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, 1997
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, 1997
----- ---------------------------------
Common stock $.01 par value 17,341,243
1
<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.
2
<PAGE>
PART I - FINANCIAL STATEMENTS
BLC FINANCIAL SERVICES, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, June 30,
1997 1997
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Loans receivable, net $ 13,982,000 $ 9,839,000
Loans held for sale 2,965,000 1,109,000
Cash 1,116,000 803,000
Accounts receivables - loans sold 3,754,000 3,247,000
Accounts and other receivables 454,000 282,000
Prepaid expenses and deposits 349,000 221,000
Furniture and equipment, net of
accumulated depreciation 374,000 344,000
Servicing assets 2,258,000 1,972,000
Residual interests 1,537,000 952,000
Deferred tax asset 999,000 1,037,000
Deferred financing costs, net of
accumulated amortization 601,000 280,000
------------ ------------
TOTAL ASSETS $ 28,389,000 $ 20,086,000
============ ============
LIABILITIES and SHAREHOLDERS' EQUITY
LIABILITIES
Notes payable $ 16,609,000 $ 8,770,000
Accounts payable & accrued expenses 522,000 422,000
Due to participants 560,000 524,000
Allowance for estimated future losses on loans sold 99,000 99,000
Due to affiliates 2,450,000 2,594,000
Debt 129,000 156,000
Customer deposits 470,000 331,000
------------ ------------
Total liabilities 20,839,000 12,896,000
------------ ------------
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
17,341,243 and 17,341,243 respectively 173,000 173,000
Additional paid in capital 7,503,000 7,391,000
Deficit (239,000) (464,000)
Unrealized gain on residual interests, net of income taxes 113,000 90,000
------------ ------------
Total shareholders' equity 7,550,000 7,190,000
------------ ------------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 28,389,000 $ 20,086,000
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
PART I - FINANCIAL STATEMENTS
BLC FINANCIAL SERVICES, INC
CONSOLIDATED CONDENSED STATEMENT OF INCOME
(Unaudited)
Three months ended
September 30,
1997 1996
REVENUES:
Gain on sale of loans $ 1,640,000 $ 561,000
Interest income 491,000 394,000
Service fee income 247,000 200,000
Miscellaneous 3,000 15,000
----------- -----------
Total income 2,381,000 1,170,000
----------- -----------
EXPENSES
Operating costs 1,283,000 574,000
General and administrative 367,000 288,000
Interest 355,000 158,000
Minority interest in net income of subsidiary -- 2,000
----------- -----------
Total expenses 2,005,000 1,022,000
----------- -----------
Income before provision for income taxes 376,000 148,000
Provision for income taxes 151,000 35,000
----------- -----------
Net income $ 225,000 $ 113,000
=========== ===========
Net income per common share
Earnings per share $ 0.01 $ 0.01
=========== ===========
Weighted average number of common shares
and common stock equivalents outstanding 18,701,278 18,082,690
=========== ===========
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
BLC FINANCIAL SERVICES, INC
CONSOLIDATED CONDENSED STATEMENT OF CHANGES
IN SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997
Unaudited
<TABLE>
<CAPTION>
Unrealized
Common Stock Additional Gain on
Number of Paid in Accumulated Residual
Shares Amount Capital Deficit Interests Total
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1997 17,341,243 $173,000 $7,391,000 $(464,000) $ 90,000 $7,190,000
For the three months ended September 30, 1997:
Net income -- -- -- 225,000 -- 225,000
Pre-confirmation net operating loss utilization -- -- 112,000 -- -- 112,000
Change in unrealized gain on residual
interests, net of income tax effect -- -- -- -- 23,000 23,000.00
---------- -------- ---------- --------- -------- ----------
Balance, September 30, 1997 17,341,243 $173,000 $7,503,000 $(239,000) $113,000 $7,550,000
========== ======== ========== ========= ======== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
PART I - FINANCIAL STATEMENT
BLC FINANCIAL SERVICES, INC
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
September 30,
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 225,000 $ 113,000
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation & amortization 60,000 18,000
Utilization of pre-confirmation net operating losses 112,000 --
Minority interest in net income of subsidiary -- 2,000
Provision for credit losses -- 3,000
Changes in assets and liabilities:
Loans held for sale (1,856,000) 1,629,000
Accounts receivable - loans sold (507,000) --
Accounts and other loans receivable (172,000) (127,000)
Due to participants 36,000
Prepaid expenses and deposits (128,000) 2,000
Accounts payable & accrued expenses 100,000 64,000
Customer deposits 139,000 (96,000)
----------- -----------
Net cash provided by (used in) operating activities (1,991,000) 1,608,000
----------- -----------
Cash flows from investing activities:
Loans originated (5,878,000) (5,260,000)
Principal collections & sales of loans receivable 896,000 2,638,000
Principal collections of residual interests 22,000
Acquisition of equipment (54,000) (64,000)
Purchase of minority interest of subsidiary -- (380,000)
----------- -----------
Net cash (used in) investing activities (5,014,000) (3,066,000)
----------- -----------
Cash flows from financing activities:
Proceeds from bank loans 8,359,000 5,298,000
Principal payments on notes payable - bank loans (520,000) (3,530,000)
Principal payments on debt (27,000) --
Net increase (decrease) from affiliates (144,000) (6,000)
Increase in deferred financed costs (350,000)
Proceeds from issuance of common stock -- 5,000
----------- -----------
Net cash provided by financing activities 7,318,000 1,767,000
----------- -----------
Net increase in cash 313,000 309,000
Cash - beginning of period 803,000 363,000
----------- -----------
Cash - end of period $ 1,116,000 $ 672,000
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during period for interest expense $ 209,000 $ 144,000
=========== ===========
Cash paid during period for income taxes $ 29,000 $ 125,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
BLC FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 1997
(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, 1997 are not necessarily indicative of
the results that may be expected for the year ending June 30, 1998. 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, 1997.
Principles of consolidation and preparation
The accompanying consolidated financial statements include the accounts
of BLC Financial Services, Inc. (the "Company") and its wholly owned
subsidiaries. The Company acquired a majority of Business Loan Center in 1990
and as of September 16, 1996 the company acquired the remaining interest.
The prior period financial statements have been reclassified to conform
to this year's presentation.
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.
7
<PAGE>
BLC FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 1997
(Unaudited)
1. BASIS OF PRESENTATION (continued)
Revenue recognition
The Company's policy is to sell the SBA guaranteed portion of all loans
that it originates, at a premium, in the secondary market on a nonrecourse
basis. The guaranteed portion of the loans receivable that have been originated,
but not yet sold, are carried at the lower of aggregate cost or market value.
Market value is determined by outside commitments from investors or current
yield on similar loans. Loans receivable held for investment are stated at the
principal amount outstanding less deferred income.
Effective January 1, 1997, as required by Statement of Financial
Accounting Standards No. 125 "Accounting for Transfers and Servicing of
Financial Assets and Extinguishment of Liabilities" ("FAS 125"), upon the sale
of loans, the Company allocates the cost, based upon the relative fair values,
to the guaranteed portion of the loan, the unguaranteed portion of the loan, the
servicing asset and residual interest, if any. The impact of the adoption of FAS
125 on net income in 1997 was immaterial.
Gain on sales of loans receivable principally represents the present
value of the differential between the interest rates charged by the Company and
the interest rates passed on the purchaser of the receivables, after considering
the effects of estimated prepayments, repurchases and normal servicing fees.
Gains on the sale of loans receivable are recorded on the trade date using the
specific identification method.
The Company ceases to accrue interest income on loan receivables
which become 90 days delinquent, categorizes these loans as being in
liquidation, and takes appropriate steps to attempt to collect the loan in full.
Interest received on nonaccrual loans is either applied against principal or
reported as interest income, according to management's judgement as to the
collectibility of principal.
Per share information
Income per share was computed using the weighted average number of
shares and common stock equivalents outstanding during the period.
8
<PAGE>
BLC FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 1997
(Unaudited)
2. LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses for the three months ended September 30,
1997 and 1996 are as follows:
1997 1996
---- ----
Balance at June 30 $ 901,000 $1,338,000
Provision for loan losses -0- 3,000
Write-off -0- -0-
Recoveries -0- -0-
---------- ----------
Balance at September 30 $ 901,000 $1,341,000
========== ==========
9
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
BLC FINANCIAL SERVICES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS
QUARTER ENDED SEPTEMBER 30, 1997
Results of Operations - Quarter Ended September 30, 1997 vs.
Quarter Ended September 30, 1996
The Company recorded net income of approximately $225,000 (or $.01 per share)
for the three months ended September 30, 1997, as compared to net income of
approximately $113,000 (or $.01 per share) for the three months ended September
30, 1996.
Revenues for the three months ended September 30, 1997 increased from
approximately $1,170,000 at September 30, 1996 to $2,381,000 at September 30,
1997, or by approximately 104%. 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 30,1997 as compared to the
period ending September 30, 1996, and (ii) a greater level of loan originations
and subsequent loan sales during the quarter ended September 30, 1997 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, 1997, Business Loan Center's serviced loan portfolio approximated
$115,190,000, as compared to a portfolio which aggregated approximately
$70,700,000 at September 30, 1996.
Service fee income, which increased by approximately 23.5% 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. The average service
fee for loans closed during the quarter ended September 30, 1997 was 2.12%.
Interest income increased from approximately $394,000 for the three months ended
September 30, 1996 to approximately $491,000 for the three months ended
September 30, 1997, or by approximately 24.6%. 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,
1997 were carrying interest rates between 10.5% and 11.25%.
Loans in the aggregate principal amount of approximately $19,434,000 were funded
during the three months ended September 30, 1997, as compared to loans in the
aggregate principal amount of approximately $7,180,000 for the three months
ended September 30, 1996. The SBA-guaranteed principal amount of the loans
funded during the three months ended September 30, 1997 aggregated approximately
$13,669,000, as compared to the aggregate guaranteed principal of approximately
$5,388,000 for the prior year's period. The majority of the SBA-guaranteed
portion of these loans funded during the quarter ended September 30, 1997 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 approximately $1,640,000 for the three months
ended September 30, 1997, as compared to approximately $561,000 for the three
months ended September 30, 1996.
10
<PAGE>
Results of Operations - Quarter Ended September 30, 1997 vs.
Quarter Ended September 30, 1996 (continued)
The increase in Business Loan Center's loan volume during the quarter ended
September 30, 1997 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"), BLC Financial Network
of Florida, Inc. ("BLC Network of Florida") and BLC Financial Network of
Mid-America, Inc. ("BLC Network of Mid-America"). BLC Network currently
originates small business loans in the mid-Atlantic regions through it's
Richmond, Virginia office. BLC Network of Florida, which operates through it's
Panama City and Orlando, Florida offices, conducts loan origination activities
in the southeastern regions of the United States. BLC Network of Mid-America is
the Company's Wichita, Kansas-based loan origination center which services the
mid-western United States.
At September 30, 1997 fifty-nine (59) proposed loans in the aggregate principal
amount of approximately $41,290,000 had received both Business Loan Center and
SBA approval and were awaiting closing. An additional thirty-one (31) proposed
loans in the aggregate principal amount of approximately $21,834,000 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,
1997, eleven (11) loans in the aggregate principal amount of approximately
$4,357,000 remained partially disbursed as they await construction and
renovation completion.
The Company's operating expenses increased from approximately $574,000 for the
three months ended September 30, 1996 to approximately $1,283,000 for the
quarter ended September 30,1997. This increase resulted from greater salary and
commission expenditures relating to the increased loan origination activities
during the quarter ended September 30, 1997.
General and administrative expenses of approximately $367,000 for the three
months ended September 30, 1997 increased from approximately $288,000 for the
prior year's period as a result of greater rent, legal, accounting, and
administrative expenditures associated with the expansion and growth of the
Company.
Interest expense increased by approximately 125% during the three months ended
September 30, 1997 as compared to the prior year's period. This increase was
directly attributable to increased borrowing to meet the continued growth in
loan production activities during this period.
11
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
By actively engaging in commercial lending through Business Loan Center, BLC
Network, Inc., BLC Network of Florida, Inc., and BLC 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.
In August 1997 the Company arranged for its existing lender, Sterling National
Bank & Trust Company of New York ("Bank") to enter into an inter-creditor
agreement with Transamerica Business Credit Corporation ("Transamerica")
pursuant to which the Bank assigned a portion of its funding obligations to
Transamerica thereby increasing the funding available to the Company. As a
result of the transaction Transamerica took over the funding of the unguaranteed
portion of the Company's loans and increased the credit line with respect
thereto to $25,000,000. The interest rate on this portion of the facility is 2%
above prime. Transamerica was paid a commitment fee of 1% in connection with
this loan. The Bank will continue to fund the guaranteed portion of the
Company's loans and has increased its credit line with respect thereto to
$8,000,000. The interest rate on this portion of the facility has been reduced
to 1 1/4% over prime together with the 1/4 of 1% facility fee on each advance.
The existing Bank line, along with the anticipated proceeds from sales of
guaranteed loans in the secondary market, 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.
12
<PAGE>
PART II - OTHER INFORMATION
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 September 30, 1997.
13
<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, 1997 By: /s/ Robert F. Tannenhauser
-----------------------------
Robert F. Tannenhauser
President
By: /s/ Jennifer M. Napier
-----------------------------
Jennifer M. Napier
Treasurer
14
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,116,000
<SECURITIES> 0
<RECEIVABLES> 20,701,000
<ALLOWANCES> 901,000
<INVENTORY> 0
<CURRENT-ASSETS> 9,757,000
<PP&E> 374,000
<DEPRECIATION> 24,000
<TOTAL-ASSETS> 28,389,000
<CURRENT-LIABILITIES> 5,486,000
<BONDS> 0
0
0
<COMMON> 173,000
<OTHER-SE> 7,377,000
<TOTAL-LIABILITY-AND-EQUITY> 28,389,000
<SALES> 1,890,000
<TOTAL-REVENUES> 2,381,000
<CGS> 0
<TOTAL-COSTS> 2,005,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 355,000
<INCOME-PRETAX> 376,000
<INCOME-TAX> 151,000
<INCOME-CONTINUING> 225,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 225,000
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0
</TABLE>
