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 December 31, 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
None
- --------------------------------------------------------------------------------
(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 December 31, 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
December 31, June 30,
1996 1996
----------- -----------
(Unaudited)
Loans receivable, net $10,091,000 $ 5,753,000
Loans held for sale 3,023,000 2,324,000
Cash 99,000 493,000
Accounts and other receivables 260,000 259,000
Furniture and equipment, net of
accumulated depreciation 307,000 159,000
Excess service fees 1,398,000 1,479,000
Deferred income taxes 340,000 340,000
Deferred financing costs, net of
accumulated amortization 38,000 46,000
Security deposits 19,000 22,000
----------- -----------
TOTAL ASSETS $15,575,000 $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
December 31, June 30,
1996 1996
------------ ------------
(Unaudited)
LIABILITIES
Notes payable $ 7,746,000 $ 3,704,000
Accounts payable & accrued expenses 335,000 361,000
Due to affiliates 2,044,000 628,000
Debt 201,000 590,000
Customer deposits 214,000 266,000
------------ ------------
Total liabilities 10,540,000 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 (1,531,000) (1,960,000)
------------ ------------
5,035,000 4,601,000
------------ ------------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 15,575,000 $ 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)
<TABLE>
<CAPTION>
Three months ended Six months ended
December 31, December 31,
1996 1995 1996 1995
---------------------------- --------------------------
<S> <C> <C> <C> <C>
REVENUES:
Gain on sale of loans $ 545,000 $ 181,000 $ 1,164,000 $ 295,000
Interest income 351,000 312,000 745,000 613,000
Service fee income 292,000 123,000 435,000 252,000
Miscellaneous 8,000 6,000 23,000 37,000
---------------------------- --------------------------
1,196,000 622,000 2,367,000 1,197,000
---------------------------- --------------------------
EXPENSES
Operating costs 570,000 320,000 1,145,000 823,000
General and administrative 357,000 33,000 645,000 74,000
Interest 215,000 287,000 373,000 467,000
Minority interest in net income
of subsidiary -- (10,000) 2,000 (9,000)
---------------------------- --------------------------
1,142,000 630,000 2,165,000 1,355,000
---------------------------- --------------------------
Net Income before provisions for income
taxes and extraordinary item 54,000 (8,000) 202,000 (158,000)
Provisions for income taxes (17,000) -- 18,000 --
---------------------------- --------------------------
Income before extraordinary item 71,000 (8,000) 184,000 (158,000)
EXTRAORDINARY ITEM
Forgiveness of debt, net of a provision
for income taxes (note 4) 245,000 -- 245,000 --
---------------------------- --------------------------
Net Income (Loss) $ 316,000 $ (8,000) $ 429,000 $ (158,000)
============================ ==========================
NET INCOME PER COMMON SHARE
Income before extraordinary item $ 0.00 $ -- $ 0.01 $ (0.01)
Extraordinary item 0.02 -- 0.01 --
---------------------------- --------------------------
Net income $ 0.02 $ -- $ 0.02 $ (0.01)
============================ ==========================
Weighted average number of common shares
and equivalents outstanding 17,784,580 13,178,348 17,939,243 13,178,348
============================ ==========================
</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 CHANGES
IN SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED DECEMBER 31, 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 six months
ended December 31, 1996 $ 429,000 $ 429,000
---------------------------------------------------------------
Balance, December 31, 1996 16,896,971 $169,000 $6,397,000 $(1,531,000) $5,035,000
=========== ======== ========== =========== ==========
</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 six months ended
December 31,
1996 1995
---------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 429,000 $ (158,000)
Adjustments to reconcile net income (loss) to net cash (used in) operating
activities:
Depreciation & amortization 97,000 20,000
Minority interest in income of subsidiary 2,000 (9,000)
Provision for loan losses (39,000) 59,000
Forgiveness of debt (note 4) (345,000)
Changes in assets and liabilities:
Loans held for sale (699,000) (398,000)
Accounts and other loans receivable (1,000) 100,000
Security deposits 3,000 (13,000)
Accounts payable & accrued expenses (26,000) (97,000)
Customer deposits (52,000) 111,000
------------ -----------
Net cash (used in) operating activities (631,000) (385,000)
------------ -----------
Cash flows from investing activities:
Loans originated & principal collections of loans
receivable - net (2,055,000)
Loans originated (14,625,000)
Principal collections & sales of loans receivable 10,006,000 --
Acquisition of equipment (177,000) (7,000)
Purchase of minority interest of subsidiary (380,000) --
------------ -----------
Net cash (used in) investing activities (5,176,000) (2,062,000)
------------ -----------
Subtotal $ (5,807,000) $(2,447,000)
------------ -----------
</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 six months ended
December 31,
1996 1995
---------------------------
<S> <C> <C>
Balance forward $ (5,807,000) $(2,447,000)
------------ -----------
Cash flows from financing activities:
Proceeds from bank loans 12,270,000 2,513,000
Principal payments on notes payable - bank loans (8,228,000) (1,207,000)
Principal payments on debentures -- (6,000)
Principal payments on debt (50,000) --
Net increase (decrease) from affiliates 1,416,000 1,487,000
Proceeds from common stock 5,000 --
------------ -----------
Net cash provided by financing activities 5,413,000 2,787,000
------------ -----------
Net increase (decrease) in cash (394,000) 340,000
Cash - beginning of period 493,000 212,000
------------ -----------
Cash - end of period $ 99,000 $ 552,000
============ ===========
Supplemental disclosures of cash flow information:
Cash paid during period for interest expense $ 298,000 $ 405,000
============ ===========
Cash paid during period for income taxes $ 170,000 $ 3,000
============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
BLC FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 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
six month period ended December 31, 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
SIX MONTHS ENDED DECEMBER 31, 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
SIX MONTHS ENDED DECEMBER 31, 1996
(Unaudited)
2. LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses for the six months ended December 31, 1996
and 1995 are as follows:
1996 1995
---- ----
Balance at June 30 $ 1,338,000 $ 711,000
Provision for loan losses (39,000) 59,000
Charge-Offs 0 (63,000)
----------- ---------
Balance at December 31 $ 1,299,000 $ 707,000
=========== =========
3. COMMITMENTS AND CONTINGENCIES:
Litigation
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
SIX MONTHS ENDED DECEMBER 31, 1996
(Unaudited)
4. EXTRAORDINARY GAIN
The Company settled a lawsuit with an affiliate of the former minority
partner of Business Loan Center, G.P. A liability of $600,000 was settled for
$328,000 (settlement of $255,000 plus legal fees of $73,000), resulting in a
gain on the forgiveness of indebtedness of $245,000, net of a provision for
income taxes of $27,000.
5. 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 and six months ended December 31, 1995 has
been restated.
<PAGE>
BLC FINANCIAL SERVICES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
QUARTER ENDED DECEMBER 31, 1996
Results of Operations:
Quarter Ended December 31, 1996 vs. Quarter Ended December 31, 1995
The Company recorded net income of $316,000 (or $.02 per share) for the three
months ended December 31, 1996, as compared to a net loss of $8,000 (or ($.00)
per share) for the three months ended December 31, 1995. During the quarter
ended December 31, 1996, the Company recorded an extraordinary gain of $245,000
as a result of a compromise through partial prepayment of a promissory note
issued in connection with the acquisition of Business Loan Center from its
predecessor in interest. Income before this extraordinary item was $71,000 for
the three months ended December 31, 1996.
Revenues, totaling $1,196,000 for the three months ended December 31, 1996,
increased by approximately 92% from the prior year's period. This substantial
increase can be attributed to (i) Business Loan Center's increased loan
portfolio which generated greater servicing and interest income for the period
ending December 31, 1996 as compared to the period ending December 31, 1995, and
(ii) a greater level of loan originations and subsequent loan sales during the
quarter ended December 31, 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 December 31, 1996, Business Loan Center's
performing loan portfolio approximated $75.3 million as compared to a portfolio
which approximated $58.6 million at December 31, 1995.
Interest income increased from $312,000 for the three months ended December 31,
1995 to $351,000 for the three months ended December 31, 1996, or by
approximately 13%. This increase directly resulted from Business Loan Center's
increased performing loan portfolio. Substantially all performing loans at
December 31, 1996 were carrying interest rates between 10.75% and 11.00%, as
compared to rates between 11.25% and 11.50% for the prior year's period.
Additionally, service fee income increased from $123,000 for the three months
ended December 31, 1995 to $292,000 for the three months ended December 31,
1996. This 137% increase reflects the effects of earning servicing fees of
between 1.00% and 2.6% per annum on Business Loan Center's serviced loan
portfolio. The average servicing fee rate for loans sold in the secondary market
during the three months ended December 31, 1996 approximated 2.08%.
The majority of loans originated during the quarter ended December 31, 1996 were
sold in the secondary market immediately subsequent to the closing of each loan.
Premium rates, which generally range from 6% to 10% over the face amount,
resulted in gains on the sale of loans of $545,000 for the three months ended
December 31, 1996, as compared to $181,000 for the three months ended December
31, 1995. A portion of the gross gains has been deferred for both periods in
accordance with generally accepted accounting principles.
<PAGE>
BLC FINANCIAL SERVICES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
QUARTER ENDED DECEMBER 31, 1996
Results of Operations:
Quarter Ended December 31, 1996 vs. Quarter Ended December 31, 1995 (continued)
Loans in the aggregate principal amount of $7,965,000 were originated during the
three months ended December 31, 1996, as compared to loans in the aggregate
principal amount of $2,697,000 for the three months ended December 31, 1995. The
SBA guaranteed principal amount of the loans originated during the three months
ended December 31, 1996 aggregated $5,974,000, as compared to the aggregate
guaranteed principal of $1,967,000 for the prior year's period.
The increase in Business Loan Center's loan volume during the quarter ended
December 31, 1996 resulted primarily from increased origination activities
ensuing from the efforts of one of the Company's wholly-owned loan production
subsidiaries, BLC Financial Network, Inc. ("BLC Network"). On February 5, 1996,
the Company, through its wholly-owned subsidiary BLC Financial Network, Inc.,
acquired all of the issued and outstanding common stock of Southeastern 1st
Financial Network, Inc. a loan origination company headquartered in Richmond,
Virginia. This transaction resulted in a pooling of interests and a restatement
of the Company's financial statements for the period ending December 31, 1995.
BLC Network currently originates small business loans in the mid-Atlantic
regions through its Richmond, Virginia office.
In July 1996, the Company established BLC Financial Network of Florida, Inc.
("BLC Network of Florida"), a wholly-owned loan production subsidiary, to
further originate small business loans throughout the southeastern regions of
the United States. BLC Network of Florida operates out of its Panama City and
Orlando, Florida offices. Additionally, during the quarter ended December 31,
1996, BLC Financial Network of Mid-America, Inc. ("BLC Network of MA") joined
Business Loan Center's team as the Company's Wichita, Kansas-based loan
origination center which services the mid-western United States. These offices
are currently processing and closing loans and it is anticipated that these
subsidiaries should begin producing revenues and operating at profitable levels
within the next two fiscal quarters.
At December 31, 1996, twenty-nine (29) proposed loans in the aggregate principal
amount of $14,874,000 had received both Business Loan Center and SBA approval,
and were awaiting closing. An additional fifty-one (51) proposed loans in the
aggregate principal amount of $34,418,000 had been approved by Business Loan
Center's loan committee and were either awaiting submission to the SBA or had
been submitted to the SBA and were awaiting approval.
<PAGE>
BLC FINANCIAL SERVICES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
QUARTER ENDED DECEMBER 31, 1996
Results of Operations:
Quarter Ended December 31, 1996 vs. Quarter Ended December 31, 1995 (continued)
During the quarter ended December 31, 1996, the Company was granted Preferred
Lending Status ("PLP") in the districts of Atlanta, Georgia, Miami, Florida, and
Jacksonville, Florida. Preferred lending status is granted by the SBA to those
lenders who display exceptional performance with respect to originating,
closing, and servicing SBA loans. PLP status allows the Lender to process loans
without prior SBA approval and issue the SBA's guaranty on the government's
behalf. Prior to quarter ended December 31, 1996, the Company was granted PLP
status in the Richmond, Virginia district.
Overall, operating expenses of the Company increased by 78% over the prior
year's quarter primarily as a result of the additional overhead expenditures
incurred by the newly established origination offices as well as the increased
commission costs associated with the generation of loans during the quarter. The
provision for loan losses decreased by $39,000 for the quarter ended December
31, 1996 as a result of loan repayments as well as management's re-evaluation of
those loans which were previously sold through participations in the
unguaranteed loan portfolio. Additionally, as a result of the added offices,
general and administrative expenses increased from $33,000 for the three months
ended December 31, 1995 to $357,000 for the three months ended December 31,
1996.
Interest expense decreased slightly during the three months ended December 31,
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. As a result, a portion of the proceeds were utilized to repay the
Company's existing bank line, and as such, interest expense decreased from
$287,000 for the quarter ended December 31, 1995 to $215,000 for the quarter
ended December 31, 1996. Borrowings were used to fund loan activities and to
carry partially funded loans until such time as they are fully disbursed and
sold on the secondary market.
A reduction in the provision for income taxes resulted primarily from a change
in the expected tax rates to be paid and adjustments of prior period's
estimates.
<PAGE>
BLC FINANCIAL SERVICES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
QUARTER ENDED DECEMBER 31, 1996
Results of Operations:
Six Months Ended December 31, 1996 vs. Six Months Ended December 31, 1995
The Company recorded net income of $429,000 (or $.02 per share) for the six
months ended December 31, 1996, as compared to a net loss of $158,000 (or ($.01)
per share) for the six months ended December 31, 1995. Revenues for the six
months ended December 31, 1996 increased to $2,367,000 from $1,197,000 for the
six months ended December 31, 1995 as a result of greater loan originations and
an increased serviced loan portfolio.
Interest income increased from $613,000 for the six months ended December 31,
1995 to $745,000 for the six months ended December 31, 1996, or by approximately
22%. This increase directly resulted from Business Loan Center's increased
performing loan portfolio. Substantially all performing loans during the six
months ended December 31, 1996 were carrying interest rates between 10.75% and
11.00%, while loans performing during the prior year's period were carrying
rates between 11.25% and 11.75%.
Service fee income increased from $252,000 for the six months ended December 31,
1995 to $435,000 for the six months ended December 31, 1996. This 73% increase
directly resulted from the increased performing loan portfolio, as Business Loan
Center continues to earn servicing fees of between 1.00% and 2.6% per annum on
those loans sold in the secondary market. The average service fee rate earned on
loans sold in the secondary market during the six months ended December 31, 1996
was 2.10%.
The majority of loans originated during the six months ended December 31, 1996
were sold in the secondary market immediately subsequent to the closing of each
loan. Premium rates, which generally range from 6% to 10% over the face amount,
resulted in gains on the sale of loans of $1,164,000 for the six months ended
December 31, 1996, as compared to $295,000 for the six months ended December 31,
1995. A portion of the gross gains has been deferred for both periods in
accordance with generally accepted accounting principles.
Loans in the aggregate principal amount of $15,145,000 were originated during
the six months ended December 31, 1996, as compared to loans in the aggregate
principal amount of $4,688,000 for the six months ended December 31, 1995. The
SBA guaranteed principal amount of the loans originated during the six months
ended December 31, 1996 aggregated $11,361,000, as compared to the aggregate
guaranteed principal of $3,483,000 for the prior year's period.
<PAGE>
BLC FINANCIAL SERVICES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
QUARTER ENDED DECEMBER 31, 1996
Results of Operations:
Six Months Ended December 31, 1996 vs. Six Months Ended December 31, 1995
(continued)
Overall, operating expenses of the Company increased by 39% over the prior
year's period primarily as a result of the additional overhead expenditures
incurred by the newly established origination offices as well as the increased
commission costs associated with the generation of loans during the period.
Additionally, as a result of these added offices, general and administrative
expenses increased from $74,000 for the six months ended December 31, 1995 to
$645,000 for the six months ended December 31, 1996.
Interest expense decreased during the six months ended December 31, 1996 by
approximately 20% from the prior year's period, as a portion of the Company's
existing bank line was repaid from the sale of a participation in the Company's
portfolio of unguaranteed loans. More specifically, interest expense decreased
from $467,000 for the six months ended December 31, 1995 to $373,000 for the six
months ended December 31, 1996. Borrowings were used to fund loan activities and
to carry partially funded loans until such time as they are fully disbursed and
sold on the secondary market.
<PAGE>
BLC FINANCIAL SERVICES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
QUARTER ENDED DECEMBER 31, 1996
Liquidity and Capital Resources
By actively engaging in commercial lending through Business Loan Center, BLC
Network, BLC Network of Florida, and BLC Network of MA, 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.
The existing Bank line, along with the anticipated proceeds from sales of
guaranteed loans in the secondary market, the proceeds from potential 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. No reports were filed by the Company on Form 8-K during
the fiscal quarter ended December 31, 1996.
<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: February 13, 1997 By: /s/ Robert F. Tannenhauser
------------------------------
Robert F. Tannenhauser,
President and Chief
Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Jun-30-1996
<PERIOD-START> Oct-01-1996
<PERIOD-END> Dec-31-1996
<CASH> 99,000
<SECURITIES> 0
<RECEIVABLES> 13,374,000
<ALLOWANCES> (1,299,000)
<INVENTORY> 0
<CURRENT-ASSETS> 1,451,833
<PP&E> 307,000
<DEPRECIATION> 29,000
<TOTAL-ASSETS> 15,575,000
<CURRENT-LIABILITIES> 1,344,500
<BONDS> 0
0
0
<COMMON> 169,000
<OTHER-SE> 4,866,000
<TOTAL-LIABILITY-AND-EQUITY> 15,575,000
<SALES> 845,000
<TOTAL-REVENUES> 1,196,000
<CGS> 0
<TOTAL-COSTS> 1,142,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (41,000)
<INTEREST-EXPENSE> 215,000
<INCOME-PRETAX> 54,000
<INCOME-TAX> (17,000)
<INCOME-CONTINUING> 71,000
<DISCONTINUED> 0
<EXTRAORDINARY> 245,000
<CHANGES> 0
<NET-INCOME> 316,000
<EPS-PRIMARY> 0.02
<EPS-DILUTED> 0.02
</TABLE>
