SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 1-8185
BLC FINANCIAL SERVICES, INC.
- - --------------------------------------------------------------------------------
Delaware 75-1430406
- - --------------------------------------------------------------------------------
(State of other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
919 Third Avenue, 17th Floor, New York, New York 10022
- - --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 212-751-5626
- - --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at September 30, 1996
----- ---------------------------------
Common stock $.01 par value 16,896,971
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
The accompanying financial statements and information are submitted as
required by Form 10-Q. The financial information does not include all
disclosures that are required by generally accepted accounting principles.
In the opinion of management, all adjustments that are necessary to
present fairly, the financial position of BLC Financial Services, Inc. (the
"Company") for the periods included, have been made.
<PAGE>
PART I - FINANCIAL STATEMENTS
BLC FINANCIAL SERVICES, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
ASSETS
September 30, June 30,
1996 1996
---- ----
(Unaudited)
Loans receivable, net $ 8,375,000 $ 5,753,000
Loans held for sale 695,000 2,324,000
Cash 672,000 363,000
Restricted cash 143,000 130,000
Accounts and other receivables 386,000 259,000
Furniture and equipment, net of
accumulated depreciation 211,000 159,000
Excess service fees 1,421,000 1,479,000
Deferred income taxes 340,000 340,000
Deferred financing costs, net of
accumulated amortization 42,000 46,000
Security deposits 20,000 22,000
----------- -----------
TOTAL ASSETS $12,305,000 $10,875,000
=========== ===========
The accompanying notes are an integral part of these financial statements.
<PAGE>
PART I - FINANCIAL STATEMENTS
BLC FINANCIAL SERVICES, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
September 30, June 30,
1996 1996
---- ----
(Unaudited)
LIABILITIES
Notes payable $ 5,763,000 $ 3,704,000
Accounts payable & accrued expenses 425,000 361,000
Due to affiliates 622,000 628,000
Debt 593,000 590,000
Customer deposits 183,000 266,000
------------ ------------
Total liabilities 7,586,000 5,549,000
------------ ------------
Minority Interest -- 725,000
------------ ------------
Commitments and contingencies (Note 3)
SHAREHOLDERS' EQUITY
Preferred Stock, $10 par value:
Authorized - 2,000,000 shares
Issued and outstanding - none
Common Stock, $0.01 par value:
Authorized - 35,000,000 shares
Issued and outstanding - 16,896,971 and
16,882,052 respectively 169,000 169,000
Additional paid in capital 6,397,000 6,392,000
Deficit (1,847,000) (1,960,000)
------------ ------------
4,719,000 4,601,000
------------ ------------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 12,305,000 $ 10,875,000
============ ============
The accompanying notes are an integral part of these financial statements.
<PAGE>
PART I - FINANCIAL STATEMENTS
BLC FINANCIAL SERVICES, INC
CONSOLIDATED CONDENSED STATEMENT OF INCOME
(Unaudited)
Three months ended
September 30,
1996 1995
-----------------------------
REVENUES:
Gain on sale of loans $ 561,000 $ 114,000
Interest income 394,000 302,000
Service fee income 200,000 128,000
Miscellaneous 15,000 31,000
----------- ------------
1,170,000 575,000
----------- ------------
EXPENSES
Operating costs 574,000 503,000
General and administrative 288,000 38,000
Interest 158,000 180,000
Minority interest in net income
of subsidiary 2,000 1,000
----------- ------------
1,022,000 722,000
----------- ------------
Net Income before provisions for income taxes 148,000 (147,000)
Provisions for income taxes 35,000 3,000
----------- ------------
Net Income (Loss) $ 113,000 $ (150,000)
=========== ============
Net Income per common share $ 0.01 $ (0.01)
=========== ============
Weighted average number of common shares
and equivalents outstanding 18,082,690 13,178,348
=========== ============
The accompanying notes are an integral part of these financial statements.
<PAGE>
PART I - FINANCIAL STATEMENT
BLC FINANCIAL SERVICES, INC
CONSOLIDATED CONDENSED STATEMENT OF CHANGES
IN SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996
Unaudited
<TABLE>
<CAPTION>
Common Stock Additional
Number of Paid in Accumulated
Shares Amount Capital Deficit Total
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, June 30, 1996 16,882,052 $169,000 $6,392,000 $(1,960,000) $4,601,000
Warrants exercised 14,919 $ -- $ 5,000 $ 5,000
Net income for the three months
ended September 30, 1996 $ 113,000 $ 113,000
----------------------------------------------------------------------
Balance, September 30, 1996 16,896,971 $169,000 $6,397,000 $(1,847,000) $4,719,000
========== ======== ========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
PART I - FINANCIAL STATEMENT
BLC FINANCIAL SERVICES, INC
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended
September 30,
1996 1995
-----------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 113,000 $ (150,000)
Adjustments to reconcile net income (loss) to net
cash provided by (used in)
operating activities:
Depreciation & amortization 18,000 11,000
Minority interest in income of subsidiary 2,000 1,000
Provision for loan losses 3,000 14,000
Changes in assets and liabilities:
Loans held for sale 1,629,000 (144,000)
Accounts and other loans receivable (127,000) 111,000
Security deposits 2,000 (1,000)
Accounts payable & accrued expenses (222,000) (72,000)
Customer deposits (96,000) (12,000)
----------- -----------
Net cash provided by (used in) operating activities 1,322,000 (242,000)
----------- -----------
Cash flows from investing activities:
Loans originated & principal collections of loans
receivable - net (1,307,000)
Loans originated (5,260,000) --
Principal collections & sales of loans receivable 2,638,000 --
Acquisition of equipment (64,000) (11,000)
Purchase of minority interest of subsidiary (380,000) --
----------- -----------
Net cash provided by investing activities (3,066,000) (1,318,000)
----------- -----------
Subtotal $(1,744,000) $(1,560,000)
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
PART I - FINANCIAL STATEMENT
BLC FINANCIAL SERVICES, INC
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(Unaudited)
For the three months ended
September 30,
1996 1995
--------------------------
Balance forward $(1,744,000) $(1,560,000)
----------- -----------
Cash flows from financing activities:
Proceeds from bank loans 5,298,000 2,108,000
Proceeds from other loans payable -- 285,000
Principal payments on notes payable - bank loans (3,239,000) (1,586,000)
Principal payments on other loans payable -- (4,000)
Net increase (decrease) from affiliates (6,000) 984,000
----------- -----------
Net cash provided by (used in)
financing activities 2,053,000 1,787,000
----------- -----------
Net increase (decrease) in cash 309,000 227,000
Cash - beginning of period 363,000 125,000
----------- -----------
Cash - end of period $ 672,000 $ 352,000
=========== ===========
Supplemental disclosures of cash
flow information:
Cash paid during period for interest expense $ 144,000 $ 113,000
=========== ===========
Cash paid during period for income taxes $ 125,000 $ 16,000
=========== ===========
The accompanying notes are an integral part of these financial statements.
<PAGE>
BLC FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 1996
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements
have been prepared in conformity with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and the
applicable rules of the Securities and Exchange Commission. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
three month period ended September 30, 1996 are not necessarily indicative of
the results that may be expected for the year ending June 30, 1997. For further
information, refer to the financial statements and footnotes thereto included in
the Company's annual report on Form 10-K for the year ended June 30, 1996.
Principles of consolidation and preparation
The accompanying consolidated financial statements include the accounts of
BLC Financial Services, Inc. (the Company), its wholly owned corporate
subsidiaries and, its wholly owned partnership (the "Partnership"). The Company
acquired a majority of the Partnership in 1990 and as of September 16, 1996 the
Company acquired the remaining interest.
Business operations
The Company is primarily engaged in the business of making and servicing
loans to small businesses under the Section 7A Guaranteed Loan Program sponsored
by the United States Small Business Administration.
<PAGE>
BLC FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 1996
(Unaudited)
1. BASIS OF PRESENTATION (continued)
Revenue recognition
At origination, the Company determines the estimated fair value of the
guaranteed and unguaranteed portions of the loan and the excess servicing
rights, if any. The cost allocated to each component is based upon the relative
fair values. Upon sale of the guaranteed portion of the loan, the Company
recognizes the lesser of the premium received or the difference between the
sales price and the cost allocated to this component. The excess of the premium
received into income over the life of the loan.
The Company ceases to accrue interest income on loan receivables which
become 30 days delinquent. Gains on the sale of loan receivables are recorded on
the settlement date using the specific identification method.
Per share information
Income per share was computed using the weighted average number of shares
and common stock equivalents outstanding during the period. Fully diluted
earnings per share is not presented as the effect would be immaterial or
antidilutive.
<PAGE>
BLC FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 1996
(Unaudited)
2. LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses for the three months ended September 30,
1996 and 1995 are as follows:
1996 1995
---- ----
Balance at June 30 $ 1,338,000 $711,000
Provision for loan losses 3,000 59,000
Write-off 0 (63,000
)
----------- --------
Balance at September 30 $ 1,341,000 $707,000
=========== ========
3. COMMITMENTS AND CONTINGENCIES:
Litigation
The Company is a defendant in a lawsuit, filed in July 1995, with an
affiliate of the former minority partner of Business Loan Center G.P. seeking
approximately $475,000 primarily in connection with certain expenses incurred
prior to the Company's acquisition of the subsidiary. Management is vigorously
contesting this matter. While the outcome cannot be determined, the Company has
accrued $100,000 for this matter.
The Partnership has been named as defendant in a lawsuit arising out of
the normal course of business activities seeking approximately $100,000.
Management is vigorously contesting this matter. The outcome cannot be
determined, and no provision for any liability that may result has been made in
the financial statements.
<PAGE>
BLC FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 1996
(Unaudited)
4. POOLING OF INTEREST
On February 5, 1996, the Company, through its wholly-owned subsidiary, BLC
Financial Network, Inc. exchanged 1,808,821 shares of its common stock for all
of the issued and outstanding common stock of Southeastern 1st Financial
Network, Inc.(Southeastern). The transaction has been accounted for as a pooling
of interest. Accordingly, the consolidated statement of income and statement of
cash flows for the three months ended September 30, 1995 has been restated.
<PAGE>
BLC FINANCIAL SERVICES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
QUARTER ENDED SEPTEMBER 30, 1996
Results of Operations - Quarter Ended September 30, 1996 vs.
Quarter Ended September 30, 1995
The Company recorded net income of $113,000 (or $.01 per share) for the three
months ended September 30, 1996, as compared to net loss of $150,000 (or ($.01)
per share) for the three months ended September 30, 1995.
Revenues for the three months ended September 30, 1996 increased from $575,000
at September 30, 1995 to $1,170,000 at September 30, 1996, or by approximately
100%. This increase can be attributed to (i) Business Loan Center's increased
loan portfolio which generated greater servicing and interest income for the
period ending September 30,1996 as compared to the period ending September 30,
1995, and (ii) a greater level of loan originations and subsequent loan sales
during the quarter ended September 30, 1996 as compared to the prior year's
period, resulting in an increase in the gain recognized upon the sale of
SBA-guaranteed loans in the secondary market. At September 30, 1996, Business
Loan Center's serviced loan portfolio approximated $70.7 million, as compared to
a portfolio which aggregated approximately $57.3 million at September 30, 1995.
Service fee income, which increased by 56% from the prior year's quarter,
reflected the effects of earning servicing fees of between 1% to 2.62% per annum
on Business Loan Center's serviced loan portfolio. Interest income increased
from $302,000 for the three months ended September 30, 1995 to $394,000 for the
three months ended September 30, 1996, or by approximately 30%. This increase in
service fee and interest income directly resulted from Business Loan Center's
increased performing loan portfolio. Substantially all performing loans at
September 30, 1996 were carrying interest rates between 10.75% and 11.00%.
Loans in the aggregate principal amount of $7,180,000 were funded during the
three months ended September 30, 1996, as compared to loans in the aggregate
principal amount of $1,991,000 for the three months ended September 30, 1995.
The SBA-guaranteed principal amount of the loans funded during the three months
ended September 30, 1996 aggregated $5,388,000, as compared to the aggregate
guaranteed principal of $1,516,000 for the prior year's period. The majority of
the SBA-guaranteed portion of these loans funded during the quarter ended
September 30, 1996 were sold in the secondary market immediately subsequent to
the closing of each loan. Premium rates, which generally approximated 10% of the
face amount, resulted in gains on the sale of loans of $561,000 for the three
months ended September 30, 1996, as compared to $114,000 for the three months
ended September 30, 1995. A portion of the gross gains has been deferred for
both periods in accordance with generally accepted accounting principles.
<PAGE>
Results of Operations - Quarter Ended September 30, 1996 vs.
Quarter Ended September 30, 1995 (continued)
The increase in Business Loan Center's loan volume during the quarter ended
September 30, 1996 resulted from increased origination activities ensuing from
the consolidated efforts of the Company's wholly-owned loan production
subsidiaries, BLC Financial Network, Inc. ("BLC Network"), and BLC Financial
Network of Florida, Inc. ("BLC Network of Florida"). BLC Network currently
originates small business loans in the mid-Atlantic regions through it's
Richmond, Virginia office. BLC Network of Florida, which began operations in
July 1996 through it's Panama City and Orlando, Florida offices, conducts loan
origination activities in the southeastern regions of the United States.
Beginning in October 1996, BLC Financial Network of Mid-America, Inc. joined
Business Loan Center's team as the Company's Wichita, Kansas-based loan
origination center which services the mid-western United States.
At September 30, 1996 eighteen (18) proposed loans in the aggregate principal
amount of $10,699,500 had received both Business Loan Center and SBA approval
and were awaiting closing. An additional twenty-five (25) proposed loans in the
aggregate principal amount of $16,321,300 had been approved by Business Loan
Center and were either awaiting submission to the SBA or had been submitted to
the SBA and were awaiting approval. At September 30, 1996, six (6) loans
remained partially disbursed as they await construction and renovation
completion.
The Company's operating expenses increased from $503,000 for the three months
ended September 30, 1995 to $574,000 for the quarter ended September 30,1996.
This increase resulted from (i) greater salary expenditures, initial start-up
costs, and overhead expenses relating to the commencement of the Company's
Florida operations, and (ii) greater commission expenses relating to increased
loan origination activities during the quarter ended September 30, 1996.
General and administrative expenses of $288,000 for the three months ended
September 30, 1996 increased from $38,000 for the prior year's period as a
result of greater legal, accounting, and administrative expenditures associated
with the organization of the Company's new offices.
Interest expense decreased by 12% during the three months ended September 30,
1996 as compared to the prior year's period. During the quarter ended June 30,
1996, the Company concluded an agreement with a major finance corporation
pursuant to which it sold a participation in its portfolio of unguaranteed
loans. A portion of the proceeds of this sale were utilized to repay the
Company's existing bank line, and as such, interest expense decreased from
$180,000 for the quarter ended September 30, 1995 to $158,000 for the quarter
ended September 30, 1996.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
By actively engaging in commercial lending through Business Loan Center, BLC
Financial Network, Inc., BLC Financial Network of Florida, Inc., and BLC
Financial Network of Mid-America, Inc., the Company has a constant need for debt
financing. Cash used to fund loans, repay existing debt, and fund operating
expenses is currently provided by collections on loans, proceeds from loan
sales, and short and long-term borrowings.
The Company currently maintains a dual purpose bank line from Sterling National
Bank & Trust Company of New York ("Bank") which provides financing of both the
guaranteed and unguaranteed portion of loans made and to be made by the Company.
Specifically, a $2,500,000 warehouse line was made available by the Bank to fund
the guaranteed portion of each new loan at an interest rate equal to 2.5% above
the prime rate together with an administrative fee equal to 1/4 of 1% of each
advance under the guaranteed line. In addition, the Bank line provides a
financing line of $8,000,000 for funding of the unguaranteed portion of new
loans made and to be made by the Company. Approximately $5,000,000 of this
unguaranteed line bears an interest rate equal to 3% above the prime rate, while
the remaining $3,000,000 line carries an interest rate of 1% above the prime
rate. The $3,000,000 credit facility is subordinated to the $5,000,000 facility
and is subject to the Bank obtaining Participants at the above rates. Borrowings
under the guaranteed line are repaid immediately upon the sale of the guaranteed
portion on the secondary market. As discussed previously, during the quarter
ended June 30, 1996, the Company utilized a portion of the sale proceeds
received through a private sale of an interest in the unguaranteed portfolio of
loans to replenish this Bank line.
On September 16, 1996, the Company, through a wholly-owned subsidiary, purchased
the 11.8% minority interest in Business Loan Center Partnership owned by EBLC,
Inc. for $380,000. The balance of the interest in Business Loan Center
Partnership is owned by Business Loan Center, Inc., a wholly owned subidiary of
the Company.
The existing Bank line, along with the anticipated proceeds from sales of
guaranteed loans in the secondary market, the potential proceeds from periodic
sales of undivided interests in the unguaranteed portion of loans, the cash
generated from the existing portfolio in the form of interest and servicing
income, and the regular principal repayments on loans receivable, enables the
Company to believe that its current capital resources and future cash flows will
be sufficient to meet its future financial obligations and projected capital
requirements.
<PAGE>
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
N/A
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits - None
b. One report was filed by the Company on Form 8-K during the fiscal
quarter ended September 30, 1996. On September 17, 1996 the Company
filed a Current Report on Form 8-K which reported the acquisition of
the remaining minority interest in Business Loan Center Partnership
by a wholly owned subsidiary of the Company.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BLC Financial Services, Inc.
Date: November 14, 1996 By: /s/ Robert F. Tannenhauser
-----------------------------
Robert F. Tannenhauser,
President and Chief
Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 672,000
<SECURITIES> 0
<RECEIVABLES> 9,456,000
<ALLOWANCES> (1,340,000)
<INVENTORY> 0
<CURRENT-ASSETS> 10,271,000
<PP&E> 211,000
<DEPRECIATION> 12,000
<TOTAL-ASSETS> 12,305,000
<CURRENT-LIABILITIES> 6,810,000
<BONDS> 0
0
0
<COMMON> 169,000
<OTHER-SE> 4,550,000
<TOTAL-LIABILITY-AND-EQUITY> 12,305,000
<SALES> 776,000
<TOTAL-REVENUES> 1,170,000
<CGS> 0
<TOTAL-COSTS> 1,022,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 3,000
<INTEREST-EXPENSE> 158,000
<INCOME-PRETAX> 148,000
<INCOME-TAX> 35,000
<INCOME-CONTINUING> 113,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 113,000
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
