<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 000-20702
ARGENT CAPITAL CORPORATION
(Exact name of registrant as specified in its charter)
Nevada 88-0383765
- -------------------------------------- --------------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
101 MAIN STREET, THIRD FLOOR, HUNTINGTON BEACH, CALIFORNIA 92648
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(714) 374-1263
- --------------------------------------------------------------------------------
(Issuer's telephone number, including area code)
Check whether the issuer: (1) filed all reports required to be filed
by Section 13 or 15(d) of the 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 [ ].
Number of shares of the registrant's classes of common equity as of
the latest practicable date (November 4, 1998): 2,125,460.
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ARGENT CAPITAL CORPORATION
INDEX TO FORM 10QSB
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1998
PART 1. FINANCIAL INFORMATION
Item 1 - Financial Statements:
Consolidated Balance Sheets as of September 30, 1998 (unaudited)
and December 31, 1997 3
Consolidated Statements of Income for the Three Months and Nine
Months Ended September 30, 1998 and 1998 (unaudited) 4
Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 1998 and 1997 (unaudited) 5
Notes to the Consolidated Financial Statements for the
Nine Months Ended September 30, 1998 (unaudited) 6
Item 2 - Management's Discussion and Analysis of Financial Condition,
Results of Operations, Liquidity and Capital Resources 12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Securities Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
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PART 1. FINANCIAL STATEMENTS
(UNAUDITED)
ARGENT CAPITAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash 445,031 $ 407,147
Accounts Receivable 437,597 119,247
Mortgage Loans, held for sale 6,838,011 14,035,194
Notes Receivable 595,907 603,470
Prepaid Expenses 117,234 4,869
Prepaid Income Taxes 699,372 116,455
----------- -----------
TOTAL CURRENT ASSETS 9,133,152 15,286,382
----------- -----------
PROPERTY AND EQUIPMENT:
Vehicle 65,312 47,624
Furniture, Fixture and Equipment 1,078,462 950,163
----------- -----------
1,143,774 997,787
----------- -----------
Less: Accumulated Depreciation 657,865 438,974
----------- -----------
TOTAL PROPERTY AND EQUIPMENT, NET 485,909 558,813
----------- -----------
Other Assets 154,609 22,405
----------- -----------
TOTAL ASSETS $ 9,773,670 $15,867,600
=========== ===========
LIABILITIES & SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable & Accrued Liabilities 996,715 399,925
Warehouse Financing Facilities 6,583,665 13,060,232
----------- -----------
TOTAL CURRENT LIABILITIES 7,580,380 13,460,157
----------- -----------
Deferred Income Tax Liability 69,577 62,328
Negative Goodwill and Other Deferred Credits 339,999 --
----------- -----------
TOTAL LIABILITIES 7,989,956 13,522,485
----------- -----------
STOCKHOLDERS' EQUITY
Common Stock, $.001 Par Value
Authorized 10,000,000 shares
issued 2,474,441 shares 2,474 271,739
Retained Earnings 134,710 1,245,115
Treasury Stock, 13,333 shares (63,281) --
Additional paid-in-capital 1,709,811 828,261
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 1,783,714 2,345,115
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 9,773,670 $15,867,600
=========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
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ARGENT CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, 1998 Ended September 30, 1998
--------------------------------- ---------------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES
Gain on sale of loans $ 8,617 $ 2,537,665 $ 1,637,979 $ 4,606,439
Interest Income 133,433 238,729 1,058,293 683,914
Other Income (Expense) 47,344 14,045 48,490 44,942
----------- ----------- ----------- -----------
TOTAL REVENUES 189,394 2,790,439 2,744,762 5,335,295
----------- ----------- ----------- -----------
EXPENSES
General & Administrative 1,054,153 1,486,931 3,540,265 3,539,051
Provision for Bad Debts (3,827) -- 163,321 --
Interest 115,718 71,373 638,781 138,206
----------- ----------- ----------- -----------
TOTAL EXPENSES 1,166,044 1,558,304 4,342,367 3,677,257
----------- ----------- ----------- -----------
Earnings (Loss) before Income Tax (976,650) 1,232,135 (1,597,605) 1,658,038
Provision for Income Taxes (514,000) 692,365 (514,000) 762,697
----------- ----------- ----------- -----------
NET INCOME ( LOSS ) $ (462,650) $ 539,770 $(1,083,605) $ 895,341
=========== =========== =========== ===========
Earnings (Loss) per share (Note 6):
Basic $ (0.19) $ 0.22 $ (0.44) $ 0.36
=========== =========== =========== ===========
Diluted $ (0.19) $ 0.22 $ (0.44) $ 0.36
=========== =========== =========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
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ARGENT CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For Nine Months
Ended September 30, 1998
-------------------------------------
1998 1997
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income (Loss) $ (1,083,605) $ 895,341
Adjustments
Depreciation and Amortization 218,891 161,300
(INCREASE)/DECREASE IN ASSETS:
Mortgage Loans Purchased for Sale (37,858,049) 105,657,772
Proceeds from sale of Mortgage Loans 44,566,232 (105,657,772)
Accounts Receivable (302,831) 56,310
Prepaid Income Taxes (536,335) (104,269)
Prepaid Expenses (112,365) (28,617)
Other Assets (64,099) 66,642
INCREASE/(DECREASE) IN LIABILITIES:
Accounts Payable & Accrued Liabilities 491,294 (79,724)
Deferred Taxes -- 565,475
Valuation allowance on mortgage loans 380,000 --
Other Deferred Assets 6,357 (30,109)
------------- -------------
NET CASH GENERATED (USED IN) OPERATING ACTIVITIES 5,705,490 1,502,349
------------- -------------
INVESTING ACTIVITIES
Purchase of Property and Equipment (145,987) 43,183
Sale of investment securities -- (3,187,357)
Collection of Notes Receivable 151,585
------------- -------------
NET CASH GENERATED (USED IN) INVESTING ACTIVITIES 5,598 (3,144,174)
------------- -------------
FINANCING ACTIVITIES
Proceeds from issuance of Notes Payable -- 271,604
Net increase (decrease) in warehouse financing facility (6,476,567) --
Cash from February 1998 merger 928,526 --
Sullivan & Mock acquisition (125,163) --
------------- -------------
NET CASH GENERATED (USED IN) FINANCING ACTIVITIES (5,673,204) 271,604
------------- -------------
Net increase (decrease) in Cash 37,884 (1,370,221)
Cash and Cash equivalents at beginning of period 407,147 841,697
------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 445,031 $ (528,524)
============= =============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
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NOTES TO THE FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES.
BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements at September 30,
1998 include the accounts of Argent Capital Corporation, a corporation organized
in the State of Nevada, and its majority-owned subsidiaries (collectively, the
"Company"). The subsidiaries include Argent Mortgage Corporation (previously
known as Clearview Capital Corporation), Sullivan and Mock Corporation of Nevada
(Sullivan and Mock) and Sunport Medical Corporation (USA). Sullivan and Mock was
acquired on August 31, 1998 pursuant to a stock purchase agreement. All
significant inter-company accounts and transactions have been eliminated in
consolidation.
Prior to February 27, 1998, the Company operated as Sunport Medical Corporation,
a company organized in British Columbia. On February 27, 1998, Argent Capital
Corporation merged with Sunport Medical Corporation. On that same date,
immediately following the merger, the Company acquired all of the outstanding
common shares of Argent Mortgage Corporation from Clearview Holding Corporation,
S.A. ("CHC") by issuance of a sufficient number of shares of the Company's
common stock to give CHC a 75% interest in the common stock of the Company
immediately following the acquisition. This transaction (the "Merger") is
described in detail in the Company's Form 8-K filed in March 1998. The
percentage interest of CHC in the Company's common stock outstanding has been
reduced to approximately 65% pursuant to adjustments provided for in the Stock
Purchase Agreement due to changes in the financial condition of Clearview
Capital Corporation after the closing.
Following the Merger, Argent Capital Corporation is the surviving legal entity.
However, in the accompanying financial statements, all historical information
prior to the Merger represents only the Argent Mortgage Corporation accounts, as
that is the surviving company for accounting purposes.
CHANGE IN ACCOUNTING YEAR
Effective December 31, 1997, the Company elected to change its year-end from
September 30 to December 31 to coincide with the year-end of Clearview Capital
Corporation.
USE OF ESTIMATES
The Company prepares financial statements in conformity with generally accepted
accounting principles that require management 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 financial statements, and
the reported amounts of revenues and expenses during the accounting period.
Actual results could differ from those estimates.
FAIR VALUE DISCLOSURES
The estimated fair value amounts have been determined by the Company using
available market information and appropriate valuation methodologies. These
estimates are subjective in nature and involve uncertainties and matters of
considerable judgment.
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Accordingly, the estimates presented herein are not necessarily indicative of
the amounts the Company could realize in a current market exchange. The use of
different assumptions, judgments and/or estimation methodologies may have a
material effect on the estimated fair value amounts.
SALE OF MORTGAGE LOANS
Gains and losses resulting from sales of mortgage loans are recognized at
settlement date, and are based on the difference between the selling price and
the carrying value of the related loans sold. Nonrefundable fees and direct
costs associated with the purchase of mortgage loans are deferred and recognized
when the loans are sold. The Company sells all loans on a servicing released
basis.
ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENT OF
LIABILITIES
The Financial Accounting Standards Board issued SFAS No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishment of Liabilities,"
to provide accounting and reporting guidance for transfers and servicing of
financial assets and extinguishment of liabilities. The statement uses the
"financial-components approach" in which, after a transfer of financial assets,
an entity would recognize all financial assets and services it controls and all
liabilities it has incurred and remove financial assets and liabilities from the
balance sheet when controls are surrendered or when they are extinguished,
respectively. This statement, with certain provisions deferred, has no
significant impact on results of operations or financial position of the
Company.
STOCK-BASED COMPENSATION
During the year ended September 30, 1997, the Company adopted Statement of
Financial Accounting Standards No. 123 (SFAS 123), "Accounting for Stock-Based
Compensation" ("SFAS 123"). The new standard defines a fair value method of
accounting for stock options and similar equity instruments. Under the fair
value method, compensation cost is measured at the grant date based on the fair
value of the award and is recognized over the service period, which is usually
the vesting period. Pursuant to the new standard, companies are encouraged, but
not required, to adopt the fair value method of accounting for employee
stock-based transactions. Companies are also permitted to continue to account
for such transactions under Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees ("APB 25"), but would be required to
disclose pro forma net income and, if presented, earnings per share as if the
company had applied the new method of accounting. The accounting requirements of
the new method are effective for all employee awards granted after the beginning
of the fiscal year of adoption, whereas the disclosure requirements apply to all
awards granted subsequent to October 1, 1994. The Company will continue to
recognize and measure compensation for its stock option plan in accordance with
the existing provisions of APB 25.
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COMPREHENSIVE INCOME
The Company has adopted Statement of Financial Accounting Standards No. 130
(SFAS 130), "Reporting Comprehensive Income". The Company reports no difference
between comprehensive income and net income.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to 1998
presentation. These changes had no impact on previously reported results of
operations or shareholders' equity.
NOTE 2. NOTES RECEIVABLE
The Company has Notes Receivable totaling approximately $595,907 in principal
amount outstanding at September 30, 1998. This amount consists of the following:
<TABLE>
<S> <C>
Note secured by real estate $ 495,907
Note due from retail mortgage company 100,000
-------
$ 595,907
</TABLE>
The note secured by real estate bears interest at 7% compounded annually, and
is due on demand. The note due from the retail mortgage company bears simple
interest at 9% per annum and all principal and interest accrued becomes due on
February 1, 1999.
The shareholders of the retail mortgage company have also granted to the
Company a one year option to purchase 100% of the common stock of the debtor for
a sum based on five times the 1998 after tax earnings of the debtor.
The Company expects that as of November 18, 1998, it will consummate a sale of
both of these notes receivable to a third party for total cash consideration of
$250,000, of which $75,000 is for the purchase of the note due from retail
mortgage company and $175,000 for the purchase of the Note secured by real
estate. The loss of approximately $327,000 from the sale of the note secured by
real estate is resulting in a reduction in the number of shares of Company
common stock issued to CHC pursuant to the Stock Purchase Agreement which
closed on February 27, 1998. After adjusting for such loss, together with other
post-closing adjustments for other losses (as defined in the Stock Purchase
Agreement) thus far realized after the closing, CHC's percentage ownership of
the Company will have been reduced from 75% to approximately 65%.
NOTE 3. WAREHOUSE FINANCING FACILITIES
In October 1997, the Company obtained a $15,000,000 revolving warehouse
financing facility under which the Company may borrow, repay, and reborrow
funds. Interest under the facility is charged at a floating rate of LIBOR plus
2%. The agreement requires payment of a warehousing fee in advance, as well as
require Argent Mortgage Corporation to maintain a certain minimum level of
tangible net worth. Borrowings under the facility are covered by a security
interest in certain mortgage loans towards which the advances were made. This
warehouse financing facility is due on July 31, 1998, but is subject to
continuing renewals under an indefinite series of available 3-month extensions.
The facility currently requires that payment is due from the receipt of 100% of
the funds from the sale of the underlying collateral mortgage loans. As of
September 30, 1998, the outstanding balance on this line was $2,562,136.
The Company has breached certain covenants under this line and no additional
advances are being made under this facility. As the loans that are pledged under
this agreement are sold the facility is
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being liquidated. The provider of the facility continues to work with the
Company to liquidate the debt.
In June 1998, the Company obtained a new facility. This facility bears interest
at rates ranging from 2-4% over prime, depending upon the security position of
the collateral mortgages being warehoused. The outstanding balance on this
facility as of September 30, 1998 was $3,156,450.
In conjunction with the acquisition of Sullivan & Mock the Company assumed a
warehouse facility. The balance of the facility at September 30, 1998 was
$865,079. This facility has subsequently been paid off.
NOTE 4. COMMON STOCK
The Company has issued stock options at fair value to certain directors and
employees which vest upon issuance and expire five years from issuance. The
transactions for the period ended September 30, 1998 are summarized as follows
and have been adjusted for the Company's 30 to 1 reverse split that was
effective February 27, 1998:
<TABLE>
<CAPTION>
Shares Subject
Outstanding At to Option Option Price Weighted Avg
Exercise Price
- ----------------------- ---------------- ------------------ ----------------
<S> <C> <C> <C>
09/30/97 & 12/31/97 55,000 $4.50 and $4.80 $4.50
================
</TABLE>
At September 30, 1998, 55,000 options were exercisable and the weighted average
remaining contractual life was 34 months.
In the year ended September 30, 1997, the Company adopted SFAS No. 123, however,
as permitted by the standard, the Company has elected to continue following the
guidance of APB 25 for measurement and recognition of stock-based transactions
with employees. Accordingly, no compensation cost has been recognized for the
Company's option plans. The effects of determining compensation cost based on
the fair value of the grant date for these options, consistent with the method
of SFAS No. 123, would yield an immaterial difference.
NOTE 5. INCOME TAX
Deferred tax assets and liabilities are determined based on the difference
between financial and tax reporting bases of assets and liabilities. These
differences result in taxable or deductible amounts in future years. Argent
Mortgage has filed a revised income tax return for the year ended December 31,
1996 which will result in a refund to the Company of approximately $101,000.
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In addition, Argent Mortgage Corporation made payments in 1997 to certain
foreign entities and/or individuals and withheld no federal income taxes. The
Company is reviewing the tax treaties of the countries of incorporation and/or
residence of these foreign payees to determine if any tax liability exists
NOTE 6. EARNINGS (LOSS) PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 128, "Earnings Per Share", which is effective
for financial statements for periods ending after December 15, 1997 and requires
restatement of all prior-period EPS data presented. This Statement replaces the
presentation of primary EPS with a presentation of basic EPS and requires dual
presentation of basic and diluted EPS on the face of the income statement and
requires a reconciliation of the numerator and denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS computation:
<TABLE>
<CAPTION>
For the nine month period ended 09/30/98:
----------------------- --------------------- ---------------------
(Loss) Shares Loss Per Share
----------------------- --------------------- ---------------------
<S> <C> <C> <C>
Net Loss $<1,597,605>
=======================
Basic EPS
Loss available to shareholders $<1,597,605>
2,474,441 $<.65>
Effect of Dilutive Securities N/A
Options N/A
----------------------- --------------------- ---------------------
Diluted EPS
Loss available to common share-
holders plus assumed conversions $<1,597,605> 2,474,441 $<.65>
======================= ===================== =====================
</TABLE>
Options to purchase 46,667 shares of common stock at $4.50 and 8,333 shares of
common stock at $4.80 were outstanding during the period presented but were not
included in the computation of diluted EPS because the options' exercise price
was greater than the average market price of the common shares.
<TABLE>
<CAPTION>
For the nine months ended 09/30/97:
------------------------ -------------------- ---------------------
Income Shares Earnings Per Share
------------------------ -------------------- ---------------------
<S> <C> <C> <C>
Net Income $1,143,606
========================
Basic EPS
Earnings available to shareholders $1,143,606 2,474,441 $ .46
Effect of Dilutive Securities
------------------------ -------------------- ---------------------
Diluted EPS
Earnings available to common
shareholders plus assumed conversions $1,143,606 2,474,441 $ .46
======================== ==================== =====================
</TABLE>
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The period presented for the nine months ended September 30, 1997 pertains only
to Argent Mortgage Corporation. There were no dilutive securities outstanding
for this period for Argent Mortgage Corporation.
NOTE 7. CONTINGENCIES.
A malpractice suit filed against two of the Company's former subsidiaries on
March 8, 1996 was mediated on July 16, 1997 with no resolution of the claim.
This lawsuit claims damages in excess of the minimum jurisdictional limits and
is being handled by the Company's malpractice carrier. A court date had been
scheduled for October 5, 1998, but the case was settled on or about October 1,
1998 without material liability of the Company.
On March 25, 1997, Clearview Capital Corporation filed a complaint in Orange
County Superior Court against former senior management employees for breach of
contract and injunctive relief. This action was subsequently removed to
arbitration where the defendants filed a counterclaim against Clearview for a de
facto/constructive termination of their employment contracts and for
indemnification for their defense. Without the Company paying any settlement,
this complaint was dismissed with prejudice in May 1998 by mutual agreement of
the parties.
Management of the Company believes that the ultimate outcome of these matters
will not have a material adverse effect on the financial position, results of
operations or the liquidity of the Company.
NOTE 8. NASDAQ LISTING
As indicated in the Company's December 31, 1997 10-KSB, the Company was informed
by The NASDAQ Stock Market that the Company is not in compliance with the new
standards required for maintaining continued listing or an initial listing on
The NASDAQ SmallCap Market. On March 26, 1998 the Company filed a request for an
exception to the listing requirements. By letter dated July 20, 1998, NASDAQ's
Listings Qualification Panel (the "Panel") notified the Company that, subject to
the Company's right to appeal, the Panel had determined to delist the Company's
securities from the SmallCap Market. The Company timely filed such an appeal and
requested an oral hearing at which it was given the opportunity to present
written and oral evidence supporting its ability to regain and maintain
compliance with all applicable listing requirements. The oral hearing was held
on September 2, 1998 in Washington, D.C. and management made a comprehensive
presentation, including a new business plan and a specific timetable for
regaining compliance with NASDAQ listing requirements. The Company was notified
on October 27, 1998 that the Panel determined to delist the Company's securities
from the NASDAQ Stock Market effective the close of business on
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that date. The Company has additional appeal rights which may, if pursued, may
affirm, modify, reverse, dismiss or remand the decision to a Panel.
NOTE 9. PURCHASE OF SULLIVAN AND MOCK
On July 31, 1998 the Company acquired all of the outstanding stock of Sullivan
and Mock for $400,000. Sullivan and Mock is a mortgage banking company-doing
business in Nevada. The transaction is being accounted for as a purchase and the
assets acquired and liabilities assumed in conjunction with this transaction are
summarized below:
<TABLE>
<S> <C>
Cash $ 274,000
Mortgage Loans Held For Sale 743,000
Other Assets 13,000
Warehouse Financing Facility (717,000)
Other Liabilities (36,000)
---------
Net assets purchased $ 277,000
=========
</TABLE>
In conjunction with the acquisition, Sullivan and Mock's warehouse line was
terminated and the line was subsequently paid off.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION, RESULTS OF
OPERATIONS, LIQUIDITY AND CAPITAL RESOURCES
OVERVIEW.
The accompanying financial statements include the accounts of Argent Capital
Corporation, a corporation organized in the state of Nevada, and its
majority-owned subsidiaries (collectively, the "Company"). The subsidiaries
include Argent Mortgage Corporation (previously known as Clearview Capital
Corporation), Sullivan and Mock Corporation (Sullivan and Mock) and Sunport
Medical Corporation (USA). All significant intercompany accounts and
transactions have been eliminated in consolidation. Sullivan and Mock was
acquired on August 31, 1998 pursuant to a stock purchase agreement.
Prior to February 27, 1998, the Company operated as Sunport Medical Corporation,
a company organized in British Columbia. On February 27, 1998, Argent Capital
Corporation merged with Sunport Medical Corporation. On that same date,
immediately following the merger, the Company acquired all of the outstanding
common shares of Argent Mortgage Corporation from Clearview Holding Corporation,
S.A. ("CHC") pursuant to the Stock Purchase Agreement dated December 17, 1997 by
and among those parties (the "Stock Purchase Agreement") by issuance of a
sufficient number of shares of the Company's stock to give CHC a 75% interest in
the common stock of the Company immediately following the acquisition. This
transaction (the "Merger") is described in detail in the Company's Form 8-K
filed March 1998. The percentage interest of CHC in the Company's common stock
outstanding has been reduced to approximately 65% pursuant to adjustments
provided for in the Stock Purchase Agreement due to changes in the financial
condition of Clearview Capital Corporation after the closing.
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Following the Merger, Argent Capital Corporation is the surviving legal entity.
However, in the accompanying financial statements, all historical information
prior to the Merger represents only the Argent Mortgage Corporation accounts as
that is the surviving company for accounting purposes.
LIQUIDITY AND FINANCIAL RESOURCES
The Company's cash and equity positions were both improved by the Merger. The
effects of the Merger are described in more detail under Financial Position,
below. The Company believes that cash from operations and borrowings will not be
sufficient to fund the strategic plan discussed below and management is actively
seeking new investors to infuse new capital. In addition the recent upheaval in
the financial markets has made it more difficult to sell high-loan-to-value and
sub-prime loans. As result the Company has curtailed its purchase of
high-loan-to-value-loans and is evaluating whether to curtail the purchase of
sub-prime loans.
During August 1998 the Company has completed a comprehensive strategic and
business plan for the year. Critical to the execution of such plan is the
continuing upgrading of the managerial team. The Company has employed two key
managers: an Executive Vice President of Marketing and a Chief Operations
Officer. These managers possess a considerable depth of knowledge and experience
in their areas of responsibility and will be key in the execution of the
Company's plan. Gary Meek, Chief Financial Officer and director of the Company,
resigned effective October 30, 1998 to pursue other opportunities.
FINANCIAL POSITION
SEPTEMBER 30, 1998 COMPARED TO JUNE 30, 1998
The Company's cash was reduced by $332,000 from June 30, 1998 to September 30,
1998 due primarily to the loss from operations of $977,000. The warehouse line
for the Company's high-loan-to-value loans has been terminated. As the
high-loan-to-value loans are sold the warehouse line is reduced. The remaining
high-loan-to-value loans and the related warehouse facility are expected to be
liquidated by the end of 1998.
The Company has discontinued the purchase of high-loan-to-value loans and has
focused on the purchase and sale of single family sub-prime loans as well as
VA/FHA and conventional loans. However, as discussed above, due to the upheaval
in the financial markets the Company is evaluating whether to curtail the
purchase of sub-prime loans. During the third quarter 1998 Mortgage Loans Held
for Sale increased by $679,000, while the Warehouse Financing Facilities
increased by $1.2 million.
SEPTEMBER 30, 1998 COMPARED TO SEPTEMBER 30, 1997
The Company's cash balance increased by $445,000 from September 30, 1997 to
September 30, 1998 as a result of the Merger during the first quarter of 1998.
The merger contributed $928,000 to the Company's cash balances. The difference
is primarily a
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result of the negative cash flow from operations during the quarter ended
September 30, 1998.
The Company's Mortgage Loans Held for Sale and the outstanding balance on the
Warehouse Financing Facility have increased by $3.7 million and $5.1 million,
respectively, from September 30, 1997 to September 30, 1998. This increase is
the direct result of the change in the Company's primary method of loan resale
during the latter part of 1997. Prior to that time, the majority of the
Company's loans were purchased in the secondary market by a single investor, who
accepted the majority of the Company's loans almost immediately upon funding. In
late 1997, the Company discontinued doing business with this single investor and
began to develop its secondary marketing efforts with a wider range of
investors. As a result, the secondary marketing effort is taking a longer period
of time, resulting in both the loans and the warehousing facility remaining
outstanding for a longer period of time.
The Company's warehouse facility for high loan to value loans has been
terminated. This warehouse facility is being liquidated as the
high-loan-to-value loans are sold. The remainder of the high-loan-to-value loans
should be sold and the related warehouse facility paid off by the end of 1998.
At September 30, 1997 the Company had a $1.7 million receivable from the primary
investor in the Company's loans. This account was subsequently settled and there
is not a comparable receivable as of September 30, 1998.
RESULTS OF OPERATIONS
THIRD QUARTER OF 1998 COMPARED TO THE SECOND QUARTER OF 1998
Gain on sale of loans decreased $828,000 from the second quarter of 1998 to the
third quarter of 1998. The decrease is due primarily to the upheaval in the
financial markets which caused the Company to discontinue the purchase and sale
of high-loan-to-value loans. The lack of liquidity in the secondary market has
also caused a reduction in the spreads that may be realized on the sale of
loans. Interest income decreased $314,000 during the period due to the decrease
in the average balance of mortgage loans held for sale. The decrease in interest
income was partially offset by the decrease in interest expense resulting from
the decrease in the average balance of the warehouse financing facilities.
An income tax benefit of $514,000 was recognized in the third quarter of 1998;
no benefit was recognized in the second quarter.
14
<PAGE> 15
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1997
Gain on sale of mortgage loans decreased by $3.0 million for the nine months
ended September 30, 1998 when compared to the comparable period of 1997. This is
the direct result of the reduction in the purchase and sale of mortgage loans as
discussed above.
Interest income and interest expense increased $311,000 and $539,000,
respectively, for the nine months ended September 30, 1998 when compared to the
comparable period of 1997. The reason for both of these increases is the longer
period of time which loans were held for sale during 1998 which was partially
offset by the reduction in mortgage loans held for sale and the mortgage
financing facilities during 1998.
General and Administrative expenses increased $378,000 for the nine months ended
September 30, 1998 when compared to the comparable period of 1997. The primary
reasons for this increase is the inclusion in 1998 of $315,000 of Sunport costs
and the acquisition of Sullivan and Mock which resulted in a $29,000 increase in
1998.
A provision for bad debts of $163,000 was recorded in 1998, there was no bad
debt provision booked for the comparable period in 1997.
An income tax benefit of $514,000 was recognized in the nine months ended
September 30, 1998 as a result of the pre-tax loss for the period. A tax
provision of $944,000 was recorded for the nine months ended September 30, 1997
as a result of the pre-tax income of $2.1 million.
THIRD QUARTER OF 1998 COMPARED TO THE THIRD QUARTER OF 1997
Gain on sale of mortgage loans decreased by $2.5 million for the third quarter
of 1998 when compared to the comparable period of 1997. This is the direct
result of the reduction in the purchase and sale of mortgage loans as discussed
above.
Interest income decreased $168,000 and interest expense increased $83,000,
respectively, for the quarter ended September 30, 1998 when compared to the
comparable period of 1997. The reason for the decrease in interest income is the
decrease in the average balance of mortgage loans held for sale. The increase in
interest expense is the longer period of time which loans were held for sale
during 1998 which was caused by the change in investors during 1997.
An income tax benefit of $514,000 was recognized in the quarter ended September
30, 1998 as a result of the pre-tax loss for the period. A tax provision of
$874,000 was recorded for the nine months ended September 30, 1997 as a result
of the pre-tax income of $1.7 million.
15
<PAGE> 16
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Royangrove Limited v. Nuova Arca (Investments) Limited and Argent Capital
Corporation . Plaintiff filed this action in the United States District Court,
Central District of California, Case No. 98-7223 SVW (RZx), on September 3,
1998. The complaint is stated in a single claim for relief for breach of
contract alleging that Nuova-Arca Investments Limited ("Nuova-Arca") executed a
$750,000 promissory note in plaintiff's favor and that Nuova-Arca failed to
perform. Plaintiff further alleges that the repayment obligation was to have
been secured by an unspecified number of shares of common stock of Sunport
Medical Corporation, Clearview Capital Corporation and/or the Company. The
Company has never been a party to any promissory note in favor of plaintiff and
therefore the Company does not believe there exists a significant risk of loss.
The Company has answered the complaint, denying all material allegations, and
has requested an award of its attorneys' fees under Rule 11 of the Federal Rules
of Civil Procedure which authorizes such awards in cases of litigation brought
in bad faith.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
None.
16
<PAGE> 17
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.
November 16, 1998 ARGENT CAPITAL CORPORATION
(Registrant)
By:
/s/ Christopher A. Millar
----------------------------------------------
Christopher A. Millar, President
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ARGENT
CAPITAL CORPORATION'S FORM 10-QSB OF SEPTEMBER 30, 1998 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENT.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 445,031
<SECURITIES> 0
<RECEIVABLES> 1,033,504
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9,133,152
<PP&E> 1,143,774
<DEPRECIATION> 657,865
<TOTAL-ASSETS> 9,773,670
<CURRENT-LIABILITIES> 7,580,380
<BONDS> 0
0
0
<COMMON> 2,474
<OTHER-SE> 1,781,240
<TOTAL-LIABILITY-AND-EQUITY> 9,773,670
<SALES> 0
<TOTAL-REVENUES> 2,790,439
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,342,367
<LOSS-PROVISION> 163,321
<INTEREST-EXPENSE> 638,781
<INCOME-PRETAX> (1,597,605)
<INCOME-TAX> (514,000)
<INCOME-CONTINUING> (1,083,605)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,083,605)
<EPS-PRIMARY> (.44)
<EPS-DILUTED> (.44)
</TABLE>
