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
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Therese Ann Liutkus, CPA
Chief Financial Officer