-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WtDrXn+aJkcxz7/uer+RrydLUvbK02FL39kKIk5K/4SiY0Qj+/kOmdkfjD+nkk+F geMJLtZ8jl4hLpala0TTNg== 0000773337-03-000003.txt : 20030515 0000773337-03-000003.hdr.sgml : 20030515 20030515142706 ACCESSION NUMBER: 0000773337-03-000003 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20030331 FILED AS OF DATE: 20030515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CENTENNIAL MORTGAGE INCOME FUND II CENTRAL INDEX KEY: 0000773337 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 330112106 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-15448 FILM NUMBER: 03703691 BUSINESS ADDRESS: STREET 1: 1540 S LEWIS STREET CITY: ANAHEIM STATE: CA ZIP: 92805 BUSINESS PHONE: 7145028484225 MAIL ADDRESS: STREET 2: 1540 S LEWIS STREET CITY: ANAHEIM STATE: CA ZIP: 92805 10-Q 1 cmif2-331.txt CENT MTG INC FUND II 3/31/03 10Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2003 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: 0-15448 CENTENNIAL MORTGAGE INCOME FUND II (Exact name of registrant as specified in its charter) California 33-0112106 (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 Indicate by check mark whether the registrant is an accelerated filer ( as defined in Rule 12b-2 of the Exchange Act). YES X NO PART I ITEM 1. FINANCIAL STATEMENTS CENTENNIAL MORTGAGE INCOME FUND II AND SUBSIDIARIES A Limited Partnership Consolidated Balance Sheets
March 31, December 31, 2003 2002 Assets (Unaudited) - --------------------------------------------------------------------------- Cash and cash equivalents $ 1,160,000 $ 1,294,000 Other assets, net --- 4,000 - --------------------------------------------------------------------------- $ 1,160,000 $ 1,298,000 =========================================================================== Liabilities and Partners' Equity - --------------------------------------------------------------------------- Accounts payable and accrued liabilities $ --- $ 62,000 - --------------------------------------------------------------------------- Total liabilities --- 62,000 - --------------------------------------------------------------------------- Partners' equity (deficit) -- 29,133 limited partnership units outstanding at March 31, 2003 and December 31, 2002 General partners (56,000) (56,000) Limited partners 1,216,000 1,292,000 - --------------------------------------------------------------------------- Total partners' equity 1,160,000 1,236,000 Contingencies (note 5) - --------------------------------------------------------------------------- $ 1,160,000 $ 1,298,000 ===========================================================================
See accompanying notes to consolidated financial statements 1 CENTENNIAL MORTGAGE INCOME FUND II AND SUBSIDIARIES A Limited Partnership Consolidated Statements of Operations
For the three months ended March 31, 2003 and 2002 2003 2002 (Unaudited) (Unaudited) - -------------------------------------------------------------------------- Revenue: Interest on interest-bearing deposits 3,000 5,000 Other 4,000 7,000 - -------------------------------------------------------------------------- Total revenue 7,000 12,000 - -------------------------------------------------------------------------- Expenses: Expenses associated with non-operating real estate owned --- 16,000 General and administrative, affiliates 37,000 28,000 General and administrative, nonaffiliates 46,000 15,000 - -------------------------------------------------------------------------- Total expenses 83,000 59,000 - -------------------------------------------------------------------------- Net loss $ (76,000) $ (47,000) ========================================================================== Net loss per limited partnership unit $ (2.61) $ (1.61) ==========================================================================
See accompanying notes to consolidated financial statements 2 CENTENNIAL MORTGAGE INCOME FUND II AND SUBSIDIARIES A Limited Partnership Consolidated Statement of Partners' Equity
For the three months ended March 31, 2003 Total General Limited Partners' Partners Partners Equity (Unaudited) (Unaudited) (Unaudited) - --------------------------------------------------------------------------- Balance (deficit) at December 31, 2002 $ (56,000) $ 1,292,000 $ 1,236,000 Net loss --- (76,000) (76,000) - --------------------------------------------------------------------------- Balance (deficit) at March 31, 2003 $ (56,000) $ 1,216,000 $ 1,160,000 ===========================================================================
See accompanying notes to consolidated financial statements 3 CENTENNIAL MORTGAGE INCOME FUND II AND SUBSIDIARIES A Limited Partnership Consolidated Statements of Cash Flows
For the three months ended March 31, 2003 and 2002 2003 2002 (Unaudited) (Unaudited) - -------------------------------------------------------------------------- Cash flows used in operating activities: Net loss $ (76,000) $ (47,000) Adjustments to reconcile net loss to net cash used in operating activities: Changes in assets and liabilities: (Increase) decrease in other assets 4,000 (3,000) Increase (decrease) in accounts payable and accrued liabilities (62,000) 19,000 - -------------------------------------------------------------------------- Net cash used in operating activities (134,000) (31,000) - -------------------------------------------------------------------------- Cash flows used in investing activities: Increase in short-term investments --- (308,000) - -------------------------------------------------------------------------- Net (decrease) in cash and cash equivalents (134,000) (339,000) Beginning cash and cash equivalents 1,294,000 1,333,000 - -------------------------------------------------------------------------- Ending cash and cash equivalents $ 1,160,000 $ 994,000 ==========================================================================
See accompanying notes to consolidated financial statements 4 CENTENNIAL MORTGAGE INCOME FUND II AND SUBSIDIARIES A Limited Partnership Notes to Consolidated Financial Statements (Unaudited) March 31, 2003 and 2002 (1) BUSINESS Centennial Mortgage Income Fund II (the "Partnership") was formed in 1985 and 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. Beginning with the fourth quarter of 1992, the Partnership entered its repayment stage and cash proceeds from mortgage investments are no longer available for reinvestment in new loans by the Parnership. (2) BASIS OF PRESENTATION The consolidated financial statements are unaudited and reflect all adjustments, consisting only of normal recurring accruals, which are, in the opinion of management, necessary for a fair statement of the results of operations for the interim periods. Results for the three months ended March 31, 2003 and 2002 are not necessarily indicative of results which may be expected for any other interim period, or for the year as a whole. Information pertaining to the three months ended March 31, 2003 and 2002 is unaudited and condensed inasmuch as it does not include all related footnote disclosures. The 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 accounting principles generally accepted in the United States of America. Notes to consolidated financial statements included in Form 10-K for the year ended December 31, 2002 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. At December 31, 2002 and March 31, 2003, the Partnership does not believe that there would be a material difference if it had adopted the liquidation basis of accounting. 5 Net Loss per Limited Partnership Unit Net loss per limited partnership unit was based on the weighted average number of limited partnership units outstanding of 29,133 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 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 three months ended March 31, 2003 or 2002. (4) CONTINGENCIES There are no material pending legal proceedings. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. GENERAL References to the "Partnership" in the following discussion refers to Centennial Mortgage Income Fund II and its wholly-owned subsidiaries. The Partnership had net losses and losses per limited partnership unit of $(76,000) and $(2.61) and $(47,000) and $(1.61) for the three months ended March 31, 2003 and March 31, 2002, 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. 6 LIQUIDITY AND CAPITAL RESOURCES At March 31, 2003, the Partnership had $1,160,000 in unrestricted cash and interest-bearing deposits. During the first quarter of 2003, the Partnership's principal source of cash was $3,000 in interest income on interest bearing deposits and $4,000 in other income related to transfer fee charges. The Partnership's principal uses of cash during the first quarter of 2003 were approximately $83,000 in general and administrative costs. During the second quarter of 2002, the Partnership had consummated a purchase and sale agreement involving the remaining 12 acres of its property in Sacramento. Net proceeds from the sale were $1,122,000 and the Partnership reported a gain of $846,000. The Partnership's principal capital requirements for the next year consist of selling, general and administrative costs. These commitments are expected to be paid from existing cash balances. 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 were no longer available for reinvestment by the Partnership. As a result of the substantial decrease in real estate owned which occurred in 1997 and 1998, the general partners determined that the Partnership could make a $3,496,000 distribution to its limited partners in October 1998. Additional asset liquidations during 1999, 2000 and 2001 enabled the Partnership to make a $2,127,000 cash distribution to its limited partners in October 2000 and $583,000 in September 2001. With the proceeds from the sale of the remaining 12 acres in Sacramento, the Partnership made a $1,000,000 distribution to its limited partners in December 2002. 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. REAL ESTATE OWNED The real estate owned balances at March 31, 2003 and 2002 were zero and $1,044,000, respectively. A description of the Partnership's principal real estate owned follows: 7 The Partnership funded a loan in 1987 with a committed amount of $4,000,000 secured by a first trust deed on 43.78 acres in Sacramento, California. The loan was provided for the development of offsite improvements. The maturity date was February 1, 1991. The borrower was unable to obtain construction financing and bring interest current. The Partnership accepted a grant deed on the property on March 10, 1992. The property is zoned for multi-family and light industrial use. A portion of the property is adjacent to Highway 99 and had good freeway visibility. The Partnership rezoned and subdivided a portion of the property to facilitate one escrow on a 6.5 acre portion of the property without freeway visibility. This transaction closed escrow during the fourth quarter of 1997. There had been only limited industrial/commercial use development activity in the area surrounding this property during 1996 and 1997. In light of this limited activity and management's objective of liquidating the Partnership's remaining assets as soon as practical, the Partnership recorded an additional $504,000 provision for losses against the carrying value of this property during 1998. During the first quarter of 1999, the Partnership opened escrow on a 9.45 acre portion of the property which also did not have freeway visibility. for a purchase price of $900,000. The escrow closed at the end of the second quarter of 1999, generated $842,000 in net cash proceeds and was recorded at no gain or loss. Both the parcel sold in 1997 and the parcel sold in 1999 were zoned for residential use. The balance of the property is zoned for industrial/commercial use. The Partnership sold another 7.13 acre parcel of the property in February 2000. The sale generated net sales proceeds of $846,000. The Partnership recorded no gain or loss on this sale. The Partnership sold another 2.65 acre parcel of the property in August 2000. The sale generated net sales proceeds of $486,000. The Partnership recorded no gain or loss on this sale. The Partnership sold approximately 5.58 acres of the property in December 2001. The sale generated net proceeds of $374,000. The Partnership recorded a $251,000 gain on the sale. The Partnership sold the remaining 12 acres of the property in May 2002. The sale generated net sales proceeds of $1,122,000. The Partnership recorded an $846,000 gain on the sale. INTEREST ON INTEREST-BEARING DEPOSITS Interest on interest-bearing deposits totaled $3,000 and $5,000 for the three months ended March 31, 2003 and 2002, 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 2003 is primarily attributable to a decrease in the average balance of cash and cash equivalents as well as a reduction in the interest rates earned on those balances. 8 OTHER EXPENSES Expenses associated with non-operating real estate owned were zero and $16,000 for the three months ended March 31, 2003 and 2002, respectively. The expenses relate primarily to the land in Sacramento. GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses, affiliates totaled $37,000 and $28,000 for the three months ended March 31, 2003 and 2002, respectively. These expenses are primarily salary and overhead allocations paid to affiliates. The increase in 2003 is partially the result of additional rent expense allocations. General and administrative expenses, nonaffiliates totaled $46,000 and $15,000 for the three months ended March 31, 2003 and 2002, respectively. These expenses consist of other costs associated with the administration of the Partnership and real estate owned. The increase in 2003 is principally due to payments made for accounting, tax preparation and investor reporting. 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. As of March 31, 2003, the Partnership held fixed rate bank deposits with carrying values totaling $811,000. The bank deposits 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 March 31, 2003. 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 March 31, 2003. Accordingly, the Partnership is not exposed to any market risk associated with its liabilities. ITEM 4. CONTROLS AND PROCEDURES Within the 90 days prior to the date of this report, the Partnership carried out an evaluation, under the supervision and with the participation of the Partnership's management, including the general partners and chief financial officer of Centennial Corporation, of the effectiveness of the design and operation of the Partnership's disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based upon that evaluation, management concluded that the Partnership's disclosure controls and procedures are effective in timely alerting them to material information relating to the Partnership required to be included in the Partnership's periodic Securities and Exchange Commission filings. There has been no significant change in the Partnership's internal controls or in other factors that could significantly affect these controls subsequent to the evaluation date. 9 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)99.1 Certification of General Partner and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (3) & (4) Articles of Incorporation and Bylaws The Amended and Restated Limited Partnership Agreement Incorporated by reference to Exhibit A to the Partnership's Prospectus contained in the Partnership's registration Statement on Form S-11 (Commission File No. 0-15448) Dated January 17, 1986, as supplemented filed under the Securities Act of 1933 (b) None 10 Exhibit 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Centennial Mortgage Income Fund II and Subsidiaries, the ("Partnership") on Form 10-Q for the period ending March 31, 2003, as filed with the Securities and Exchange Commission on May 15, 2003, (the "Report") I, Ronald R. White, General Partner and Chief Financial Officer of Centennial Corporation (Corporate General Partner), certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13 (a) or 15 (d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership. /s/ Ronald R. White _______________________________ May 15, 2003 Ronald R. White General Partner and Chief Financial Officer of Centennial Corporation 11 CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Ronald R. White, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Centennial Mortgage Income Fund II and Subsidiaries, the ("Partnership"); 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge , the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the Partnership as of, and for, the periods presented in this quarterly report; 4. The Partnership's other General Partners and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Partnership and we have: a)designed such disclosure controls and procedures to ensure that material information relating to the Partnership, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b)evaluated the effectiveness of the Partnership's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c)presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The Partnership's management and I have disclosed, based on our most recent evaluation, to the Partnership's auditors and the audit committee (or persons performing the equivalent function) of the Partnership: a)all significant deficiencies in the design or operation of internal controls which could adversely affect the Partnership's ability to record, process, summarize and report financial data and have identified for the Partnership's auditors any material weaknesses in internal controls; and b)any fraud, whether or not material, that involves management or other employees who have a significant role in the Partnership's internal controls; and 12 6. I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 15, 2003 /s/ Ronald R. White ___________________________ Ronald R. White General Partner and Chief Financial Officer of Centennial Corporation 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 II AND SUBSIDIARIES A California Limited Partnership /s/ John B. Joseph ________________________ John B. Joseph General Partner May 15, 2003 /s/ Ronald R. White _________________________________ Ronald R. White General Partner May 15, 2003 13 -----END PRIVACY-ENHANCED MESSAGE-----