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, 2000
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
September 30, 2000 and December 31, 1999
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 2000 1999
(Unaudited)
------------------------------------------------------------------------------
<S> <C> <C>
Cash and cash equivalents $ 1,109,000 $ 1,124,000
Real estate loans
receivable, earning 485,000 541,000
------------------------------------------------------------------------------
Net real estate loans receivable 485,000 541,000
------------------------------------------------------------------------------
Other assets, net 4,000 ---
Due from affiliates 8,000 7,000
------------------------------------------------------------------------------
$ 1,606,000 $ 1,672,000
==============================================================================
LIABILITIES AND PARTNERS' EQUITY
------------------------------------------------------------------------------
Accounts payable and
accrued liabilities $ 10,000 $ 12,000
------------------------------------------------------------------------------
Total liabilities 10,000 12,000
------------------------------------------------------------------------------
Partners' equity (deficit)
-- 38,729 limited partnership
units outstanding at September 30, 2000
and December 31, 1999
General partners (132,000) (132,000)
Limited partners 1,728,000 1,792,000
------------------------------------------------------------------------------
Total partners' equity 1,596,000 1,660,000
Contingencies (note 4)
------------------------------------------------------------------------------
$ 1,606,000 $ 1,672,000
==============================================================================
</TABLE>
See accompanying notes to consolidated financial statements
1
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,
2000 1999 2000 1999
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue:
Interest income on loans
to nonaffiliates,
including fees $ 31,000 $ 38,000 $ 10,000 $ 11,000
Interest income on
loans to affiliates,
including fees --- 3,000 --- ---
Interest on interest-
bearing deposits 43,000 54,000 16,000 12,000
Other 8,000 36,000 3,000 5,000
-------------------------------------------------------------------------
Total revenue 82,000 131,000 29,000 28,000
-------------------------------------------------------------------------
Expenses:
Provision for possible losses 30,000 --- 30,000 ---
Expenses associated with non-
operating real estate owned --- 4,000 --- 1,000
General and administrative
affiliates 61,000 137,000 21,000 18,000
General and administrative
nonaffiliates 55,000 77,000 18,000 30,000
-------------------------------------------------------------------------
Total expenses 146,000 218,000 69,000 49,000
-------------------------------------------------------------------------
Net loss $ (64,000) $ (87,000) $ (40,000) $ (21,000)
=========================================================================
Net loss per limited
partnership unit
-basic and diluted $ (1.65) $ (2.25) $ (1.03) $ (.54)
=========================================================================
</TABLE>
See accompanying notes to consolidated financial statements
2
CENTENNIAL MORTGAGE INCOME FUND AND SUBSIDIARIES
A Limited Partnership
Consolidated Statement of Partners' Equity
(Unaudited)
<TABLE>
For the nine months ended September 30, 2000
<CAPTION>
Total
General Limited Partners'
Partners Partners Equity
(Unaudited) (Unaudited) (Unaudited)
---------------------------------------------------------------------------
<S> <C> <C> <C>
Balance (deficit) at
December 31, 1999 $ (132,000) $ 1,792,000 $ 1,660,000
Net loss --- (64,000) (64,000)
---------------------------------------------------------------------------
Balance at (deficit)
September 30, 2000 $ (132,000) $ 1,728,000 $ 1,596,000
==========================================================================
</TABLE>
See accompanying notes to consolidated financial statements
3
CENTENNIAL MORTGAGE INCOME FUND AND SUBSIDIARIES
A Limited Partnership
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
For the nine months ended September 30, 2000 and 1999
<CAPTION>
2000 1999
(Unaudited) (Unaudited)
-----------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (64,000) $ (87,000)
Adjustments to reconcile net loss to
net cash used in operating activities:
Provision for possible losses 30,000 ---
Changes in assets and liabilities:
Decrease (increase) in other assets (4,000) 291,000
Increase in due from affiliates (1,000) ---
Decrease in accounts
payable and accrued liabilities (2,000) (379,000)
-----------------------------------------------------------------------
Net cash used in operating
activities (41,000) (175,000)
-----------------------------------------------------------------------
Cash flows from investing activities:
Principal collected on loans 26,000 145,000
Principal collected on loans to
unconsolidated investee --- 100,000
-----------------------------------------------------------------------
Net cash provided by
investing activities 26,000 245,000
-----------------------------------------------------------------------
Cash flows from financing activities:
Principal payments on notes payable
to affiliates --- (2,000)
Distribution to limited partners --- (3,873,000)
-----------------------------------------------------------------------
Net cash used in
financing activities --- (3,875,000)
-----------------------------------------------------------------------
Net decrease in cash and
cash equivalents (15,000) (3,805,000)
Beginning cash and cash equivalents 1,124,000 4,938,000
-----------------------------------------------------------------------
Ending cash and cash equivalents $ 1,109,000 $ 1,133,000
=======================================================================
</TABLE>
Supplemental schedule of noncash investing
and financing activities:
Decrease in notes receivable as
a result of partial chargeoff $ 30,000 $ ---
See accompanying notes to consolidated financial statements
4
CENTENNIAL MORTGAGE INCOME FUND AND SUBSIDIARIES
A Limited Partnership
Notes to Consolidated Financial Statements
(Unaudited)
September 30, 2000 and 1999
(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, 2000, a majority of the loans secured by properties have
been repaid or charged off. During October 2000, the Partnership's last
remaining note receivable was repaid.
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 and three months
ended September 30, 2000 and 1999 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 and three months ended September 30, 2000
and 1999 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, 1999 on file with the Securities and Exchange
Commission, provide additional disclosures and a further description of
accounting policies.
Financial Information about Industry Segments
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.
5
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, 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, 2000 or 1999.
(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.
6
There are no other material pending legal proceedings other than ordinary
routine litigation incidental to the Partnership's business. Based on part of
advice of legal counsel, management does not believe that the results of any
of these matters will have a material impact on the Partnership's financial
position or results of operations.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
GENERAL
The Partnership had net losses and net losses per limited partnership unit of
$(40,000) and $(1.03) for the three months ended September 30, 2000 and
$(21,000) and $(.54) for the three months ended September 30, 1999,
respectively. The Partnership had net losses and net losses per limited
partnership unit of $(64,000) and $(1.65) for the nine months ended September
30, 2000 and $(87,000) and $(2.25) for the nine months ended September 30,
1999, respectively.
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, 2000, the Partnership held only cash and cash equivalents, a
single note secured by real estate, and $12,000 in other non-cash assets. In
light of these circumstances, the Partnership made only the absolutely
necessary modifications to existing software which were necessitated by the
year 2000 issues. The cost of these modifications was less than $10,000.
To date, the Partnership has experienced only minor computer related problems
that are the result of the year 2000. None of these problems have caused any
significant disruption to the Partnership's operations. The Partnership
anticipates that it will encounter additional minor problems in the coming
months. It does not anticipate that it will be required to spend any
significant amounts to correct these problems or that these problems will
cause any disruptions of any consequence to the Partnership's operations.
8
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2000, the Partnership had $1,109,000 in cash and interest-
bearing deposits. The Partnership had no unfunded loan commitments at
September 30, 2000. During the first nine months of 2000, the Partnership's
principal sources of cash were $43,000 in interest income on interest bearing
deposits, $31,000 in interest on notes receivable and $26,000 in principal
payments on notes receivable. The Partnership's principal uses of cash during
the first nine months of 2000 were approximately $122,000 in general and
administrative costs. The Partnership's principal future capital requirements
are expected to be general and administrative costs.
During October 2000, the Partnership received $485,000 in cash from the payoff
of its last remaining note receivable.
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.
As a result of the substantial sales activity which occurred in the fourth
quarter of 1998, the general partners declared and paid a $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 balances 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
balances to be available to defend the Partnership in any future litigation
which may arise. It is expected that these cash balances 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
Interest income on loans to nonaffiliates decreased from $11,000 during the
three months ended September 30, 1999 to $10,000 during the three months ended
September 30, 2000. Interest income on loans to nonaffiliates decreased from
$38,000 during the nine months ended September 30, 1999 to $31,000 during the
nine months ended September 30, 2000. The year to date decrease is attributable
to the payoff of two of the Partnership's smaller loans receivable during the
early part of 1999. These paid off loans did not generate interest income
during 2000.
Interest income on loans to nonaffiliates for the nine months ended September
30, 2000 was earned from a single note secured by real estate. The
Partnership owns a 50% interest in the note with the remaining interest in the
note being owned by Centennial Mortgage Income Fund II, an affiliate. The
9
principal balance of this note of $1,070,000 was due in April 2000, however,
the borrower failed to repay the note when it matured. The Partnership
commenced foreclosure proceedings under the trust deed securing the note in
July 2000. In August 2000, the Partnership entered into a modification
agreement with the borrower which required the borrower to make an immediate
$50,000 principal payment, bring interest current and pay for all foreclosure
proceeding costs. In addition, the modification agreement required the
borrower to make monthly interest payments, make $50,000 principal payments in
September 2000 and November 2000, and to repay the remaining balance of the
note by December 28, 2000.
The borrower failed to make the required payment in September 2000. During
discussions with the borrower in early October, they indicated that they had
an external source of funds available to repay the entire note, but only if
the Partnership was willing to take a payoff amount that was $60,000 less than
the face value of the note plus accrued interest. Additionally, the borrower
indicated that if the Partnership did not accept this discounted payoff and
instead pursued its right to foreclose under the deed of trust securing the
note, the borrower would be likely to seek protection under the federal
bankruptcy laws. Before deciding whether or not to accept the discounted
payoff, the General Partners considered the following items: i) the length of
time that it might take to pursue its rights through a bankruptcy proceeding;
ii) the risk that the Partnership might not ultimately recover the full face
value of the note plus accrued interest and collection costs; and iii) the
potential administrative costs of having to continue to operate the
Partnership for additional time due to the extended holding period of the
note. After evaluating these factors, the General Partners determined that it
would be in the best interest of the limited partners to accept the discounted
payoff. The Partnership received approximately $485,000 in cash from the
payoff of the note in October 2000. The Partnership reduced its carrying
value of the note by $30,000 (1/2 of the total discount) as of September 30,
2000 to reflect this agreement and charged the write down to provision for
possible losses.
Interest income on loans to unconsolidated investee, including fees, totaled
$-0- and $3,000 for the nine months ended September 30, 2000 and 1999,
respectively. There was no interest income on loans to unconsolidated
investee, including fees, during either the three months ended September 30,
2000 or 1999. Interest income on loans to unconsolidated investee represents
interest earned on loans to an unconsolidated subsidiary. The decrease for
2000 is due to a decrease in the outstanding loan balances to this affiliate.
Interest earned on interest-bearing deposits totaled $16,000 and $12,000 for
the three months ended September 30, 2000 and 1999, respectively. Interest
earned on interest-bearing deposits totaled $43,000 and $54,000 for the nine
months ended September 30, 2000 and 1999, 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 for the nine months ended September 30,
2000 is principally due to decreased average cash balances. The decline in
average cash balances resulted from a $3.9 million distribution to limited
partners during February 1999.
10
OTHER EXPENSES
Expenses associated with non-operating real estate owned were $-0- and $1,000
for the three months ended September 30, 2000 and 1999, respectively. Expenses
associated with non-operating real estate owned were $-0- and $4,000 for the
nine months ended September 30, 2000 and 1999, respectively. The expenses
relate to the 19 acres in Sacramento and the condominiums in Oxnard. These
real estate assets were sold in the fourth quarter of 1998.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses, affiliates totaled $21,000 and $18,000,
respectively, for the three months ended September 30, 2000 and 1999. General
and administrative expenses, affiliates totaled $61,000 and $137,000,
respectively, for the nine months ended September 30, 2000 and 1999. These
expenses are primarily salary allocation reimbursements paid to affiliates.
The decrease from 1999 to 2000 is due to the termination of five employment
contracts effective March 31, 1999 and the continuing decrease in time spent
by employees of the general partners in managing the affairs of the
Partnership.
General and administrative expenses, nonaffiliates totaled $18,000 and $30,000
for the three months ended September 30, 2000 and 1999, respectively. General
and administrative expenses, nonaffiliates totaled $55,000 and $77,000 for the
nine months ended September 30, 2000 and 1999, respectively. These expenses
consist of other costs associated with the administration of the Partnership.
The decrease for nine and three months ended September 30, 2000 is primarily
due to a decrease in professional fees.
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, 2000, the Partnership held fixed rate
bank deposits with carrying values totaling $1,109,000 and a fixed rate note
receivable with carrying values totaling $485,000. The bank deposits and
fixed rate note all had maturities of less than ninety days. The estimated
fair value of all of these assets was estimated to be equal to their carrying
values as of September 30, 2000.
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
Septmeber 30, 2000. Accordingly, the Partnership is not exposed to any market
risk associated with its liabilities.
11
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
See note 4 to the Consolidated Financial Statements
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) Exhibits
(3) & (4) Articles of Incorporation and Bylaws
The Amended Limited Partnership Agreement
Incorporated by reference to Exhibit A to the Partnership's
Prospectus contained in the Partnership's registration
Statement on Form Form S-11 (Commission File No. 0-22520)
Dated June 8, 1984, as supplemented and filed under the Securities
Act of 1933
Exhibit 27. Financial Data Schedule
(b) Reports on Form 8-K
None
12
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
/s/John B Joseph
_________________________________
John B. Joseph
General Partner November 13, 2000
/s/ Ronald R. White
_________________________________
Ronald R. White
General Partner November 13, 2000
By: CENTENNIAL CORPORATION
General Partner
/s/ Joel H. Miner
_________________________________
Joel H. Miner
Chief Financial Officer November 13, 2000
