<PAGE>
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, 1998
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, 1998 were $295,437. The
aggregate market value of the voting stock held by non-affiliates at July 1,
1998, based on an assumed value of $5.00 per share, was $10,214,696. The
number of shares of common stock outstanding at such date was 2,244,012
shares.
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, 1998
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. . . . . . . . . . . . . . . . . . . . . .15
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, 1998 AND 1997
ASSETS
<TABLE>
<CAPTION>
----------------------------
1998 1997
----------------------------
<S> <C> <C>
Loans receivable, earning $ 6,963,296 $ 6,016,133
Loans receivable, nonearning 1,910,588 2,727,647
----------- ------------
8,873,884 8,743,780
Real estate held for sale 1,921,914 2,193,659
------------ ------------
10,795,798 10,937,439
Allowance for losses (108,283) (155,801)
------------ ------------
NET LOANS AND REAL ESTATE (Notes 2, 3, and 5) 10,687,515 10,781,638
Cash and cash equivalents 400,026 234,616
Accrued interest receivable 73,237 64,563
Other assets (Note 5) 20,555 1,058
------------ ------------
TOTAL ASSET S $11,181,333 $11,081,875
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Accrued expenses $ 22,424 $ 22,866
Accrued cash dividends payable to stockholders 224,745 122,509
------------ ------------
TOTAL LIABILITIES 247,169 145,375
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 4)
STOCKHOLDERS' EQUITY
Common stock - $5 par value, 5,400,000 shares
authorized; 1998, 2,244,012 shares; 1997,
2,244,479 shares, issued and outstanding 11,138,987 11,141,323
Undistributed income (expense) (204,823) (204,823)
------------ ------------
10,934,164 10,936,500
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $11,181,333 $11,081,875
============ ============
</TABLE>
<PAGE>
<PAGE>
"UNAUDITED" INTERIM FINANCIAL STATEMENTS
OPPORTUNITY MANAGEMENT COMPANY, INC.
PREPARED BY MANAGEMENT
- ------------------------------------------------------------------------------
STATEMENTS OF INCOME
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
------------------------------
1998 1997
------------------------------
<S> <C> <C>
REVENUES
Interest income on residential loans $ 323,191 $ 305,908
Interest income on commercial loans 232,812 239,742
Interest income on bank accounts 6,365 3,834
Other income 89 185
------------ ------------
TOTAL REVENUES 562,457 549,669
------------ ------------
EXPENSES
Management fees - related party (Note 5) 83,524 82,990
Provision for loan and real estate losses (Note3) - -
Foreclosure expenses 9,922 56,836
Real estate expenses, net of rental income 54,498 52,221
Accounting and auditing expenses 13,157 25,065
Legal expenses (Note 5) 1,418 20,915
Business and occupational taxes 4,279 4,385
Director compensation 2,800 3,400
Other expense 12,081 535
------------ -----------
TOTAL EXPENSES 181,679 246,347
------------ -----------
INCOME BEFORE GAIN ON SALE OF REAL ESTATE 380,778 303,322
Gain on sale of real estate (Note 4) 27,817 13,873
------------ -----------
NET INCOME $ 408,595 $ 317,195
============ ===========
Basic earnings per common share (Note 2) $ 0.18 $ 0.14
============ ===========
Weighted average shares outstanding 2,244,612 2,303,863
============ ===========
</TABLE>
<PAGE>
<PAGE>
"UNAUDITED" INTERIM FINANCIAL STATEMENTS
OPPORTUNITY MANAGEMENT COMPANY, INC.
PREPARED BY MANAGEMENT
- ------------------------------------------------------------------------------
STATEMENTS OF INCOME
QUARTERS ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
----------------------------
1998 1997
----------------------------
<S> <C> <C>
REVENUES
Interest income on residential loans $ 170,000 $ 146,974
Interest income on commercial loans 121,538 128,324
Interest income on bank accounts 3,810 2,065
Other income 89 20
------------ ------------
TOTAL REVENUES 295,437 277,383
------------ ------------
EXPENSES
Management fees - related party (Note 5) 41,771 41,598
Provision for loan and real estate losses (Note 3) - -
Foreclosure expenses 3,699 21,138
Real estate expenses, net of rental income 31,951 32,940
Accounting and auditing expenses 8,125 15,149
Legal expenses (Note 5) 1,270 6,853
Business and occupational taxes 1,653 2,172
Director compensation 1,000 1,000
Other expense 9,670 239
------------ ------------
TOTAL EXPENSES 99,139 121,089
------------ ------------
INCOME BEFORE GAIN ON SALE OF REAL ESTATE 196,298 156,294
Gain on sale of real estate (Note 4) 26,280 13,873
------------ ------------
NET INCOME $ 222,578 $ 170,167
============ ============
Basic earnings per common share (Note 2) $ 0.10 $ 0.07
============ ============
Weighted average shares outstanding 2,245,205 2,382,652
============ ============
</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, 1998 AND 1997
<TABLE>
<CAPTION>
Common Stock Undistributed Total
---------------------- Income Stockholders'
Shares Amount (Expense) Equity
------ ------ ------------- -------------
<S> <C> <C> <C> <C>
Balance, December 31, 1997 2,244,504 $11,141,446 $(204,823) $10,936,623
Net Income - - 408,595 408,595
Rescinded dividends (492) (2,459) - (2,459)
Cash dividends - - (408,595) (408,595)
---------- ------------ ---------- ------------
Balance, June 30, 1998 2,244,012 $11,138,987 $(204,823) $10,934,164
========== ============ ========== ============
</TABLE>
<PAGE>
<PAGE>
"UNAUDITED" INTERIM FINANCIAL STATEMENTS
OPPORTUNITY MANAGEMENT COMPANY, INC.
PREPARED BY MANAGEMENT
- ------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
----------------------------
1998 1997
----------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 408,595 $ 317,195
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of discounts on loans (867) (14,206)
Gains on sale of real estate (27,817) (13,873)
(Increase) decrease in:
Accrued interest receivable 3,262 18,469
Other assets 1,758 801
Increase (decrease) in:
Accrued expenses (9,513) ( 3,102)
------------ ------------
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES 375,418 305,284
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of new loans (1,607,841) (2,238,952)
Principal reductions and maturities of loans 1,423,519 2,122,414
Proceeds from sales and other transactions of
real estate owned 258,211 119,124
Advances of costs associated with other real estate(34,610) (54,405)
------------ ------------
CASH FLOWS USED IN INVESTING ACTIVITIES 39,279 (51,819)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sales of stock - 3,168
Rescinded dividends paid (2,459) (8,806)
Cash dividends paid to stockholders (347,822) (230,363)
------------ ------------
CASH FLOWS USED BY FINANCING ACTIVITIES (350,281) (236,001)
------------ ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 64,416 17,464
Cash and cash equivalents, January 1st $ 335,610 $ 217,152
------------ ------------
Cash and cash equivalents, June 30th $ 400,026 $ 234,616
============ ============
</TABLE>
<PAGE>
<PAGE>
"UNAUDITED" INTERIM FINANCIAL STATEMENTS
OPPORTUNITY MANAGEMENT COMPANY, INC.
PREPARED BY MANAGEMENT
- ------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS (CONTINUED)
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
---------------------------
1998 1997
---------------------------
<S> <C> <C>
SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES
Issuance of common stock for stockholder
reinvestment of dividends $ - $ 100,302
Acquisition of real estate in settlement of loans $ 237,446 $ 1,082,768
Charge offs against the allowance $ 74,980 $ 590
New contracts made in connection with sales of
real estate $ 250,246 $ 43,940
</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. (herein referred to as the "Company") was
incorporated in the state of Washington on October 12, 1988, and is engaged in
the business of making loans secured by interest in real property. Since
inception, it has elected to be treated, for federal income tax purposes, as a
real estate investment trust or REIT.
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.
CASH AND CASH EQUIVALENTS:
For purposes of reporting cash flows, the Company considers all highly liquid
debt instruments purchased with an original maturity of three months or less
to be cash equivalents.
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.
Loans placed in a nonaccrual status (90 or more days delinquent) are
considered impaired for purposes of SFAS No. 114 and No. 118. 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.<PAGE>
<PAGE>
ALLOWANCE FOR LOQN 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 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 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:
Real estate held for sale includes properties acquired through a foreclosure
proceeding, 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 listing less costs of disposal. Loan losses
arising from the acquisition of such property are charged against the
allowance for loan and real estate losses. An allowance for losses on real
estate for sale is maintained for subsequent valuation adjustments on a
specific property basis.
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 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:
The Company purchases loans from CLS Mortgage, Inc. (herein referred to as
"CLS") for its loan portfolio. The loan principal outstanding includes a loan
placement fee to CLS which was paid by the borrower and financed in the loan
balance. These fees are accounted for as revenue by CLS when the loan is sold
to the Company. No income or expense related to these fees is recorded by the
Company (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 if needed 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).
<PAGE>
<PAGE>
The Company formerly offered a dividend reinvestment or rollover program that
gave the stockholders the ability to reinvest their cash dividends in
additional shares of the Company's common stock at the stated par value of $5
per share. In July of 1997, the Company voluntarily withdrew a Securities Act
registration statement in effect with respect to these newly-issuable shares,
effectively ending the program. The Company is currently considering adopting
an open market purchase program having many of the same objectives as the
rollover program. The following is a reconciliation of the dividends on
common stock as summarized in the statement of changes in stockholders'
equity:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Cash dividends paid $ 347,822 $ 230,363
Dividends reinvested in stock - 100,302
Accrued dividends, June 30th 224,745 122,509
Accrued dividends, January 1st (163,963) (135,293)
Accrued fractional shares not paid - (686)
---------- ---------
Dividends on common stock 408,604 317,195
Dividends paid or accrued in excess of net income (9) -
---------- ----------
NET INCOME $ 408,595 $ 317,195
========== ==========
Cash dividends - accrual basis $ 408,595 $ 216,893
Dividends reinvested in stock - accrual basis - 100,302
---------- ----------
NET INCOME $ 408,595 $ 317,195
========== ==========
</TABLE>
EARNINGS PER SHARE:
Earnings per share were computed by dividing net income by the total weighted
average common shares outstanding during the respective periods.
Note 2. Accounting Changes
Effective for the year ended December 31, 1997, the Company adopted SFAS No.
128, Earnings Per Share (EPS). Under the SFAS earnings per share is presented
for basic and diluted EPS on the face of the income statement. Basic EPS
excludes dilution and is computed by dividing income available to common
stockholders by the weighted-average number of common shares outstanding for
the period. There were no dilutive stock convertibles at June 30, 1998 or
1997.
<PAGE>
<PAGE>
Note 3. Loans Receivable and Real Estate Held for Sale
Loans receivable at June 30, 1998 and 1997, consists of the following:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
First mortgage loans $7,718,551 $7,191,484
Second mortgage loans 245,479 557,035
Loans secured by personal property and real estate 909,854 995,261
---------- ----------
$8,873,884 $8,743,780
========== ==========
</TABLE>
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, 1998 and 1997, are as
follows:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Commercial $2,217,513 $2,242,882
Single and multiple family residential 2,041,128 2,195,047
Rural single and multiple family residential 1,624,509 1,368,027
Developed land 1,553,383 1,305,490
Undeveloped land 444,916 637,073
Manufactured homes on real property 892,126 995,261
Agricultural 100,309 0
---------- ----------
$8,873,884 $8,743,780
Real estate held for sale at June 30, 1998 and 1997, consists of the
following:
1998 1997
---------- ----------
Commercial $ 183,837 $ 231,809
Single and multiple family residential 189,335 26,079
Rural single and multiple family residential 213,806 422,612
Developed land 1,126,943 988,837
Undeveloped land 85,913 102,740
Manufactured homes on real property 112,304 111,806
Agricultural 9,776 9,776
---------- ----------
$1,921,914 $2,193,659
========== ==========
</TABLE>
<PAGE>
<PAGE>
An analysis of the changes in the allowance for losses is as follows:
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
Balance, January 1st $ 182,745 $ 156,391
Provision charged to expense - -
Recoveries 518 -
Charge off of losses on sale of real estate owned (74,980) (590)
---------- ----------
Balance, June 30th $ 108,283 $ 155,801
=========== ==========
</TABLE>
Gains on sale of real estate, which are included in the statements of income,
were $27,817 and $13,873 for the six months ended June 30, 1998 and 1997,
respectively.
Impairment of loans having a recorded investment of $1,910,588 and $3,137,430
at June 30, 1998 and 1997, 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, 1998 and 1997,
respectively. The average impaired loans during 1998 and 1997 was $2,170,230
and $3,303,869, respectively.
Included in the allowance for losses is a $83,540 and $131,277 specific
allowance to reduce real estate held for sale to the estimated fair value less
costs of disposal at June 30, 1998 and 1997, respectively. There were no
additional impairment losses resulting from changes in carrying amounts for
the six months ended June 30, 1998.
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>
1998 1997
---------- ----------
<S> <C> <C>
Income before taxes on income $ 408,595 $ 317,195
Federal income taxes at statutory rates (138,922) (106,956)
---------- ----------
Net Income $ 269,673 $ 210,239
========== ==========
</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 six months
ended June 30, 1998 and 1997. 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 provides office space, administrative, accounting, computer, and other
services to the Company. For the six months ended June 30, 1998 and 1997,
$83,524 and $82,990, respectively, were paid for these services in accordance
with a management agreement. For 1998 and 1997 the monthly fee was based on
one-twelfth of 1.5% of the common stock outstanding each month end. The
amounts payable to CLS at June 30, 1998 and 1997, were $13,924 and $13,866,
respectively. The Company is relying on CLS to manage its day-to-day
operations as its administrative manager. The president and chairman of the
Company is also the president of CLS. The president and his wife own 1.09% of
the common stock of the Company. The two sole stockholders of CLS directly
and indirectly own 3.49% of the common stock of the Company and 100% of the
stock of CLS at June 30, 1998.
ESCROW SERVICES:
CLS Escrow provides the Company with escrow services. The stockholders of CLS
collectively own 50% of the outstanding shares of CLS Escrow.
LOAN PLACEMENT FEES:
Loans are purchased from or brokered by CLS. CLS earns a 6-12% loan placement
fee from the borrowers of the monies loaned by the Company. For the six
months ended June 30, 1998 and 1997, CLS received $106,082 and $162,660,
respectively, in loan placement fees (Note 1).
LOANS:
During the second quarter of 1997, a loan was made to CLS which is included in
loans receivable on the statements of condition. The unsecured note matures
on May 30, 2000, and bears interest at a rate of 12%. At June 30, 1998, the
loan receivable balance was $67,000.
OTHER ASSETS:
At June 30, 1998, included in other assets is a $7,609 receivable from a
company owned in majority by a stockholder/director (owning .88% of the
outstanding stock at June 30, 1998) of the Company.
<PAGE>
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation.
Results of Operations
Overview. During 1995 and 1996, the Company experienced negative trends in
non-earning assets. Non-earning loans increased from $964,238 for the year
ending December 31, 1994 to $3,225,033 for the year ending December 31, 1996.
OREOs increased from $662,874 for the year ending December 31, 1994 to
$1,220,140 for the year ending December 31, 1996. Non-earning loans were
$1,910,588 and OREOs were $1,921,914 for the quarter ending June 30, 1998.
However, non-earning assets stabilized in 1997 and have decreased in 1998.
The ratio of non-earning loans and OREO to total ending assets decreased from
44.4% at June 30, 1997 to 34.3% in 1998. Nonearning loans as a percentage of
ending total assets decreased from 24.6% at June 30, 1997 to 17.1% at June 30,
1998. Additionally, OREO as a percentage of ending total assets decreased
from 19.8% at June 30, 1997 to 17.2% at June 30, 1998.
The large amount of OREOs in the portfolio 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, the Company has foreclosed on several land developments.
Total expenses decreased to $181,679 for the six months ending June 30, 1998
from $246,347 for the six months ending June 30, 1997. This dramatic decrease
in expenses is directly related to a decrease in legal expenses and
foreclosure expenses. Legal expenses for the six months ending June 30, 1998
were $1,418 whereas legal expenses for the six months ending June 30, 1997
were $20,915. Foreclosure expenses decreased to $9,922 for the six months
ending June 30, 1998 from $56,836 for the six months ending June 30, 1997. As
a direct result of the decrease in legal and foreclosure expenses, the net
income to average assets (annualized) increased from 6.2% for the six months
ending June 30, 1997 to 8.0% for the quarter ending June 30, 1998.
Furthermore, as a consequence of the decrease in legal and foreclosure
expenses net income increased to $408,595 for June 30, 1998, an increase of
$91,400 or approximately 29% from June 30, 1997. Most of the significant
legal expenses in 1997 were attributable to one case which is presently being
appealed. As legal expenses relating to the appeal accrue, legal expenses may
again increase.
Management of the Company and CLS do not expect overall economic conditions to
improve significantly in 1998, 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 in 1997; it 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. In
<PAGE>
<PAGE>
1998, CLS adopted internal policies designed to ensure that no more than 15%
of the loan portfolio is comprised of loans secured by developed property and
no more than 5% of the loan portfolio is comprised of loans secured by
undeveloped property. 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.
In 1997, CLS's and the Company's goals with the respect to the loan portfolio
were to reduce the level of non-earning loans to 20% or less of total assets.
At June 30, 1998, the Company's level of non-earning loans to total assets was
17.2%. Having achieved this goal, CLS's and the Company's revised goals with
respect to the Company's loan portfolio are to reduce the level of nonearning
loans to 10% or less of total assets, reduce the level of OREOs to 10% or less
of total assets, and to increase the annual yield to 9.5% or more. No
assurance can be given that these goals will be achieved timely.
Quarter Ended June 30, 1998 Compared to the Quarter Ended June 30, 1997.
GENERAL. The Company's net income increased 31%, to $222,578, for the quarter
ended June 30, 1998, from $170,167 for the quarter ended June 30, 1997. This
increase was primarily a result of a decrease in legal and foreclosure
expenses as outlined above.
Return on average assets (annualized) was 8.0% for the quarter ended June 30,
1998, as compared to 6.2%, for the quarter ended June 30, 1997. Total assets
increased .9%, to $11,181,333, at June 30, 1998, from $11,081,875 at June 30,
1997. This increase in the return on assets is directly attributable to
increases in interest income and gains on sales of real estate, and an even
greater reduction in total operating expenses. The Company achieved these
results by primarily reducing its level of non-earning assets. Since June 30,
1997, earning loans have increased by $947,163 and non-earning loans have
decreased by $817,059. Real estate owned decreased $271,745 for the year.
REVENUES. The Company's revenues increased 6.5%, to $295,437, for the quarter
ended June 30, 1998, from $277,383 in the prior year. This modest increase is
viewed as a welcome trend of increasing interest income by management. This
increase of interest income was primarily attributable to the decrease in
nonearning loans and OREOs as a percentage of total assets as outlined above
and a decrease of expenses as outlined above.
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 is expected to result in a
gradual decline of the loan portfolio's weighted average interest rate. Lower
interest income as a result of lower interest rates is expected to be offset
with a higher percentage of earning loans to total assets.
TOTAL EXPENSES. Total expenses decreased 18.1%, to $99,139, for the quarter
ended June 30, 1998, as compared to $121,089 for the quarter ended June 30,
1997. This was a decrease of $21,950. The decrease in total expenses is
directly attributable to a decrease in foreclosure expenses of $17,439 and a
decrease in legal expenses of $5,583. These expenses were higher in 1997 due
<PAGE>
<PAGE>
to legal proceedings related to loan collection and OREO foreclosure costs.
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, 1998 were $41,771,
as compared to $41,598 in 1997.
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 change in the
composition 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 non-earning loans
and OREOs 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. The Company's ability to service
borrowing is dependent upon its interest income.
The Company's total shareholders' equity decreased to $10,934,164 at June 30,
1998, from $10,936,500 at June 30, 1997. At June 30, 1998, shareholders'
equity was 97.79% of total assets, compared to 98.69% at June 30, 1997. At
June 30, 1998, the Company held cash of $400,026.
Effects of Inflation and Changing Prices. The primary impact of inflation on
the Company's operations is increased asset yields and 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 more significant impact on a financial institution's
performance than the effects of general levels of inflation. 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.<PAGE>
<PAGE>
The Year 2000 Issue. The Company has conducted a comprehensive review of its
computer systems to identify those that could be affected by the "Year 2000"
issue, and is developing an implementation plan to resolve the issue. Briefly
stated, the Year 2000 issue is the result of computer programs written to
identify a particular year in two digits as opposed to four; the problem
arises with respect to time-sensitive programs that may confuse the year 2000
with 1900, or for that matter, any year ending in "00". This could lead to
major system failures or miscalculations. The Company presently believes that
it can modify its existing software and, in some instances, convert to new
software, thereby avoiding any internally-generated operational problems. The
cost of these modifications and conversions is not expected to be material.
The Company cannot predict whether other persons and entities with whom it
shares computer data will have modified its software to address the Year 2000
issue in a timely and comprehensive manner. As a consequence, there exists
the possibility that the Company's systems could be "contaminated" by
externally-generated data, which could result in operational problems.
Whether these problems will occur and, if so, their extent, cannot presently
be determined.
Plan of Operation. As is set forth more fully in Item 1 of this report, the
Company's plan of operation during the ensuing twelve-month period is to
acquire and maintain a portfolio of loans collateralized by real property
sufficient to generate dividends to its shareholders at annualized rates
ranging from 6% to 9%. 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) more efficiently manage the operations of the Company and CLS,
and (iv) sell OREO's thereby reducing the level of non-earning real estate
owned in the Company's portfolio. Reference is made to Item 1 for more
complete information concerning these strategies and the Company's and CLS's
plans for implementing them.
[THE BALANCE OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.]
<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 Tuesday, May 26, 1998 in
Spokane, Washington. Matters 1 and 2 below were submitted to a vote of the
shareholders as of the record date being the close of business on March 31,
1998. These matters required the affirmative vote of a majority of the shares
present at the annual meeting, in person or by proxy, and were approved as
follows:.
<TABLE>
<CAPTION>
1. Election of Directors:
Nominee For Against Abstain
------- --- ------- -------
<S> <C> <C> <C>
H. E. Brazington 1,363,266 1,091 25,831
Stanley E. Brazington 1,363,266 1,091 25,831
Robert C. Brown 1,363,266 1,091 25,831
Dr. Vaughn Ransom 1,363,266 1,091 25,831
Vern W. Haworth 1,363,266 1,091 25,831
Douglas M. O'Coyne 1,363,266 1,091 25,831
Elden Sorensen 1,363,266 1,091 25,831
Dr. David W. Hanson 1,363,266 1,091 25,831
C. Patrick Craigen 1,363,266 1,091 25,831
2. Ratification of Independent Auditor
Approval of the firm of McFarland & Alton, P.S. as independent auditor for
the Company.
For Against Abstain
--- ------- -------
1,376,190 3,480 10,518
<PAGE>
<PAGE>
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.
</TABLE>
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
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.
27.1 Financial data schedule. Filed herewith.
</TABLE>
Form 8-K. No reports on Form 8-K were filed by the registrant during the
second quarter of 1998.
<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, 1998
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 400,026
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 8,873,884
<ALLOWANCE> 108,283
<TOTAL-ASSETS> 11,181,333
<DEPOSITS> 0
<SHORT-TERM> 0
<LIABILITIES-OTHER> 0
<LONG-TERM> 0
0
0
<COMMON> 11,138,987
<OTHER-SE> (204,823)
<TOTAL-LIABILITIES-AND-EQUITY> 11,181,333
<INTEREST-LOAN> 556,003
<INTEREST-INVEST> 0
<INTEREST-OTHER> 6,454
<INTEREST-TOTAL> 562,457
<INTEREST-DEPOSIT> 0
<INTEREST-EXPENSE> 0
<INTEREST-INCOME-NET> 0
<LOAN-LOSSES> 74,980
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 99,139
<INCOME-PRETAX> 0
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 222,578
<EPS-PRIMARY> .10
<EPS-DILUTED> 0
<YIELD-ACTUAL> 0
<LOANS-NON> 1,910,588
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 182,745
<CHARGE-OFFS> 74,980
<RECOVERIES> 518
<ALLOWANCE-CLOSE> 108,283
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
