<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
/X/ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
/ / TRANSITION REPORT UNDER SECTION 13 OR R 15(d) OF THE SECURITIES
EXCHANGE ACT
For the transition period from ______________to______________
Commission file number 33-68700-S
Opportunity Management Company, Inc.
(Name of small business issuer in its charter)
Washington 91-1427776
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12904 East Nora, Suite A, Spokane, WA 99216
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (509) 928-6545
Check whether the issuer (1) filed all reports required to be filed by
Section 13 of 15(d) of the 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
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
Not applicable.
APPLICABLE ONLY TO CORPORATE ISSUERS
The total number of shares outstanding of the issuer's common stock,
as of July 31, 1996 was 2,213,048 shares at $5.00 per share for a total
capital contribution of $11,065,240.
Transitional Small Business Disclosure Format Yes No X
--- ---
<PAGE>
<PAGE>
OPPORTUNITY MANAGEMENT COMPANY, INC.
QUARTERLY REPORT ON FORM 10-QSB FOR THE PERIOD
ENDED JUNE 30, 1996
TABLE OF CONTENTS
Page
PART I
Item 1: Financial Statements.............................3
Item 2: Management's Discussion and Analysis of
Financial Condition & Results of Operation......18
PART II
Item 1: Legal Proceedings...............................24
Item 2: Changes in Securities...........................24
Item 3: Defaults Upon Senior Securities.................24
Item 4: Submission of Matters to a Vote of Security
Holders.........................................24
Item 5: Other Information...............................24
Item 6: Exhibits and Reports on Form 8-K................25
<PAGE>
<PAGE>
PART I
ITEM 1 FINANCIAL STATEMENTS
"UNAUDITED" INTERIM FINANCIAL STATEMENTS OF
OPPORTUNITY MANAGEMENT COMPANY, INC.
PREPARED BY MANAGEMENT
- ---------------------------------------------------------------------------
STATEMENTS OF CONDITION
JUNE 30, 1996 AND 1995
ASSETS
<TABLE>
<CAPTION>
1996 1995
------------- ------------
<S> <C> <C>
Loans receivable, earning (Note 3) $ 7,493,556 $7,417,280
Loans receivable, nonearning (Note 3) 2,329,298 1,422,449
------------- ------------
9,822,854 8,839,729
Real estate held for sale (Note 3) 1,224,458 723,160
------------- ------------
11,047,312 9,562,889
Allowance for losses (Note 3) (97,120) (104,768)
------------- ------------
NET LOANS AND REAL ESTATE 10,950,192 9,458,121
Cash 7,117 68,638
Other assets 1,874 51,339
Accrued interest receivable 96,669 81,506
------------- ------------
TOTAL ASSETS $11,055,852 $9,659,604
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Accrued expenses 16,820 14,747
Accrued cash dividends payable to
stockholders 134,192 143,301
------------- -----------
TOTAL LIABILITIES 151,012 158,048
------------- -----------
CONTINGENCIES (Note 7)
STOCKHOLDERS' EQUITY
Common stock - $5 par value, 5,400,000
shares authorized; 1996 2,213,048
and 1995 1,910,952 shares issued and
outstanding 10,984,167 9,552,962
Undistributed income (expense) (79,327) (51,406)
------------- -----------
10,904,840 9,501,556
------------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $11,055,852 $9,659,604
============= ===========
</TABLE>
<PAGE>
<PAGE>
"UNAUDITED" INTERIM FINANCIAL STATEMENTS
OPPORTUNITY MANAGEMENT COMPANY, INC.
PREPARED BY MANAGEMENT
- ---------------------------------------------------------------------------
STATEMENTS OF INCOME
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
REVENUES
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Interest income on residential loans $ 388,780 $ 329,186
Interest income on commercial loans 243,613 297,500
Interest income on bank accounts 7,691 2,913
Other income 5,811 1,161
---------- ----------
TOTAL REVENUES 645,895 630,760
---------- ----------
EXPENSES
Management fees - related party (Note 5) 80,977 69,157
Amortization of organizational costs 2,249 10,715
Provision for loan and real estate losses 15,000 38,000
Accounting and auditing expenses 14,870 14,113
Legal expenses 8,511 12,840
Business and occupational taxes 4,336 5,981
Real estate owned expenses 1,625 -
Other expense 2,511 671
---------- ----------
TOTAL EXPENSES 130,079 151,477
---------- ----------
INCOME BEFORE GAIN ON SALE OF REAL ESTATE 515,816 479,283
Gain on sale of real estate (Note 3) - 23,196
---------- ----------
NET INCOME (Notes 4 and 5) $ 515,816 $ 502,479
========== ==========
Primary earnings per common share $ 0.23 $ 0.27
Weighted average shares outstanding 2,195,414 1,845,941
</TABLE>
<PAGE>
<PAGE>
"UNAUDITED" INTERIM FINANCIAL STATEMENTS
OPPORTUNITY MANAGEMENT COMPANY, INC.
PREPARED BY MANAGEMENT
- ---------------------------------------------------------------------------
STATEMENTS OF INCOME
QUARTERS ENDED JUNE 30, 1996 AND 1995
REVENUES
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Interest income on residential loans $ 173,886 $ 170,003
Interest income on commercial loans 118,839 152,355
Interest income on bank accounts 4,478 1,690
Other income 1,134 592
---------- ----------
TOTAL REVENUES 298,337 324,640
---------- ----------
EXPENSES
Management fees - related party (Note 5) 40,497 35,182
Amortization of organizational costs 1,125 5,358
Provision for loan and real estate losses 0 25,000
Accounting and auditing expenses 10,451 11,113
Legal expenses 5,108 12,284
Business and occupational taxes 2,368 3,071
Real estate owned expenses 1,625 -
Other expense 1,288 212
---------- ----------
TOTAL EXPENSES 62,462 92,220
---------- ----------
INCOME BEFORE GAIN ON SALE OF REAL ESTATE 235,875 232,420
Gain on sale of real estate (Note 3) 0 23,196
---------- ----------
NET INCOME (Notes 4 and 5) $ 235,875 $ 255,616
========== ==========
Primary earnings per common share $ 0.11 $ 0.14
Weighted average shares outstanding 2,239,776 1,890,203
</TABLE>
<PAGE>
<PAGE>
"UNAUDITED" INTERIM FINANCIAL STATEMENTS
OPPORTUNITY MANAGEMENT COMPANY, INC.
PREPARED BY MANAGEMENT
- ---------------------------------------------------------------------------
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
Common Stock Undistributed Total
---------------------- Income Stockholders'
Shares Amount (Expense) Equity
--------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Balance, December 31, 1995 2,102,994 $10,433,894 $ (61,406) $10,372,488
Net income - - 515,816 515,816
Issuance of common stock 63,301 316,505 - 316,505
Dividends reinvested in stock 46,753 233,768 (233,768) -
Cash dividends - - (299,969) (299,969)
--------- ------------ ----------- ------------
Balance, June 30, 1996 2,213,048 $10,984,167 $ (79,327) $10,904,840
========= ============ =========== ============
</TABLE>
<PAGE>
<PAGE>
"UNAUDITED INTERIM FINANCIAL STATEMENTS OF
OPPORTUNITY MANAGEMENT COMPANY, INC.
PREPARED BY MANAGEMENT
- ---------------------------------------------------------------------------
STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 515,816 $ 502,479
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of organizational costs 2,249 10,715
Provision for loan and real estate losses 15,000 38,000
Amortization of discounts (5,759) (1,127)
Gain on sale of real estate - (23,196)
(Increase) decrease in:
Accrued interest receivable (12,564) (8,293)
Increase (decrease) in:
Accrued expenses (10,148) (3,081)
----------- ----------
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES 504,594 515,497
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of new loans net of reductions and
maturities - (801,107)
Purchases of new loans (1,997,410) -
Principal reductions and maturities of loans 1,398,687 -
Proceeds from sale of real estate owned 4,978 58,597
Purchases of real estate owned - (105,478)
Advances of costs associated with other
real estate (37,449) (10,737)
----------- ----------
CASH FLOWS USED IN INVESTING ACTIVITIES (631,194) (858,725)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sales of stock 316,505 443,572
Dividends paid to stockholders (272,768) (295,135)
----------- ----------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES 43,737 148,437
----------- ----------
INCREASE (DECREASE) IN CASH (82,863) (194,791)
Cash, January 1 89,980 263,429
----------- ----------
Cash, June 30 $ 7,117 $ 68,638
=========== ==========
</TABLE>
<PAGE>
<PAGE>
"UNAUDITED" INTERIM FINANCIAL STATEMENTS OF
OPPORTUNITY MANAGEMENT COMPANY, INC.
PREPARED BY MANAGEMENT
- ---------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS (CONTINUED)
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Issuance of common stock for stockholder
reinvestment of dividends $ 233,768 $ 228,201
---------- ----------
Charge offs against the allowance $ 24,291 $ 2,287
---------- ----------
New contracts made in connection with
sales of real estate owned $ 85,490 $ 18,250
---------- ----------
</TABLE>
<PAGE>
<PAGE>
"UNAUDITED" INTERIM FINANCIAL STATEMENTS OF
OPPORTUNITY MANAGEMENT COMPANY, INC.
PREPARED BY MANAGEMENT
- ---------------------------------------------------------------------------
NOTES TO INTERIM FINANCIAL STATEMENTS
Note 1. Significant Accounting Policies
FORMATION OF THE COMPANY:
Opportunity Management Company, Inc. was incorporated in the State of
Washington on October 12, 1988 and operates as a Real Estate Investment Trust
(REIT) (Note 4). Its general business purpose is to make loans secured by
interests in real property and derive income from and relating to those
interests in real property.
BASIS OF FINANCIAL STATEMENT PRESENTATION:
The financial statements have been prepared in accordance with generally
accepted accounting principles. In preparing the financial statements,
management is required to make estimates and assumptions that affect the
reported amounts of certain assets and liabilities as of the date of the
statement of financial condition and certain revenues and expenses for the
period. Actual results could differ, either positively or negatively, from
those estimates.
Material estimates that are particularly susceptible to significant change in
the near-term relate to the determination of the allowance for loan losses and
the valuation of real estate acquired in connection with foreclosures or in
satisfaction of loans. In connection with the determination of the allowances
for loan losses and other real estate owned, management obtains independent
appraisals for significant properties.
Management believes that the allowance for loan losses and other real estate
owned are adequate. While management uses currently available information to
recognize losses on loans and other real estate, future additions to the
allowance may be necessary based on changes in economic conditions.
LOANS RECEIVABLE AND INTEREST ON LOANS:
Loans are stated at principal outstanding and net of the allowance for loan
losses. Interest income on loans is calculated by using the simple interest
method on daily balances of the principal amount outstanding.
Loans are placed in a nonaccrual status when loans become ninety days
delinquent. Thereafter, no interest is taken into income unless received in
cash or until such time as the borrower demonstrates the ability to resume
payments to principal and interest. Interest previously accrued but not
collected is generally reversed and charged against income at the time the
loan is placed on nonaccrual status.
<PAGE>
<PAGE>
"UNAUDITED" INTERIM FINANCIAL STATEMENTS OF
OPPORTUNITY MANAGEMENT COMPANY, INC.
PREPARED BY MANAGEMENT
- ---------------------------------------------------------------------------
NOTES TO INTERIM FINANCIAL STATEMENTS
Note 1. Significant Accounting Policies (Continued)
Loans placed in a nonaccrual status are considered impaired for purposes of
SFAS No. 114 and No. 118.
ALLOWANCE FOR LOAN AND REAL ESTATE LOSSES:
The Company utilizes the allowance method of providing for losses on
uncollectible loans or overvalued real estate. Specific valuation allowances
are provided for loans receivable when repayment becomes doubtful and the
amounts expected to be received in settlement of the loan are less than the
amount due. In addition to specific allowances, a general allowance is
provided for future losses based upon a continuing review of loans which
includes consideration of actual net loan loss experience, changes in the
size and character of the loan portfolio, and the evaluation of current
economic conditions.
Valuation allowances are provided for real estate held for sale when the net
realizable value of the property is less than its costs. General valuation
allowances are also provided based on management's estimate of possible losses
in the portfolio. Foreclosed assets that are held for sale are carried at the
lower of cost (recorded amount at the date of foreclosure) or fair value less
disposition costs. Additions to the allowance are charged to expense.
REAL ESTATE HELD FOR SALE:
Real estate held for sale includes properties acquired through a foreclosure
proceeding or acceptance of a deed in lieu of foreclosure or purchased by the
Company for resale. These properties are transferred to other real estate
owned and are recorded at the lower of the loan balances at the date of
transfer or the fair value of the property received as determined by
independent appraisals or current listings. Loan losses arising from the
acquisition of such property are charged against the allowance for loan
losses. An allowance for losses on other real estate owned is maintained
for subsequent valuation adjustments on a specific property basis.
<PAGE>
<PAGE>
"UNAUDITED" INTERIM FINANCIAL STATEMENTS OF
OPPORTUNITY MANAGEMENT COMPANY, INC.
PREPARED BY MANAGEMENT
- ---------------------------------------------------------------------------
NOTES TO INTERIM FINANCIAL STATEMENTS
Note 1. Significant Accounting Policies (Continued)
SALES OF REAL ESTATE:
Sales of real estate generally are accounted for under the full accrual
method. Under that method, gain is not recognized until the collectability
of the sales price is reasonably assured and the earnings process is virtually
complete. When a sale does not meet the requirements for income recognition,
gain is deferred until those requirements are met.
LOAN PLACEMENT FEES:
Opportunity Management Company, Inc. purchases loans from CLS Mortgage, Inc.
for its loan portfolio. The loan principal outstanding includes a loan
placement fee to CLS Mortgage, Inc. which was paid by the borrower and
financed in the loan balance. These fees are accounted for as revenue by
CLS Mortgage, Inc. when the loan is sold to Opportunity Management Company,
Inc. No income or expense related to these fees are recorded by Opportunity
Management Company, Inc. (Note 5).
DIVIDENDS:
It is the policy of the Company to distribute at least 95% of quarterly net
earnings in cash and stock reinvestment dividends to the stockholders. A
special dividend is declared annually in order to meet REIT requirements which
require the Company to distribute 95% of its taxable income to its
stockholders. The special dividend cannot be determined until the tax return
is prepared which is always subsequent to the Company's year end (Note 4).
The Company offers a dividend reinvestment program (rollover dividend program)
whereby the shareholders have the option of receiving dividends in cash or in
the alternative they can apply their dividends toward the purchase of stock at
the $5 stated value per share. The following is a reconciliation of the
dividends on common stock as summarized in the statement of changes in
stockholders' equity:
<PAGE>
<PAGE>
"UNAUDITED" INTERIM FINANCIAL STATEMENTS OF
OPPORTUNITY MANAGEMENT COMPANY, INC.
PREPARED BY MANAGEMENT
- ---------------------------------------------------------------------------
NOTES TO INTERIM FINANCIAL STATEMENTS
Note 1. Significant Accounting Policies (Continued)
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Cash dividends paid $ 272,768 $ 295,135
Dividends reinvested in stock 233,768 228,201
Accrued dividends, June 30 134,192 143,301
Accrued dividends, January 1 (105,252) (131,469)
---------- ----------
Dividends on common stock 535,476 535,168
Net effect of fractional shares (1,739) 11
Special dividends accrued in excess
of net income (27,921) (32,700)
Regular dividends paid in excess of
net income 10,000 -
NET INCOME $ 515,816 $ 502,479
========== ==========
Cash dividends - accrual basis $ 299,969 $ 306,978
Dividends reinvested in stock -
accrual basis 233,768 228,201
Dividends accrued in excess of net income (27,921) (32,700)
Regular dividends paid in excess
of net income 10,000 -
NET INCOME $ 515,816 $ 502,479
========== ==========
</TABLE>
Per share amounts:
All per share amounts have been calculated on the basis of the weighted
average number of shares outstanding during each quarter.
Note 2. Accounting Changes
Effective January 1, 1995, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 114, Accounting By Creditors for Impairment
of a Loan, as amended by SFAS No. 118. Under the SFAS, impairment occurs
when it is probable a creditor will not be able to collect all amounts due
under a loan agreement. Impaired loans are to be measured based on the
present value of expected future cash flows discounted at the loan's effective
interest rate, or as a practical expedient, at the loan's observable market
price or the fair value of the collateral if the loan is collateral dependent.
<PAGE>
<PAGE>
"UNAUDITED" INTERIM FINANCIAL STATEMENTS OF
OPPORTUNITY MANAGEMENT COMPANY, INC.
PREPARED BY MANAGEMENT
- ---------------------------------------------------------------------------
NOTES TO INTERIM FINANCIAL STATEMENTS
Note 2. Accounting Changes (Continued)
Changes in these values will be reflected in income and as adjustments to the
allowance for possible credit losses account. The effect of adoption on the
Company's 1995 financial position and results of operations was insignificant
(Note 3).
Note 3. Loans Receivable and Real Estate Held for Sale
Loans receivable at June 30, 1996 and 1995 consist of the following:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
First mortgage loans $8,198,833 $7,242,205
Second mortgage loans 401,263 699,675
Loans secured by personal property
with land 1,222,758 897,849
---------- ----------
$9,822,854 $8,839,729
========== ==========
A concentration of credit exists in that the majority of loans are secured
by real property in the states of Washington and Idaho.
Types of real property securing loans at June 30, 1996 and 1995 are as follows:
1996 1995
---------- ----------
Commercial $1,916,638 $1,782,584
Single and multiple family residential 2,372,955 1,868,505
Rural single and multiple family
residential 1,847,949 1,935,950
Mobile homes 1,222,758 897,850
Farm/agricultural 79,692 19,787
Developed land 1,784,247 1,453,267
Undeveloped land 598,615 881,786
---------- ----------
$9,822,854 $8,839,729
========== ==========
</TABLE>
<PAGE>
<PAGE>
"UNAUDITED" INTERIM FINANCIAL STATEMENTS OF
OPPORTUNITY MANAGEMENT COMPANY, INC.
PREPARED BY MANAGEMENT
- ---------------------------------------------------------------------------
NOTES TO INTERIM FINANCIAL STATEMENTS
Note 3. Loans Receivable and Real Estate Held for Sale (Continued)
Real estate held for sale at June 30, 1996 and 1995 consists of the following:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Commercial $ 142,695 $ -
Rural single family residential 346,259 111,424
Developed land 735,504 611,736
---------- ----------
$1,224,458 $ 723,160
========== ==========
An analysis of the changes in the allowance for losses is as follows:
1996 1995
----------- -----------
Balance at January 1 $ 106,554 $ 68,275
Provision charged to expense 15,000 38,000
Recoveries 204 780
Charge-off of loss on sale of real
estate owned (24,638) (2,287)
----------- -----------
Balance at June 30 $ 97,120 $ 104,768
=========== ===========
</TABLE>
Impairment of loans having a recorded investment of $2,329,298 at June 30,
1996, has been recognized in conformity with SFAS No. 114 as amended by SFAS
No. 118. There is no specific allowance for loan losses related to these
loans at June 30, 1996. Interest income on impaired loans of $64,544 was
recognized for cash payments received in 1996. The average impaired loans
during the second quarter of 1996 was $2,593,571.
Loans on which the accrual of interest has been discontinued or reduced
amounted to $2,329,298 at June 30, 1996 and $1,422,449 at June 30, 1995. If
interest on those loans had been accrued, such income would have approximated
$273,601 for the quarter ended June 30, 1996 and $137,245 for the quarter
ended June 30, 1995. Interest income on those loans, which is recorded
only when received, amounted to $64,544 for June 30, 1996 and $45,840 for
June 30, 1995.
<PAGE>
<PAGE>
"UNAUDITED" INTERIM FINANCIAL STATEMENTS OF
OPPORTUNITY MANAGEMENT COMPANY, INC.
PREPARED BY MANAGEMENT
- ---------------------------------------------------------------------------
NOTES TO INTERIM FINANCIAL STATEMENTS
Note 4. Income Taxes
The Company, in the opinion of management, continues to qualify as a Real
Estate Investment Trust (REIT) under the applicable provisions of the Internal
Revenue Code. The Company is allowed to deduct the dividends paid to its
stockholders as an expense and in effect not pay federal income taxes. In the
event the Company does not qualify, the Company would owe federal income taxes
as estimated below.
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Income before taxes on income $ 515,816 $ 502,479
Federal income taxes at statutory rates (175,377) (170,843)
---------- ----------
Net Income $ 340,349 $ 331,636
========== ==========
</TABLE>
The company must continue to meet certain conditions on an annual basis to
retain its tax status as a REIT. These conditions were met for the quarters
ended June 30, 1996 and 1995. Dividends distributed are considered ordinary
income to the investors for tax purposes, with the exception of gains on the
sale of real estate, which are treated as capital gains to the investors.
During the first quarter of 1996 a special dividend of $27,921 was paid for
the year ended December 31, 1995. In the first quarter of 1995 a special
dividend of $32,700 was paid for the year ended December 31, 1994.
Note 5. Related Party Transactions
CLS Mortgage, Inc. provides office space, administrative, accounting,
computer, and other services to Opportunity Management Company, Inc. For
the quarters ended June 30, 1996 and 1995, $80,977 and $69,157,
respectively, were paid for these services in accordance with a management
agreement. For 1996 and 1995 the monthly fee was based on one-twelfth of
1.5% of the amount of common stock outstanding each month end. The Company
is relying on CLS Mortgage, Inc. to manage its day-to-day operations as its
administrative manager. The President is also the President of CLS Mortgage,
Inc. and Chairman of the Board of Directors of Opportunity Management Company,
Inc. and owns .67% of the common stock of the Company. The two sole
<PAGE>
<PAGE>
"UNAUDITED" INTERIM FINANCIAL STATEMENTS OF
OPPORTUNITY MANAGEMENT COMPANY, INC.
PREPARED BY MANAGEMENT
- ---------------------------------------------------------------------------
NOTES TO INTERIM FINANCIAL STATEMENTS
Note 5. Related Party Transactions (Continued)
stockholders directly and indirectly own 3.43% of the common stock of
Opportunity Management Company, Inc. and 100% of the stock of CLS Mortgage,
Inc. at June 30, 1996.
CLS Escrow provides Opportunity Management Company, Inc. with escrow services
at no cost. The stockholders of CLS Mortgage, Inc. collectively own 50% of
the outstanding shares of CLS Escrow.
Loans are purchased from or brokered by CLS Mortgage, Inc. CLS Mortgage, Inc.
earns a 6-12% loan placement fee from the borrowers of the monies loaned by
Opportunity Management Company, Inc. For the quarters ended June 30, 1996
and 1995, Opportunity Management Company, Inc. paid $215,784 and $274,187,
respectively, in loan placement fees.
Note 6. Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value of
each class of financial instrument:
CASH:
The carrying amount approximates fair value.
LOANS:
It was determined that a reasonable estimate of fair value could not be made
without incurring excessive costs. The Company does not possess the
information processing system capabilities to provide future principal and
interest cash flows expected to be received. Manual calculation of these
cash flows could not be made without incurring excessive costs due to the
professional time and programming costs this procedure would
<PAGE>
<PAGE>
"UNAUDITED" INTERIM FINANCIAL STATEMENTS OF
OPPORTUNITY MANAGEMENT COMPANY, INC.
PREPARED BY MANAGEMENT
- ---------------------------------------------------------------------------
NOTES TO INTERIM FINANCIAL STATEMENTS
Note 6. Fair Value of Financial Instruments (Continued)
require. All loans are real estate loans with fixed interest rates, which
range from 12-18%, as of June 30, 1996. The approximate maturities of the
loan portfolio are as follows:
<TABLE>
<CAPTION>
Principal
Carrying Percentage
Amount of Portfolio
----------- ------------
<S> <C> <C>
1996 $ 864,074 9%
1997 384,768 4
1998 747,631 8
1999 1,695,592 17
2000 2,432,867 25
2001 1,760,468 18
2002 87,156 1
2003 160,275 1
Thereafter 1,690,023 17
----------- ------------
9,822,854 100%
</TABLE>
Note 7. Contingencies
CONTINGENT LIABILITY:
The existing stockholders who reinvested their dividends on June 30, 1995,
have the right to rescind their purchase. The Company prospectus became
outdated on April 30, 1995. A total of 22,704.6 shares were reinvested at
$5.00 per share representing a contingent liability of $113,523. No
provision for the contingent liability has been accrued in the financial
statements. This right of rescission is limited to those stockholders who
purchased stock after April 30, 1995, and before the amendment to the
offering became effective. As of June 30, 1996, no stockholder has
exercised the right to rescind their purchase.
<PAGE>
<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
PLAN OF OPERATION AND LIQUIDITY
Stock sales together with principal payments received on loans receivable
provides the source of funds to invest in loans receivable. Opportunity
Management plans to continue its Management Contract with CLS and thereby
continue purchasing loans secured by real estate consistent with its
Investment Policy. The Board of Directors has retained the authority to
limit the sale of stock to the availability of loans, but to date has not
exercised this authority.
In order to pass through income to its shareholders without being taxed at
the Company level, it will continue to comply with the REIT provisions of
the Internal Revenue Code.
The interest received on the loans and the gains on real property sales
provide the funds necessary to pay the expenses and make quarterly dividend
distributions to the shareholders. The Company manages its cash by not
purchasing new loans toward the end of the quarter in order to provide the
necessary funds to pay the cash dividends as authorized by the Board of
Directors shortly after the end of each calendar quarter. The Company
expects to continue the present cash management procedures for the
foreseeable future.
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The Company has remained profitable meeting the financial performance
objectives set forth by the Board of Directors. Stock sales have
translated into increased investment in loans which has provided
increased revenues while spreading the portfolio risk. As revenues
have grown, expenses have remained proportionate providing the stable
earnings necessary to make regular quarterly dividend distributions.
Set forth below are the key results from operations for the quarters
ended June 30, 1996 and June 30, 1995.
1. THE COMPANY MET ITS DIVIDEND OBJECTIVES FOR THE QUARTERS ENDED
JUNE 30, 1996 AND JUNE 30, 1995. The Company's principle performance
objective is to provide its shareholders with quarterly dividend
distributions. For the six months ended June 30, 1996 and 1995, the
Company posted primary earnings per share of $.23 and $.27, respectively.
The dividend distribution for the six months ended June 30, 1996 and 1995
of $515,816 and $502,479 respectively, translated into a 9.70% and 10.94%
respective return on average shareholder equity. For the quarters ended
June 30, 1996 and 1995, the Company posted primary earnings per share of
$.11 and $.14, respectively. The dividend distribution for the quarters
ended June 30, 1996 and 1995 of $235,875 and $255,616 respectively,
translated into a 8.70% and 10.92% respective return on average shareholder
equity. As nonearning assets continue to increase the ability to pay a 10%
return to its shareholders is impaired.
2. SALES OF STOCK AND REINVESTED DIVIDENDS PROVIDED THE FUNDS TO PURCHASE
LOANS. Stockholders' equity increased for the six months ended June 30, 1996
and 1995 as a result of sales of common stock of $316,505 and $443,572,
respectively. Furthermore, $233,768 and $228,201 of dividends were reinvested
in stock for the six months ended June 30, 1996 and 1995 respectively. The
Company expects a portion of the shareholder base will continue to reinvest
their dividends in the future. The total amount reinvested was 45.3% for the
six months ended June 30, 1996 and 45.4% for the six months ended June 30,
1995. Stock sales, reinvested dividends and principal payments provide the
means for the Company to purchase new loans. For the six months ended
June 30, 1996 and 1995, total loans increased 3.3% and 10.2% respectively,
as a direct result of the sale of stock and reinvested dividends.
As stated above, stock sales growth thus far in 1996 compared to 1995 slowed
down and Management expects this trend to continue. Management believes the
existing investor base has invested a significant portion of their portfolio
in Opportunity Management stock. Since stock sales correlate to growth in
the purchase of loans, Management projects loan growth will be 5% to 10%
throughout the current year.
3. REVENUES DECREASE. Total revenues for the quarter ended June 30, 1996
were $298,337, a decrease of $26,303 or 8.1% over the second quarter in 1995.
Total revenues for the quarter ended June 30, 1995 were $324,640, an increase
of $39,785 or 14.0% over 1994. As stated above, for the six months ended in
1996 there was an increase of 3.3% in the loan portfolio and an increase of
10.2% for the six months ended in 1995 as result of lower stock sales in
1996. Additionally, there are more nonearning loans in the portfolio than
there have been in previous years thus less interest income.
4. TYPE OF PROPERTY SECURING THE LOANS IN THE PORTFOLIO HAVE CHANGED. At
June 30, 1996 and 1995, 83% and 82% respectively, of the loans in the
portfolio were secured by first liens on real property. Of the $983,125 in
loan growth for the first six months of 1996, 97% was in first mortgage loans,
30% in second mortgage loans and 33% in mobile home combination real estate
loans. During the first six months in 1995, of the $1,324,279 in loan growth,
10% was in first mortgage loans, 46% in second mortgage loans and 44% in
mobile home combination real estate loans. At June 30, 1996 first mortgage
loans increased and second mortgage loans and mobile home loans decreased.
Most of the mobile homes or factory made homes reside on the land that is
owned by the borrower in which the Company has a first lien. Management
projects that there will be more of these mobile home combination loans in
the portfolio in the future.
5. GROSS INTEREST YIELDS WERE DOWN FOR THE SIX MONTHS ENDED JUNE 30, 1996 AS
COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1995. The annualized yield on
average total loans for the six months ended June 30, 1996 was 13.08%, down
from 14.87% for the six months ended June 30, 1995. The gross interest yield
on average commercial loans was 10.10% and 15.74% for the six months ended
June 30, 1996 and 1995, respectively. The decrease in the commercial loan
yield is primarily due to the increase in nonearning loans in the first two
quarters of 1996 as compared to 1995. The gross interest yield on average
residential loans was 16.06% and 13.95% for the six months ended June 30,
1996 and 1995, respectively. The nonearning loans as a percentage of total
loans were 23.71% for the six months ended 1996 and 16.09% for 1995. At any
given time, the Board and Management expect to have 10% to 20% of the loans
portfolio in a nonearning status. Since 24% of the loan portfolio are
nonearning assets, Management is now underwriting loan acquisitions more
conservatively and will continue to do so throughout the year. Additionally,
Management is aggressively foreclosing on most nonearning assets.
6. REAL ESTATE OWNED BY THE COMPANY INCREASED FOR SIX MONTHS ENDED
JUNE 30, 1996. Real estate held for sale increased from $723,160 at
June 30, 1995 to $1,224,458 at June 30, 1996. This increase was a result
of acquiring commercial property, developed land, and single family
residential properties through foreclosure. During the first quarter of
1996, two developed land lots were sold. These lots are part of a 19 lot
development that are currently ready, available and listed for sale.
In the second quarter one of the single family residential properties was
sold. Of the Company's total assets, 21% are nonearning loans receivable
thus Management expects more foreclosures throughout 1996 in settlement of
nonaccrual loans.
7. ALLOWANCE FOR LOAN LOSSES DECREASED FOR THE SIX MONTHS ENDED
JUNE 30, 1996. The allowance for losses at June 30, 1996 and 1995 was
$97,120 and $104,768 representing .88% and 1.10%, respectively of the
loan and real estate owned portfolio balance. The provision for loan
and real estate losses charged to expense for the six months ended
June 30, 1996 and 1995 were $15,000 and $38,000, respectively. Actual
losses charged against the allowance for the six months ended June 30, 1996
and 1995 were $24,638 and $2,287, respectively. The net charge-off's to
average loans and real estate owned outstanding during the first six months
of 1996 and 1995 were .23% and .03%, respectively. The balance at
June 30, 1996 was deemed as adequate and appropriate by the Board of
Directors. The Board of Directors review each delinquent loan receivable and
real estate property held for sale on a quarterly basis to determine if a
specific provision in the allowance for losses is appropriate based upon the
net realizable value of the property securing the loan. The Board uses a
systematic approach to evaluate the need for general allowances based upon
portfolio performance, industry trends, economic conditions, and historical
trends.
8. TOTAL EXPENSES FOR THE SIX MONTHS ENDED JUNE 30, 1996 AS COMPARED TO 1995.
Total expenses as a percentage of average assets were 1.21% and 1.62% for the
six months ended June 30, 1996 and 1995. Management fees for the six months
ended June 30, 1996 increased approximately $11,280 over the first six months
in 1995. Management fees paid to CLS are the largest expense and relate
proportionately to the net assets managed for the Company by CLS. This
expense continues to increase as new stock is issued by the Company. The
maximum fee allowed under the contract is based on 2% of the common stock
outstanding. At this time, the Company is charging a 1.5% fee on the
outstanding stock instead of the 2% allowed.
RETURN ON ASSETS, EQUITY AND EQUITY TO ASSETS RATIO. The following net
returns were realized during the six months ended June 30, 1996 and 1995:
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1996 1995
------ ------
<S> <C> <C>
Return on Assets*
(net income divided by average total assets) 9.57% 10.76%
Return on Equity*
(net income divided by average equity) 9.70% 10.94%
Equity to Assets**
(average equity divided by average total assets) 98.69% 98.35%
</TABLE>
*The return on assets and return on equity for the six months ended June 30,
1996 were lower than the first six months of 1995 primarily as a result of
nonearning loans and nonearning real estate owned.
**The equity to asset ratio increased to 98.69% at June 30, 1996, from 98.35%
at June 30, 1995. This is consistent with Management's present policy to
finance growth with equity, rather than debt.
PLAN OF OPERATION THROUGHOUT THE YEAR.
* The Company is committed to continue to offer its stock for sale to
the public for the foreseeable future. Management projects stock
sales growth will be 5% to 10% annually.
* The Company has no debt, except for the accrued expenses caused by
the accrual method of accounting, which are promptly paid when due.
The Company has no plan for leveraged financing.
* The Company has been able to fully invest all available funds through
the purchase of loans. The Company expects to be able to continue to
acquire similar loans in the future.
* Real estate values have stabilized and therefore, the value of the
security remains strong.
* The Company forecasts a stable demand for its services for the
foreseeable future, evidenced by the daily loan inquiries to CLS
and the portfolio performance.
* Because 21% of Company assets are nonearning loans receivable,
Management expects real estate owned to continue to increase.
* Management expects revenues as a percentage of total assets to
decrease further during 1996. This anticipated decrease is expected
because nonearning assets have increased as outlined above. This is
expected to result in lower return on equity.
* Management's strategy in the immediate future is to purchase more
residential loans than developed and undeveloped land loans. When
developed and undeveloped land loans are purchased, management plans
to purchase them with lower loan to collateral value ratios than they
have in the past.
UNCERTAINTIES
The principle competition for investors' funds are other income producing
securities. One uncertainty is possible fluctuations in market interest
rates. A rise in market rates would make debt securities more competitive
with the Company's historical dividend rates. In the short term, a rise in
interest rates could result in less stock sales, or shareholders may choose to
sell Opportunity Management stock in an effort to change their portfolio.
The present high percentage of nonearning assets may result in lower earnings
and lower dividends. In the event dividends decrease, more shareholders may
choose to sell their stock. No assurance can be made the limited market will
provide liquidity to shareholders choosing to sell.
The loan portfolio consists of loans with maturities of one to fifteen years.
Most loans, however, have remaining terms of three to five years. As loans
mature and balloon payments are paid, new loans are expected to be funded at
present market rates. Thus, the Board believes there would be a three to five
year lag before the average interest rate of the portfolio would increase
after a rise in market rates.
Additionally, throughout 1995 and 1996 the Company has been able to fund loans
with a weighted average interest rate in excess of 15.3%. No assurance can be
made the Company will be able to acquire loans with interest rates in excess
of 15% in the future.
As stated earlier, the Board limits stock sales to the availability of secured
real estate loans provided by CLS. Although the Board is comfortable with its
relationship with CLS, no assurance can be made that CLS will continue to
supply the Company with an adequate number of qualified real estate secured
loans.
Recent federal legislation relating to high cost real estate loans may effect
CLS Mortgage's ability to supply the Company with an adequate number of
qualified real estate loans.
<PAGE>
<PAGE>
PART II
ITEM 1 LEGAL PROCEEDINGS
The Company is not presently involved nor does it expect to be involved in any
legal proceedings, excepting collection actions on loans that are in default.
Since the Company is involved in purchasing loans secured by real property, it
will, by its very nature always be involved in collection activities to enforce
collection on past due loans, including but not limited to Judicial and
Nonjudicial Foreclosure on Deeds of Trusts, Mortgage Foreclosures and Real
Estate Contract Forfeitures. Counsel for the Company is of the Opinion that
collection actions on delinquent accounts does not constitute pending or
threatening litigation under Financial Accounting Standards Board Opinion
Number 5 (FASB 5) and is properly categorized as routine litigation incidental
to its business.
ITEM 2 CHANGES IN SECURITIES
None.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 24, 1996, the annual shareholders' meeting was conducted. The
shareholders in attendance, together with shareholders' votes by proxy,
unanimously elected the following directors to office:
H. E. Brazington, President
Stanley Brazington, Secretary
Rudy W. Nelson, Independent Director
Dr. Vaughn Ransom, Independent Director
Vern W. Haworth, Independent Director
Elden Sorensen, Independent Director
C. Patrick Craigen, Independent Director
Dr. David W. Hanson, Independent Director
Douglas M. O'Coyne, Sr., Director
These directors are all of the directors of Opportunity Management Company.
ITEM 5 OTHER INFORMATION
None.
<PAGE>
<PAGE>
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
There are no exhibits attached to this report. Exhibits previously filed are
incorporated by reference as noted. Exhibits filed herewith appear begin at
page E-1.
EXHIBIT
NUMBER EXHIBIT PAGE
2 Plan of acquisition, reorganization, arrange-
ment, liquidation, or succession*
4 Instruments defining the rights of holders,
including indenture, filed as exhibit 4 to the
Registrant's original Registration Statement
dated October 3, 1993
10 Material contracts filed as exhibit 10 to the
Registrant's original Registration Statement
dated October 3, 1993
11 Statement re: Computation of per share
earnings filed as exhibit 11 to the Registrant's
original Registration Statement dated
October 3, 1993
15 Letter on unaudited interim financial information*
18 Letter on change in accounting principles*
19 Reports furnished to securityholders*
22 Published report regarding matters submitted to
vote by shareholders 27
23 Consent of experts and counsel filed as exhibit
24 to the Registrants original Registration State-
ment dated October 3, 1993
24 Power of attorney*
27 Financial data schedule 28
99 Additional exhibits*
29 Information from reports furnished to State
Insurance Authorities*
*Items denoted by an asterisk have either been omitted or are not applicable.
REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K in the first quarter of 1996.
<PAGE>
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
OPPORTUNITY MANAGEMENT COMPANY, INC.
Registrant
Date
H. E. Brazington
- --------------------------------------- -------------------
President & Director
OPPORTUNITY MANAGEMENT COMPANY, INC.
12904 E. Nora, Suite A
Spokane, WA 99216
Telephone (509) 928-6545
Officers: Directors:
H. E. Brazington, President Rudy W. Nelson
Stan E. Brazington, Secretary Dr. Vaughn Ransom
Vern W. Haworth
Douglas M. O'Coyne, Sr.
Elden Sorensen
C. Patrick Craigen
Dr. David W. Hanson
April 23, 1996
RE: NOTICE OF ANNUAL SHAREHOLDERS MEETING
DATE: MAY 29, 1996
TIME: 6:00 P.M.
WHERE: RED LION INN, I-90 & SULLIVAN ROAD, VERADALE, WA
Dear Shareholders:
We're having our annual meeting on May 29, 1996, at the Red Lion Inn,
I-90 & Sullivan Road, Veradale, WA. The no-host dinner will start at 6:00 p.m.
and the annual meeting will start at 7:00 p.m. The dinner's main entre will
be your choice of Fresh Salmon Filet or Chicken Oscar and the cost will be
$19.00 per person including tax and gratuity. Please R.S.V.P. if you want to
attend the dinner, not later than May 22, 1996, to our staff. The Pages of
Harmony will provide the entertainment after the meeting.
We have attached my President's message, our 1995 Board of Directors
Annual Report and our audited Financial Statements prepared by McFarland &
Alton for your review. If you should have questions regarding the Annual
Report or the Audited Financial Statements, please bring them up informally
with one of the board members or formally in the open portion of the agenda.
Our attorney and our auditor will be present to answer your questions. If
you should desire to have a specific topic discussed at the meeting, please
contact the Corporate Secretary.
The agenda for the meeting will be as follows:
1. President's message.
2. Board of Directors Annual Report.
3. Report on Financial Statements by our auditors.
4. Report on Federal Offering.
5. The election of the Board members listed above on the letterhead for
calendar year 1996 (Vote Required).
6. Open Agenda.
All Shareholders of record as of March 31, 1996, are entitled to vote on the
above issues. In event you are unable to attend the meeting, we would request
that you forward your proxy to the corporate offices prior to the meeting date
pursuant to our Articles of Incorporation and By-Laws. Your vote is
important. You may select any person of legal age to vote your shares. We
hope to see you there!
Sincerely yours,
H. E. Brazington, President
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
PROXY
I certify that I am a Shareholder of record as of March 31, 1996. I am unable
to attend the annual shareholders' meeting on May 29, 1996. I appoint the
President, Mr. H. E. Brazington or ____________________, to vote my shares at
the meeting.
Signature: ____________________________ Signature: _________________________
Print Name:____________________________ Print Name:_________________________
NOTE: The Secretary will fill in your stock certificate number and the number
of shares you own if your records are not available. Please mail your Proxy
to the corporate address contained in the letterhead on or before May 22,
1996, so that it will be received prior to the meeting. Thank you.
Certificate Number:____________________ Number of Shares:_____________________
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,134
<INT-BEARING-DEPOSITS> 5,983
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,224,458
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 9,822,854
<ALLOWANCE> 97,120
<TOTAL-ASSETS> 11,055,852
<DEPOSITS> 0
<SHORT-TERM> 0
<LIABILITIES-OTHER> 151,012
<LONG-TERM> 0
0
0
<COMMON> 10,984,167
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 11,055,852
<INTEREST-LOAN> 632,393
<INTEREST-INVEST> 0
<INTEREST-OTHER> 13,502
<INTEREST-TOTAL> 645,895
<INTEREST-DEPOSIT> 0
<INTEREST-EXPENSE> 0
<INTEREST-INCOME-NET> 645,895
<LOAN-LOSSES> 15,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 0
<INCOME-PRETAX> 0
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 515,816
<EPS-PRIMARY> .23
<EPS-DILUTED> .23
<YIELD-ACTUAL> 0
<LOANS-NON> 2,329,298
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 106,554
<CHARGE-OFFS> 24,638
<RECOVERIES> 204
<ALLOWANCE-CLOSE> 97,120
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
