8-K/A 1 l09136ae8vkza.txt CENTRAL FEDERAL CORPORATION UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K/A CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported): June 10, 2004 CENTRAL FEDERAL CORPORATION (Exact name of registrant as specified in its charter) Delaware 0-25045 34-1877137 -------- ------- ---------- (State or other jurisdiction of (Commission (IRS Employer incorporation or organization) File Number) Identification Number) 2923 Smith Road Fairlawn, Ohio 44333 (330) 666-7979 ------------------------------ ----- -------------- (Address of principal executive office (Zip Code) (Registrant's Telephone Number)
This Current Report on Form 8-K/A amends the Form 8-K filed by the registrant on June 16, 2004 to report that it had entered into a definitive agreement to acquire RJO Financial Services, Inc. This amendment includes financial statements and pro forma information required to be filed in connection with that acquisition. ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS (a) Financial Statements of Businesses Acquired: (1) audited balance sheets of RJO Financial Services, Inc. as of December 31, 2003 and 2002, and the related statements of operations, changes in equity and cash flows for the years then ended. INDEPENDENT AUDITORS' REPORT To the Stockholder RJO Financial Services, Inc. dba Reserve Mortgage Services Akron, Ohio We have audited the accompanying balance sheets of RJO Financial Services, Inc. dba Reserve Mortgage Services (the Company) as of December 31, 2003 and 2002, and the related statements of operations, changes in equity and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of RJO Financial Services, Inc. dba Reserve Mortgage Services as of December 31, 2003 and 2002, and the results of its operations and its cash flows for each of the years then ended in conformity with accounting principles generally accepted in the United States of America. BOBER, MARKEY, FEDOROVICH & COMPANY March 5, 2004 RJO FINANCIAL SERVICES, INC. DBA RESERVE MORTGAGE SERVICES BALANCE SHEETS December 31, 2003 and 2002
2003 2002 ------------ ------------ ASSETS CURRENT ASSETS Cash and cash equivalents $ 343,205 $ 179,311 Accounts receivable 1,522,606 940,071 Investments, fair value 128,965 13,364 ------------ ------------ TOTAL CURRENT ASSETS 1,994,776 1,132,746 PROPERTY AND EQUIPMENT Furniture, fixtures and equipment 282,575 212,123 Accumulated depreciation (171,201) (139,390) ------------ ------------ NET PROPERTY AND EQUIPMENT 111,374 72,733 OTHER ASSETS 12,627 5,918 ------------ ------------ TOTAL ASSETS $ 2,118,777 $ 1,211,397 ============ ============ LIABILITIES AND STOCKHOLDER'S EQUITY CURRENT LIABILITIES Lines of credit $ 1,148,413 $ 823,451 Current portion of long-term debt 15,255 14,492 Cash overdraft 567,768 216,848 Accounts payable 46,995 23,903 Commissions payable 5,100 21,753 Accrued and withheld payroll taxes 1,755 11,166 Accrued expenses 6,943 9,330 ------------ ------------ TOTAL CURRENT LIABILITIES 1,792,229 1,120,943 NONCURRENT LIABILITIES Equipment note payable 10,554 25,842 ------------ ------------ TOTAL LIABILITIES 1,802,783 1,146,785 ------------ ------------ STOCKHOLDER'S EQUITY Common stock, 750 shares authorized, 1 issued and outstanding, $500 per share stated value 500 500 Additional paid-in capital 915,207 915,207 Accumulated other comprehensive income (loss) 10,924 (2,511) Retained deficit (610,637) (848,584) ------------ ------------ TOTAL STOCKHOLDER'S EQUITY 315,994 64,612 ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 2,118,777 $ 1,211,397 ============ ============
The accompanying notes are an integral part of these financial statements. RJO FINANCIAL SERVICES, INC. DBA RESERVE MORTGAGE SERVICES STATEMENTS OF OPERATIONS December 31, 2003 and 2002
2003 2002 ------------ ------------ INCOME $ 1,753,104 $ 1,319,024 COST OF SERVICES RENDERED 528,592 489,516 ------------ ------------ GROSS PROFIT 1,224,512 829,508 ------------ ------------ OPERATING EXPENSES Compensation and benefits 417,882 258,660 Payroll and other taxes 45,882 37,981 Advertising 69,334 97,782 Depreciation and amortization 32,019 20,996 Professional fees 18,127 13,226 Meals and entertainment 16,769 14,929 Dues and subscriptions 4,844 2,725 Automobile expenses 5,797 4,505 Insurance 17,893 15,169 Postage and delivery 1,670 1,536 Repairs and maintenance 15,186 11,884 Office supplies and expense 44,805 40,460 Telephone and utilities 46,652 33,657 Lease 49,536 44,864 Other operating expenses 41,165 38,125 ------------ ------------ TOTAL OPERATING EXPENSES 827,561 636,499 ------------ ------------ INCOME FROM OPERATIONS 396,951 193,009 OTHER INCOME (EXPENSE) Interest expense (1,792) (2,584) Other income (expense), net 22,171 (7,307) ------------ ------------ TOTAL OTHER INCOME (EXPENSE) 20,379 (9,891) ------------ ------------ NET INCOME $ 417,330 $ 183,118 ============ ============
The accompanying notes are an integral part of these financial statements. RJO FINANCIAL SERVICES, INC. DBA RESERVE MORTGAGE SERVICES STATEMENTS OF CHANGES IN EQUITY December 31, 2003 and 2002
Accumulated Additional Other Comprehensive Common Paid-in Comprehensive Retained Total Income (Loss) Stock Capital Income (Loss) Deficit --------- ------------- ------ ---------- ------------- --------- Balance at January 1, 2002 $ 105,631 $ 500 $ 915,207 $ 2,456 $(812,532) Comprehensive income (loss) Net income 183,118 $ 183,118 - - - 183,118 Other comprehensive income (loss): Unrealized gain on securities, net (4,967) (4,967) - - (4,967) - ------------- Comprehensive income 178,151 ------------- Shareholder distributions (219,170) - - - (219,170) --------- ------ ---------- ------------- --------- Balance at December 31, 2002 64,612 500 915,207 (2,511) (848,584) --------- ------ ---------- ------------- --------- Comprehensive income (loss) Net income 417,330 417,330 - - - 417,330 Other comprehensive income (loss): Unrealized loss on securities, net 13,435 13,435 - - 13,435 - ------------- Comprehensive income $ 430,765 ============= Shareholder distributions (179,383) - - - (179,383) --------- ------ ---------- ------------- --------- Balance at December 31, 2003 $ 315,994 $ 500 $ 915,207 $ 10,924 $(610,637) ========= ====== ========== ============= =========
The accompanying notes are an integral part of these financial statements. RJO FINANCIAL SERVICES, INC. DBA RESERVE MORTGAGE SERVICES STATEMENTS OF CASH FLOWS December 31, 2003 and 2002
2003 2002 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 417,330 $ 183,118 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 31,811 20,996 Realized (gain) loss on the sale of investments (2,166) 3,924 Loss on disposal of equipment 674 4,849 Changes in operating assets and liabilities: Accounts receivable (582,535) 400,907 Other assets (6,709) (51) Cash overdraft and accounts payable 374,012 (36,181) Accrued expenses (28,451) (2,154) ------------ ------------ NET CASH PROVIDED BY OPERATING ACTIVITIES 203,966 575,408 CASH FLOWS FROM INVESTING ACTIVITIES: Payments for the purchase of property and equipment (71,126) (5,947) Debt used to purchase property and equipment - (45,000) Proceeds from the sale of investments - 7,410 Payments for the purchase of investments (100,000) (7,196) ------------ ------------ NET CASH USED IN INVESTING ACTIVITIES (171,126) (50,733) CASH FLOWS FROM FINANCING ACTIVITIES: Shareholder distributions (179,383) (219,170) Repayment on borrowings (15,288) (262,944) Net borrowings on notes payable 325,725 45,000 ------------ ------------ NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 131,054 (437,114) ------------ ------------ NET INCREASE IN CASH AND EQUIVALENTS 163,894 87,561 CASH AND EQUIVALENTS AT BEGINNING OF YEAR 179,311 91,750 ------------ ------------ CASH AND EQUIVALENTS AT END OF YEAR $ 343,205 $ 179,311 ============ ============ SUPPLEMENTAL DISCLOSURES: Cash paid for interest $ 1,792 $ 2,584 Cash paid for taxes $ 1,329 $ 997
The accompanying notes are an integral part of these financial statements. RJO FINANCIAL SERVICES, INC. DBA RESERVE MORTGAGE SERVICES NOTES TO FINANCIAL STATEMENTS December 31, 2003 and 2002 NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES Nature of Operations RJO Financial Services, Inc. dba Reserve Mortgage Services (the Company) was incorporated on February 7, 1994 and, since August 1998, has been in the business of originating mortgage loans (primarily conventional mortgages) and the subsequent placement with financial institutions at the time of closing. Revenue Recognition Substantially all of the Company's operating revenues are recognized at the time a mortgage loan is closed. These loans are then subsequently placed with financial institutions that have, prior to closing, committed to purchase the loans. The loans are sold without recourse. Property and Equipment Property and equipment are stated at cost or appraised value. Depreciation is provided using primarily double declining methods over the estimated useful lives of the assets that range from 5-7 years. Cash and Cash Equivalents For purposes of the statement of cash flows, cash and cash equivalents include cash and all highly liquid investments purchased with an original maturity of three months or less. Concentration of Credit Risk The Company is a mortgage banker located in northeast Ohio and grants credit to the purchasers of loans that it originates, substantially all of which are financial institutions. The Company maintains cash balances at a financial institution located in Ohio. The Federal Deposit Insurance Corporation insures deposits up to $100,000. The Company's uninsured cash balance was $155,073 and $30,691 at December 31, 2003, and 2002, respectively. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash. Use of Estimates In preparing the Company's financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Advertising expense Advertising costs are expensed as incurred. Advertising costs expensed during 2003 and 2002 amounted to $69,334 and $97,782, respectively. RJO FINANCIAL SERVICES, INC. DBA RESERVE MORTGAGE SERVICES NOTES TO FINANCIAL STATEMENTS December 31, 2003 and 2002 Investments The Company's investments are comprised of equity securities, all classified as securities available for sale, which are carried at their approximate fair value based upon the market prices of those investments at December 31, 2003 and 2002, respectively. The net unrealized holding gains/losses are included as a component of accumulated comprehensive income until realized. The following summarizes cost and market value at December 31:
2003 2002 ------------------------------------ ------------------------------------ Market Market Value Cost Value Cost --------------- ---------------- --------------- --------------- Equity securities $ 128,964 $ 118,040 $ 13,364 $ 10,853
Market value exceeded cost by $10,924 and $2,511 at December 31, 2003 and 2002, respectively. NOTE 2 - INCOME TAXES The Company has elected to be taxed as an S Corporation as provided under Section 1362 of the Internal Revenue Code and as a result, income is taxed at the shareholder level. Accordingly, no provision for federal income tax has been made. Also in this regard, comprehensive income is only reported on a before tax basis. NOTE 3 - RELATED PARTY TRANSACTIONS As of June 1, 2002, the Company entered into a 5-year lease for office space from the sole shareholder. Rent is $3,333 per month for the first year of the lease and then increases 3% each year. Rent expense paid by the Company under this lease was $36,667 for 2003 and $23,333 for 2002. NOTE 4 - DEBT OBLIGATIONS The Company has a revolving credit agreement with a bank. Interest on the outstanding balance is payable monthly at the prime rate (4.0% and 4.25% at December 31, 2003 and 2002, respectively) plus 0.25%. Maximum borrowing under the agreement is $4,000,000. The outstanding principal balance was $675,362 and $356,562 at December 31, 2003 and 2002, respectively. The debt is collateralized by the corresponding pledged loans that have not yet been funded through a third party financial institution. On January 17, 2002 this revolving credit agreement was modified to allow for maximum borrowings of $3,000,000. No other terms were amended. RJO FINANCIAL SERVICES, INC. DBA RESERVE MORTGAGE SERVICES NOTES TO FINANCIAL STATEMENTS December 31, 2003 and 2002 The Company has a note payable with a bank. Interest on the outstanding balance is calculated at prime rate (4.0% and 4.25% at December 31, 2003 and 2002, respectively) plus 1.0%. Maximum borrowing under the original agreement was $250,000. This agreement was amended on January 17, 2002 to allow for maximum borrowings of $500,000. No other terms of the note were amended. The outstanding principal balance was $473,051 and $466,889 at December 31, 2003 and 2002, respectively. The debt is collateralized by the corresponding pledge loans that have not yet been funded through a third party financial institution. In August 2002, the Company entered into a term note with a bank. The note bears interest at the prime rate (4.25% at 4.75% at December 31, 2003 and 2002, respectively) plus 0.5%, and is payable in monthly installments of principal and interest of $1,355. This note is secured by equipment and accounts receivable and matures in August 2005. The outstanding balance was $25,809 and $40,334 at December 31, 2003 was 2002, respectively. Future maturities of long-term debt as of December 31, 2003 are as follows: 2004 $ 15,255 2005 10,554 ----------- $ 25,809 ===========
NOTE 5 - OPERATING LEASES The Company leases automobiles and its office space. Rental expense for these leases amounted to $49,536 and $44,864 as of December 31, 2003 and 2002, respectively. This amount includes the related party lease described in Note 3. Future minimum lease payments are as follows: 2004 $ 62,057 2005 55,120 2006 46,737 2007 18,760 ---------- $ 182,674 ==========
NOTE 6 - SUBSEQUENT EVENT In February 2004, the Company established a tax deferred savings plan (401(k) plan) that covers eligible employees. The Company will make matching contributions of 50% for the first 6% of salary deferrals. (2) unaudited balance sheet of RJO Financial Services, Inc. as of March 31, 2004 and the related statements of operations, changes in equity and cash flows for the three months ended March 31, 2004 and 2003. RJO FINANCIAL SERVICES, INC. DBA RESERVE MORTGAGE SERVICES BALANCE SHEET (unaudited) March 31, 2004 ASSETS CURRENT ASSETS Cash and cash equivalents $ 10,221 Accounts receivable 1,248,569 Investments, fair value 128,965 ------------ TOTAL CURRENT ASSETS 1,387,755 NET PROPERTY AND EQUIPMENT 102,186 OTHER ASSETS 8,034 ------------ TOTAL ASSETS $ 1,497,975 ============ LIABILITIES AND STOCKHOLDER'S EQUITY CURRENT LIABILITIES Lines of credit $ 957,700 Current portion of long-term debt 16,152 Cash overdraft 263,479 Accounts payable 14,911 Commissions payable 1,579 Accrued and withheld payroll taxes 3,835 Accrued expenses 6,943 ------------ TOTAL CURRENT LIABILITIES 1,264,599 NONCURRENT LIABILITIES Equipment note payable 4,755 ------------ TOTAL LIABILITIES 1,269,354 STOCKHOLDER'S EQUITY Common stock, 750 shares authorized, 1 issued and outstanding, $500 per share stated value 500 Additional paid-in capital 915,207 Accumulated other comprehensive income 10,925 Retained deficit (698,011) ------------ TOTAL STOCKHOLDER'S EQUITY 228,621 ------------ TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 1,497,975 ============
The accompanying notes are an integral part of these financial statements. RJO FINANCIAL SERVICES, INC. DBA RESERVE MORTGAGE SERVICES STATEMENTS OF OPERATIONS (unaudited) For the three months ended March 31, 2004 and 2003
For the three months ended March 31, 2004 2003 ------------ ------------ INCOME $ 249,063 $ 437,625 COST OF SERVICES RENDERED 85,277 124,422 ------------ ------------ GROSS PROFIT 163,786 313,203 OPERATING EXPENSES Compensation and benefits 73,696 87,614 Payroll and other taxes 8,108 13,757 Advertising 18,870 17,543 Depreciation and amortization 8,059 6,167 Professional fees 4,562 2,375 Meals and entertainment 1,383 1,865 Dues and subscriptions 1,040 665 Automobile expenses 852 1,401 Insurance 619 5,003 Postage and delivery (306) 278 Repairs and maintenance 6,220 8,900 Office supplies and expense 5,955 4,034 Telephone and utilities 5,893 9,710 Lease 10,200 10,000 Other operating expenses 6,231 4,954 ------------ ------------ TOTAL OPERATING EXPENSES 151,382 174,266 ------------ ------------ INCOME FROM OPERATIONS 12,404 138,937 OTHER INCOME (EXPENSE) Interest expense (1,170) (432) Other income (expense), net 33 (964) ------------ ------------ TOTAL OTHER INCOME (EXPENSE) (1,137) (1,396) ------------ ------------ NET INCOME $ 11,267 $ 137,541 ============ ============
The accompanying notes are an integral part of these financial statements. RJO FINANCIAL SERVICES, INC. DBA RESERVE MORTGAGE SERVICES STATEMENT OF CHANGES IN EQUITY (unaudited) For the three months ended March 31, 2004
Accumulated Additional Other Comprehensive Common Paid-in Comprehensive Retained Total Income Stock Capital Income Deficit ---------- ------------- ------ ---------- ------------- --------- Balance at December 31, 2003 $ 315,994 $ 500 $ 915,207 $ 10,924 $(610,637) Comprehensive income Net Income 11,267 $ 11,267 11,267 Other comprehensive income: Unrealized gain on securities, net 1 1 1 ------------- Comprehensive income $ 11,268 ============= Shareholder distributions (98,641) (98,641) ---------- ------ ---------- ------------- --------- Balance at March 31, 2004 $ 228,621 $ 500 $ 915,207 $ 10,925 $(698,011) ========== ====== ========== ============= =========
The accompanying notes are an integral part of these financial statements. RJO FINANCIAL SERVICES, INC. DBA RESERVE MORTGAGE SERVICES STATEMENTS OF CASH FLOWS (unaudited) For the three months ended March 31, 2004 and 2003
For the three months ended March 31, 2004 2003 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 11,267 $ 137,541 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 8,059 6,167 Changes in operating assets and liabilities: Accounts receivable 274,037 (2,022,096) Other assets 4,558 850 Cash overdraft and accounts payable (336,373) (110,049) Accrued expenses (1,441) (9,756) Other 1,165 - ------------ ------------ NET CASH (USED IN) OPERATING ACTIVITIES (38,728) (1,997,343) CASH FLOWS FROM INVESTING ACTIVITIES: Payments for the purchase or property and equipment - (17,273) ------------ ------------ NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES - (17,273) CASH FLOWS FROM FINANCING ACTIVITIES: Shareholder distributions (98,641) (82,417) Proceeds from (repayments on) borrowings (195,615) 2,057,425 ------------ ------------ NET CASH PROVIDED BY (USED IN ) FINANCING ACTIVITIES (294,256) 1,975,008 NET (DECREASE) IN CASH AND EQUIVALENTS (332,984) (39,608) CASH AND EQUIVALENTS AT BEGINNING OF YEAR 343,205 179,311 ------------ ------------ CASH AND EQUIVALENTS AT END OF YEAR $ 10,221 $ 139,703 ============ ============ SUPPLEMENTAL DISCLOSURES: Cash paid for interest $ 1,170 $ 432 Cash paid for taxes - 293
The accompanying notes are an integral part of these financial statements. RJO FINANCIAL SERVICES, INC. DBA RESERVE MORTGAGE SERVICES NOTES TO FINANCIAL STATEMENTS For the three months ended March 31, 2004 NOTE 1 - BASIS OF PRESENTATION In the opinion of the management of RJO Financial Services, Inc. dba Reserve Mortgage Services (the Company), the accompanying financial statements for the three months ended March 31, 2004 and 2003 include all adjustments necessary for a fair presentation of the financial condition and the results of operations for those periods. The financial performance reported for the Company for the three months ended March 31, 2004 is not necessarily indicative of the results to be expected for the full year. The accompanying financial statements should be read with the Company's audited financial statements for the period ended December 31, 2003 and reference is made to the Company's accounting policies described in Note 1 of the Notes to Financial Statements contained in the audited financial statements. The Company has consistently followed those policies in preparing the accompanying financial statements. NOTE 2 - PENDING BUSINESS COMBINATION On June 10, 2004, the Company entered into a definitive agreement with Central Federal Corporation whereby the Company will sell all of the outstanding common stock of RJO Financial Services, Inc. for 153,846 shares of Central Federal Corporation Common Stock. Based on the $14.06 average closing price of Central Federal Corporation Common Stock during the week before and after the announcement on June 10, 2004, the value of the sale of the Company was approximately $2.2 million. The transaction is subject to regulatory approval and is expected to be completed during the third quarter of 2004. (b) Pro Forma Financial Information (1) Following is the unaudited pro forma condensed combined consolidated balance sheet of Central Federal Corporation as of March 31, 2004, assuming the acquisition of RJO Financial Services, Inc. was completed at that date. Central Federal Corporation RJO Financial Services, Inc. Pro Forma Condensed Combined Consolidated Balance Sheet (unaudited) March 31, 2004
At March 31, 2004 ------------------------------------------------------------------ Historical Pro Forma ------------------------------- Adjustments Central Federal RJO Financial increase Footnote Pro Forma Corporation Services, Inc. (decrease) Reference Combined --------------- -------------- ---------------------- --------- Assets Cash and cash equivalents $ 9,560 $ 10 $ 9,570 Interest-bearing deposits in other financial institutions 1,587 1,587 Securities available for sale 25,335 129 25,464 Accounts receivable - 1,056 1,056 Loans, net 65,459 193 65,652 Premises and equipment, net 2,263 102 2,365 Goodwill 1,759 (1) 1,759 Intangible assets 356 (4) 356 Other assets 9,954 8 9,962 --------------- -------------- ----------- --------- $ 114,158 $ 1,498 $ 2,115 $ 117,771 =============== ============== =========== ========= Liabilities and shareholders' equity Deposits $ 74,882 - $ 74,882 Federal Home Loan Bank advances and other debt 18,705 1,242 19,947 Other liabilities 962 27 181 (3) 1,170 --------------- -------------- ----------- --------- Total liabilities 94,549 1,269 181 95,999 Shareholders' equity Preferred stock - - - Common stock 23 1 (1) (2) 23 Additional paid-in capital 11,932 915 (481) (2) 12,366 Retained earnings 10,504 (698) 698 (2) 10,504 Accumulated other comprehensive income 408 11 (11) (2) 408 Unearned stock based incentive plan shares (386) - (386) Treasury stock (2,872) - 1,729 (2) (1,143) --------------- -------------- ----------- --------- Total shareholders' equity 19,609 229 1,934 21,772 --------------- -------------- ----------- --------- $ 114,158 $ 1,498 $ 2,115 $ 117,771 =============== ============== =========== =========
See accompanying notes to pro forma condensed combined consolidated financial statements. (2) Following is the unaudited pro forma condensed combined consolidated statement of operations of Central Federal Corporation for the year ended December 31, 2003, assuming the acquisition of RJO Financial Services, Inc. was completed at the beginning of the year then ended. Central Federal Corporation RJO Financial Services, Inc. Pro Forma Condensed Combined Consolidated Statement of Operations (unaudited)
Year ended December 31, 2003 -------------------------------------------------------------- Historical ------------------------ RJO Pro Forma Central Financial Adjustments Federal Services, increase Footnote Pro Forma Corporation Inc. (decrease) Reference Combined ----------- ---------- ----------- --------- --------- Interest and dividend income Loans, including fees $ 4,203 $ 4,203 Securities 939 939 Federal Home Loan Bank stock dividends 141 141 Federal funds sold and other 152 152 ----------- --------- 5,435 5,435 Interest expense Deposits 1,570 1,570 Debt 1,951 2 1,953 ----------- ---------- --------- 3,521 2 3,523 Net interest income 1,914 (2) 1,912 Provision for loan losses 102 102 ----------- ---------- --------- Net interest income after provision for loan losses 1,812 (2) 1,810 Noninterest income Service charges on deposit accounts 165 165 Net gain on sales of loans 429 1,225 1,654 Earnings on bank owned life insurance 188 188 Other 148 22 170 ----------- ---------- --------- 930 1,247 2,177 Noninterest expense Salaries and employee benefits 3,549 464 4,013 Occupancy and equipment 224 65 289 Data processing 246 246 Franchise taxes 301 301 Professional fees 673 18 691 Director fees 119 119 Supplies 173 45 218 Depreciation and amortization 350 32 135 (4) 517 Other 469 204 673 ----------- ---------- ----------- --------- 6,104 828 135 7,067 ----------- ---------- ----------- --------- Income (loss) before income taxes (3,362) 417 (135) (3,080) Income tax expense (benefit) (988) 96 (5) (892) ----------- ---------- ----------- --------- Net income (loss) $ (2,374) $ 417 $ (231) $ (2,188) =========== ========== =========== ========= Loss per share Basic $ (1.31) (6) $ (1.11) Diluted (1.31) (6) (1.11)
See accompanying notes to pro forma condensed combined consolidated financial statements. (3) Following is the unaudited pro forma condensed combined consolidated statement of operations of Central Federal Corporation for the quarter ended March 31, 2004, assuming the acquisition of RJO Financial Services, Inc. was completed at the beginning of the quarter then ended. Central Federal Corporation RJO Financial Services, Inc. Pro Forma Condensed Combined Consolidated Statement of Operations (unaudited)
Quarter ended March 31, 2004 -------------------------------------------------------------- Historical ------------------------ RJO Pro Forma Central Financial Adjustments Federal Services, increase Footnote Pro Forma Corporation Inc. (decrease) Reference Combined ----------- ---------- ----------- --------- --------- Interest and dividend income Loans, including fees $ 970 $ 970 Securities 242 242 Federal Home Loan Bank stock dividends 36 36 Federal funds sold and other 23 23 ----------- --------- 1,271 1,271 Interest expense Deposits 324 324 Debt 76 1 77 ----------- ---------- --------- 400 1 401 Net interest income 871 (1) 870 Provision for loan losses 36 36 ----------- ---------- --------- Net interest income after provision for loan losses 835 (1) 834 Noninterest income Service charges on deposit accounts 31 31 Net gain on sales of loans 17 164 181 Earnings on bank owned life insurance 34 34 Other 10 10 ----------- ---------- --------- 92 164 256 Noninterest expense Salaries and employee benefits 726 82 808 Occupancy and equipment 54 18 72 Data processing 114 114 Franchise taxes 56 56 Professional fees 65 4 69 Director fees 40 40 Supplies 31 5 36 Depreciation and amortization 69 8 34 (4) 111 Other 200 35 235 ----------- ---------- ----------- --------- 1,355 152 34 1,541 ----------- ---------- ----------- --------- Income (loss) before income taxes (428) 11 (34) (451) Income tax expense (benefit) (160) (8) (5) (168) ----------- ---------- ----------- --------- Net income (loss) $ (268) $ 11 $ (26) $ (283) =========== ========== =========== ========= Loss per share Basic $ (0.13) (7) $ (0.13) Diluted (0.13) (7) (0.13)
See accompanying notes to pro forma condensed combined consolidated financial statements. Central Federal Corporation RJO Financial Services, Inc. Notes to Pro Forma Condensed Combined Consolidated Financial Statements (1) Represents the estimate of the excess of the total direct acquisition costs over the estimated fair value of the net assets acquired. For purposes of these pro forma condensed combined consolidated financial statements, Central Federal Corporation is assumed to acquire 100% of the outstanding shares of RJO Financial Services, Inc. by issuing 153,846 shares of Central Federal Corporation common stock valued at $2.2 million. (2) Represents elimination of RJO Financial Services, Inc. equity and issuance of Central Federal Corporation shares. (3) Represents accrual of certain acquisition costs totaling $60,000 and deferred federal income tax liability associated with identified intangible assets totaling $121,000. (4) Represents fair value of identified intangible associated with prior owner retention and fair value of noncompete agreement. The intangible asset associated with prior owner retention totaling $331,000 is assumed to be expensed to amortization expense over 3 years. The value of the noncompete agreement totaling $25,000 is assumed to be expensed to amortization expense over 1 year. (5) Represents federal income tax on RJO Financial Services, Inc. income at 34%. Prior to the acquisition by Central Federal Corporation, RJO Financial Services, Inc. was an S-Corp and, as such, income was not taxed at the corporate level. (6) Pro forma basic and diluted loss per share is based on 1,969,056 weighted average shares outstanding for the year ended December 31, 2003. (7) Pro forma basic and diluted loss per share is based on 2,144,092 weighted average shares outstanding for the quarter ended March 31, 2004. (c) Exhibits 2.0 Stock Purchase Agreement by and among Central Federal Corporation and CFBank and RJO Financial Services, Inc. and Richard J. O'Donnell dated June 10, 2004 23.1 Consent of Independent Registered Public Accounting Firm SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Central Federal Corporation Therese Ann Liutkus Date: August 12, 2004 By: /s/ Therese Ann Liutkus ---------------------------------- Therese Ann Liutkus, CPA Chief Financial Officer