000 and $70,000 for the three months ended March 31, 1995 and
1994, respectively. The expenses relate to the 19 acres in
Sacramento, the condominiums in Oxnard, and the 23 acres in
Riverside. The decrease for 1994 is due to a decrease in expenses
for the condominiums in Oxnard.
Depreciation and amortization expense was $29,000 for the three
months ended March 31, 1995 and $27,000 for the three months ended
March 31, 1994. The depreciation relates to the Upland shopping
center and tenant improvements for the auto retail center in
Corona.
Interest expense was $139,000 and $134,000 for the three months
ended March 31, 1995 and 1994, respectively. The interest expense
relates to the Upland shopping center and the 19 acres in
Sacramento, California.
General and administrative expenses, affiliates totaled $34,000 and
$34,000 for the three months ended March 31, 1995 and 1994,
respectively. These expenses are primarily salary allocation
reimbursements paid to affiliates.
General and administrative expenses, nonaffiliates totaled $23,000
and $29,000 for the three months ended March 31, 1995 and 1994,
respectively. These expenses consist of other costs associated
with the administration of the Partnership.
Mortgage investment servicing fees for the same periods totaled
$13,000 in 1995 and $13,000 in 1994. This consists of fees paid to
CMIF, Inc. and Centennial Corporation, affiliates of the general
partners, for servicing the Partnership's loan and real estate
owned portfolio.
26
<PAGE>
CENTENNIAL MORTGAGE INCOME FUND MARCH 31, 1995
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
NONE
Item 2. Changes in Securities
NONE
Item 3. Defaults Upon Senior Securities
NONE
Item 4. Submission of Matters to a Vote of Security Holders
NONE
Item 5. Other Information
NONE
Item 6. Exhibits and Reports on Form 8-K
(a) NONE
(b) NONE
27
<PAGE>
EXHIBIT A
This schedule contains summary financial information extracted from
the March 31, 1995 10-Q and is qualified in its entirety by
reference to such financial statements.
<TABLE>
<CAPTION> March 31, December 31,
1995 1994
----------------------------------
<S> <C> <C>
Cash and cash items $ 2,363,000 $ 2,267,000
Notes and accounts
receivable-trade 6,289,000 6,641,000
Allowances for doubtful accounts 923,000 1,157,000
Total current assets 3,054,000 2,397,000
Total assets 17,506,000 17,688,000
Total current liabilities 237,000 244,000
Bonds, mortgages and
similar debt 4,019,000 4,019,000
Total liabilities and
partners' equity 17,506,000 17,688,000
Total revenue 332,000 346,000
Other costs and expenses 486,000 158,000
Provision for doubtful
accounts and notes --- 43,000
Income (loss) before taxes
and other items (154,000) 145,000
Income (loss) continuing
operations (154,000) 145,000
Net income or loss (154,000) 145,000
Earnings per unit (3.98) 3.74
</TABLE>
28
<PAGE>
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.
CENTENNIAL MORTGAGE INCOME FUND,
A California Limited Partnership
By: /s/John B. Joseph May 15, 1995
John B. Joseph Date
General Partner
By: /s/Ronald R. White May 15, 1995
Ronald R. White Date
General Partner
By: CENTENNIAL CORPORATION
General Partner
/s/Robert F. Ishii May 15, 1995
Robert F. Ishii Date
Chief Financial Officer
