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 March 31, 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
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 March 31, 1997
----- -----------------------------
Common stock $.01 par value 17,341,243
<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
ASSETS
March 31, June 30,
1997 1996
---- ----
(Unaudited)
Loans receivable, net $12,275,000 $ 5,753,000
Loans held for sale 878,000 2,324,000
Cash 1,151,000 363,000
Restricted cash 218,000 130,000
Accounts and other receivables 345,000 259,000
Furniture and equipment, net of
accumulated depreciation 311,000 159,000
Excess service fees 1,524,000 1,479,000
Deferred income taxes 340,000 340,000
Deferred financing costs, net of
accumulated amortization 109,000 46,000
Other assets 267,000 22,000
----------- -----------
TOTAL ASSETS $17,418,000 $10,875,000
=========== ===========
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
PART I - FINANCIAL STATEMENTS
BLC FINANCIAL SERVICES, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
March 31, June 30,
1997 1996
---- ----
(Unaudited)
LIABILITIES
Notes payable $ 7,643,000 $ 3,704,000
Accounts payable & accrued expenses 465,000 361,000
Due to affiliates 3,502,000 628,000
Debt 179,000 590,000
Customer deposits 233,000 266,000
------------ ------------
Total liabilities 12,022,000 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 - 17,341,243 and
16,882,052 respectively 173,000 169,000
Additional paid in capital 6,566,000 6,392,000
Deficit (1,343,000) (1,960,000)
------------ ------------
5,396,000 4,601,000
------------ ------------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 17,418,000 $ 10,875,000
============ ============
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
PART I - FINANCIAL STATEMENTS
BLC FINANCIAL SERVICES, INC
CONSOLIDATED CONDENSED STATEMENT OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
March 31, March 31,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
REVENUES:
Gain on sale of loans $ 1,008,000 $ 572,000 $ 2,172,000 $ 867,000
Interest income 379,000 341,000 1,124,000 954,000
Service fee income 304,000 143,000 738,000 395,000
Miscellaneous 17,000 45,000 40,000 82,000
----------- ----------- ----------- ------------
1,708,000 1,101,000 4,074,000 2,298,000
----------- ----------- ----------- ------------
EXPENSES
Operating costs 891,000 659,000 2,035,000 1,521,000
General and administrative 306,000 149,000 951,000 210,000
Interest 283,000 166,000 656,000 633,000
Minority interest in net income
of subsidiary -- 15,000 2,000 6,000
----------- ----------- ----------- ------------
1,480,000 989,000 3,644,000 2,370,000
----------- ----------- ----------- ------------
Income (loss) before provision for income
taxes and extraordinary item 228,000 112,000 430,000 (72,000)
Provision for income taxes 40,000 13,000 58,000 5,000
----------- ----------- ----------- ------------
Income (loss) before extraordinary item 188,000 99,000 372,000 (77,000)
EXTRAORDINARY GAIN
Forgiveness of debt, net of income taxes (note 4) -- 93,000 245,000 93,000
----------- ----------- ----------- ------------
NET INCOME $ 188,000 $ 192,000 $ 617,000 $ 16,000
=========== =========== =========== ============
NET INCOME PER SHARE
Income before extraordinary item $ 0.01 $ 0.01 $ 0.02 $ (0.01)
Extraordinary item $ -- $ -- $ 0.01 $ 0.01
----------- ----------- ----------- ------------
Net income $ 0.01 $ 0.01 $ 0.03 $ 0.00
=========== =========== =========== ============
Weighted average number of common shares
and common stock equivalents outstanding 18,095,482 13,748,149 17,979,369 13,366,900
=========== =========== =========== ============
</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 CHANGES
IN SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED MARCH 31, 1997
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 459,191 $ 4,000 $ 174,000 $ 178,000
Net income for the nine months 617,000 $ 617,000
ended March 31, 1997 ----------------------------------------------------------------------
Balance, March 31, 1997 17,341,243 $173,000 $6,566,000 $(1,343,000) $5,396,000
========== ======== ========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
PART I - FINANCIAL STATEMENT
BLC FINANCIAL SERVICES, INC
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended
March 31,
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 617,000 $ 16,000
Adjustments to reconcile net income to net
provided by (used in) operating activities:
Depreciation & amortization 145,000 37,000
Minority interest in net income of subsidiary 2,000 6,000
Provision for credit losses (50,000) 75,000
Extraordinary item, (note 4) (345,000) (105,000)
Changes in assets and liabilities:
Accounts receivable - loans sold 1,446,000 (2,246,000)
Restricted Cash (88,000) (52,000)
Accounts and other loans receivable (86,000) 1,000
Other assets (245,000) (1,000)
Accounts payable & accrued expenses 104,000 8,000
Customer deposits (33,000) 52,000
------------ -----------
Net cash provided by (used in) operating activities 1,467,000 (2,209,000)
Cash flows from investing activities:
Loans originated & principal collections of loans
receivable - net (1,963,000)
Loans originated (28,201,000)
Principal collections & sales of loans receivable 21,257,000
Acquisition of equipment (199,000) (107,000)
Purchase of minority interest of subsidiary (380,000)
Subtotal $ (6,056,000) $(4,279,000)
------------ -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
PART I - FINANCIAL STATEMENT
BLC FINANCIAL SERVICES, INC
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(Unaudited)
Nine months ended
March 31,
1997 1996
---- ----
Balance forward $ (6,056,000) $ (4,279,000)
------------ ------------
Cash flows from financing activities:
Proceeds from notes payable 20,553,000 12,657,000
Principal payments on notes payable (16,614,000) (8,274,000)
Principal payments on debt (72,000) --
Principal payments on debentures -- (1,001,000)
Net increase (decrease) from affiliates 2,874,000
Acquisition of deferred financed costs (75,000)
Proceeds from issuance of common stock 178,000 1,000,000
------------ ------------
Net cash provided by financing activities 6,844,000 4,382,000
------------ ------------
Net increase in cash 788,000 103,000
Cash - beginning of period 363,000 212,000
------------ ------------
Cash - end of period $ 1,151,000 $ 315,000
============ ============
Supplemental disclosures of cash flow information:
Cash paid during period for interest expense $ 599,000 $ 629,000
============ ============
Cash paid during period for income taxes $ 175,000.00 $ 10,000.00
============ ============
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
BLC FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NINE MONTHS ENDED MARCH 31, 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
nine month period ended March 31, 1997 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") 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 Company
allocated revenue to the former minority holder of the partnership through
September 16, 1996.
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.
9
<PAGE>
BLC FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NINE MONTHS ENDED MARCH 31, 1997
(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 trade 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.
10
<PAGE>
BLC FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NINE MONTHS ENDED MARCH 31, 1997
(Unaudited)
2. LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses for the nine months ended March 31, 1997 and
1996 are as follows:
1997 1996
----------- ---------
Balance at June 30 $ 1,338,000 $ 711,000
Provision for loan losses (50,000) 75,000
Write-off (230,000) (73,000)
Recoveries - 0 - - 0 -
----------- ---------
Balance at March 31 $ 1,058,000 $ 713,000
=========== =========
3. COMMITMENTS AND CONTINGENCIES:
a. 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.
11
<PAGE>
BLC FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NINE MONTHS ENDED MARCH 31, 1997
(Unaudited)
4. EXTRAORDINARY INCOME.
The company settled a lawsuit November 1996 with an affiliate of the
former minority partner of Business Loan Center, G.P. A liability of $600,000
was settled for $255,000 plus legal fees of 73,000, resulting in forgiveness of
indebtedness income of $272,000. Income taxes of $27,000 attributable to this
gain results in a net extraordinary gain of $245,000 for the nine months ended
March 31, 1997.
On March 18, 1996, the Company, in a private placement transaction, issued
3,703,704 of its common stock for $ 1,000,000. These proceeds were used to repay
$1,000,000 in debentures issued in 1994 and 1995. In addition, the debenture
holders agreed to forgive the accrued interest on this debt totaling $105,000.
Income taxes of $12,000 attributable to this gain results in a net extraordinary
gain of $93,000 for the nine months ended March 31, 1996 and for the three
months ended March 31, 1996.
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.
5. RECLASSIFICATIONS
For the periods ended March 31, 1996 the consolidated statements of income
and cash flows have reclassified certain items to conform with current
classifications.
12
<PAGE>
BLC FINANCIAL SERVICES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
QUARTER ENDED MARCH 31, 1997
Results of Operations:
Quarter Ended March 31, 1997 vs. Quarter Ended March 31, 1996
The Company recorded net income of $188,000 (or $.01 per share) for the three
months ended March 31, 1997, as compared to net income of $192,000 (or $.01 per
share) for the three months ended March 31, 1996. Net income before
extraordinary items was $188,000 for the quarter ended March 31, 1997, as
compared to $99,000 for the quarter ended March 31, 1996. During the three
months ended March 31, 1996, an extraordinary gain of $93,000 resulted from the
forgiveness of accrued interest on the early redemption of debentures.
Revenues for the three months ended March 31, 1997, which approximated
$1,708,000, increased by 55% from the prior year's period due primarily to
higher premium, servicing, and interest income generated from the Company's
serviced loan portfolio. This is directly attributable to (i) a 40% increase in
the loan portfolio, which approximated $86.7 million at March 31, 1997, as
compared to approximately $62.0 million at March 31, 1996, (ii) the increased
volume of SBA-guaranteed loans originated and sold in the secondary market
during this quarter resulting in gains of approximately $799,000, and (iii) the
sale of participations in the unguaranteed loan portfolio for gains aggregating
approximately $209,000.
Interest income increased from $341,000 for the three months ended March 31,
1996 to $379,000 for the three months ended March 31, 1997, or by 11%. This
resulted from a 25% increase in the unguaranteed or retained loan portfolio,
which approximated $15.0 million at March 31, 1997, as compared to $12.5 million
at March 31, 1996, which was partially offset by a reduction in interest rates.
Substantially all performing loans at March 31, 1997 were carrying interest
rates between 10.75% and 11.00%, as compared to interest rates between 11% and
11.75% for the prior year's quarter.
Service fee income, which increased by 112% from the prior year's quarter,
approximated $304,000 at March 31, 1997. This increase directly resulted from
the increased performing loan portfolio and an increase in the average service
fee rate received on those loans sold in the secondary market and through loan
participations. The average servicing fee rate for SBA-guaranteed loans sold in
the secondary market during the three months ended March 31, 1997 approximated
1.87%. Overall, the Company's serviced loan portfolio maintains servicing fees
of between 1.0% to 2.6% per annum.
Loans in the approximate aggregate principal amount of $12,849,000 were
originated during the three months ended March 31, 1997, as compared to loans in
the approximate aggregate principal amount of $5,721,000 for the three months
ended March 31, 1996, representing a 125% increase in origination activities
during the referenced periods. The SBA-guaranteed principal amount of the loans
originated during the three months ended March 31, 1997 approximated $9,644,000,
as compared to the aggregate SBA-guaranteed principal of $4,845,000 for the
prior year's period. Of those loans originated and fully funded during the
quarter ended March 31, 1997, substantially all were sold in the secondary
market immediately subsequent to the closing of each loan, at premium rates
approximating 10%, resulting in gains on the sale of loans of $799,000 for the
three months ended March 31, 1997, as compared to gains of $572,000 for the
prior year's period. A portion of the gross gains has been deferred for both
periods in accordance with generally accepted accounting principles.
Additionally, during the quarter ended March 31, 1997, the Company sold an
approximate $909,000 participation in its unguaranteed loan portfolio to a major
finance company, resulting in a gain of approximately $209,000.
13
<PAGE>
BLC FINANCIAL SERVICES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
QUARTER ENDED MARCH 31, 1997
Results of Operations:
Quarter Ended March 31, 1997 vs. Quarter Ended March 31, 1996 (continued)
The increase in loan volume during the quarter ended March 31, 1997 resulted
primarily from increased origination activities ensuing from the efforts of the
Company's wholly-owned loan production subsidiaries, BLC Financial Network,
Inc., BLC Financial Network of Florida, Inc., and BLC Financial of Mid-America,
Inc. BLC Financial Network, Inc., a loan origination company headquartered in
Richmond, Virginia, is responsible for loan production throughout the
Mid-Atlantic states. BLC Financial Network of Florida, Inc. operates out of its
Panama City and Orlando Florida offices, while maintaining an origination
network throughout the southeastern regions of the United States. BLC Financial
Network of Mid-America, Inc., the Company's newest loan production subsidiary,
is located in Wichita, Kansas and services the mid-western United States.
At March 31, 1997, thirty (30) loans in the approximate aggregate principal
amount of $18.86 million had received both Business Loan Center, Inc. ("Business
Loan Center") and SBA approval and were awaiting settlement. An additional
twenty (20) proposed loans in the approximate aggregate principal amount of
$13.31 million 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.
During the quarter ended March 31, 1997, Business Loan Center was granted
Preferred Lending Status ("PLP") by the SBA district offices in Chicago and
Springfield Illinois, Denver, St. Louis and Springfield Missouri, Wichita,
Omaha, Des Moines, Cedar Rapids, Kansas City, Albuquerque, Oklahoma City, Little
Rock, and seven districts in Texas including Houston, Dallas, and San Antonio.
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 is advantageous in that it allows the Lender to process loans
without prior SBA approval and issue the SBA's guaranty on the government's
behalf, therefore, expediting the loan origination process.
Operating expenses of the Company increased by approximately 35% over the prior
year's quarter due to the additional overhead and origination costs resulting
from the increased loan volume generated by the loan production offices.
Additionally, with the growth in loan origination activities, commission costs
for the quarter ended March 31, 1997 increased to $240,000 from $187,000 for the
prior year's quarter. The provision for loan losses decreased by approximately
$12,000 for the quarter ended March 31, 1997 as a result of management's
re-evaluation of those loans which were sold through participations in the
unguaranteed loan portfolio. Additionally, as a result of the new loan
production offices, general and administrative expenses increased to $306,000
for the three months ended March 31, 1997 from $149,000 for the three months
ended March 31, 1996.
Interest expense rose from approximately $166,000 for the quarter ended March
31, 1996 to approximately $283,000 for the quarter ended March 31, 1997. This
increase was directly attributable to Business Loan Center's increased
borrowings under its bank line necessary for the continued growth in loan
production activities during the quarter.
14
<PAGE>
BLC FINANCIAL SERVICES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
NINE MONTHS ENDED MARCH 31, 1997
Results of Operations:
Nine Months Ended March 31, 1997 vs. Nine Months Ended March 31, 1996
The Company recorded net income of $617,000 (or $.03 per share) for the nine
months ended March 31, 1997, as compared to net income of $16,000 (or $.00 per
share) for the nine months ended March 31, 1996. During the nine months ended
March 31, 1997, 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 $372,000, as compared to a
loss of $77,000 for the nine months ended March 31, 1996. Revenues for the nine
months ended March 31, 1997 increased to $4,074,000, as compared to approximate
revenues of $2,298,000 for the prior year's period as a result of the continued
growth in the Company's loan portfolio.
Interest income increased from $954,000 for the nine months ended March 31, 1996
to $1,124,000 for the nine months ended March 31, 1997, or by approximately 18%.
This increase resulted from the increased performing loan portfolio.
Substantially all performing loans during the nine months ended March 31, 1997
were carrying interest rates between 10.75% and 11.00%.
Service fee income increased from $395,000 for the nine months ended March 31,
1996 to $738,000 for the nine months ended March 31, 1997. This 87% increase
directly resulted from the increased performing loan portfolio. Business Loan
Center continues to earn servicing fees of between 1% to 2.6% per annum on those
loans sold in the secondary market and through loan participations.
Loans in the approximate aggregate principal amount of $27,994,000 were
originated during the nine months ended March 31, 1997, as compared to loans in
the aggregate principal amount of $10,410,000 for the nine months ended March
31, 1996. The SBA-guaranteed principal amount of the loans originated during the
nine months ended March 31, 1997 aggregated $21,006,000, as compared to an
aggregate guaranteed principal of $8,328,000 for the prior year's period. The
guaranteed portions of substantially all of the loans were sold in the secondary
market immediately subsequent to final disbursement. With the majority of
secondary market sales earning premium yields of 10%, the Company recorded gains
on the sale of loans of $1,963,000 for the nine months ended March 31, 1997, as
compared to gains of $867,000, for the nine months ended March 31, 1996. A
portion of the gross gains has been deferred for both periods in accordance with
generally accepted accounting principles. Additionally, during the nine months
ended March 31, 1997, Business Loan Center sold an approximate $909,000
participation in its unguaranteed loan portfolio to a major finance company,
resulting in a gain for this period of approximately $209,000.
The increase in loan volume during the nine months ended March 31, 1997 resulted
primarily from increased origination activities ensuing from the Company's
expansion efforts. More specifically, the Company expanded its operations
through its wholly-owned loan production subsidiaries, BLC Financial Network,
Inc., BLC Financial Network of Florida, Inc., and BLC Financial of Mid-America,
Inc. BLC Financial Network, Inc., a loan origination company headquartered in
Richmond, Virginia, is responsible for loan production throughout the
Mid-Atlantic states. In July 1996, the Company established BLC Financial Network
of Florida, Inc., which operates out of its Panama City and Orlando, Florida
offices, to further originate loans throughout the southeastern regions of the
United States. Additionally, during the nine months ended March 31, 1997, BLC
Financial Network of Mid-America, Inc., joined Business Loan
15
<PAGE>
BLC FINANCIAL SERVICES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
NINE MONTHS ENDED MARCH 31, 1997
Results of Operations:
Nine Months Ended March 31, 1997 vs. Nine Months Ended March 31, 1996
(continued)
Center as the Company's Wichita, Kansas-based loan origination center which
services the mid-western United States.
During the nine months ended March 31, 1997, Business Loan Center was granted
Preferred Lending Status ("PLP") by the SBA district offices in Atlanta, Miami
and Jacksonville Florida, Chicago and Springfield Illinois, Denver, St. Louis
and Springfield Missouri, Wichita, Omaha, Des Moines, Cedar Rapids, Kansas City,
Albuquerque, Oklahoma City, Little Rock, and seven districts in Texas including
Houston, Dallas, and San Antonio. 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 is advantageous in
that it allows the Lender to process loans without prior SBA approval and issue
the SBA's guaranty on the government's behalf, therefore, expediting the loan
origination process.
Operating expenses of the Company for the nine months ended March 31, 1997
increased by 34% over the prior year's period due to the additional overhead
costs, including salaries and commission expenditures, associated with the
additional loan production entities and the increased loan origination
activities. Additionally, as a result of these added offices, general and
administrative expenses for the nine months ended March 31, 1997 increased from
approximately $210,000 for the nine months ended March 31, 1996 to approximately
$951,000.
Interest expense increased by approximately 3% during the nine months ended
March 31, 1997 as compared to the prior year's period, as Business Loan Center's
borrowings under its bank line and through affiliated sources increased from the
prior year's period to fund the continued growth in the loan portfolio.
16
<PAGE>
BLC FINANCIAL SERVICES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
QUARTER ENDED MARCH 31, 1997
Liquidity and Capital Resources
By actively engaging in commercial lending, the Company has a constant need for
debt financing. Cash used to fund loans, repay existing debt, and fund
operations is currently provided by loan collections, 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 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.
17
<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 March 31, 1997.
18
<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: May 15, 1997 By: / s / Robert F. Tannenhauser
---------------------------------------
Robert F. Tannenhauser,
President and Chief
Financial Officer
19
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,151,000
<SECURITIES> 0
<RECEIVABLES> 13,498,000
<ALLOWANCES> 1,058,000
<INVENTORY> 0
<CURRENT-ASSETS> 3,878,000
<PP&E> 311,000
<DEPRECIATION> 18,000
<TOTAL-ASSETS> 17,155,000
<CURRENT-LIABILITIES> 1,729,000
<BONDS> 0
0
0
<COMMON> 173,000
<OTHER-SE> 5,223,000
<TOTAL-LIABILITY-AND-EQUITY> 17,155,000
<SALES> 1,329,000
<TOTAL-REVENUES> 1,708,000
<CGS> 0
<TOTAL-COSTS> 1,480,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (12,000)
<INTEREST-EXPENSE> 283,000
<INCOME-PRETAX> 228,000
<INCOME-TAX> 40,000
<INCOME-CONTINUING> 188,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 188,000
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
