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, 1998
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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 001-14065
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BLC FINANCIAL SERVICES, INC.
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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
------------
None
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(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, 1998
----- -----------------------------
Common stock $.01 par value 19,665,947
<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>
March 31, June 30,
1998 1997
---- ----
<S> <C> <C>
ASSETS (Unaudited)
Loans receivable, net $ 11,226,000 $ 9,839,000
Loans held for sale 3,413,000 1,109,000
Cash 3,380,000 803,000
Accounts receivables - loans sold 5,324,000 3,247,000
Accounts and other receivables 837,000 282,000
Prepaid expenses and deposits 355,000 221,000
Furniture and equipment, net of
accumulated depreciation 798,000 344,000
Servicing assets 2,761,000 1,972,000
Residual interests 4,426,000 952,000
Due from participants 31,000
Deferred income taxes 962,000 1,037,000
Deferred financing costs, net of
accumulated amortization 666,000 280,000
------------ ------------
TOTAL ASSETS $ 34,179,000 $ 20,086,000
============ ============
LIABILITIES and SHAREHOLDERS' EQUITY
LIABILITIES
Notes payable $ 16,917,000 $ 8,770,000
Accounts payable & accrued expenses 815,000 422,000
Due to participants -- 524,000
Allowance for estimated future losses on loans sold 99,000 99,000
Due to affiliates -- 2,594,000
Debentures 3,328,000 --
Debt 74,000 156,000
Customer deposits 1,008,000 331,000
------------ ------------
Total liabilities 22,241,000 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
19,665,947 and 17,341,243 respectively 197,000 173,000
Additional paid in capital 9,741,000 7,391,000
Retained earnings (Deficit) 1,808,000 (464,000)
Unrealized gain on residual interests, net of income taxes 192,000 90,000
------------ ------------
Total shareholders' equity 11,938,000 7,190,000
------------ ------------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 34,179,000 $ 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 Nine months ended
March 31, March 31,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
REVENUES:
Gain on sale of loans $ 2,332,000 $ 1,008,000 $ 7,788,000 $ 2,172,000
Interest income 518,000 379,000 1,830,000 1,124,000
Service fee income 554,000 304,000 1,182,000 738,000
Miscellaneous 32,000 17,000 35,000 40,000
----------- ----------- ----------- -----------
Total income 3,436,000 1,708,000 10,835,000 4,074,000
----------- ----------- ----------- -----------
EXPENSES
Operating costs 1,467,000 891,000 4,371,000 2,035,000
General and administrative 482,000 306,000 1,298,000 951,000
Interest 527,000 283,000 1,565,000 656,000
Minority interest in net income of subsidiary -- -- -- 2,000
----------- ----------- ----------- -----------
Total expenses 2,476,000 1,480,000 7,234,000 3,644,000
----------- ----------- ----------- -----------
Income before provision for income taxes 960,000 228,000 3,601,000 430,000
Provision for income taxes 358,000 40,000 1,329,000 58,000
----------- ----------- ----------- -----------
Income before extraordinary item 602,000 188,000 2,272,000 372,000
EXTRAORDINARY ITEM
Forgiveness of debt,net of a provision
for income taxes -- -- -- 245,000
----------- ----------- ----------- -----------
Net income $ 602,000 $ 188,000 $ 2,272,000 $ 617,000
=========== =========== =========== ===========
NET INCOME PER COMMON SHARE
Earnings per share, basic
Income before extraordinary item $ 0.03 $ 0.01 $ 0.13 $ 0.02
Extraordinary income -- -- -- 0.01
----------- ----------- ----------- -----------
Net income $ 0.03 $ 0.01 $ 0.13 $ 0.03
=========== =========== =========== ===========
Earnings per share, diluted
Income before extraordinary item $ 0.03 $ 0.01 $ 0.11 $ 0.02
Extraordinary income -- -- -- 0.01
----------- ----------- ----------- -----------
Net income $ 0.03 $ 0.01 $ 0.11 $ 0.03
=========== =========== =========== ===========
Weighted average number of common shares 18,703,853 17,114,171 17,852,501 16,965,210
----------- =========== ----------- ===========
Weighted average number of common shares
and dilutive securities outstanding 23,420,466 18,095,482 20,669,168 17,979,369
=========== =========== =========== ===========
</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 NINE MONTHS ENDED MARCH 31, 1998
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 nine months ended March 31, 1998:
Net income -- -- 2,272,000 -- 2,272,000
Warrants exercised 2,324,704 24,000 1,194,000 1,218,000
Pre-confirmation net operating loss utilization -- 1,156,000 -- -- 1,156,000
Change in unrealized gain on residual
interests, net of income tax effect -- -- -- -- 102,000 102,000
---------- --------- ---------- ----------- --------- -----------
Balance, March 31, 1998 19,665,947 $ 197,000 $9,741,000 $ 1,808,000 $ 192,000 $11,938,000
========== ========= ========== =========== ========= ===========
</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>
Nine months ended
March 31,
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,272,000 $ 617,000
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation & amortization 111,000 145,000
Utilization of pre-confirmation net operating losses 1,156,000 --
Minority interest in net income of subsidiary 2,000
Convert interest accrual to notes payable 1,237,000
Provision for credit losses (50,000) (50,000)
Extraordinary item, (note 4) (345,000)
Changes in assets and liabilities:
Loans held for sale (2,304,000)
Accounts receivable - loans sold (2,077,000) 1,446,000
Accounts and other loans receivable (555,000) (86,000)
Due from participants (31,000)
Due to participants (524,000) --
Prepaid expenses and deposits (134,000) (333,000)
Deferred tax asset 75,000
Deferred financed costs (534,000) (75,000)
Accounts payable & accrued expenses 393,000 104,000
Customer deposits 677,000 (33,000)
---------- ----------
Net cash provided by operating activities (288,000) 1,392,000
---------- ----------
Cash flows from investing activities:
Loans originated and purchased (30,068,000) (28,201,000)
Principal collections & sales of loans receivable 24,559,000 21,257,000
Principal collections of residual interests 139,000 --
Acquisition of equipment (545,000) (199,000)
Purchase of minority interest of subsidiary -- (380,000)
------------ ----------
Net cash (used in) investing activities (5,915,000) (7,523,000)
------------ ----------
Cash flows from financing activities:
Net Borrowings under credit lines 6,910,000 3,939,000
Proceeds from debentures 3,328,000 --
Principal payments on debt (82,000) (72,000)
Net borrowings from affiliates (2,594,000) 2,874,000
Proceeds from issuance of common stock 1,218,000 178,000
------------ ----------
Net cash provided by financing activities 8,780,000 6,919,000
--------- ---------
Net increase in cash 2,577,000 788,000
Cash - beginning of period 803,000 363,000
------------ ---------
Cash - end of period $ 3,380,000 $ 1,151,000
============ ============
Supplemental disclosures of cash flow information:
Cash paid during period for interest expense $ 639,000 $ 599,000
============ ============
Cash paid during period for income taxes $ 153,000 $ 175,000
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
BLC FINANCIAL SERVICES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NINE MONTHS ENDED MARCH 31, 1998
(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, 1998 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
NINE MONTHS ENDED MARCH 31, 1998
(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
NINE MONTHS ENDED MARCH 31, 1998
(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 nine months ended March 31, 1998 and
1997 are as follows:
1998 1997
---- ----
Balance at June 30 $ 901,000 $ 1,338,000
----------- -----------
Provision for loan losses 74,000 (50,000)
Write-off (124,000) (230,000)
- 0 -
Recoveries - 0 - - 0 -
----------- -----------
Balance at March 31 $ 851,000 $ 1,058,000
=========== ===========
<PAGE>
BLC FINANCIAL SERVICES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
QUARTER ENDED MARCH 31, 1998
Results of Operations:
Quarter Ended March 31, 1998 vs. Quarter Ended March 31, 1997
The Company recorded net income of $602,000 (or $.03 per share) for the three
months ended March 31, 1998, as compared to net income of $188,000 (or $.01 per
share) for the three months ended March 31, 1997. Net income before provision
for income taxes was $960,000 for the quarter ended March 31, 1998, as compared
to $228,000 for the quarter ended March 31, 1997.
Revenues for the three months ended March 31, 1998, which approximated
$3,436,000 increased by 101% from the prior year's period due primarily to
higher premium, servicing, gain on the sale of loans and interest income
generated from the Company's serviced loan portfolio. This is directly
attributable to (i) a 62% increase in the loan portfolio, which approximated
$140.6 million at March 31, 1998, as compared to approximately $86.7 million at
March 31, 1997, (ii) sales of SBA-guaranteed loans originated and sold in the
secondary market during this quarter resulting in gains of approximately
$1,282,000 and (iii) the sale of the unguaranteed loan portfolio for gains
aggregating approximately $814,000.
Interest income increased from $379,000 for the three months ended March 31,
1997 to $518,000 for the three months ended March 31, 1998. The increase is
attributed to an increase in the interest rates earned on BLC's retained
performing loan portfolio, which approximated $15.3 at March 31, 1998, to
between 11.00% and 11.25%, as compared to interest rates between 10.75% and
11.00% for the prior year's quarter.
Service fee income, which increased by 82% from the prior year's quarter,
approximated $554,000 at March 31, 1998. This increase directly resulted from
the increased performing loan portfolio which had been sold with servicing
retained. The sold and serviced loan portfolio, which includes both the
guaranteed and unguaranteed portions of loans, approximated $127 million at
March 31, 1998.
Loans in the approximate aggregate principal amount of $15,481,000 were
originated and funded during the three months ended March 31, 1998, as compared
to loans in the approximate aggregate principal amount of $12,849,000 for the
three months ended March 31, 1997, representing a 20% increase during the
referenced periods. The SBA-guaranteed principal amount of the loans originated
and funded during the three months ended March 31, 1998 approximated
$11,000,000, as compared to the aggregate SBA-guaranteed principal of $9,644,000
for the prior year's period. Of those loans originated and fully funded during
the quarter ended March 31, 1998, substantially all were sold in the secondary
market immediately subsequent to the closing of each loan, at premium rates
approximating 10%. Total gains on the sale the guaranteed and unguaranteed
portion of loans funded during the three months ended March 31, 1998 were
$2,096,000.
10
<PAGE>
BLC FINANCIAL SERVICES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
QUARTER ENDED MARCH 31, 1998
Results of Operations:
Quarter Ended March 31, 1998 vs. Quarter Ended March 31, 1997 (continued)
The increase in Business Loan Center's loan volume during the three months ended
March 31, 1998 resulted from increased origination activities ensuing from the
consolidated efforts of the Company's wholly-owned loan production subsidiaries
located in Panama City Beach, Florida; Wichita, Kansas; and Richmond, Virginia.
The Company recently established four new satellite loan origination offices in
Baton Rouge, Louisiana; Albuquerque, New Mexico, Plano, Texas and Indianapolis,
Indiana
At March 31, 1998, thirty seven (37) loans in the approximate aggregate
principal amount of $27,245,000 had received both Business Loan Center, Inc.
("Business Loan Center") and SBA approval and were awaiting settlement. An
additional fifty seven (57) proposed loans in the approximate aggregate
principal amount of $39,099,000 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.
Operating expenses of the Company increased by approximately 65% and general and
administrative expenses increased by approximately 58% over the prior year's
quarter due to (i) the additional overhead and origination costs resulting from
increased loan volume, (ii) overall growth and expansion of loan origination
offices, (iii) legal fees associated with a securitization and (iv) expansion
into the United States Department of Agriculture's Business and Industry
Guaranteed Loan Program.
Interest expense for the quarter ended March 31, 1998 increased by approximately
86% over the prior years quarter. This increase was directly attributable to
Business Loan Center's increased borrowings under its credit line necessary for
the continued growth in loan production activities during the quarter.
11
<PAGE>
BLC FINANCIAL SERVICES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
NINE MONTHS ENDED MARCH 31, 1998
Results of Operations:
Nine Months Ended March 31, 1998 vs. Nine Months Ended March 31, 1997
The Company recorded net income of $2,272,000 (or $.13 per basic share) for the
nine months ended March 31, 1998, as compared to net income of $617,000 (or $.03
per basic share) for the nine months ended March 31, 1997. Net income per
diluted share for the nine months ended March 31, 1998 was $.11 per share, as
compared to $.03 per share for the nine months ended March 31, 1997.
Revenues for the nine months ended March 31, 1998 increased to approximately
$10,835,000, as compared to approximate revenues of $4,074,000 for the prior
year's period, or by approximately 166%, as a result of the continued growth in
the Company's loan portfolio.
Interest income increased from $1,124,000 for the nine months ended March 31,
1997 to $1,830,000 for the nine months ended March 31, 1998, or by approximately
63%. This increase resulted from the increased performing loan portfolio.
Substantially all performing loans during the nine months ended March 31, 1998
were bearing interest at rates between 11.0% and 11.25%.
Service fee income increased from $738,000 for the nine months ended March 31,
1997 to $1,182,000 for the nine months ended March 31, 1998. This 60% increase
directly resulted from the increased serviced performing loan portfolio.
Business Loan Center continues to earn servicing fees of between 1% to 2.6% per
annum on those guaranteed loans sold in the secondary market. The average
service fee rate earned on guaranteed loans sold in the secondary market during
the nine months ended March 31, 1998 was 2.18%. The service fee rate for
unguaranteed participations in loans previously sold by Business Loan Center,
which currently aggregate approximately $5,132,000, was between .75% and 1.75%
per annum for the period ended March 31, 1998.
Loans in the approximate aggregate principal amount of $55,232,000 were
originated and funded during the nine months ended March 31, 1998, as compared
to loans in the aggregate principal amount of $27,994,000 for the nine months
ended March 31, 1997. The SBA-guaranteed principal amount of the loans
originated and funded during the nine months ended March 31, 1998 aggregated
$39,088,000, as compared to an aggregate guaranteed principal of $21,006,000 for
the prior year's period.
The majority of loans originated during the nine months ended March 31, 1998
were sold in the secondary market immediately subsequent to the closing of each
loan. Gains on the sale of loans for the nine months ended March 31, 1998
approximated $7,788,000, as compared to approximately $2,172,000 for the nine
months ended March 31, 1997. Of this approximately $4,045,000 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 portions. A net gain of
approximately $2,785,000
12
<PAGE>
BLC FINANCIAL SERVICES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
NINE MONTHS ENDED MARCH 31, 1998
Results of Operations:
Nine Months Ended March 31, 1998 vs. Nine Months Ended March 31, 1997
(continued)
resulted from the securitization and sale of the SBA Loan-Backed Adjustable Rate
Class A Certificates. The increase in Business Loan Center's loan volume during
the nine months ended March 31, 1998 resulted from increased origination
activities ensuing from the consolidated efforts of the Company's wholly-owned
loan production subsidiaries located in Panama City Beach, Florida; Wichita,
Kansas; and Richmond, Virginia. The Company recently established four new
satellite loan origination offices in Baton Rouge, Louisiana; Albuquerque, New
Mexico, Plano, Texas and Indianapolis, Indiana.
During the nine months ended March 31, 1998, the Business Loan Center's
Preferred Lender Status ("PLP") was increased to 39 regions by the SBA .
Preferred Lender 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, 1998
increased by approximately 115% and general and administrative expenses
increased by approximately 36% over the prior year's period due to the
additional overhead and origination costs, including salaries and commission
expenditures associated with the addition of new loan production entities and
increased loan origination activities, increased loan volume, overall growth and
expansion and legal fees.
Interest expense of the Company for the nine months ended March 31, 1998
increased by approximately 139% over the prior years period. This increase is
attributable to increased borrowings under Business Loan Center's credit line
and through affiliated sources to fund the continued growth in the loan
portfolio.
13
<PAGE>
BLC FINANCIAL SERVICES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
QUARTER ENDED MARCH 31, 1998
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.
In March 1998 the Company arranged for Transamerica Business Credit Corporation
("Transamerica") to replace its existing lender, Sterling National Bank & Trust
Company of New York. As a result of the transaction, Transamerica took over the
funding of the Business Loan Center'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 reduced. In addition to obtaining a reduced interest rate,
Transamerica has increased the advance rate with respect to the unguaranteed
portions from 75% to 80%.
On December 19, 1997 the Company, through Business Loan Center, successfully
completed the securitization and sale of a portion of its unguaranteed SBA loan
portfolio through the issuance of its SBA Loan-Backed Adjustable Rate Class A
Certificates 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 Class B Certificates
were initially backed the unguaranteed portion of SBA loans in the approximate
aggregate principal amount of $16.3 million and a cash pre-funding account of
$3.5 million.
On February 19, 1998 the Company, through Business Loan Center, transferred
approximately $3.5 million in the unguaranteed portion of SBA loans in exchange
for a like amount of cash from the pre-funding account.
The Class A and B Certificates will pay annual interest rates of 6.6% and 7.0%,
respectively, during the initial accrual period. Thereafter, 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 Easter edition of the Wall Street Journal on the applicable
adjustment date. Principal payments on the 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
14
<PAGE>
BLC FINANCIAL SERVICES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
QUARTER ENDED MARCH 31, 1998
Liquidity and Capital Resources (continued)
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 9.0% subordinated Class B Certificates and a cash reserve
equal to 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
$3,328,000 in convertible debentures during the nine months ended March 31,
1998. 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. During the nine months ended March 31, 1998, the Company also
received approximately $1,218,000 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 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.
15
<PAGE>
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
N/A
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits - None
b. A Form 8-K was filed by the Company on October 1, 1997
reporting the Company's repurchase of previously sold loan
participations; and on December 30, 1997 reporting the sale of
its SBA Loan Backed Adjustable Rate Class A Certificates
Series 1997-1.
16
<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 20, 1998 By: /s/ Robert F. Tannenhauser
----------------------------------
Robert F. Tannenhauser,
President and Chief
Financial Officer
17
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