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, 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
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BLC FINANCIAL SERVICES, INC.
- - --------------------------------------------------------------------------------
Delaware 75-1430406
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(State of other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
645 Madison Avenue, 18th Floor, New York, New York 10022
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 212-751-5626
------------
919 Third Avenue, 17th Floor, New York, New York 10022
- - --------------------------------------------------------------------------------
(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 February 9, 1998
----- -------------------------------
Common stock $.01 par value 18,527,688
<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
<TABLE>
<CAPTION>
December 31, June 30,
1997 1997
---- ----
(Unaudited)
<S> <C> <C>
ASSETS
Loans receivable, net $ 10,669,000 $ 9,839,000
Loans held for sale 5,367,000 1,109,000
Cash 4,096,000 803,000
Accounts receivables - loans sold 3,126,000 3,247,000
Accounts and other receivables 585,000 282,000
Prepaid expenses and deposits 376,000 221,000
Furniture and equipment, net of
accumulated depreciation 648,000 344,000
Servicing assets 2,562,000 1,972,000
Residual interests 3,650,000 952,000
Deferred income taxes 979,000 1,037,000
Deferred financing costs, net of
accumulated amortization 609,000 280,000
------------ ------------
TOTAL ASSETS $ 32,667,000 $ 20,086,000
============ ============
LIABILITIES and SHAREHOLDERS' EQUITY
LIABILITIES
Notes payable $ 15,956,000 $ 8,770,000
Accounts payable & accrued expenses 751,000 422,000
Due to participants 838,000 524,000
Allowance for estimated future losses on loans sold 99,000 99,000
Due to affiliates 707,000 2,594,000
Debentures 2,773,000 --
Debt 101,000 156,000
Customer deposits 1,182,000 331,000
------------ ------------
Total liabilities 22,407,000 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
18,482,749 and 17,341,243 respectively 185,000 173,000
Additional paid in capital 8,708,000 7,391,000
Retained earnings (Deficit) 1,208,000 (464,000)
Unrealized gain on residual interests, net of income taxes 159,000 90,000
------------ ------------
Total shareholders' equity 10,260,000 7,190,000
------------ ------------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 32,667,000 $ 20,086,000
============ ============
</TABLE>
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,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
REVENUES:
Gain on sale of loans $ 3,817,000 $ 545,000 $ 5,457,000 $ 1,164,000
Interest income 821,000 351,000 1,312,000 745,000
Service fee income 381,000 292,000 628,000 435,000
Miscellaneous 1,000 8,000 3,000 23,000
------------ ------------ ------------ ------------
Total income 5,020,000 1,196,000 7,400,000 2,367,000
------------ ------------ ------------ ------------
EXPENSES
Operating costs 1,624,000 570,000 2,904,000 1,145,000
General and administrative 448,000 357,000 815,000 645,000
Interest 683,000 215,000 1,038,000 373,000
Minority interest in net income of subsidiary -- -- -- 2,000
------------ ------------ ------------ ------------
Total expenses 2,755,000 1,142,000 4,757,000 2,165,000
------------ ------------ ------------ ------------
Income before provision for income taxes 2,265,000 54,000 2,643,000 202,000
Provision for income taxes 820,000 (17,000) 971,000 18,000
------------ ------------ ------------ ------------
Income before extraordinary item 1,445,000 71,000 1,672,000 184,000
EXTRAORDINARY ITEM
Forgiveness of debt,net of a provision
for income taxes -- 245,000 -- 245,000
------------ ------------ ------------ ------------
Net income $ 1,445,000 $ 316,000 $ 1,672,000 $ 429,000
============ ============ ============ ============
NET INCOME PER COMMON SHARE
Earnings per share, basic
Income before extraordinary item $ 0.08 $ 0.00 $ 0.10 $ 0.01
Extraordinary income -- 0.02 -- 0.02
------------ ------------ ------------ ------------
Net income $ 0.08 $ 0.02 $ 0.10 $ 0.03
============ ============ ============ ============
Earnings per share, diluted
Income before extraordinary item $ 0.07 $ -- $ 0.09 $ 0.01
Extraordinary income -- 0.01 -- 0.01
------------ ------------ ------------ ------------
Net income $ 0.07 $ 0.01 $ 0.09 $ 0.02
============ ============ ============ ============
Weighted average number of common shares 17,426,825 16,896,971 17,384,034 16,892,349
============ ============ ============ ============
Weighted average number of common shares
and common stock equivalents outstanding 19,292,114 18,082,690 19,111,931 18,082,690
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
BLC FINANCIAL SERVICES, INC
CONSOLIDATED CONDENSED STATEMENT OF CHANGES
IN SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED DECEMBER 31, 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 six months ended December 31, 1997:
Net income -- -- 1,672,000 -- 1,672,000
Warrants exercised 1,141,506 12,000 491,000 503,000
Pre-confirmation net operating loss utilization -- 826,000 -- -- 826,000
Change in unrealized gain on residual
interests, net of income tax effect -- -- -- -- 69,000 69,000.00
----------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 1997 18,482,749 $ 185,000 $ 8,708,000 $ 1,208,000 $ 159,000 $10,260,000
=========== =========== =========== =========== =========== ===========
</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>
Six months ended
December 31,
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,672,000 $ 429,000
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation & amortization 200,000 18,000
Utilization of pre-confirmation net operating losses 826,000 --
Minority interest in net income of subsidiary -- 2,000
Convert interest accrual to notes payable 540,000
Provision for credit losses (50,000) 3,000
Changes in assets and liabilities:
Loans held for sale (4,258,000) 1,629,000
Accounts receivable - loans sold 121,000 --
Accounts and other loans receivable (303,000) (127,000)
Due to participants 314,000 --
Prepaid expenses and deposits (155,000) 2,000
Deferred financed costs (388,000) --
Accounts payable & accrued expenses 329,000 64,000
Customer deposits 851,000 (96,000)
------------ ------------
Net cash provided by (used in) operating activities (301,000) 1,924,000
------------ ------------
Cash flows from investing activities:
Loans originated and purchased (15,559,000) (5,260,000)
Principal collections & sales of loans receivable 11,486,000 2,638,000
Principal collections of residual interests 41,000 --
Acquisition of equipment (354,000) (64,000)
Purchase of minority interest of subsidiary -- (380,000)
------------ ------------
Net cash (used in) investing activities (4,386,000) (3,066,000)
------------ ------------
Cash flows from financing activities:
Proceeds from notes payable 19,696,000 5,298,000
Proceeds from debentures 2,773,000 --
Principal payments on notes payable (13,050,000) (3,530,000)
Principal payments on debt (55,000) --
Net borrowings from affiliates (1,887,000) (6,000)
Proceeds from issuance of common stock 503,000 5,000
------------ ------------
Net cash provided by financing activities 7,980,000 1,767,000
------------ ------------
Net increase in cash 3,293,000 625,000
Cash - beginning of period 803,000 363,000
------------ ------------
Cash - end of period $ 4,096,000 $ 988,000
============ ============
Supplemental disclosures of cash flow information:
Cash paid during period for interest expense $ 422,000 $ 144,000
============ ============
Cash paid during period for income taxes $ 75,000 $ 125,000
============ ============
</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, 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
six month period ended December 31, 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.
<PAGE>
BLC FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 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 generally 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.
<PAGE>
BLC FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 1997
(Unaudited)
Per share information
Primary income per share was computed using the weighted average number of
common shares during the period. Fully diluted income per common share is also
presented using the weighted average number of common shares and stock
equivalents outstanding.
2. LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses for the six months ended December 31, 1997
and 1996 are as follows:
1997 1996
----------- -----------
Balance at June 30 $ 901,000 $ 1,338,000
Provision for loan losses 74,000 (39,000)
Write-off 124,000 -0-
Recoveries -0- -0-
----------- -----------
Balance at December 31 $ 851,000 $ 1,299,000
=========== ===========
<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 DECEMBER 31, 1997
Results of Operations:
Quarter Ended December 31, 1997 vs. Quarter Ended December 31, 1996
The Company recorded net income of approximately $1,445,000 (or $.08 per share)
for the three months ended December 31, 1997, as compared to net income of
approximately $316,000 (or $.02 per share) for the three months ended December
31, 1996. (All earnings per share discussed herein are based upon basic earnings
per share computations.)
Revenues for the three months ended December 31, 1997 increased from
approximately $1,196,000 at December 31, 1996 to approximately $5,020,000, or by
319%. This increase can be attributed to Business Loan Center, Inc.'s ("Business
Loan Center"), a wholly-owned subsidiary, (i) sale of the unguaranteed portion
of a pool of its SBA loans; (ii) greater level of loan originations which
resulted in (a) an increase in the gain recognized upon the sale of SBA-
guaranteed loans in the secondary market; and (b), an increased loan portfolio
which generated greater interest and service fee income for the three months
ending December 31, 1997 as compared to the three months ending December 31,
1996. At December 31, 1997, Business Loan Center's total serviced loan portfolio
approximated $130,842,000, as compared to a portfolio which aggregated
approximately $75,300,000 at December 31, 1996. At December 31, 1997, the SBA
guaranteed loan portfolio approximated $97,703,000 while the unguaranteed
balance approximated $33,139,000.
Interest income increased from approximately $351,000 for the three months ended
December 31, 1996 to approximately $821,000 for the three months ended December
31, 1997, or by approximately 134%. Substantially all performing loans at
December 31, 1997 bore interest at rates between 10.5% and 11.25%. This increase
in interest income directly resulted from Business Loan Center's increased
retained loan portfolio that included approximately $5,367,000 in SBA-guaranteed
loans which have not yet been sold in the secondary market as well as the
<PAGE>
repurchase of approximately $5,820,000 in previously sold participations in the
unguaranteed portions of certain SBA loans.
Service fee income, which increased by approximately 30% from the prior year's
quarter, reflected the effects of earning servicing fees of between 1% to 2.62%
per annum on the SBA guaranteed portion of Business Loan Center's sold loan
portfolio which aggregated approximately $83,180,000 at December 31, 1997. The
average service fee rate for guaranteed loans closed and sold during the quarter
ended December 31, 1997 was 2.12%. The service fee rate for unguaranteed
participations in loans previously sold by Business Loan Center, which currently
aggregate approximately $5,698,000, was between .75% and 1.75% per annum for the
quarter ended December 31, 1997.
Loans in the aggregate principal amount of approximately $20,332,000 were funded
during the three months ended December 31, 1997, as compared to loans in the
aggregate principal amount of approximately $7,965,000 for the three months
ended December 31, 1996. The SBA- guaranteed principal amount of the loans
funded during the three months ended December 31, 1997 aggregated approximately
$14,712,000 as compared to approximately $5,974,000 for the prior year's period.
The majority of the SBA-guaranteed portion of the loans funded during the
quarter ended December 31, 1997 were sold in the secondary market immediately
subsequent to the closing of each loan at premium rates equal to approximately
10% of the face amount of the guaranteed portion resulting in a gain of
approximately $1,363,000. The net gain resulting from the sale of the SBA Loan
Backed Adjustable Rate Class A Certificates was approximately $1,971,000. The
gain on the unguaranteed portion was net of (i) costs in the approximate amount
of $460,000; and (ii) a reversal of a previously booked gain from the sale of
participations in the unguaranteed portion of certain loans in the approximate
amount of $622,000, which were repurchased during the quarter ended December 31,
1997. Gains on the sale of both the guaranteed and unguaranteed portion of loans
approximated $3,817,000 for the three months ended December 31, 1997, as
compared to approximately $545,000 for the three months ended December 31, 1996.
<PAGE>
In December 1997 the Company, through Business Loan Center, successfully
completed the sale of the unguaranteed portion of certain of its SBA loans
through the issuance of SBA Loan- Backed Adjustable Rate Class A Certificates
Series 1997-1 in the approximate aggregate principal amount of $18,000,000. The
Class A Certificates received an 'AAA' ("Triple A") rating from Duff & Phelps
Credit Rating Company. The Class B Certificates in the approximate amount of
$1,800,000 were acquired by Business Loan Center Financial Corp., also a
wholly-owned subsidiary of the Company. The Class A and B Certificates will pay
annual interest rates of 6.6% and 7.0%, respectively, during the initial accrual
period. Therefore, the Class A Certificates will pay a per annum interest rate
equal to the Prime Rate less 190 basis points. The Class B Certificates will pay
a per annum interest rate equal to the Prime Rate less 150 basis points.
The increase in Business Loan Center's loan volume during the three months ended
December 31, 1997, resulted from increased origination activities of the
Company's wholly-owned loan production subsidiaries located in Panama City
Beach, Florida, Wichita, Kansas and Richmond, Virginia. The Company recently
established three new satellite loan origination offices in Baton Rouge,
Louisiana, Albuquerque, New Mexico and Plano, Texas.
At December 31, 1997, sixty-three (63) proposed loans in the aggregate principal
amount of approximately $43,840,000 had received both Business Loan Center and
SBA approval and were awaiting closing. An additional thirty (30) proposed loans
in the aggregate principal amount of approximately $31,754,000 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.
The Company's operating expenses increased from approximately $570,000 for the
three months ended December 31, 1996 to approximately $1,624,000 for the quarter
ended December 31, 1997. This increase resulted from (i) greater salary
expenditures and (ii) greater commission expenses relating to increased loan
origination activities during the quarter ended December 31, 1997.
General and administrative expenses of approximately $448,000 for the three
months ended December 31, 1997 increased from approximately $357,000 for the
prior year's period as a result
<PAGE>
of greater rent, legal, accounting, and administrative expenditures associated
with the expansion and growth of the Company.
Interest expense increased by approximately 218% during the three months ended
December 31, 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.
Subsequent to the quarter ended December 31, 1997, the Company's Preferred
Lending Status ("PLP") was increased from approximately 25 to 40 regions, to now
include: Birmingham, Alabama; Washington, D.C.; Indianapolis, Indiana; New
Orleans, Louisiana; Louisville, Kentucky; Baltimore, Maryland; Las Vegas,
Nevada; Newark, New Jersey; Elmira, Rochester and Syracuse, New York;
Pittsburgh, Pennsylvania; Columbia, South Carolina; Nashville, Tennessee and
Clarksburg, West Virginia. PLP status is granted 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.
<PAGE>
Results of Operations:
Six Months Ended December 31, 1997 vs. Six Months Ended December 31, 1996
The Company recorded net income of $1,672,000 (or $.10 per share) for the six
months ended December 31, 1997, as compared to net income of approximately
$429,000 or ($.03 per share) for the six months ended December 31, 1996.
Revenues for the six months ended December 31, 1997 increased to approximately
$7,400,000 from $2,367,000 for the six months ended December 31, 1996 as a
result of greater loan originations, an increased serviced loan portfolio and
gains on the sale of both the guaranteed and unguaranteed portion of loans.
Interest income increased from approximately $745,000 for the six months ended
December 31, 1996 to approximately $1,312,000 for the six months ended December
31, 1997, or by 76%. This increase directly resulted from Business Loan Center's
increased performing loan portfolio. Substantially all performing loans during
the six months ended December 31, 1997 bore interest at rates between 10.50% and
11.25%, per annum while loans performing during the prior year's period bore
interest at rates between 10.75% and 11.00%.
Service fee income increased from approximately $435,000 for the six months
ended December 31, 1996 to approximately $628,000 for the six months ended
December 31,1997. This 44% increase directly resulted from the increased
serviced loan portfolio, as Business Loan Center continues to earn servicing
fees of between 1.0% and 2.62% per annum on the guaranteed portion of 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, 1997 was
2.15%. The service fee rate for unguaranteed participations in loans previously
sold by Business Loan Center, which currently aggregate approximately
$5,698,000, was between .75% and 1.75% per annum for the quarter ended December
31, 1997.
Loans in the approximate principal amount of $39,766,000 were originated during
the six months ended December 31, 1997, as compared to loans in the
approximately aggregate principal amount of $15,145,000 for the six months ended
December 31, 1996. The SBA-guaranteed principal amount of the loans originated
during the six months ended December 31, 1997 aggregated approximately
$28,381,000, as compared to the aggregate guaranteed principal of approximately
$11,361,000 for the prior year's period.
<PAGE>
The majority of loans originated during the six months ended December 31, 1997
were sold in the secondary market immediately subsequent to the closing of each
loan. Gains on the sale of both the guaranteed and unguaranteed portion of loans
for the six months ended December 31, 1997 approximated $5,457,000, as compared
to approximately $1,164,000 for the six months ended December 31, 1996. A gain
of approximately $2,763,000 resulted from the sale of the SBA guaranteed
portions of loans sold during the period at a premium of approximately 10% over
the face of the guaranteed portion. A net gain of approximately $1,971,000
resulted from the sale of the SBA Loan-Backed Adjustable Rate Class A
Certificates. The gain on the sale of the SBA Loan-Backed Adjustable Rate Class
A Certificates was net of (i) costs in the approximate amount of $460,000; and
ii) a reversal of a previously booked gain from the sale of participations in
the unguaranteed portion of certain loans in the approximate amount of $622,000,
which were repurchased during the quarter ended December 31, 1997.
Revenues generated by a wholly-owned loan origination subsidiary during the six
months ended December 31, 1997 approximated $248,027. The loan origination
subsidiary places first mortgage loans with outside lenders at an average
premium of 5.56% of the face amount of the loan.
Overall, operating expenses of the Company increased by 154% over the prior
year's period primarily as a result of the additional overhead expenditures
incurred by the origination offices as well as the increased commission costs
associated with the generation of increased loan volume during the period.
General and administrative expenses of approximately $815,000 for the six months
ended December 31, 1997 increased from approximately $645,000 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 during the six months ended December 31, 1997 by
approximately 178% from the prior year's period due to increased borrowing 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>
LIQUIDITY AND CAPITAL RESOURCES
By actively engaging in commercial lending through Business Loan Center and the
Company's wholly-owned loan production subsidiaries, 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 borrowing.
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. Additionally, the interest rate on this portion
of the facility was recently reduced from 2% to 1- 1/2% over the Prime Rate. In
addition to obtaining a reduced interest rate, Transamerica has increased the
advance rate from 75% to 80%. 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 is
1-1/4% over the Prime Rate together with a 1/4 of 1% facility fee on each
advance.
On December 19, 1997 the Company, through Business Loan Center, successfully
completed the sale of its SBA Loan-Backed Adjustable Rate Class A Certificates
Series 1997-1 in the approximate aggregate principal amount of $18,000,000. The
Class A Certificates received an 'AAA' ("Triple A") rating from Duff & Phelps
Credit Rating Company. The Class B Certificates in the amount of $1,800,000 were
acquired by Business Loan Center Financial Corp., also a wholly-owned subsidiary
of the Company.
The Class A and B Certificates will pay annual interest rates of 6.6% and 7.0%,
respectively, during the initial accrual period. Therefore, the Class A
Certificates will pay a per annum interest rate equal to the Prime rate less 190
basis points. The Class B Certificates will pay a per annum interest rate equal
to the Prime rate less 150 basis points. The applicable interest rate earned on
the Class A and Class B Certificates will be adjusted on the first business day
of every January, April, July and August using the lowest Prime lending rate
published in the Eastern edition of the Wall Street Journal on the applicable
adjustment date. Principal payments on the
<PAGE>
SBA loans are passed through to the holders of the Certificates on a pro-rata
basis with the holders of the guaranteed portion of the loans.
The 'AAA' (Triple A) rating on the senior Certificates is based on an analysis
of the legal and financial structure of the transaction. Also considered are the
characteristics of the pool of loans being purchased by the trust, the
delinquency and default history of the portfolios of SBA loans of the Seller, as
well as the Small Business Administration. The loan origination and servicing
policies and procedures of the Seller and aggregate credit enhancement of 12% on
the date of issuance and 15% thereafter are included in the rating
consideration. The credit enhancement is comprised of the 9% subordinated
Certificates and a cash reserve equal of 3 % of the outstanding aggregate
principal balance of the unguaranteed interests of the loans on the date of
issuance. Thereafter, the cash reserve will be funded with the excess spread
from the transaction.
In addition the Company raised through a private placement, approximately
$2,773,000 in convertible debentures in December 1997. The debentures are
convertible into common stock at $2.00 per share and pay interest quarterly at
the rate of 9 1/4 % per annum. The debentures have a four year term. The Company
also received approximately $503,000 through the exercise of previously issued
warrants to purchase common stock of the Company.
The existing Bank line, along with the anticipated proceeds generated from the
sale of both the guaranteed and unguaranteed portions, the proceeds from the
debenture offering and exercise of warrants, the cash generated from the
existing portfolio in the form of interest and servicing income, the greater
advance rate 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 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits - None
b. A Form 8-K was filed by the Company on December 30, 1997
reporting the sale of its SBA Loan Backed Adjustable Rate
Class A Certificates Series 1997-1.
<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 17, 1998 By: /s/ Robert F. Tannenhauser
-----------------------------
Robert F. Tannenhauser
President
By: /s/ Jennifer M. Napier
-----------------------------
Jennifer M. Napier
Chief Financial Officer
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<PERIOD-START> OCT-01-1997
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