FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [Fee Required]
For the quarterly period ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from _____________ to _____________
OPPORTUNITY MANAGEMENT COMPANY, INC.
(Exact name of registrant as specified in its charter)
Washington 33-68700-S 91-1427776
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
12904 East Nora, Suite A
Spokane, Washington 99216
(Address of principal executive offices)
Registrant's telephone number, including area code: (509) 928-6545
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act: None
Indicate by check mark whether the issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or other information
statements incorporated by reference in Part III of this Form 10-QSB or any
amendments to this Form 10-QSB. [X]
The issuer's revenues for the quarter ended June 30, 1997 were $317,195. The
aggregate market value of the voting stock held by non-affiliates at August 1,
1997, based on an assumed value of $5.00 per share, was $10,378,233. The
number of shares of common stock outstanding at such date was 2,269,757 shares.
Transitional Small Business Disclosure Format. Yes [ ] No [X]
<PAGE>
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OPPORTUNITY MANAGEMENT COMPANY, INC.
QUARTERLY REPORT ON FORM 10-QSB FOR THE PERIOD ENDED
JUNE 30, 1997
TABLE OF CONTENTS
Page
PART I
Item 1: Financial Statements. . . . . . . . . . . . . . . . . . . . 1
Item 2: Management's Discussion and Analysis of Financial
Condition & Results of Operation. . . . . . . . . . . . . .12
PART II
Item 1: Legal Proceedings . . . . . . . . . . . . . . . . . . . . .15
Item 2: Changes in Securities . . . . . . . . . . . . . . . . . . .15
Item 3: Defaults Upon Senior Securities . . . . . . . . . . . . . .15
Item 4: Submission of Matters to a Vote of Security
Holders . . . . . . . . . . . . . . . . . . . . . . . . . .15
Item 5: Other Information . . . . . . . . . . . . . . . . . . . . .16
Item 6: Exhibits and Reports on Form 8-K. . . . . . . . . . . . . .16
SIGNATURES
(i)
<PAGE>
<PAGE>
PART I
Item 1. FINANCIAL STATEMENTS
"UNAUDITED" INTERIM FINANCIAL STATEMENTS
OPPORTUNITY MANAGEMENT COMPANY, INC.
PREPARED BY MANAGEMENT
- ----------------------------------------------------------------
STATEMENTS OF CONDITION
JUNE 30, 1997 AND 1996
ASSETS
<TABLE>
<CAPTION>
1997 1996
----------------------------
<S> <C> <C>
Loans receivable, earning $ 6,016,133 $ 7,493,556
Loans receivable, nonearning 2,727,647 2,329,298
------------ ------------
8,743,780 9,822,854
Real estate held for sale 2,193,659 1,224,458
------------ ------------
10,937,439 11,047,312
Allowance for losses (155,801) (97,120)
------------ ------------
NET LOANS AND REAL ESTATE
(Notes 2 and 3) 10,781,638 10,950,192
Cash 234,616 7,117
Other assets 1,058 1,874
Accrued interest receivable 64,563 96,669
------------ ------------
TOTAL ASSETS $11,081,875 $11,055,852
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Accrued expenses $ 22,866 $ 16,820
Accrued cash dividends payable to
stockholders 122,509 134,192
------------ -----------
TOTAL LIABILITIES 145,375 151,012
------------ -----------
COMMITMENTS AND CONTINGENCIES (Note 4)
<PAGE>
<PAGE>
STOCKHOLDERS' EQUITY
Common stock - $5 par value, 5,400,000
shares authorized; 1997, 2,244,479
shares; 1996, 2,213,048 shares, issued
and outstanding 11,141,323 10,984,167
Undistributed income (expense) (204,823) (79,327)
------------ ------------
10,936,500 10,904,840
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $11,081,875 $11,055,852
============ ============
</TABLE>
<PAGE>
<PAGE>
"UNAUDITED" INTERIM FINANCIAL STATEMENTS
OPPORTUNITY MANAGEMENT COMPANY, INC.
PREPARED BY MANAGEMENT
- ---------------------------------------------------------------------------
STATEMENTS OF INCOME
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------------------------
<S> <C> <C>
REVENUES
Interest income on residential loans $ 305,908 $ 388,780
Interest income on commercial loans 239,742 243,613
Interest income on bank accounts 3,834 7,691
Other income 185 5,811
------------ ------------
TOTAL REVENUES 549,669 645,895
------------ ------------
EXPENSES
Management fees - related party (Note 5) 82,990 80,977
Amortization of organizational costs - 2,249
Provision for loan and real estate
losses (Notes 2 and 3) - 15,000
Accounting and auditing expenses 25,065 14,870
Legal expenses (Note 5) 92,865 8,511
Business and occupational taxes 4,385 4,336
Directors' compensation 3,400 -
Other expense 37,642 4,136
------------ ------------
TOTAL EXPENSES 246,347 130,079
------------ ------------
INCOME BEFORE GAIN ON SALE OF REAL ESTATE 303,322 515,816
Gain on sale of real estate (Note 4) 13,873 -
------------ ------------
NET INCOME $ 317,195 $ 515,816
============ ============
Primary earnings per common share $ 0.14 $ 0.23
============ ============
Weighted average shares outstanding 2,303,863 2,195,414
============ ============
</TABLE>
<PAGE>
<PAGE>
"UNAUDITED" INTERIM FINANCIAL STATEMENTS
OPPORTUNITY MANAGEMENT COMPANY, INC.
PREPARED BY MANAGEMENT
- ---------------------------------------------------------------------------
STATEMENTS OF INCOME
QUARTERS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------------------------
<S> <C> <C>
REVENUES
Interest income on residential loans $ 146,974 $ 173,886
Interest income on commercial loans 128,324 118,839
Interest income on bank accounts 2,065 4,478
Other income 20 1,134
------------ ------------
TOTAL REVENUES 277,383 298,337
------------ ------------
EXPENSES
Management fees - related party (Note 5) 41,598 40,497
Amortization of organizational costs - 1,125
Provision for loan and real estate
losses (Notes 2 and 3) - -
Accounting and auditing expenses 15,149 10,451
Legal expenses (Note 5) 34,239 5,108
Business and occupational taxes 2,172 2,368
Directors' compensation 1,000 -
Other expense 26,931 2,913
------------ ------------
TOTAL EXPENSES 121,089 62,462
------------ ------------
INCOME BEFORE GAIN ON SALE OF REAL ESTATE 156,294 235,875
Gain on sale of real estate (Note 4) 13,873 -
NET INCOME $ 170,167 $ 235,875
============ ============
Primary earnings per common share $ 0.07 $ 0.11
============ ============
Weighted average shares outstanding 2,382,652 2,239,776
============ ============
</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, 1997 AND 1996
<TABLE>
<CAPTION>
Common Stock Undistributed Total
---------------------- Income Stockholders'
Shares Amount (Expense) Equity
--------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Balance, December 31, 1996 2,225,547 $11,046,659 $(204,823) $10,841,836
Net Income - - 317,195 317,195
Repurchase of common stock (1,761) (8,806) - (8,806)
Issuance of common stock,
net of stock issuance
costs (Note 5) 633 3,168 - 3,168
Dividends reinvested in stock 20,060 100,302 (100,302) -
Cash dividends - - (216,893) (216,893)
--------- ----------- ---------- ------------
Balance, June 30, 1997 2,244,479 $11,141,323 $(204,823) $10,936,500
========= =========== ========== ============
</TABLE>
<PAGE>
<PAGE>
"UNAUDITED" INTERIM FINANCIAL STATEMENTS
OPPORTUNITY MANAGEMENT COMPANY, INC.
PREPARED BY MANAGEMENT
- ---------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
--------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 317,195 $ 515,816
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of organizational costs - 2,249
Provision for loan and real estate losses - 15,000
Amortization of discounts on loans (14,206) (5,759)
Gain on sale of real estate (13,873) -
(Increase) decrease in:
Accrued interest receivable 18,469 (12,564)
Other assets 801 -
Increase (decrease) in:
Accrued expenses (3,102) (10,148)
----------- -----------
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES 305,284 504,594
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of new loans (2,238,952) (1,997,410)
Principal reductions and maturities of loans 2,122,414 1,398,687
Proceeds from sale of real estate owned 119,124 4,978
Advances of costs associated with improvements
of other real estate (54,405) (37,449)
----------- -----------
CASH FLOWS USED IN INVESTING ACTIVITIES (51,819) (631,194)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sales of stock 3,168 316,505
Repurchase of common stock (8,806) -
Cash dividends paid to stockholders (230,363) (272,768)
----------- -----------
CASH FLOWS PROVIDED (USED) BY
FINANCING ACTIVITIES (236,001) 43,737
----------- -----------
INCREASE (DECREASE) IN CASH 17,464 (82,863)
Cash, January 1st $ 217,152 $ 89,980
----------- -----------
Cash, June 30th $ 234,616 $ 7,117
============ ===========
</TABLE>
<PAGE>
<PAGE>
"UNAUDITED" INTERIM FINANCIAL STATEMENTS
OPPORTUNITY MANAGEMENT COMPANY, INC.
PREPARED BY MANAGEMENT
- ---------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS (CONTINUED)
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------------------------
<S> <C> <C>
SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES
Issuance of common stock for stockholder
reinvestment of dividends $ 100,302 $ 233,768
------------ ------------
Acquisition of real estate in settlement
of loans $ 1,082,768 -
------------ ------------
Charge offs against the allowance $ 590 $ 24,291
------------ ------------
New contracts made in connection with
sales of real estate $ 43,940 $ 85,490
------------ ------------
</TABLE>
<PAGE>
<PAGE>
"UNAUDITED" INTERIM FINANCIAL STATEMENTS
OPPORTUNITY MANAGEMENT COMPANY, INC.
PREPARED BY MANAGEMENT
- ---------------------------------------------------------------------------
NOTES TO 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 is adequate. While management uses currently available
information to recognize losses on loans and other real estate, future
additions to the allowances 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>
Loans placed in a nonaccrual status are considered impaired for purposes of
SFAS No. 114 and No. 188. A quarterly analysis of all nonaccrual loans is
performed by management which compares the collateral fair value less costs
to sell as compared to the loan balance, to determine if specific
allowances for impairment are needed.
Allowance for loan and real estate losses:
The Company utilizes the allowance method of providing for losses on
uncollectible loans or overvalued real estate held for sale. 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 allowance,
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
evaluation of current economic conditions.
Valuation allowances are provided for foreclosed real estate held for sale
or purchased real estate held for sale when the fair value of the property
less costs to sell is less than its cost. Real estate held for sale is
carried at the lower of cost (recorded amount at the date of foreclosure or
acquisition) or fair value less disposition costs. Additions to the
allowance are charged to expense.
Real estate held for sale:
Sales of real estate generally are accounted for under the full accrual
method. Under that method, gain is not recognized until the collectibility
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 is recorded by Opportunity
Management Company, Inc. (Note 5).
Dividends:
It is the policy of the Company to distribute at least 95% of annual
taxable income in cash and stock reinvestment dividends to the
stockholders.
The Company offers a dividend reinvestment program (rollover dividend
program) whereby the stockholders have the option of receiving dividends in
cash or alternatively of using their dividends to purchase new shares 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>
<TABLE>
<CAPTION>
1997 1996
-------------------------
<S> <C> <C>
Cash dividends paid 230,363 272,768
Dividends reinvested in stock 100,302 233,768
Accrued dividends, June 30th 122,509 134,192
Accrued dividends, January 1st (135,293) (105,252)
Accrued fractional shares not paid (686) (1,739)
--------- ---------
Dividends on common stock 317,195 533,737
Dividends paid or accrued in excess
of net income - (17,921)
--------- ---------
NET INCOME 317,195 515,816
========= =========
Cash dividends - accrual basis 216,893 299,969
Dividends reinvested in stock - accrual basis 100,302 233,768
Dividends accrued in excess of net income - (17,921)
--------- ---------
NET INCOME 317,195 515,816
========= =========
</TABLE>
Per share amounts:
All per share amounts have been calculated on the basis of weighted average
number of shares outstanding during each quarter.
Note 2. Accounting Changes
Effective January 1, 1996, the Company formally adopted SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of. Under the SFAS, real estate held for sale is to
be measured at the lower of carrying amount or fair value less costs to
sell. Subsequent revisions in estimates of fair value less cost to sell
are to be reported as adjustments to the carrying amount of an asset. The
Company's policy prior to January 1, 1996, was not substantially different
than as prescribed by SFAS No. 121 and therefore, the adoption on the
Company's 1996 financial position and results of operations was
insignificant (Note 3).
<PAGE>
<PAGE>
Note 3. Loans Receivable and Real Estate Held for Sale
Loans receivable at June 30, 1997 and 1996, consists of the following:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
First mortgage loans $7,191,484 $8,198,833
Second mortgage loans 557,035 401,263
Loans secured by personal property and real estate 995,261 1,222,758
---------- ----------
$8,743,780 $9,822,854
========== ==========
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, 1997 and 1996, are as
follows:
1997 1996
---------- ----------
Commercial $2,242,882 $1,916,638
Single and multiple family residential 2,195,047 2,372,955
Rural single and multiple family residential 1,368,027 1,847,949
Mobile homes 995,261 1,222,758
Farm/agricultural 0 79,692
Developed land 1,305,490 1,784,247
Undeveloped land 637,073 598,615
---------- ----------
$8,743,780 $9,822,854
========== ==========
Real estate held for sale at June 30, 1997 and 1996, consists of the
following:
1997 1996
---------- ----------
Commercial $ 231,809 $ 142,695
Single and multiple family residential 326,079 -
Rural single and multiple family residential 422,612 346,259
Mobile homes 111,806 -
Farm/agricultural 9,776 -
Developed land 988,837 735,504
Undeveloped land 102,740 -
---------- ----------
$2,193,659 $1,224,458
========== ==========
</TABLE>
<PAGE>
<PAGE>
An analysis of the changes in the allowance for losses is as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Balance, January 1st $ 156,391 $ 106,554
Provision charged to expense - 15,000
Recoveries - 204
Charge off of losses on sale of real estate owned (590) (24,638)
----------- -----------
Balance, June 30th $ 155,801 $ 97,120
=========== ===========
</TABLE>
Impairment of loans having a recorded investment of $3,137,430 and
$2,329,298 at June 30, 1997 and 1996, respectively, 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, 1997
and 1996, respectively. Interest income on impaired loans of $78,808 and
$64,544 was recognized for cash payments received in 1997 and 1996,
respectively. The average impaired loans during 1997 and 1996 was
$3,303,869 and $2,593,571, respectively.
Included in the allowance for losses, there is a $131,277 and $100,463
specific allowance to reduce real estate held for sale to the estimated
fair value less costs of disposal at June 30, 1997 and 1996, respectively.
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>
1997 1996
---------- ----------
<S> <C> <C>
Income before taxes on income $ 317,195 $ 515,816
Federal income taxes at statutory rates (106,956) (175,377)
---------- ----------
Net Income $ 210,239 $ 340,349
========== ==========
</TABLE>
<PAGE>
<PAGE>
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, 1997 and 1996. 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.
Note 5. Related Party Transactions
Management fees:
CLS Mortgage, Inc. provides office space, administrative, accounting,
computer, and other services to the Company. For the quarters ended June
30, 1997 and 1996, $82,990 and $80,977, respectively, were paid for these
services in accordance with a management agreement. The amounts payable to
CLS Mortgage, Inc. at June 30, 1997 and 1996, were $13,866 and $13,601,
respectively. For 1997 and 1996, the monthly fee was based on one-twelfth
of 1.5% of the 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 the Company. The
President and his wife own 1.07% of the common stock of the Company. The
two sole stockholders directly and indirectly own 3.48% of the common stock
of the Company and 100% of the stock of CLS Mortgage, Inc. at June 30,
1997.
Escrow services:
CLS Escrow provides the Company with escrow services. The stockholders of
CLS Mortgage, Inc. collectively own 50% of the outstanding shares of CLS
Escrow.
Loan placement fees:
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, 1997 and 1996, CLS Mortgage, Inc. received $162,660 and $215,784,
respectively, in loan placement fees (Note 1).
<PAGE>
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation.
Results of Operations
Overview. The ratio of non-earning loans and OREO to total ending assets
increased from 32.1% at June 30, 1996 to 44.4% in 1997. This is a
continuation of a trend which began in 1995. Nonearning loans as a
percentage of ending total assets increased from 21.1% at June 30, 1996 to
24.6% at June 30, 1997. Additionally, OREO as a percentage of ending total
assets increased from 11.1% at June 30, 1996 to 19.8% at June 30, 1997. As
a direct result of this increase of nonearning loans and OREO the return on
average shareholder equity has deceased from 9.7% to 5.8% at June 30, 1996,
and 1997. Furthermore, as a consequence of the continued growth in
nonearning assets and OREO, net income declined to $317,195 for June 30,
1997, a reduction of $198,621 or approximately 40% from June 30, 1996.
The increase in nonearning loans in 1997 and 1996 is believed by management
to be attributable to several factors, including a relatively high
concentration of portfolio loans secured by developed properties; these
loans were originated during the period from 1990 through 1994, when the
Spokane, Washington and Coeur d'Alene, Idaho housing markets were robust.
In 1995, 1996 and 1997 the housing markets softened resulting in many
failed land developments. As a consequence, Opportunity Management
Company, Inc. has foreclosed on several land developments and much of the
nonearning loan portfolio is secured by developed and undeveloped land.
Management of the Company and CLS do not expect overall economic conditions
to improve significantly in 1997, and, as a consequence, CLS has
implemented a number of internal measures designed to improve the quality
of the loans it originates and sells to the Company. One of these measures
is a change in the mix of loans comprising the portfolio. Management
expects to increase the concentration of single-family residential loans
and commercial property loans in the portfolio, and thereby reduce the
concentration of loans secured by developed and undeveloped property.
Management expects loans secured by residential and commercial property to
result in fewer nonearning loans and OREOs. Historically loans secured by
developed and undeveloped land have contributed significantly to increased
OREOs and nonearning loans, resulting in the decline in yields. In
addition, CLS has adopted a stricter, more conservative appraisal review
practice; it has also implemented internal policies designed to ensure that
no more than 20% of the loan portfolio is comprised of loans secured by
developed properties, and that no more than 10% of the portfolio is
comprised of loans secured by undeveloped properties. Additionally, CLS
has employed a full-time collection manager to oversee the sale or other
disposition of real estate acquired by CLS and the Company through
foreclosure or other means.
CLS's and the Company's goals with respect to the Company's loan portfolio
are to reduce the level of nonearning loans to 20% or less of total assets
and to increase the annual yield to 10% or more. No assurance can be given
that these goals will be achieved timely.<PAGE>
<PAGE>
Six Month Period Ended June 30, 1997 Compared to the Six Month Period Ended
June 30, 1996.
General. The Company's net income decreased 39%, to $317,195, for the six
month period ended June 30, 1997, from $515,816 for the six month period
ended June 30, 1996. This decrease was primarily a result of an increase
in nonearning loans, an increase in nonearning real estate owned and higher
levels of legal expenses directly associated with foreclosure and
collection activities.
Return on average assets and equity were 5.7% and 5.8%, respectively, at
June 30, 1997, as compared to 9.6% and 9.7%, respectively, at June 30,
1996. Total assets increased .2%, to $11,081,875, at June 30, 1997, from
$11,055,852 at June 30, 1996. Total loans decreased $1,079,074 during the
year. Real estate owned increased $969,201 for the year.
Interest Income. The Company's interest income decreased 14.2%, to
$549,484, for the six month period ended June 30, 1997, from $640,084 in
the prior year. The decrease in interest income was primarily attributable
to a 17.1% increase in nonearning loans and a 79.2% increase in nonearning
real estate owned. Additionally, interest income has decreased due to a
gradual decline in interest rates of loans in the portfolio.
Prior to March of 1996 management's strategy was to fund high interest rate
loans (15% - 16%) secured by residential, land and mobile home, commercial,
agricultural, developed land and undeveloped land. These loans were
underwritten with an emphasis on the security and less emphasis on the
makers character and ability to repay the obligation. After March of 1996,
loans have been underwritten with more emphasis on the maker's character
and ability to repay. To compete for these loans in the market, the
interest rates of said loans are 12% to 16%. This change in emphasis has
resulted in a gradual decline of the loan portfolio's weighted average
interest rate. On June 30, 1996 the weighted average interest rate of the
loan portfolio was 15.3%, as compared to the weighted average interest rate
of the portfolio on June 30, 1997 of 14.7%. This decline of the weighted
average interest rate of the loan portfolio has contributed to the decrease
in interest income.
Total Expenses. Total expenses increased 89.4%, to $246,347, for the six
month period ended June 30, 1997, as compared to $130,079 for the six month
period ended June 30, 1996. This was an increase of $116,268. The
increase in total expenses is directly attributable to an increase in legal
expenses of $84,354. Legal expenses were higher due to legal proceedings
related to loan collection and OREO foreclosure costs, as well as SEC legal
filing costs. Approximately $25,000 of legal costs for the first quarter
of 1997 were associated with unusual and unexpected legal proceedings for
one non-performing loan. Management expects legal expenses to decrease
significantly in future quarters. Other expenses, primarily expenses <PAGE>
<PAGE>
relating to nonearning loans and OREO's increased $33,506. The Company's
policy is to expense all loan collection and OREO foreclosure costs as
incurred, even if it is anticipated that they may be recovered upon sale of
foreclosed properties.
Management fees paid to CLS for the six month period ended June 30, 1997
were $82,990, as compared to $80,977 in 1996.
Quarter Ended June 30, 1997 Compared to Quarter Ended June 30, 1996.
General. The Company's net income decreased 28%, to $170,167, for the
quarter ended June 30, 1997, from $235,875 for the quarter ended June 30,
1996. This decrease was primarily a result of an increase in nonearning
loans, an increase in nonearning real estate owned and higher levels of
legal expenses directly associated with foreclosure and collection
activities.
Interest Income. The Company's interest income decreased 6.7%, to
$277,363, for the quarter ended June 30, 1997, from $297,203 in the prior
year. The decrease in interest income was primarily attributable to a
17.1% increase in nonearning loans and a 79.2% increase in nonearning real
estate owned. Additionally, interest income has decreased due to a gradual
decline in interest rates of loans in the portfolio.
Total Expenses. Total expenses increased 93.9%, to $121,089, for the
quarter ended June 30, 1997, as compared to $62,462 for the quarter ended
June 30, 1996. This was an increase of $58,627. The increase in total
expenses is directly attributable to an increase in legal expenses of
$29,131. Legal expenses were higher due to legal proceedings related to
loan collection and OREO foreclosure costs, as well as SEC legal filing
costs. Approximately $25,000 of legal costs for the first quarter of 1997
were associated with unusual and unexpected legal proceedings for one non-
performing loan. Management expects legal expenses to decrease
significantly in future quarters. Other expenses, primarily expenses
relating to nonearning loans and OREO's increased $24,018. The Company's
policy is to expense all loan collection and OREO foreclosure costs as
incurred, even if it is anticipated that they may be recovered upon sale of
foreclosed properties.
Management fees paid to CLS for the quarter ended June 30, 1997 were
$41,598, as compared to $40,497 in 1996.
Liquidity and Capital Resources.
Management believes that the Company's cash flow will be sufficient to
support its existing operations for the foreseeable future. If the Company
needs additional liquidity, it would be required to borrow or issue
additional securities. Management believes the cash flow from interest
income is sufficient to service debt. Management has no plans to borrow
capital in the foreseeable future.
<PAGE>
<PAGE>
The Company's total shareholders' equity increased to $10,936,500 at
June 30, 1997, from $10,904,840 at June 30, 1996. At June 30, 1997,
shareholders' equity was 98.61% of total assets, compared to 98.69% at
June 30, 1996. At June 30, 1997, the Company held cash of $234,616.
Effects of Inflation and Changing Prices. Increased inflation would most
likely result in increased interest rates in the market and increased
operating overhead. Unlike most industrial companies, virtually all of the
assets and liabilities of a financial institution are monetary in nature.
As a result, interest rates generally have a significant impact on a
financial institution's performance. Although interest rates do not
necessarily move in the same direction or to the same extent as the prices
of goods and services, increases in inflation generally have resulted in
increased interest rates. Management expects inflation to be 2% to 4% in
the foreseeable future. Additionally, management expects interest rates to
fluctuate less than 2% in the foreseeable future. If interest rates and
inflation remain stable as predicted by management, inflation and changing
prices will not have a big effect upon the company.
Plan of Operation. The Company's plan of operation during the ensuing
twelve-month period is to maintain a portfolio of loans collateralized by
real property sufficient to generate dividends to its shareholders at
annualized rates ranging from 6% to 10%. In order to meet these
objectives, the Company and CLS have adopted operating strategies designed
to (i) reduce the level of non-earning loans in the Company's loan
portfolio, (ii) increase the volume of loans CLS originates and makes
available to the Company and others for purchase, (iii) market real estate
owned, (iv) invest proceeds of real estate owned in earning assets and (v)
more efficiently manage the operations of the Company and CLS.
Additionally, the Company plans to continue operating as a real estate
investment trust, disbursing in excess of 95% of its taxable income to
shareholders as dividends.
<PAGE>
<PAGE>
PART II
Item 1. Legal Proceedings.
Because of the nature of its business, the Company is subject to numerous
claims and legal actions in the ordinary course of its business involving
the collection of delinquent accounts and the validity of liens. While it
is impossible to estimate with certainty the ultimate legal and financial
liability with respect to such claims, the Company believes that, in the
aggregate, such liabilities would not have a material adverse effect on the
financial condition or results of operations of the Company.
Item 2. Changes In Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
The annual meeting of the shareholders was held on Wednesday, May 28, 1997
in Spokane, Washington. Matters 1 and 2 below were submitted to a vote of
the shareholders as of the record date. The "record date" being the close
of business on March 31, 1997. These matters required the affirmative vote
of a majority of the shares present at the annual meeting, in person or by
proxy, and were all approved.
<TABLE>
<CAPTION>
1. Election of Directors:
Nominee For Against Abstain
------- --- ------- -------
<S> <C> <C> <C>
H. E. Brazington 758,690 11,311 10,375
Stanley E. Brazington 758,690 11,311 10,375
Robert C. Brown 758,690 11,311 10,375
Dr. Vaughn Ransom 758,690 11,311 10,375
Vern W. Haworth 758,690 11,311 10,375
Douglas M. O'Coyne 758,690 11,311 10,375
Elden Sorensen 758,690 11,311 10,375
Dr. David W. Hanson 758,690 11,311 10,375
C. Patrick Craigen 758,690 11,311 10,375
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
2. Ratification of Independent Auditor
Approval of the firm of McFarland & Alton, P.S. as independent auditor
for the Company.
For Against Abstain
--- ------- -------
<C> <C> <C>
777,304 2,000 1,072
</TABLE>
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
Exhibits. The following exhibits filed as part of this report. Exhibits
previously filed are incorporated by reference, as noted.
Exhibit No. Description
- ----------- -----------
3.1 Articles of Incorporation of the Company, as amended.
Previously filed as Exhibit 3 to the Company's registration
statement on Form SB-2, dated October 3, 1993, and
incorporated by reference herein.
3.2 Bylaws of the Company, as amended. Previously filed as
Exhibit 3 to the Company's registration statement on Form
SB-2, dated October 3, 1993, and incorporated by reference
herein.
10.1 Copy of management agreement between CLS Mortgage, Inc. and
the Company. Previously filed as Exhibit 10.1 to the
Company's annual report on Form 10-KSB for the year ended
December 31, 1996, and incorporated by reference herein.
27.1 Financial data schedule. Filed herewith.
Form 8-K. No reports on Form 8-K were filed by the registrant during the
first quarter of 1997.
<PAGE>
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant caused this amendment to registration statement to be
signed on this behalf by the undersigned, thereunto duly authorized.
OPPORTUNITY MANAGEMENT COMPANY, INC.
By: /s/ H. E. Brazington
---------------------------------
H. E. Brazington, its President
Dated: August 12, 1997
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 234,616
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 8,743,780
<ALLOWANCE> 155,801
<TOTAL-ASSETS> 11,081,875
<DEPOSITS> 0
<SHORT-TERM> 0
<LIABILITIES-OTHER> 0
<LONG-TERM> 0
0
0
<COMMON> 11,141,323
<OTHER-SE> (204,823)
<TOTAL-LIABILITIES-AND-EQUITY> 11,081,875
<INTEREST-LOAN> 545,650
<INTEREST-INVEST> 0
<INTEREST-OTHER> 4,019
<INTEREST-TOTAL> 549,669
<INTEREST-DEPOSIT> 0
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<EXPENSE-OTHER> 246,347
<INCOME-PRETAX> 0
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 317,195
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 0
<LOANS-NON> 2,727,647
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
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<ALLOWANCE-OPEN> 156,391
<CHARGE-OFFS> 590
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 155,801
<ALLOWANCE-DOMESTIC> 0
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</TABLE>
