FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X} QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from N/A to N/A
Commission File Number: 0-22520
CENTENNIAL MORTGAGE INCOME FUND
(Exact name of registrant as specified in its charter)
California 33-0053488
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1540 South Lewis Street, Anaheim, California 92805
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (714)502-8484
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
PART I
ITEM 1. FINANCIAL STATEMENTS
CENTENNIAL MORTGAGE INCOME FUND AND SUBSIDIARIES
A Limited Partnership
Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30, December 31,
Assets 1999 1998
(Unaudited)
---------------------------------------------------------------------------
<S> <C> <C>
Cash and cash equivalents $ 1,133,000 $ 4,938,000
Real estate loans
receivable, earning 537,000 682,000
Real estate loans receivable from
from unconsolidated investee, earning --- 88,000
Real estate loans receivable from
unconsolidated investee, nonearning --- 12,000
- ---------------------------------------------------------------------------
Net real estate loans receivable 537,000 782,000
- ---------------------------------------------------------------------------
Due from unconsolidated investee 17,000 7,000
Other assets, net 7,000 308,000
- ---------------------------------------------------------------------------
$ 1,694,000 $ 6,035,000
===========================================================================
Liabilities and Partners' Equity
- ---------------------------------------------------------------------------
Notes payable to affiliates (note 3) --- 2,000
Accounts payable and
accrued liabilities 6,000 385,000
- ---------------------------------------------------------------------------
Total liabilities 6,000 387,000
- ---------------------------------------------------------------------------
Partners' equity (deficit)
-- 38,729 limited partnership units
outstanding as of September 30, 1999
and December 31, 1998
General partners (132,000) (132,000)
Limited partners 1,820,000 5,780,000
- ----------------------------------------------------------------------------
Total partners' equity 1,688,000 5,648,000
Contingencies (note 4)
- ----------------------------------------------------------------------------
$ 1,694,000 $ 6,035,000
============================================================================
</TABLE>
See accompanying notes to consolidated financial statements
CENTENNIAL MORTGAGE INCOME FUND AND SUBSIDIARIES
A Limited Partnership
Consolidated Statements of Operations (Unaudited)
<TABLE>
<CAPTION>
Nine Months Three Months
Ended September 30, Ended September 30,
1999 1998 1999 1998
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue:
Interest income on loans
to nonaffiliates,
including fees $ 38,000 $ 288,000 $ 11,000 $ 106,000
Interest income on loans to
Affiliates, including fees 3,000 31,000 --- 7,000
Interest on interest-
bearing deposits 54,000 65,000 12,000 22,000
Income from operations
of real estate owned --- 500,000 --- 162,000
Gain on sale of
real estate owned --- 21,000 --- ---
Other 36,000 17,000 5,000 8,000
- ----------------------------------------------------------------------------
Total revenue 131,000 922,000 28,000 305,000
Expenses:
Provision for possible losses --- 155,000 --- 155,000
Share of losses in
unconsolidated investee --- 82,000 --- 6,000
Operating expenses from
of real estate owned --- 110,000 --- 43,000
Operating expenses from
operations of real estate
owned paid to affliates --- 25,000 --- 10,000
Expenses associated with non-
operating real estate owned 4,000 97,000 1,000 29,000
Depreciation and amortization --- 6,000 --- 2,000
Interest expense --- 187,000 --- 56,000
General and administrative
affiliates 137,000 213,000 18,000 69,000
General and administrative
nonaffiliates 77,000 60,000 30,000 26,000
Mortgage investment servicing
fees paid to affiliates --- 2,000 --- 1,000
- ----------------------------------------------------------------------------
Total expenses 218,000 937,000 49,000 397,000
- ----------------------------------------------------------------------------
Loss before minority interest (87,000) (15,000) (21,000) (92,000)
Minority interest --- 74,000 --- 45,000
- ----------------------------------------------------------------------------
Net income (loss) $ (87,000) $ 59,000 $ (21,000) $ (47,000)
============================================================================
Net income (loss) per
limited partnership unit $ (2.25) $ 1.52 $ (0.54) $ (1.21)
============================================================================
</TABLE>
See accompanying notes to consolidated financial statements
CENTENNIAL MORTGAGE INCOME FUND AND SUBSIDIARIES
A Limited Partnership
Consolidated Statement of Partners' Equity
(Unaudited)
For the nine months ended September 30, 1999
<TABLE>
<CAPTION>
Total
General Limited Partners'
Partners Partners Equity
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Balance (deficit) at
December 31, 1998 $ (132,000) $ 5,780,000 $ 5,648,000
Net income --- (87,000) (87,000)
Distribution to limited
partners --- (3,873,000) (3,873,000)
- --------------------------------------------------------------------------
Balance (deficit) at
September 30, 1999 $ (132,000) $ 1,820,000 $ 1,688,000
==========================================================================
</TABLE>
See accompanying notes to consolidated financial statements
CENTENNIAL MORTGAGE INCOME FUND AND SUBSIDIARIES
A Limited Partnership
Consolidated Statements of Cash Flows (Unaudited)
For the nine months ended September 30, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
- ---------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (87,000) $ 59,000
Adjustments to reconcile net income
(loss) to net cash provided by (used in)
operating activities:
Amortization of unearned loan fees --- (5,000)
Depreciation expense --- 6,000
Provision for possible losses --- 155,000
Interest accrued to principal on
loans receivable --- (5,000)
Minority interest --- (74,000)
Gain on sale of real estate owned --- (21,000)
Share of losses in unconsolidated investee --- 82,000
Changes in assets and liabilities:
Decrease in accrued interest receivable --- 4,000
Decrease in due from unconsolidated investee --- 58,000
Decrease (increase) in other assets 291,000 (18,000)
Increase in interest and property
Taxes payable on real estate owned --- 36,000
Increase (decrease) in accounts payable
and accrued liabilities (379,000) 63,000
Increase in payable to affiliates --- 19,000
- ---------------------------------------------------------------------------
Net cash provided by (used in)
operating activities (175,000) 359,000
- ---------------------------------------------------------------------------
Cash flows from investing activities:
Principal collected on loans to customers 145,000 507,000
Principal collected on loans made
to unconsolidated investee 100,000 1,287,000
Advances on loans made to
unconsolidated investee --- (196,000)
Advances on loans made to customers --- (22,000)
Proceeds from sale of real estate owned --- 762,000
- ---------------------------------------------------------------------------
Net cash provided by investing activities 245,000 2,338,000
- ---------------------------------------------------------------------------
CENTENNIAL MORTGAGE INCOME FUND AND SUBSIDIARIES
A Limited Partnership
Consolidated Statements of Cash Flows (Unaudited) (Continued)
For the nine months ended September 30, 1999 and 1998
</TABLE>
<TABLE>
<CAPTION>
1999 1998
- ---------------------------------------------------------------------------
<S> <C> <C>
Cash flows from financing activities:
Principal advances on notes
payable to affiliates --- 137,000
Principal payments on notes payable (2,000) (25,000)
Distribution to limited partners (3,873,000) (1,998,000)
- ---------------------------------------------------------------------------
Net cash used in financing activities (3,875,000) (1,886,000)
- ---------------------------------------------------------------------------
Net increase (decrease) in
cash and cash equivalents (3,805,000) 811,000
Beginning cash and cash equivalents 4,938,000 1,018,000
- ---------------------------------------------------------------------------
Ending cash and cash equivalents $ 1,133,000 $ 1,829,000
===========================================================================
Supplemental schedule of cash flow information:
Cash paid during the
nine months for interest $ --- $ 183,000
See accompanying notes to consolidated financial statements
CENTENNIAL MORTGAGE INCOME FUND AND SUBSIDIARIES
A Limited Partnership
Notes to Consolidated Financial Statements
(Unaudited)
September 30, 1999 and December 31, 1998
(1) BUSINESS
Centennial Mortgage Income Fund (the "Partnership") initially 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. In the normal
course of business, the Partnership participated with other lenders in
extending credit to single borrowers; the Partnership did this in an effort
to decrease credit concentrations and provide a greater diversification of
credit risk.
As of September 30, 1999, a majority of the loans secured by properties have
been repaid or charged off. However, during the early 1990's, real estate
market values for undeveloped land in California declined severely. As the
loans secured by undeveloped land and certain operating properties became
delinquent, management of the Partnership elected to foreclose on certain of
these loans, thereby increasing real estate owned balances. As a result, the
Partnership became a direct investor in this real estate and managed
operating properties and developed raw land until such time as the
Partnership was able to sell this real estate owned. The final real estate
owned by the Partnership was sold during the fourth quarter of 1998.
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 nine months ended September 30, 1999 and 1998 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 nine months ended September 30, 1999 and 1998
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 statements
included in Form 10-K for the year ended December 31, 1998 on file with the
Securities and Exchange Commission, provide additional disclosures and a
further description of accounting policies.
Certain reclassifications have been made to the December 31, 1998 balance
sheet and September 30, 1998 statement of operations to bring them into
conformity with the September 30, 1999 presentation.
Financial Information about Industry Segments
The Partnership adopted Statement of Financial Accounting Standards No. 131,
"Disclosures About Segments of an Enterprise and Related Information" ("SFAS
131"). Given that the Partnership is in the process of liquidation, the
Partnership has identified only one operating business segment which is the
business of asset liquidation. The adoption of SFAS 131 did not have an
impact on the Partnership's financial reporting.
Net Income (loss) per Limited Partnership Unit
Net income (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.
(3) TRANSACTIONS WITH AFFILIATES
Under the provisions of the Partnership Agreement, Centennial Corporation
("CC") is 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 $-0- and $2,000 of mortgage investment servicing fees for the nine
months ended September 30, 1999 and 1998, respectively.
Under the provisions of 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 on
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. Under this provision of the Partnership Agreement, no
distributions were paid to the general partners during the nine months ended
September 30, 1999 or 1998.
The Partnership owns 50 percent of the outstanding capital stock of a
corporation which has not been consolidated in the accompanying financial
statements, LCR Development, Inc., ("LCR"). The balance of outstanding
capital stock in this corporation is owned by Centennial Mortgage Income Fund
II, ("CMIF II"), an affiliate. LCR invested in a joint venture, Silverwood
Homes ("Silverwood") which has constructed homes in Lancaster, California.
The Partnership has participated in making several loans to this corporation
and this joint venture. Under the equity method of accounting, these loans
are a component of the Partnership's investment in LCR , and therefore, the
Partnership has recorded losses by LCR as a reduction of the carrying value
of these loans receivable. During 1998, the Partnership charged off the
remaining balances of all but one of these loans against the cumulative LCR
losses that it had recorded.
At September 30, 1999, the Partnership had a 50 percent participation in a
single loan from Silverwood which is now unsecured. The disbursed balance of
this loan at September 30, 1999 is $11,000 and the Partnership had applied
$11,000, the balance of cumulative losses from unconsolidated investee
against the carrying value of the note as of the same date.
The consolidated balance sheets and statements of operations of LCR 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 September 30, 1999 and December 31, 1998 and for the nine months
ended September 30, 1999 and 1998:
LCR Development, Inc.
Consolidated Balance Sheet
</TABLE>
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
Assets (Unaudited)
- --------------------------------------------------------------------------
<S> <C> <C>
Cash $ 8,000 $ 11,000
Restricted cash 10,000 20,000
Real estate owned, --- 119,000
Less allowance for losses
on real estate investment --- 17,000
- --------------------------------------------------------------------------
Net real estate owned --- 102,000
- --------------------------------------------------------------------------
$ 18,000 $ 133,000
==========================================================================
Liabilities and Stockholders' Deficit
- --------------------------------------------------------------------------
Notes payable to affiliates
CMIF $ 2,782,000 $ 2,882,000
CMIF II 1,537,000 1,549,000
- --------------------------------------------------------------------------
Total notes payable 4,319,000 4,431,000
Accounts payable
and accrued liabilities 4,000 12,000
Interest and taxes payable
on real property 2,103,000 1,837,000
Payable to affiliates 9,000 5,000
- --------------------------------------------------------------------------
Total liabilities 6,435,000 6,285,000
Stockholders' deficit (6,417,000) (6,152,000)
- --------------------------------------------------------------------------
$ 18,000 $ 133,000
==========================================================================
</TABLE>
LCR Development, Inc.
Consolidated Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
Nine months Nine months
ended ended
September 30, 1999 September 30, 1998
- --------------------------------------------------------------------------
<S> <C> <C>
Housing sales $ 123,000 $ 1,368,000
Cost of housing sales 118,000 1,312,000
Provision for losses --- 215,000
Selling and marketing expenses 1,000 66,000
General and administrative expenses --- 28,000
- --------------------------------------------------------------------------
Operating income (loss) 4,000 (253,000)
Interest expense 268,000 304,000
- --------------------------------------------------------------------------
Net loss before income taxes (264,000) (557,000)
Income taxes 1,000 1,000
- --------------------------------------------------------------------------
Net loss (265,000) (558,000)
==========================================================================
Interest not included
in share of losses (266,000) (394,000)
- --------------------------------------------------------------------------
Allocable net income (loss) $ 1,000 $ (164,000)
===========================================================================
Share of loss recorded $ --- $ (82,000)
===========================================================================
</TABLE>
The Partnership owns an interest in BNN Development, Inc., the corporation
which owned the 19 acres in Sacramento, California jointly with an affiliated
entity, CMIF III. The property was sold by BNN in December 1998. At
September 30, 1999, 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 included $13,000 at December 31, 1998 and the
Partnership had cumulatively applied $11,000, of minority interest share of
losses from this corporate joint venture against the note payable to
affiliates balance as of that same date. The note was repaid in June 1999.
The notes payable to affiliates balance reflects CMIF III's share of a note
payable by the corporation to the Partnership and CMIF III.
(4) CONTINGENCIES
Unbeknownst to the Partnership, on July 19, 1996, a default was entered
against the Partnership for failure to respond to a complaint filed on July
17, 1995 in the San Bernardino Superior Court, entitled Henry Yong Lim et al
- -vs.- Cardinal Security, et al and allegedly served on the Partnership in May
1996. As shown by the proofs of service, the complaint was served on the
wrong party in 1996. The Partnership first became aware of its involvement
in this lawsuit in September 1997 when it received copies of requests for
entry of default judgement totaling approximately $1,000,000. The judgements
involved both economic and non-economic damages and injuries allegedly
suffered by the plaintiffs as a result of an altercation between the
plaintiffs, other third parties and security guards employed by the
Partnership at its shopping center in Upland, California. The request for
judgement names Centennial Mortgage Income Fund Partnership as a defendant in
this action. Since the Partnership was never served with the complaint and
had no other way of knowing about this action, the Partnership retained legal
counsel to set aside the defaults and any default judgements which were
entered, due to the lack of proper service and notice. The Partnership also
tendered this action to its liability insurance carrier for legal and
liability coverage. The default judgement has been set aside and the
plaintiff's appeal of the set aside ruling has been denied by the Court. The
Court has also ruled that the prior jury found 0% liability as to the
Partnership for non-economic damages and that the plaintiffs can only proceed
to trial against the Partnership for recovery of economic damages. Based
upon evidence presented at the prior trial, Management believes that these
economic damages should not exceed $40,000. Management intends to vigorously
defend any future actions related to this matter. Management believes that
even if the plaintiff's prevail in these actions, the Partnership's insurance
coverage and/or the security company's insurance carrier should prevent the
Partnership from suffering a material loss from these proceedings.
There are no other material pending legal proceedings.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The Partnership had net income (loss) and net income (loss) per limited
partnership unit of $(87,000) and $(2.25) for the nine months ended September
30, 1999 and $59,000 and $1.52 for the nine months ended September 30, 1998,
respectively. The Partnership liquidated the majority of its non-cash assets
during 1998. As a result, total assets of the Partnership declined from
$10,397,000 as of December 31, 1997 to only $1,694,000 as of September 30,
1999. This substantial reduction in assets caused many changes in the
components of the Partnership's statement of operations.
Cautionary Statements Regarding Forward-Looking Information
The Partnership wishes to caution readers that the forward-looking statements
contained in this Form 10-Q under "Item 2. Management's Discussion and
Analysis of Financial Condition and Results of Operations" and elsewhere in
this Form 10-Q involve known and unknown risks and uncertainties which may
cause the actual results, performance or achievements of the Partnership to
be materially different from any future results, performance or achievements
expressed or implied by any forward-looking statements made by or on behalf
of the Partnership. In connection with the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995, the Partnership is filing
the following cautionary statements identifying important factors that in
some cases have affected, and in the future could cause the Partnership's
actual results to differ materially from those expressed in any such forward-
looking statements.
The factors that could cause the Partnership's results to differ materially
include, but are not limited to, general economic and business conditions,
including interest rate fluctuations; the impact of competitive products and
pricing; success of operating initiatives; adverse publicity; changes in
business strategy or development plans; quality of management; availability,
terms and deployment of capital; the results of financing efforts; business
abilities and judgment of personnel; availability of qualified personnel;
employee benefit costs and changes in, or the failure to comply with
government regulations.
Risks of the year 2000 Issue
The Partnership is in the process of liquidating its remaining assets. As of
September 30, 1999, the Partnership's principal assets were cash and a note
secured by real estate. Management does not believe that the value of any of
these assets is subject to valuation risk as a result of the year 2000
issues, other than general economic climate issues that might arise. None of
the Partnership's assets have any equipment with computerized components
essential to their operation.
Although the Partnership has made some changes already to its software, not
all of these changes have been tested. The Partnership has begun testing
changes made to its existing software and intends to complete such testing
prior to December 31, 1999. The Partnership has not, and does not contemplate
spending any significant amount of funds to upgrade its computer systems
inasmuch as virtually all of its computer needs could easily be met with
existing "over the counter" software and hardware. The cost of this software
and hardware, if needed, should not exceed $10,000. The only exception to
this is the computer software which the Partnership uses to track its limited
partners and their addresses. The Partnership has made a preliminary
evaluation of this software with its outside software consultant and believes
that it can be modified for less than $10,000. Even if attempts to correct
deficiencies in the software without spending significant sums are not
successful, the Partnership anticipates that it could convert its systems to
standard spreadsheet or data base programs at a nominal cost.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1999, the Partnership had $1,133,000 in cash and interest-
bearing deposits. The Partnership had no unfunded loan commitments at
September 30, 1999. During the first nine months of 1999, the Partnership's
principal sources of cash were: i) $145,000 in principal payments on loans
made to customers; ii) $100,000 in principal payments on loans receivable
from affiliates (LCR); iii) $54,000 in interest income on interest bearing
deposits; and iv) $41,000 in interest income on loans. The Partnership's
principal uses of cash during the first nine months of 1999 were: i)
$3,873,000 in distributions to limited partners; and ii) approximately
$294,000 in general and administrative costs.
The Partnership's principal future capital requirements are expected to be
general and administrative costs. As a result of a substantial reduction in
employees as of March 31, 1999, general and administrative costs are expected
to be more comparable to the costs incurred during the three months ended
September 30, 1999 than the costs incurred during the quarter ended March 31,
1999.
Effective with the third quarter of 1991, the Partnership had suspended
making any 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.
Through the latter part of 1997, the general partners believed that the cash
proceeds from mortgage reductions and the sale of real estate owned should be
retained by the Partnership until such time as it was assured that it had
sufficient cash to fulfill any potential operating requirements. Due to the
substantial real estate and loan receivable balances, these potential
operating costs were considered to be very significant. As a result of the
substantial decrease in loans and real estate owned which has occurred, the
general partners determined that the Partnership could make a $1,998,000
distribution to its limited partners in August 1998.
As a result of the substantial sales activity which occurred in the fourth
quarter of 1998, the general partners declared and paid an additional
$3,873,000 cash distribution to limited partners in February 1999.
The general partners have had discussions with legal counsel regarding the
amounts of cash reserves that would be prudent to be retained by the
Partnership at this time. In light of the substantial amount of real estate
that the Partnership has held an interest in over the years, there is always
the potential for future litigation to arise, particularly in the area of
toxic contamination. Although the general partners are not aware of any
threatened litigation, or litigation that is likely to arise, they have
determined that the Partnership should retain at least $1,000,000 in cash
reserves to be available to defend the Partnership in any future litigation
which may arise. It is expected that these reserves will be retained until
such time as legal counsel advises the general partners that the potential
for any future litigation is remote.
RESULTS OF OPERATIONS
INTEREST INCOME
During the first and third quarters of 1998, two previously impaired loans
were repaid together with approximately $239,000 in previously nonaccrued
interest. This nonaccrued interest was recorded as income in the quarters
ended March 31, 1998 and September 30, 1998. As a result, interest income on
loans to nonaffiliates, including fees, was abnormally high during the
quarters. No comparable nonaccrued interest was received during the nine
months ended September 30, 1999. This was the principal reason that interest
income on loans to nonaffiliates decreased from $288,000 during the nine
months ended September 30, 1998 to $38,000 during the nine months ended
September 30, 1999.
Interest income on loans to unconsolidated investee, including fees, totaled
$3,000 and $-0-for the nine and three months ended September 30, 1999,
respectively. Interest income on loans to unconsolidated investee, including
fees, totaled $31,000 and $7,000 for the nine and three months ended
September 30, 1998, respectively. Interest income on loans to unconsolidated
investee represents interest earned on the Silverwood loans. The decrease
for 1999 is due to a decrease in the average outstanding loan balances to
Silverwood.
Interest earned on interest-bearing deposits totaled $54,000 and $12,000 for
the nine and three months ended September 30, 1999, respectively. Interest
earned on interest-bearing deposits totaled $65,000 and $22,000 for the nine
and three months ended September 30, 1998, respectively. Interest on
interest-bearing deposits represents interest earned on Partnership funds
invested, for liquidity, in time certificate and money market deposits. The
decrease in income on interest-bearing deposits is principally due to
decreased average cash balances for the nine months ended September 30, 1999
which resulted from the cash distribution to investors in February 1999.
NONACCRUAL LOANS
The Partnership holds an investment in LCR and accounts for its investment in
LCR using the equity method. LCR has invested in a joint venture, Silverwood
which has constructed homes. The Partnership made a series of loans to LCR
and Silverwood from 1994 to 1997. The Partnership treated these loans as a
component of its investment in LCR and reduced the carrying value of the
loans by its share of losses recorded by LCR.
All but one of the loans to LCR and Silverwood were on nonaccrual status
during all of 1998 and in the first quarter of 1999. The Partnership's share
of the outstanding balances of loans to LCR and Silverwood as of September
30, 1999 was $2,782,000. All of these loans have become unsecured as a
result of the Partnership releasing its liens in exchange for principal
reductions. The Partnership charged off all but one of these loans during
the fourth quarter of 1998 against its previously recorded share of losses
incurred by LCR. The Partnership's share of the remaining loan was $11,000
as of September 30, 1999 and the Partnership had reduced its carrying value
of this loan by $11,000 which represents the remaining portion of its share
of losses incurred by LCR.
INCOME FROM OPERATIONS OF REAL ESTATE OWNED
Income from operations of real estate owned consists of rental income of
$500,000 and $162,000 for the nine and three months ended September 30, 1998,
respectively. The 1998 revenues were from a shopping center in Upland,
California which was sold in November 1998. The Partnership no longer owns a
direct interest in real estate. Accordingly, there was no comparable income
earned in 1999.
OTHER INCOME
Other income totaled $36,000 and $17,000 for the nine months ended September
30, 1999 and 1998, respectively. The 1999 income includes $25,000 related to
the partial recovery of a loan which had previously been charged off. There
was no comparable recovery during 1998.
PROVISION FOR POSSIBLE LOSSES
There was no provision for possible losses for the nine months ended
September 30, 1999. During the nine months ended September 30, 1998, the
Partnership recorded a $155,000 provision for losses in connection with a
negotiated sales price reduction on the BNN property which had been in escrow
for several months at a higher sales price. 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 there is no need for an allowance for possible
losses at September 30, 1999 based upon the value of the collateral
underlying the notes receivable held by the Partnership as of that same date.
SHARE OF LOSSES IN UNCONSOLIDATED INVESTEE
The Partnership has invested in a corporation in which it has less than a
majority ownership and accounts for this investment using the equity method.
The Partnership's share of losses in this unconsolidated investee was $-0-
and $82,000 for the nine months ended September 30, 1999 and 1998,
respectively. These losses totaled $6,000 for the three months ended
September 30, 1998. The 1998 share of losses consists primarily of
provisions for losses on real estate investments related to the 179 lots in
Lancaster owned by LCR. By the end of 1998, LCR had liquidated most of its
assets and as a result, virtually no gain or loss was recorded by LCR during
the nine months ended September 30, 1999 other than interest accruing as
payable to the Partnership and CMIF II, an affiliate. Since the Partnership
did not accrue this interest as income, it did not record its share of the
loss resulting from this interest expense recorded by LCR.
OTHER EXPENSES
Operating expenses from operations of real estate owned were $110,000 and
$43,000 for the nine and three months ended September 30, 1998, respectively.
The 1998 expenses were associated with the Upland shopping center which was
sold in November 1998. Accordingly, there was no comparable expense during
1999.
Operating expenses from operations of real estate owned paid to affiliates
were $25,000 and $10,000 for the nine and three months ended September 30,
1998, respectively. The operating expenses consist of property management
fees paid to affiliates of the general partners. Since the Partnership no
longer owns any real estate, no such fees were paid in 1999.
Expenses associated with non-operating real estate owned were $4,000 and
$97,000 for the nine months ended September 30, 1999 and 1998, respectively
Expenses associated with non-operating real estate owned were $1,000 and
$29,000 for the three months ended September 30, 1999 and 1998, respectively.
The expenses relate to the 19 acres in Sacramento and the condominiums in
Oxnard. The 1999 decreases were due to the sale of the last of the
Partnership's real estate owned in the fourth quarter of 1998.
Depreciation and amortization expense was $6,000 and $2,000 for the nine and
three months ended September 30, 1998, respectively. This expense related to
leasehold improvements at the Upland Shopping Center and furniture and
fixtures of the Partnership. These assets have either been sold or fully
depreciated. Accordingly, there was no comparable expense during 1999.
Interest expense was $187,000 and $56,000 for the nine and three months ended
September 30, 1998, respectively. There was no comparable expense in 1999.
The interest expense during 1998 relates to the loan on the Upland Shopping
Center which was sold in November 1998.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses, affiliates totaled $137,000 and $18,000,
respectively, for the nine and three months ended September 30, 1999.
General and administrative expenses, affiliates totaled $213,000 and $69,000,
respectively, for the nine and three months ended September 30, 1998. General
and administrative expenses, affiliates totaled $96,000 and $51,000 for the
three months ended March 31, 1999 and 1998, respectively. These expenses are
primarily salary allocation reimbursements paid to affiliates. There was a
significant increase in these expenses during the first quarter of 1999 due
to costs that were associated with the termination of five employment
contracts effective March 31, 1999. These contracts are discussed in greater
detail in note 8 to the consolidated financial statements contained in the
Partnership's Form 10-K for the period ended December 31, 1999 on file with
the Securities and Exchange Commission. As a result of the termination of
the contracts and the reduction of employees which occurred on April 1, 1999,
these expenses decreased significantly during the six months ended September
30, 1999 when compared with either the three months ended September 30, 1998
or the three months ended March 31, 1999.
General and administrative expenses, nonaffiliates totaled $77,000 and
$30,000 for the nine and three months ended September 30, 1999, respectively.
General and administrative expenses, nonaffiliates totaled $60,000 and
$26,000 for the nine and three months ended September 30, 1998, respectively.
These expenses consist of other costs associated with the administration of
the Partnership. The increase for 1999 is primarily due to an increase in
professional fees and printing and mailing costs associated with mailings to
investors.
Mortgage investment servicing fees totaled $2,000 and $1,000 for the nine and
three months ended September 30, 1998, respectively. There were no mortgage
investment servicing fees paid in 1999. These fees consists of amounts paid
to Centennial Corporation for servicing the Partnership's loan portfolio.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Since the Partnership does not invest in any derivative financial instruments
or enter into any activities involving foreign currencies, its market risk
associated with financial instruments is limited to the effect that changing
domestic interest rates might have on the fair value of its bank deposits and
notes receivable.
As of September 30, 1999, the Partnership held fixed rate bank deposits with
carrying values totaling $1,133,000 and two fixed rate mortgage notes
receivable with carrying values totaling $537,000. The bank deposits all had
maturities of less than ninety days. The last fixed rate mortgage note
matures in July 2000 and bears interest at 8 percent per annum. The
estimated fair value of all of these assets was estimated to be equal to
their carrying values as of September 30, 1999. Increasing interest rates
could have an adverse effect on the fair value of the Partnership's fixed
rate note receivable and/or the value of the underlying real estate
collateral which secure the Partnership's note receivable.
Management currently intends to hold the remaining fixed rate assets until
their respective maturities. Accordingly, the Partnership is not exposed to
any material cash flow or earnings risk associated with these assets. Given
the relatively short-term maturities of these assets, management does not
believe the Partnership is exposed to any significant market risk related to
the fair value of these assets.
The Partnership had no interest bearing indebtedness outstanding as of
September 30, 1999. Accordingly, the Partnership is not exposed to any
market risk associated with its liabilities.
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
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 AND SUBSIDIARIES
A California Limited Partnership
By:/s/Ronald R. White
_________________________________
Ronald R. White
General Partner November 15, 1999
By: CENTENNIAL CORPORATION
General Partner
/s/Joel H. Miner
_________________________________
Joel H. Miner
Chief Financial Officer November 15, 1999
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