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EX-32.1 - EXHIBIT 32.1 - Manasota Group, Inc.v233058_ex32-1.htm
EX-31.1 - EXHIBIT 31.1 - Manasota Group, Inc.v233058_ex31-1.htm
EX-31.2 - EXHIBIT 31.2 - Manasota Group, Inc.v233058_ex31-2.htm
EX-32.2 - EXHIBIT 32.2 - Manasota Group, Inc.v233058_ex32-2.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
 
Form 10-Q
 
x
Quarterly report under section 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2011

¨
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the transition period from ______ to ______

Commission file number 333-71773

Manasota Group, Inc.
(Exact Name of Registrant as Specified in Its Charter)

Florida
65-0840545
(State or Other Jurisdiction of
(IRS Employer
Incorporation or Organization)
Identification No.)

P. O. Box 14302
Bradenton, Florida 34280
(Address of Principal Executive Offices)

(941) 776-8233
(Registrant's Telephone Number, Including Area Code)

Horizon Bancorporation, Inc.
900 53rd Avenue East
Bradenton, Florida 34203
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
 
Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act during the past 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 a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act) (Check one):

Large Accelerated Filer ¨
Accelerated Filer ¨
Non-Accelerated Filer ¨
Smaller reporting company x
(Do not check if a smaller reporting company)
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)
 
Yes ¨  No x
 
Indicate the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date:
 
Common Stock $0.01 Par Value as of August 12, 2011: Issued 1,809,912 Shares; Outstanding: 1,770,139 Shares.

 
 

 
 
Index
 
Part I. Financial Information
   
     
Item 1. Financial Statements (unaudited)
   
     
Consolidated Balance Sheets as of June 30, 2011 and December 31, 2010
 
3
     
Consolidated Statements of Income for the Six Months Ended June 30, 2011 and 2010
 
4
     
Consolidated Statements of Cash Flows for the  Six Months Ended June 30, 2011 and 2010
 
5
     
Consolidated Statements of Changes in Shareholders' Equity for the Six Months Ended June 30, 2011 and 2010
 
6
     
Notes to Consolidated Financial Statements
 
7
     
Item 2. Management's Discussion and Analysis of Financial Conditions and Results of Operations
 
10
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk
 
11
     
Item 4T. Controls and Procedures
 
12
     
Part II. Other Information
   
     
Item 1. Legal Proceedings
 
13
     
Item 1A. Risk Factors
 
13
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 
13
     
Item 3. Defaults Upon Senior Securities
 
13
     
Item 4. Submission of Matters to a Vote of Security Holders
 
13
     
Item 5. Other Information
 
13
     
Item 6. Exhibits
  
13

 
2

 
PART I - FINANCIAL INFORMATION
 
Item 1.  Financial Statements.

 
MANASOTA GROUP, INC.
Consolidated Balance Sheets

 
   
June 30,
2011
   
December 31,
2010
 
Cash and due from banks
  $ 768     $ 13,440  
                 
Property and equipment, net
    1,233,235       1,247,180  
Assets of discontinued operations
    0       0  
Other assets
    3,000       3,000  
Total Assets
  $ 1,237,003     $ 1,263,620  
LIABILITIES & SHAREHOLDERS' EQUITY
               
Liabilities:
               
Liabilities of discontinued operations
    0       0  
Note payable
    1,006,177       981,782  
Accrued professional expenses
    51,440          
Other liabilities
    91,000       91,000  
Total Liabilities
  $ 1,148,617     $ 1,072,782  
Shareholders' Equity:
               
Preferred stock, $.01 par value, 1.0 million shares authorized; zero shares issued and outstanding
  $     $  
Treasury Stock: 39,773 shares
    (479,393 )     (479,393 )
Common stock, $.01 par value,  25,000,000 shares authorized;  1,809,912 issued and 1,770,139 outstanding at June 30, 2011 and December 31, 2010.
    18,099       18,099  
Paid-in-capital
    10,428,214       10,428,214  
Retained (deficit)
    (9,878,534 )     (9,776,082 )
Accumulated other comprehensive income/(loss), net of tax
    0       0  
Total Shareholders' Equity
  $ 88,386     $ 190,838  
Total Liabilities and Shareholders' Equity
  $ 1,237,003     $ 1,263,620  

See accompanying notes to the financial statements

 
3

 

MANASOTA GROUP, INC.
Consolidated Statements of Income (Unaudited)

   
Three Months Ended June 30,
   
Six Months Ended June 30,
 
   
2011
   
2010
   
2011
   
2010
 
Operating Income
                       
Gain on sale of asset
    0       49,400       0       49,400  
Other miscellaneous income
    0       0       64       0  
Total operating income
  $ 0     $ 49,400     $ 64     $ 49,400  
Operating Expenses
                               
Interest expense on note
    15,050       13,270       24,396       28,363  
Other operating expenses
    66,044       40,824       78,121       46,171  
Total operating expenses
    81,094     $ 54,094     $ 102,517     $ 74,534  
(LOSS)/GAIN FROM CONTINUING OPERATIONS BEFORE INCOME TAX PROVISION
  $ (81,094 )   $ (4,694 )   $ (102,453 )   $ (25,134 )
Income tax provision/(benefit)
    0       (2,852 )     0       (9,802 )
(LOSS)/GAIN FROM CONTINUING OPERATIONS
  $ (81,094 )   $ (1,842 )   $ (102,453 )   $ (15,332 )
DISCONTINUED OPERATIONS
                               
(Loss)/gain from discontinued operations
    0       82,195       0       (2,633,225 )
Income tax provision/(benefit)
    0       (49,295 )     0       (919,974 )
(LOSS)/GAIN ON DISCONTINUED OPERATIONS
    0       131,490       0       (1,713,251 )
                                 
NET (LOSS)/GAIN
  $ (81,094 )   $ 129,648     $ (102,453 )   $ (1,728,583 )
Net (loss)/gain per common share: basic and diluted, from:
                               
Continuing operations
    (0.05 )   $ 0.00     $ (0.06 )   $ (0.01 )
Discontinued operations
    (0.00 )     0.06       (0.00 )     (0.96 )
NET (LOSS)/GAIN PER BASIC AND DILUTED SHARE
    (0.05 )   $ 0.07     $ (0.06 )   $ (0.97 )
Weighted average number of shares outstanding:
                               
Basic and Diluted
    1,779,139       1,779,139       1,779,139       1,779,139  

See accompanying notes to the financial statements

 
4

 

MANASOTA GROUP, INC.
Consolidated Statements of Cash Flows (Unaudited)

   
Six Months ended June 30
 
   
2011
   
2010
 
Cash flow from operating activities:
           
Net cash from operating activities
  $ (37,068 )   $ 67.999  
                 
Cash flow from investing activities:
               
Payment from county for land right of way
  $ 0     $ 49,400  
Net cash from investing activities
  $ 0     $ 49,400  
                 
Cash flow from financing activities:
               
Increase/(Decrease) in note payable
  $ 24,396     $ (100,000
                 
Net cash from financing activities
  $ 24,396     $ (100,000 )
                 
Net change in cash and cash equivalents
  $ (12,672   $ 17,399  
Cash and cash equivalents, beginning of period
    13,440       376  
Cash and cash equivalents, end of period
  $ 768     $ 17,775  

See accompanying notes to the financial statements

 
5

 

MANSOTA GROUP, INC.
Consolidated Statements of Changes in Shareholders' Equity (Unaudited)
for the Six-month periods ended June 30, 2011 and 2010

                            
Accumulated
       
                           
Other
       
   
Common Stock
   
Treasury
   
Paid in
   
Retained
   
Comprehensive
       
   
Shares
   
Par Value
   
Stock
   
Capital
   
Earnings
   
Income
   
Total
 
Balance December 31 , 2009
    1,770,139     $ 18,099     $ (479,393 )   $ 10,428,214     $ (4,006,176 )   $ (293,583 )   $ 5,667,161  
Comprehensive Income:                                                        
Net income/(loss), six  month period ended June 30, 2010
                                  $ (1,728,583 )           $ (1,728,583 )
Net unrealized income on securities from discontinued operations, six -month period ended June 30, 2010
                                            152,016     $ 152,016  
Total comprehensive income/(loss),net of tax
                                                    (1,576,567 )
Balance June 30,2010
    1,770,139     $ 18,099     $ (479,393 )   $ 10,428,214     $ (5,734,759 )   $ (141,567 )   $ 4,090,594  
Balance December 31 , 2010
    1,770,139     $ 18,099     $ (479,393 )   $ 10,428,214     $ (9,776,082 )     0     $ 190,838  
Net income/(loss), six -month period ended June 30, 2011
                                    (102,453 )           $ (102,453 )
Balance June 30 , 2011
    1,770,139     $ 18,099     $ (479,393 )   $ 10,428,214     $ (9,878,534 )     0     $ 88,386  

 
6

 
 
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Manasota Group, Inc. f/k/a Horizon Bancorporation, Inc., Bradenton, Florida (the "Company") was a one-bank holding company with respect to Horizon Bank, Bradenton, Florida (the "Bank").  The Company commenced banking operations on October 25, 1999 when the Bank opened for business.  On September 10, 2010, the Company ceased to be a bank holding company when the Florida Office of Financial Regulation (the “OFR”) closed the Bank and the Federal Deposit Insurance Corporation (the “FDIC”) was appointed as receiver.  The FDIC sold the Bank to the Bank of the Ozarks.  The Bank was primarily engaged in the business of obtaining deposits and providing commercial, consumer, and real estate loans to the general public.  Bank deposits were each insured up to $250,000 by the FDIC subject to certain limitations. As of the date of this Report, the Company’s sole asset is the building located at 900 53rd Avenue East, Bradenton, FL.  The building is being leased to Bank of the Ozarks under a 3-year lease expiring on September 10, 2013.
 
The Company is authorized to issue up to 25.0 million shares of its $.01 par value per share common stock.  Each share is entitled to one vote and shareholders have no preemptive or conversion rights.  As of June 30, 2011 and December 31, 2010 there were 1,809,912 shares issued and 1,770,139 shares of the Company's common stock outstanding.   As of June 30, 2011 and December 31, 2010 the Company held 39,773 shares of treasury stock.  Additionally, the Company has authorized the issuance of up to 1.0 million shares of its $.01 par value per share preferred stock. The Company's Board may, without further action by the shareholders, direct the issuance of preferred stock for any proper corporate purpose with preferences, voting powers, conversion rights, qualifications, special or relative rights and privileges which could adversely affect the voting power or other rights of shareholders of common stock.  Effective October 22, 2009, the Company’s Board designated, by amending the Articles of Incorporation., the Series A Preferred Stock, consisting of 5,000 shares with a liquidation preference of $1,000 per share.  No shares of Series A Preferred Stock having been issued, effective June 17, 2011, the Company’s Articles of Incorporation were amended to eliminate the designation of such series.  As of June 30, 2011 and December 31, 2010, there were no shares of the Company's preferred stock issued or outstanding.
 
Earnings Per Share.  Basic earnings per share are determined by dividing net income by the weighted-average number of common shares outstanding.  Diluted income per share is determined by dividing net income by the weighted average number of common shares outstanding increased by the number of common shares that would be issued assuming exercise of stock options.  This also assumes that only options with an exercise price below the existing market price will be exercised.  In computing net income per share, the Company uses the treasury stock method.
 
Discontinued Operations.  The Company’s primary asset at December 31, 2009, was its subsidiary bank.  On September 10, 2010, the Bank was closed by OFR and the FDIC was appointed as the receiver.  All balance sheet and operating data for the Bank as of June 30, 2010 are reflected as discontinued operations.
 
Use of Estimates.  The accounting and reporting policies of the Company conform to U.S. generally accepted accounting principles. In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ significantly from those estimates.
 
Comprehensive Income.  Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income.  Although certain changes in assets and liabilities, such as unrealized gains and losses on available-for-sale securities, are reported as a separate component of the equity section of the balance sheet, such items, along with net income, are components of comprehensive income.  Comprehensive income for calendar year 2010 is shown in the consolidated statements of changes in shareholders' equity.

 
7

 

A summary of the results of operations of the discontinued Bank for the year ended June 30, 2010, is as follows:

Interest income
  $ 4,310,683  
Interest expense
    2,005,900  
Net interest income
    2,304,783  
Provision for possible loan losses
    2,697,973  
Net interest income after provision for loan losses
    (393,190 )
Non-interest income
    415,903  
Non-interest expense
    (2,655,938 )
Loss before income tax
    (2,633,225 )
Income tax (benefit)
    (919,974 )
Net (loss)
  $ (1,713,251 )
 
NOTE 2 - RECENT ACCOUNTING PRONOUNCEMENTS
 
In July 2010, the FASB issued ASU 2011-20, Receivables (Topic 310): Disclosure about the Credit Quality of Financing Receivables and the Allowance for Credit Losses. The objective of this ASU is for an entity to provide disclosures that facilitate financial statement users’ evaluation of the nature of credit risk inherent in the entity’s portfolio of financing receivables, how that risk is analyzed and assessed in arriving at the allowance for credit losses, and the changes and reasons for those changes in the allowance for credit losses. Disclosures should be provided based on portfolio segment and class of financing receivable. Additional disclosures by class of financing receivable will be required relating to credit quality indicators, aging of past due financing receivables, and the nature and extent of troubled debt restructurings during the period. The disclosures as of the end of a reporting period are effective for interim and annual reporting periods ending on or after December 15, 2010. The disclosures about activity that occurs during a reporting period are effective for interim and annual reporting periods beginning on or after December 15, 2010. The Company does not expect the adoption of this guidance to have a material impact on its financial statements.
 
In January 2010, the FASB issued ASU 2011-01, Receivables (Topic 310): Deferral of the Effective Date of Disclosure about Troubled Debt Restructurings in Update 2011-20. The amendments in ASU 2011-01 temporarily delay the effective date of the disclosures about troubled debt restructurings in ASU No. 2011-20, Receivables (Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses. The delay is intended to allow the FASB time to complete its deliberations on what constitutes a troubled debt restructuring. The effective date of the new disclosures about troubled debt restructurings for public entities and the guidance for determining what constitutes a troubled debt restructuring will then be coordinated. Currently, that guidance is anticipated to be effective for interim and annual periods ending after June 15, 2011. The Company does not expect the adoption of this guidance to have a material impact on its financial statements.
 
NOTE 3 –GOING CONCERN CONSIDERATION AND SUBSEQUENT EVENT
 
Going Concern Consideration and Subsequent Event
 
In the past two calendar years, the Company has experienced heavy losses that caused its capital accounts to be reduced by approximately 98%.  The Bank, the Company’s sole subsidiary, was closed by the banking regulators.  Moreover, as of the date of the financial statements included in this Report, the ownership of the building referred to Note 1 above was in dispute with the FDIC.  For these reasons, there existed, as of June 30, 2011, substantial doubt about the Company’s ability to continue as a going concern.
 
Subsequent to June 30, 2011, in July 2011, the Company’s negotiations with the FDIC and Bank of the Ozarks did culminate in an agreement establishing that the Company is the sole owner of the 7280 square foot building previously occupied by the Company and the Bank, with the Bank of the Ozarks entering into a three-year triple net lease with respect to the Building expiring in September 2013.  The lease payments under the lease do exceed, by approximately $5,100, the Company’s debt service with respect to the three-year mortgage encumbering the Building, such mortgage is maturing in August 2013.  The building is the sole asset of the Company and there is no assurance that net income therefrom will be sufficient to meet all of the other operating expenses of the Company.  The Company may, therefore, be forced to sell the building, pay off all its debts and distribute the net proceeds, if any, to its shareholders.

 
8

 
 
The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the discharge of liabilities in the normal course of business for the foreseeable future.

 
9

 

Item 2: Management's Discussion and Analysis of Financial Condition and Operations
Forward Looking Statements
 
This Quarterly Report on Form 10-Q contains or incorporates by reference statements that are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act) and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). Forward-looking statements discuss future expectations, describe future plans and strategies, contain projections of results of operations or of financial condition or state other forward-looking information. Forward-looking statements are generally identifiable by the use of forward-looking terminology such as “anticipate,” “assume,” “believe,” “continue,” “could,” “would,” “endeavor,” “estimate,” “expect,” “forecast,” “goal,” “intend,” “may,” “objective,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “will” and other similar words and expressions of future intent.
 
Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Although we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions, our actual results and performance could differ materially from those set forth in the forward-looking statements.  Moreover, these forward-looking statements speak only as of the date on which the statements were made. We do not intend, and undertake no obligation, to update or revise any forward-looking statements contained in this Quarterly Report on Form 10-Q, whether as a result of differences in actual results, changes in assumptions or changes in other factors affecting such statements, except as required by law.
 
Readers should carefully review all disclosures we file from time to time with the SEC.

DESCRIPTION OF BUSINESS

ORGANIZATION

Manasota Group, Inc. f/k/a Horizon Bancorporation, Inc. (hereinafter, the "Company" or the "Registrant") was incorporated in the State of Florida on May 27, 1998, under the name of Manasota Group, Inc., for the purpose of becoming a bank holding company owning all of the outstanding capital stock of the Bank.  In anticipation of the filing for regulatory approval for the Bank, the Company amended its Articles of Incorporation on October 2, 1998, changing its name to Horizon Bancorporation, Inc.  All of the regulatory approvals necessary for the operation of the Company and the Bank were granted as of October 25, 1999.  The Articles of Incorporation were amended, effective June 17, 2011, to change the Company’s name back to Manasota Group, Inc.

The Company began its initial public offering of the Common Stock at $5.50 per share on February 9, 1999, and completed its minimum offering of 1,023,638 shares on October 13, 1999. Of the total proceeds of $5,630,009, the Company used $5,280,000 to capitalize the Bank, which opened for business on October 25, 1999.  The Company raised an additional $673,414.50 as of December 31, 1999, when the offering closed, with a total of 1,146,077 shares of Common Stock sold for the aggregate amount of $6,303,423.50 (the "Initial Offering").
 
To satisfy its needs for additional capital, in April 2003, the Company conducted a public offering solely to its existing shareholders (the "Rights Offering"), whereby each shareholder could purchase one unit for each 3.333 shares of the Company's common stock already owned.  Each unit consisted of one share of the Company's common stock and one warrant (expiring on July 6, 2005) to purchase one share of the Company's common stock for $7.00 per share, subject to certain limitations.  The Company sold 246,038 units for $6.00 per unit.  In an unrelated private placement, also during 2003, the Company sold 100,000 units, each consisting of one share of common stock and one warrant (expiring on August 12, 2005) to purchase one-half of one share of the Company's common stock at $3.50 (or $7.00 per share), for $6.00 per unit.  Total proceeds to the Company from the Rights Offering and the private placement, amounted to $2,043,012, net of direct selling expenses.
 
On or about July 6, 2005, all of the warrants issued in the Rights Offering and the private placement were either exercised or expired. Total proceeds from such exercise amounted to $1,941,793.
 
On May 10, 2004, the Company registered, by filing an SEC Form 8A, the Common Stock under Section 12(g) of the Securities Exchange Act of 1934 (the "Exchange Act").  Subsequently, in November 2004, the Common Stock began trading in the OTCBB under the Symbol "HZNB".

 
10

 

BUSINESS

The Company acted as a one-bank holding company with respect to the Bank from October 25, 1999 when the Bank commenced operations, until September 10, 2010, when the Florida Office of Financial Regulation (the “OFR”) declared the Bank to be insolvent. The Bank was closed, with the FDIC being appointed as receiver therefor, and sold to Bank of the Ozarks.

As of July 2011, the Company’s business consists of acting as the lessor for the one-story, 7280 square foot building, located at 900 53rd Avenue Ease, Bradenton, Florida, previously occupied by the Company and the Bank (the “Building”).  The Building is being leased to Bank of the Ozarks and is subject to a $1,525,000 first lien mortgage in favor of 1st Manatee Bank.  The Company is realizing approximately $5,100 in net income per month, being the difference between the lease payments received and the debt service paid with respect to the mortgage.

Using its net income from the Building, management intends to pay all of its other operating expenses, which at this time do not include rent or any compensation to the officers and directors, but do include the costs and expenses of maintaining the Company’s status as a reporting public company at least through 2011.  In the meantime, the Company may , if an appropriate opportunity arises, engage in a transaction with an operating company.  There is no assurance that, in the long run, we will be able to maintain such status or consummate any such transaction.
 
DESCRIPTION OF PROPERTY
 
The Company owns the Building but does not occupy it.  In July 2011, but effective September 10, 2010, the Company leased the Building to Bank of the Ozarks.  The triple net lease expires in September 2013 and calls for rental payments of $14,560 per month.  The Building is encumbered by a first lien mortgage in favor of 1st Manatee Bank, securing a $1,525,000 promissory note maturing in August 2013, with interest accruing at an annual rate of 5.5%.

Results of Operations

Overall Net Income

The Company reported a net loss of $102,000 for the six months ended June 30, 2011, compared to a net loss of $1,729,000 for the six months ended June 30, 2010.  In 2010, the loss was attributable almost entirely to a loss of $1,713,000 incurred by the Bank.  Basic and diluted loss per share was $0.06 for the six months ended June 30, 2011.  Basic and diluted loss per share for the six months ended June 30, 2010 was $0.97, of which $0.96 was attributable to the Bank.

The Company reported a net loss of $81,000 for the three months ended June 30, 2011, compared to a net gain of $130,000 for the three months ended June 30, 2010.  In 2010 the gain was attributable almost entirely to a profit of $132,000 realized by the Bank.  Basic and diluted loss per share was $0.05 for the three months ended June 30, 2011.  Basic and diluted gain per share for the three months ended June 30, 2010 was $0.07 all of which was attributable to the Bank

Balance Sheet Analysis

Total Assets

As of June 30, 2011, total assets of the Company were $1,237,003 compared to $1,263,620 at December 31, 2010, a decrease of $27,000.  This decrease is due to the payment of operating expenses out of cash reserves.

Item 3:  Quantitative and Qualitative Disclosure About Market Risk

Not applicable.

 
11

 

Item 4T.  Controls and Procedures

 Evaluation of Disclosure Controls and Procedures.

The Company maintains controls and procedures designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities and Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission.  Based upon management’s evaluation of those controls and procedures performed within the 90 days preceding the filing of this Report, the Chief Executive Officer and Chief Financial Officer of the Company concluded that, subject to the limitations noted below, the Company’s disclosure controls and procedures (as defined in Rule 13a-14 under the Securities Exchange Act of 1934) are effective to ensure that the information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.
 
Changes in Internal Controls Over Financial Reporting.
 
There have been no changes in the Company’s internal control over financial reporting during the first six months of 2011 that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting as such internal control existed as of December 31, 2010.

Limitations on the Effectiveness of Controls
 
Our management (including our Chief Executive Officer and Acting Chief Financial Officer) does not expect that our financial reporting, disclosure controls and other internal controls will prevent all errors and all fraud.  A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.  Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs.  Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.  These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake.  Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override or the control.
 
The design of the system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.  Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

 
12

 

PART II. OTHER INFORMATION

Item 1.   Legal Proceedings

There have been no material changes to the pending legal proceedings to which the Company or the Bank is a party since the filing of the Registrant’s Form 10-K for the year ended December 31, 2010.

Item 1A.  Risk Factors

Not applicable.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds
 
None.
 
Item 3.   Defaults Upon Senior Securities

None.

Item 4.   [Removed and Reserved]

None

Item 5.   Other Information

None

Item 6.   Exhibits

 
31.1
 
Certification of Chief Executive Officer
       
 
31.2
 
Certification of Acting Chief Financial Officer
       
 
32.1
 
Certification  of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
       
 
32.2
  
Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 
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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 thereunto duly authorized.

 
/s/ Charles S. Conoley
 
Charles S. Conoley
 
President and Chief Executive Officer
 
(Principal Executive Officer)
   
 
/s/ Kathleen M. Jepson
 
Kathleen M. Jepson
 
Acting Chief Financial Officer
  
(Principal Financial and Accounting Officer)
Date: August 19, 2011
 

 
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