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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO
SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [Fee Required]
For the fiscal year ended June 30, 2000 or
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (No Fee Required)
For the transition period from to
Commission file number 001-14065
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BLC FINANCIAL SERVICES, INC.
(Exact name of registrant as specified in its charter)
Delaware 75-1430406
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
c/o Jennifer M. Goldstein
Business Loan Center, Inc.
645 Madison Avenue, 19th Floor, New York, NY 10022-1010
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (212) 751-5626
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Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $.01 Per Share
(Title of Class)
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
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Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [ ]
At September 11, 2000 there were outstanding 21,535,514 shares
of the Registrant's Common Stock ("Common Stock"), $.01 par value per share. The
aggregate market value as of September 11, 2000, of the shares of the
Registrant's Common Stock held by non-affiliates of the Registrant was
approximately $27,826,000.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
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Part I.
This Annual report on form 10-K contains forward-looking
statements within the meaning of that term in Section 27A of the Securities Act
of 1933, as amended (the "Securities Act"), and Section 21E of the Securities
Exchange Act of 1934, as amended ( the "Exchange Act"). Additional written or
oral forward-looking statements may be made by the Company from time to time, in
filings with the Securities Exchange Commission or otherwise. Statements
contained herein that are not historical facts are forward-looking statements
made pursuant to the safe harbor provisions described above. Forward-looking
statements may include, but are not limited to, projections of revenues, income
or losses, capital expenditures, plans for future operations, the elimination of
losses under certain programs and financing needs or plans. They also include
compliance with financial covenants in loan agreements, plans for sale of assets
or businesses, plans relating to products or services of the Company,
assessments of materiality, predictions of future events, and the effects of
pending and possible litigation, as well as assumptions relating to the
foregoing. In addition, when used in this discussion, the words "anticipates,"
"estimates," "expects," "intends," "plans" and variations thereof and similar
expressions are intended to identify forward-looking statements.
Forward-looking statements are inherently subject to risks and
uncertainties, some of which cannot be predicted or quantified based on current
expectations. Consequently, future events and actual results could differ
materially from those set forth in, contemplated by, or underlying the
forward-looking statements contained herein. Statements in this Annual Report,
particularly in "Item 1. Business of the Company", "Item 3. Legal Proceedings",
the Notes to Consolidated Financial Statements, "Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations," and "Item 7A.
Qualitative and Quantitative Disclosure About Market Risk." describe factors,
among others, that could contribute to or cause such differences. Other factors
that could contribute to or cause such differences include, but are not limited
to, increases in borrowing costs, government regulations and other risk factors
detailed in the Company's Securities and Exchange Commission filings.
Readers are cautioned not to place undue reliance on any
forward-looking statements contained herein, which speak only as of the date
hereof. The Company undertakes no obligation to publicly release the result of
any revisions to these forward-looking statements that may be made to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unexpected events.
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Item 1. BUSINESS OF THE COMPANY.
BLC Financial Services, Inc., a Delaware corporation (the
"Company"), is primarily engaged, through its subsidiaries, in the business of
originating, selling and servicing loans to small businesses under two
government guaranteed loan programs.
The Company was originally incorporated in Texas on October
30, 1973 under the name Crawford Energy, Inc., and was involved in the oil and
gas drilling business. On August 10, 1990, the Company was reincorporated in
Delaware, ceased its oil and gas drilling business, and changed its name to BLC
Financial Services, Inc. The Company became listed on the American Stock
Exchange (AMEX) on April 30, 1998, after previously being listed on the OTC
Bulletin Board.
Business Loan Center, Inc.
Background. Business Loan Center, Inc., ("Business Loan
Center"), a Small Business Lending Company, as defined in and under the Small
Business Administration Act (the "SBA Act"), is authorized by the United States
Small Business Administration (the "SBA") to originate, sell, and service loans
to small businesses under the SBA 7(a) Guaranteed Loan Program (the "Guaranteed
Loan Program" or the "SBA 7(a) Program"). Business Loan Center's principal
office is located at 645 Madison Avenue, New York, New York.
The SBA (7a) Program. The SBA offers financial assistance to
eligible small businesses in the form of partial government guarantees on loans
made to such businesses by participating lenders such as Business Loan Center
under the Guaranteed Loan Program.
To qualify for an SBA-guaranteed loan, a small business must
meet certain size criteria established by the SBA on an industry-by-industry
basis and must demonstrate that the requested financing will be used for
specific business purposes and cannot be obtained from the resources of the
business, conventional financing sources or through the personal resources of
the owners of the business. In evaluating a loan application, the SBA attaches
importance to many factors including the character and reputation of the
applicant and its principals, the experience and depth of management, the
inherent stability of the business enterprise, the past earnings record, future
prospects for the business, the long-range possibilities of successful
operations, and the soundness of the loan purpose. Applications are rejected if
there is not reasonable assurance that the loan can be repaid from the earnings
of the business (based upon demonstrated or projected cash flows) or the
applicant has sufficient equity to operate on a sound financial basis. The loan
is typically secured by real estate collateral and may also include liens on
inventory, machinery, equipment, and accounts receivable. Generally, the owners
of 20% or more of the business are required to personally guarantee the
repayment of the loan and may be required to pledge their personal assets.
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The SBA-guaranteed loans have maturities of up to 25 years
depending on the intended use of the loan proceeds. Funds to be used for working
capital purposes generally may not exceed a seven-year maturity, while funds to
be used for machinery and equipment generally have maturities of ten years.
Funds to be used for leasehold improvements or the acquisition of land or
buildings may have maturities up to 25 years. Loan principal is amortized over
the term of the loan. A participating lender is permitted to establish any legal
and reasonable rate of interest, subject to the maximum interest rates
established by the SBA. Loans with maturities of seven years or greater may bear
a maximum interest rate not exceeding 2-3/4% over the base rate (discussed
below). Of those variable rate loans, the interest rate may adjust monthly or
quarterly with the base rate established as the lowest New York prime rate in
effect on the first day of each adjustment period as published in The Wall
Street Journal. In general, the loans made by Business Loan Center are made on
an adjustable rate basis, bear the maximum allowable interest rate and are
adjusted on a quarterly basis.
The SBA presently guarantees 80% of the loan amount in those
cases where the aggregate sum of all loans (including the loan under
consideration) made to a borrower and its affiliates under the Guaranteed Loan
Program and related SBA-sponsored financial assistance programs does not exceed
$100,000. The SBA's maximum guaranty percentage for loans in excess of $100,000
is 75% with a maximum guaranty dollar amount of $750,000. As consideration for
the issuance of its guarantee, the SBA charges participating lenders a fee
ranging from 3% to 3.875% of the SBA-guaranteed portion of the loan, depending
on the total loan amount. The participating lenders may, in turn, charge this
fee to the borrower upon initial disbursement of the loan.
The SBA has established three levels of lender participation
within the Guaranteed Loan Program. Under the first level of lender
participation, known as "General Participation", each loan made by a
participating lender under the Guaranteed Loan Program must be reviewed and
approved by the SBA.
The second level of lender participation, known as "Certified
Lender Participation," is similar to the General Participation in that the SBA
must review a lender's credit analysis and independently approve the loan. The
SBA's review, however, is expedited with completion, generally, within three
business days. Lenders may apply to be designated as "Certified Lenders" after
one year of lending activity and such status is granted at the discretion of the
SBA.
Under the third level of lender participation, known as the
"Preferred Lender Program," the lender is granted the authority to approve the
loan and issue a guaranty on behalf of the SBA without submitting the loan
application for SBA review and approval, thereby expediting the lending process
significantly. Business Loan Center has been granted Preferred Lender status in
63 SBA offices throughout the Country.
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Sales in the Secondary Market. The SBA-guaranteed portions of
loans are sold by Business Loan Center on a non-recourse basis in the secondary
market. Broker-dealer firms establish a secondary market by purchasing the
SBA-guaranteed portions of the loans from participating lenders (including
Business Loan Center), and then reselling them, individually or in pools, to
banks, pension funds, institutions, or individual investors. Immediately prior
to or upon closing a loan, Business Loan Center generally will solicit bids from
several broker-dealers active in the secondary market. The secondary market for
the SBA-guaranteed portion of loans is active and provides an immediate source
of funds enabling Business Loan Center to expand its loan portfolio. Business
Loan Center's ability to sell in the secondary market is not dependent on any
one or several of such broker-dealers because there are numerous broker-dealers
in the secondary market. During the fiscal year ended June 30, 2000 ("Fiscal
Year 2000"), not more than 25% of Business Loan Center's loans were sold to any
one broker-dealer. The SBA facilitates the existence of this secondary market by
maintaining a Fiscal and Transfer Agent (the "FTA") which maintains a central
registry of all such loans sold in the secondary market and issues certificates
representing fractional or undivided interests in pools consisting solely of
SBA-guaranteed portions of loans for a fee. The FTA also acts as a central
repository for funds collected on the SBA-guaranteed portion of loans and as a
disbursement agent to distribute such funds to the purchasers in the secondary
market.
Business Loan Center is generally able to sell the
SBA-guaranteed portions of its loans at a premium due to the lengthy maturity of
the underlying loan, the rate of return as compared to other investment paper
backed by the United States Government and the service fees to be received by
Business Loan Center from the purchaser. Under the SBA Act, Business Loan Center
is required to pay to the SBA one-half of any premium in excess of 10% on the
sale of the SBA-guaranteed portion of any loans. During Fiscal Year 2000,
Business Loan Center obtained an average premium of approximately 7.4% on the
sale of the SBA-guaranteed portion of the loans sold in the secondary market.
The premium paid on loans that default prior to the third monthly payment must
be repaid to the purchaser of the loan. Under certain limited circumstances,
Business Loan Center may be liable, on loans that it originated, for losses
incurred by the SBA. This contingency has been accounted for with respect to
determining the adequacy of the allowance for credit losses.
After Business Loan Center sells the SBA-guaranteed portion of
a loan in the secondary market, Business Loan Center continues to service the
loan for an annual fee. Although the fee is subject to negotiation, the
regulatory minimum fee which must be received by Business Loan Center for
servicing any loan equals 1% per year of the principal amount of the
SBA-guaranteed portion of such loan. Participating lenders under the Guaranteed
Loan Program are required to pay to the SBA an annual fee equal to one half of
1% of the outstanding principal amount of the SBA-guaranteed portion of any loan
closed after October 12, 1995. This fee is generally borne by the purchaser of
the SBA-guaranteed portion of a loan sold in the secondary market. Business Loan
Center has obtained net servicing fees (after deducting the fee paid to the SBA)
ranging from 1.0% to 4.41%, with an average service fee for loans originated
during Fiscal Year 2000 of 1.12%.
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Revenues. Business Loan Center derives its revenues primarily
from three sources: (i) interest earned on loans retained for its own account;
(ii) gains from the sale of the SBA-guaranteed portion and unguaranteed portion
of loans; and (iii) servicing fees paid and interest earned relating to the
residual interest of the SBA-guaranteed portion of loans sold in the secondary
market and servicing fees on the unguaranteed portion of loans sold. See
Management's Discussion and Analysis of Financial Conditions and Results of
Operations - Results of Operations and the Company's Financial Statements,
starting on page F-1.
Loan Portfolio. At June 30, 2000, Business Loan Center
serviced a loan portfolio of 608 loans in the approximate aggregate principal
amount of $328,609,000. Of this amount, approximately $238,033,000 (72.4%)
consisted of the SBA-guaranteed portion of these loans, of which approximately
$17,420,000 consisted of the SBA-guaranteed portion of loans that had not as yet
been sold or were sold pending settlement on the secondary market. Approximately
$90,576,000 (27.6%) consisted of the unguaranteed portion of loans, of which
approximately $14,644,000 in unguaranteed loans were retained by Business Loan
Center for its own account. The original principal amounts of these loans range
from $20,000 to $1,583,000 and the contractual maturities range from 7 years to
25 years. At June 30, 2000, Business Loan Center's portfolio had a weighted
average contractual maturity of approximately 22.5 years and a weighted average
remaining maturity of approximately 20.7 years. The interest rates on these
loans are adjustable and substantially all are 2.75% over the prime rate.
Of the $328,609,000 in Business Loan Center's serviced
portfolio at June 30, 2000, delinquent loans accounted for approximately
$10,251,000 (3.12%) of which, approximately $769,000 represented Business Loan
Center's proportionate share. These figures represent delinquencies greater than
60 days. Loans in liquidation serviced by Business Loan Center's portfolio at
June 30, 2000 accounted for approximately $12,246,000 (3.73%) of which,
approximately $1,879,000 represented Business Loan Center's proportionate share.
An estimation of the liquidated value of real estate
collateral and other collateral securing loans in liquidation is performed
regularly based on recent evaluations of collateral. All loans in liquidation
are reviewed on a weekly basis to determine changes in status. Of the loans in
liquidation, approximately 26% were in the gas and convenience store industry,
17% were in the hotel/motel industry, and 13% were in the restaurant industry.
No other industry accounted for more than 10% of the loans in liquidation. At
June 30, 2000, Business Loan Center had allowances for credit loss and estimated
future losses on loans in liquidation of approximately $538,000 on its financial
statements which incorporates management's assessment of these loans.
Due to a variety of circumstances relating to the borrower's
business or personal matters, certain loans made by Business Loan Center are
repaid, in part or in their entirety, on an accelerated basis. These prepayments
generally arise from excess cash generated by the borrower's operations, a
refinancing of the loan, cash from the proceeds of the sale of the borrower's
business or personal real estate or the liquidation of other business assets.
During Fiscal Year 2000, Business Loan Center collected approximately
$23,569,000 of loan prepayments of which approximately $2,276,000 represented
Business Loan Center's proportionate share.
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At June 30, 2000, 35 proposed loans in the approximate
aggregate principal amount of $21,877,000 had received both Business Loan Center
and SBA approval and were awaiting closing. In addition, 59 proposed loans in
the approximate aggregate principal amount of $30,363,000 were approved by
Business Loan Center and awaiting submission to the SBA or waiting SBA approval.
Business Loan Center's existing capital resources should enable it to fund these
loans and additional loans in process. See Management's Discussion and Analysis
of Financial Conditions and Results of Operations - Results of Operations.
Service marks. The Company believes that the distinctive logo
used by Business Loan Center is an important element of continued name
recognition in the industry. The Business Loan Center logo which includes its
name within a distinctive design, was registered as a service mark on the
principal register of the United States Patent and Trademark Office on August
10, 1993.
Government Regulations. The level of SBA funding for the
Guaranteed Loan Program is subject to the federal budgeting process for each
federal fiscal year ending September 30 (each a "Federal Fiscal Year").
Accordingly, the availability of funds for SBA guarantees could increase or
decrease each year. The budget for the Federal Fiscal Year 2000 is $10.3 billion
under the Guaranteed Loan Program in which Business Loan Center participates.
The actual usage of funds for Federal Fiscal Year 1999 $ 10.1 billion as
compared to $9.0 and $9.5 billion for Federal Fiscal Years 1998 and 1997,
respectively. Beginning in Federal Fiscal Year 2001, the Senate has approved a
$10.8 billion program level for participants in the Guaranteed Loan Program. The
Conference Committee will determine the final appropriation amount.
The qualification of a Small Business Lending Company, such as
Business Loan Center, to participate in the Guaranteed Loan Program is subject
to termination by the SBA based on violation of law or SBA regulations or
violation of any agreement with the SBA. Management of Business Loan Center has
no reason to believe that its license to participate in the program will be
terminated.
SBA approval of loans is dependent, in part, upon the SBA's
determination that Business Loan Center's facilities and personnel can
adequately support the servicing of the loan. Based upon the experience of its
personnel and the present staffing of Business Loan Center in its offices in New
York, New York, Panama City Beach, Florida, Richmond and Alexandria (near
Washington D.C.), Virginia, Manalapan and Mt. Arlington, New Jersey, Boston,
Massachusetts, Hartford, Connecticut, Wichita, Kansas, McKinney, Texas, Phoenix,
Arizona, Oklahoma City, Oklahoma, Omaha, Nebraska, and Seattle, Washington.
Business Loan Center reasonably believes that it satisfies this criteria in the
states in which it is currently operating.
As a Small Business Lending Company, Business Loan Center's
operations are subject to extensive local, state and federal regulations,
including, but not limited to, the following federal statutes and regulations
promulgated thereunder: the Small Business Act, the Small Business Investment
Act of 1958, as amended, Title 1 of the Consumer Credit Protection Act of 1968,
as amended (including certain provisions thereof commonly known as the
"Truth-in-Lending Act"), the Equal Credit Opportunity Act of 1974, as amended,
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the Fair Credit Reporting Act of 1970, as amended, Title IV of the Higher
Education Act of 1965, as amended, the Fair Debt Collection Practices Act, as
amended, and the Real Estate Settlement Procedures Act, as amended. In addition,
Business Loan Center is subject to state laws and regulations with respect to
the amount of interest and other charges which lenders can collect on loans
(e.g., usury laws). Business Loan Center believes it is in material compliance
with all applicable rules and regulations.
Competition. The commercial lending business is highly
competitive and the Company competes with many banks and other non-bank lending
institutions, most of which are substantially larger, and have greater financial
resources and name recognition. There are currently fourteen licensed non-bank
lenders which compete within the Guaranteed Loan Program lending market.
Additionally, certain banks and non-bank lending institutions which participate
in the Guaranteed Loan Program have also been designated as "Preferred" or
"Certified Lenders". There is no assurance that the Company will be able to
compete successfully in the future or that competition will not have a material
adverse effect on the Company's business, financial condition and results of
operations.
Seasonality. Business Loan Center's business is not seasonal.
Loan Production Subsidiaries. The Company, recognizing the
need to centralize its loan originations, has established three regional loan
production subsidiaries to coordinate loan originations and to process
applications received from Business Loan Center's network of independent loan
referral sources. Business Loan Center's three wholly-owned loan production
subsidiaries are BLC Financial Network Inc. ("BLC Network"), BLC Financial
Network of Mid-America, Inc. ("BLC Mid-America"), and BLC Financial Network of
Florida, Inc. ("BLC Florida").
During Fiscal Year 2000, Business Loan Center generated
approximately 90% of its loan volume directly and indirectly, through loan
referral sources constituting the representative network. Generally, a loan
referral source is compensated after the closing of a loan. During the current
fiscal year, no one loan source accounted for more than 8% of Business Loan
Center's volume.
Acquisitions
EBLC, Inc. On May 4, 1990, the Company, through Business Loan
Center, acquired an 80% interest in a New York general partnership ("BLC-GP")
from Business Loan Center, Inc., an unaffiliated New York corporation. On
September 16, 1996, Business Loan Center purchased the minority interest of
BLC-GP for $380,000. Prior to that purchase, the Company owned the existing 88%
of the partnership. In February 1997, BLC-GP transferred its assets and
liabilities to Business Loan Center, a wholly owned subsidiary of the Company.
Southeastern First Financial Network, Inc. On February 5,
1996, the Company, through its wholly-owned subsidiary, BLC Financial Network,
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Inc. ("BLC Network") acquired all of the issued and outstanding common stock of
Southeastern First Financial Network, Inc., in exchange for 1,808,821 shares of
the Company's Common Stock.
BLC Commercial Capital Corporation
Background. BLC Commercial Capital Corporation, a Florida
corporation ("BLC Commercial"), is a wholly owned subsidiary of the Company. On
November, 4, 1997 BLC Commercial was granted the authority to participate in the
United States Department of Agriculture ("USDA") Business & Industry Guaranteed
Loan Program (the "B&I Program").
BLC Commercial has offices in New York, New York and McKinney,
Texas. In addition, BLC Network, BLC Mid-America, and BLC Florida originate B&I
loans for the Company within their respective regions.
The B&I Program. The B&I Program was designed to create jobs
and stimulate rural economies by providing financial backing for rural
businesses. The assistance is available in rural areas, which include all areas
other than cities of more than 50,000 people and their immediately adjacent
urbanized fringe areas. The program provides for guarantees by the USDA of 80%
for loan amounts up to $5,000,000 and 70% for loans between $5,000,000 and
$10,000,000. Interest rates are negotiated between the borrower, the lender and
the USDA, but typically range between 1% and 2% above the prime rate. Of those
variable rate loans, the interest rate may adjust monthly or quarterly with the
base rate established as the lowest New York prime rate in effect on the first
day of each adjustment period as published in The Wall Street Journal. Each
lender is required to pay a guarantee fee equal to 2% of the guaranteed amount
of its loan to the USDA. The participating lenders may, in turn, charge this fee
to the borrower upon initial disbursement of the loan.
Loans typically have maturities between seven and 30 years
depending upon the use of proceeds. The types of businesses eligible are less
restrictive than the SBA (7a) Program and there is an active secondary market
for the guaranteed portion of the loan with premiums comparable to those
received by Business Loan Center in the SBA (7a) Program. This lending business
is still relatively new to the Company, however, the Company believes it can
generate significant volume through its origination offices and independent loan
originators, which are located near rural areas.
Revenues. BLC Commercial derives its revenues primarily from
three sources: (i) interest earned on loans retained for its own account; (ii)
gain on the sale of the USDA-guaranteed portion of the loans; and (iii)
servicing fees paid on the USDA-guaranteed portion of loans sold in the
secondary market. See Management's Discussion and Analysis - Results of
Operations.
B&I Program Loan Portfolio. At June 30, 2000, BLC Commercial
serviced a loan portfolio of eighteen loans in the approximate aggregate
principal amount of $47,398,000. Of this amount, approximately $38,047,000
consisted of the USDA guaranteed portion of the loans and approximately
$9,350,000 consisted of the unguaranteed portion of the loans. BLC Commercial
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has sold a $300,000 participation in the unguaranteed portion of one loan and
has retained the entire unguaranteed portion of the remaining loans for its own
account. The original principal amounts of these loans ranged between $150,000
and $5,000,000 with maturities between 15 and 30 years. The interest rates on
these loans are adjustable and range between 1% and 2.25% over prime.
At June 30, 2000, one loan in the principal amount of
$1,196,000 was delinquent or in liquidation, of which BLC Commercial's share was
$239,000.
At June 30, 2000, six loans totaling $20,010,000 were approved
by BLC Commercial and awaiting submission to the USDA or awaiting USDA approval.
BLC Commercial's existing capital resources should enable it to fund each of
these loans.
Government Regulation. The level of funding for the B&I
Program is subject to the federal budgeting process for each Federal Fiscal
Year. Accordingly, the availability of funds for USDA guarantees under the B&I
Program could increase or decrease each year. The federal budget for Federal
Year 2000 is $1.0 billion.
Seasonality - BLC Commercial's business is not seasonal.
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BLC Capital Corporation
Background. BLC Capital Corporation, a Delaware corporation
("BLC Capital"), is a wholly-owned subsidiary of the Company whose primary
function is to complement the Guaranteed Loan Program by originating,
underwriting, closing and servicing loans which may exceed the SBA's maximum
guaranteed portion. In addition, BLC Capital's lending program makes loans, the
proceeds of which are used for purposes that are not permitted under the
Guaranteed Loan Program, such as acquisition of rental real estate.
Companion Loan Program. BLC Capital originates first mortgage
loans in conjunction with its SBA loans. These loans are funded by various
financial institutions from which BLC Capital receives a fee. In addition, the
Company has negotiated an agreement with a major financial institution to fund
qualified companion loans originated by the Company from which BLC Capital
receives a fee for both originating and servicing these loans.
Revenues. BLC Capital derives its revenue from servicing fees
on those loans in its portfolio that it services, as well as from commissions on
loan referrals to outside financial institutions. The referral fees received on
these loans ranges from 3% to 9.75% of the loan amount and totaled $905,000 for
the fiscal year ended June 30, 2000. See Management's Discussion and Analysis -
Results of Operations.
Loan Portfolio. At June 30, 2000, BLC Capital through its
Companion Loan Program serviced 27 loans, in the approximate aggregate principal
amount of $17,500,000. During the fiscal year ended June 30, 2000, BLC Capital
originated 19 loans totaling $12,675,000. See Management's Discussion and
Analysis - Liquidity and Capital Resources.
Environmental
Compliance with federal, state and local laws and regulations
governing the discharge of materials into the environment and noise levels is
not expected to have any material adverse effect upon the Company.
Business Loan Center and BLC Commercial may in the future
acquire, through foreclosure, properties that secure defaulted loans. There is a
risk that hazardous substances or wastes, contaminants, pollutants or sources
thereof could be discovered on properties acquired by Business Loan Center and
BLC Commercial. In such an event, the Company could be required under certain
environmental laws to remove such substances and clean up the affected property
at its sole cost and expense, which could have a material adverse effect on the
Company. To date, neither Business Loan Center nor BLC Commercial has been named
as a potentially responsible party under any federal or state environmental
laws. In most cases where commercial properties secure loans, Business Loan
Center and Commercial will obtain an environmental evaluation to ascertain the
existence of toxic wastes prior to making the loan.
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Employees
The Company, through its subsidiaries, currently employs 79
full-time and three part-time employees. Of these employees, 12 are employed in
executive or managerial capacities, 17 are employed in administrative or
clerical capacities, 12 are employed in loan servicing capacities and 41 are
employed in loan origination, processing and underwriting capacities. None of
the Company's employees are represented by a collective bargaining unit. The
Company considers its employee relations to be satisfactory.
Item 2. PROPERTIES.
The Company, through its subsidiaries, currently leases office
space for all of its general business purposes in New York, New York, Richmond
and Alexandria, Virginia (near Washington D.C.), Indianapolis, Indiana, Panama
City Beach, Florida, Wichita, Kansas, Albuquerque, New Mexico, McKinney, Texas,
Phoenix, Arizona, Omaha, Nebraska, and Oklahoma City, Oklahoma. See
"Consolidated Financial Statements - Note 8".
<TABLE>
<CAPTION>
------------------ --------------- --------------------- --------------- ---------------
New York, Panama City
New York Richmond, Virginia Wichita, Beach, Florida
Kansas
------------------ --------------- --------------------- --------------- ---------------
<S> <C> <C> <C> <C>
Approximate
Square Footage 11,800 7,100 3,000 2,400
------------------ --------------- --------------------- --------------- ---------------
------------------ --------------- --------------------- --------------- ---------------
Indianapolis, Alexandria, Albuquerque,
Indiana Virginia (near New Mexico Mckinney,
Washington, D.C.) Texas
------------------ --------------- --------------------- --------------- ---------------
Approximate
Square Footage 1,300 1,000 800 600
------------------ --------------- --------------------- --------------- ---------------
------------------ --------------- --------------------- ---------------
Oklahoma City, Omaha,
Phoenix, Oklahoma Nebraska
Arizona
------------------ --------------- --------------------- ---------------
Approximate
Square Footage 209 195 128
------------------ --------------- --------------------- ---------------
</TABLE>
Item 3. LEGAL PROCEEDINGS.
None.
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Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On March 30, 2000, the Company held its Annual Meeting of
Stockholders. The total number of shares voted at the meeting were 17,016,381,
including proxies. At the meeting, stockholders voted on and approved: (1) the
election of two directors of the Company (Robert F. Tannenhauser and Peter D.
Blanck), (2) the ratification of the appointment of Richard A. Eisner & Company,
LLP as auditors of the Company for the fiscal year ending on June 30, 2000 and
(3) the amendment to the Amended 1995 Management Incentive Plan to increase the
number of shares of common stock that may be subject to options granted under
the Plan. Votes were cast in the following manner:
<TABLE>
<CAPTION>
----------------------------------------- ------------- ---------------- ------------ ------------
Issue For Against Abstain Not Voted
----------------------------------------- ------------- ---------------- ------------ ------------
<S> <C> <C> <C> <C>
1. Election of Directors
Robert F. Tannenhauser 16,965,010 51,371
Peter D. Blanck 16,965,110 51,271
----------------------------------------- ------------- ---------------- ------------ ------------
2. Ratification of Auditors 16,983,971 5,410 27,000
----------------------------------------- ------------- ---------------- ------------ ------------
3. Amendment to
Amended 16,734,447 250,298 31,636
1995 Management Incentive Plan
----------------------------------------- ------------- ---------------- ------------ ------------
</TABLE>
The following directors were not up for re-election at the meeting and they
continued in office after the meeting: Irwin Redlener, Kenneth Schwartz, Jerome
B. Alenick, Robert W. D'Loren and Robert W. Wien.
14
<PAGE>
Part II.
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
On April 30, 1998, the Company's Common Stock began trading on
the American Stock Exchange. Prior to that date, the Company's Common Stock was
listed for trading on the over-the-counter market through the OTC Electronic
Bulletin Board. During Fiscal Year 1999, the AMEX and NASDAQ merged and became
the NASDAQ AMEX. The following table lists the high and low sales prices, as
reported by the AMEX from April 30, 1998 through June 30, 2000, and prior to
that date, the range of high and low sale prices as reported by the National
Quotation Bureau from January 1, 1998 through March 31, 1998.
<TABLE>
<CAPTION>
2000 High Sale Low Sale
---- --------- --------
<S> <C> <C>
Second Quarter (AMEX) 2.313 1.625
First Quarter (AMEX) 3.25 1.625
1999
----
Fourth Quarter (AMEX) 2.125 1.50
Third Quarter (AMEX) 2.50 1.813
Second Quarter (AMEX) 2.188 1.75
First Quarter (AMEX) 2.935 2.0
1998
Fourth Quarter (AMEX) 2.875 1.8125
Third Quarter (AMEX) 3.75 2.188
Second Quarter (AMEX) 5.25 3.0625
First Quarter 3.0625 1.375
</TABLE>
Quotations represent prices between dealers and do not include
retail mark-up, mark-down or commission, and may not necessarily represent
actual transactions.
The Company has never paid cash dividends on the Common Stock
and it is managment's present intention to reinvest future earnings, if any, in
the business of the Company. The Company's ability to pay dividends in the
future, should management so determine, will be dependent upon the Company's
earnings, financial condition and other relevant factors.
As of September 11, 2000, there were approximately 791 holders
of record of the Common Stock of the Company.
Throughout the fiscal years ended June 30, 1999 and June 30,
2000, the Company has raised, through private placements, $6,486,000 in
convertible debentures. See Management's Discussion and Analysis of Financial
Conditions and Results of Operations - Results of Operations and the Company's
Financial Statements, starting on page F-1.
15
<PAGE>
Item 6.SELECTED FINANCIAL DATA.
The following selected financial data should be read in conjunction with the
financial statements included in this Report.
<TABLE>
<CAPTION>
Year Ended June 30,
2000 1999 1998 1997 1996
---- ---- ----- ----- ----
Summary of Operations:
<S> <C> <C> <C> <C> <C>
Total revenues 26,366,000 $19,422,000 $15,729,000 $7,168,000 $4,997,000
Income before
extraordinary items 5,282,000 3,103,000 3,226,000 1,702,000 553,000
Extraordinary item 245,000 91,000
Net Income 5,282,000 $3,103,000 $3,226,000 $1,947,000 $644,000
Income per share (basic)
before extraordinary item .26 .16 .18 .10 .04
Income per share
from extraordinary item - - - .01 .01
Net income per
share (basic) .26 .16 .18 .11 .05
Net income per share .22 .14 .15 .11 .04
(diluted)
As of June 30:
Total assets $85,896,000 $68,037,000 $53,281,000 $20,086,000 $10,983,000
Total liabilities $60,805,000 $48,890,000 $39,012,000 $12,896,000 $5,657,000
Shareholders' equity $25,091,000 $19,147,000 $14,269,000 $7,190,000 $4,601,000
Shareholders' equity
per share 1.23 .94 .72 .41 .27
16
<PAGE>
Selected Quarterly Financial Data (Unaudited)
Summarized Quarterly data was as follows: Three Months Ended
------------------
September 30 December 31 March 31 June 30
------------ ----------- -------- -------
Year ended June 30, 2000
Revenues $4,513,000 $8,326,000 $6,247,000 $7,280,000
Expenses 3,731,000 4,763,000 4,567,000 5,167,000
Provision for Income Taxes 310,000 1,410,000 691,000 445,000
Net income $472,000 $2,153,000 $ 989,000 $1,668,000
Earnings Per Share:
Basic:
Net income .02 .11 .05 .08
Diluted:
Net income .02 .09 .04 .07
Year ended June 30, 1999
Revenue $4,626,000 $6,868,000 $4,430,000 $3,498,000
Expenses 3,649,000 3,959,000 3,423,000 3,237,000
Provision for Income Taxes 410,000 1,144,000 398,000 99,000
Net Earnings $567,000 $ 1,765,000 $609,000 $ 162,000
Earnings Per Share:
Basic:
Net income .03 .09 .03 .01
Diluted:
Net income .03 .07 .03 .01
</TABLE>
17
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION.
The following discussion and analysis should be read in
conjunction with the Company's financial statements included in this report and
the notes accompanying the financial statements. The discussion of results,
causes and trends should not be construed to imply any conclusion that such
results or trends will necessarily continue in the future.
Liquidity and Capital Resources
The Company actively engages in commercial lending through
Business Loan Center, BLC Commercial, and BLC Capital, and therefore, the
Company has a constant need for debt financing. Cash used by the Company and its
subsidiaries to fund loans, repay existing debt and to fund operating expenses
is currently provided only partially through collections on loans and proceeds
from loan sales. The remainder of the Company's cash requirements is derived
from existing capital and short and long-term borrowing.
The Company currently maintains a $50,000,000 credit facility
to fund both the guaranteed and unguaranteed portion of 7(a) Program loan
originations, as well as a $15,000,000 credit facility to fund both the
guaranteed and unguaranteed portions of B&I loans. Borrowings under the
guaranteed line are repaid immediately upon the sale of the guaranteed portion
on the secondary market.
During the fiscal year ending June 30, 2000, the Company,
through its subsidiary Business Loan Center, Inc., successfully completed the
closing of a revolving securitization facility totaling $75 million. This type
of securitization structure provides for periodic sales of the unguaranteed
portion of SBA loans into a conduit facility on a revolving basis. The initial
sales, which took place in December 1999, consisted of two pools of unguaranteed
SBA loans approximating $23.2 million. During the subsequent quarters, Business
Loan Center, sold an additional pool totaling approximately $15.9 million.
Proceeds from the sale were used to reduce the credit lines.
In addition, the Company, through a private placement of
convertible debentures, raised approximately $1,621,000 during the year ended
June 30, 2000. The debentures were initially convertible into common stock at
$3.50 per share. However, during the year ended June 30, 2000, the conversion
price was reduced to $2.75 per share. The debentures have a four-year term and
pay interest quarterly at the rate of 9% per annum.
At June 30, 2000, sales of the guaranteed portions of loans in
the aggregate amount of $13,926,000 were pending settlement in the secondary
market, while $7,494,000 were pending construction and/or renovation
completions. Upon the completion of these funding projects, participation in
these loans may be sold in the secondary market, providing the Company with a
source of revenues. Subsequent to June 30, 2000, the Company received net cash
premiums, after repayment of indebtedness, of approximately $1,195,000 from
those loans pending settlement at June 30, 2000.
18
<PAGE>
Pursuant to a loan participation agreement entered into with a
purchaser during the fiscal year ended June 30, 1996, Business Loan Center, at
its option, in respect to loans which are delinquent for more than 60 days is
required to either (i) repurchase the loan or (ii) substitute interest in
another loan of equal value. During Fiscal Year 2000, four loans with an
aggregate value of approximately $223,000 were repurchased.
The Company believes that its current capital resources and
future cash flows will be sufficient to meet its future financial obligations
and projected capital requirements, based on the resources provided by the
credit facilities described above, the anticipated proceeds from sales of both
the guaranteed and unguaranteed portion of loans in the secondary market, the
cash generated from the existing portfolio in the form of interest and servicing
income, and the regular principal repayments on loans receivable. Management
believes that Business Loan Center and BLC Commercial should be able to
originate and fund at least $190 million in new loans during Fiscal Year 2001.
However, there can be no assurances that the Company will be able to achieve
this level.
Year 2000 Update
The Company has not had any Year 2000 problems subsequent to December
31, 1999 and does not anticipate any in the future. However, the Company plans
to continue to conduct analyses of the Company's information technology systems
and Year 2000 testing procedures. To date, the Company's costs associated with
Year 2000 issues have not been material, and management does not anticipate that
the costs which may be incurred subsequent to June 30, 2000 to exceed $50,000.
The Company's loan servicing system has continued to be fully
operational subsequent to January 1, 2000 after having received assurances from
the vendor of its servicing system, that their system is Year 2000 compliant.
However, in the event that the servicing system does not operate properly, the
Company could service each loan manually, which would entail additional labor
costs. These costs have been estimated to be no greater than $70,000.
There can be no assurance that other companies' computer systems and
applications on which the Company's operations rely will continue to remain
unaffected by the Year 2000 functions, or that any such operational failure by
another company would not have a material adverse effect on the Company's
systems and operations.
19
<PAGE>
Results of Operations
General. Demand for long-term commercial loans throughout the
United States has continued to remain at substantially high levels over the last
several years. The Guaranteed Loan Programs have assisted participating lenders
in providing record amounts of guaranteed loans over the past three federal
fiscal years. Business Loan Center and BLC Commercial have contributed to the
success of the Guaranteed Loan Programs by originating loans in the principal
amount of approximately $163,568,000, for Fiscal Year 2000, resulting in a
serviced loan portfolio approximating $376,007,000. By establishing an effective
loan origination network spanning the United States, management believes that
the Company has positioned itself to achieve ongoing growth, both with respect
to the amount of loans originated and the geographic areas in which it operates.
The origination network is currently comprised of loan referral sources that
service several broad geographic regions and provide customers with a variety of
financial products.
Management of the Company is sensitive to industry and
geographical trends, including failure rates in various industries, general
condition of local economies, and the resultant effect on businesses and real
estate values. Generally, the Company's current lending pattern, both regarding
industry and geographic location, is extremely diverse. At June 30, 2000,
businesses in over 145 distinct industries in approximately 45 different states
had received loans from Business Loan Center. The largest industry sectors in
Business Loan Center's serviced portfolio include: lodging, approximating 33% of
the aggregate loan portfolio, gas stations and convenience stores, approximating
10% and restaurants, approximating 11% of the aggregate loan portfolio.
20
<PAGE>
Fiscal Year 2000 vs. Fiscal Year 1999. The Company recorded
net income of $5,282,000 (or $.26 per basic share) for the fiscal year ended
June 30, 2000 ("Fiscal Year 2000") as compared to net income of $3,103,000 (or
$.16 per basic share) for the year ended June 30, 1999 ("Fiscal Year 1999"). Net
income before provision for income taxes ("Operating Income") was $8,138,000 for
Fiscal Year 2000, as compared to $5,154,000 for Fiscal Year 1999.
Revenues for Fiscal Year 2000 grew from approximately
$19,422,000 at June 30, 1999 to $26,366,000 at June 30, 2000, an increase of
36%. This increase in revenues resulted primarily from an increase in gain on
sale of loans and interest income, which arose from increased loan originations
as well as increased loan sales during the fiscal year. During Fiscal Year 2000,
the Company originated $163,568,000 in new loans as compared to $112,142,000,
which represents an increase of over 45%. As of June 30, 2000, the Company
maintained a serviced loan portfolio of 626 loans, which approximated
$376,007,000 as compared to 454 loans, which approximated $248,544,000 at June
30, 1999.
Gain on sale of loans increased from $11,868,000 for Fiscal
Year 1999 to $16,687,000 for Fiscal Year 2000, an increase of 41%. This is
attributable to increases sales of both the guaranteed and unguaranteed portions
of loans originated. The Company sold $120,983,000 in guaranteed loans during
Fiscal Year 2000 as compared to $79,240,000 in Fiscal Year 1999. The
unguaranteed portion of loans securitized and sold during Fiscal Year 2000
increased to $39,191,000 from $24,317,000 for Fiscal Year 1999. These increases
were partially offset by an overall reduction in the average premium received on
the sale of the guaranteed portion of the loans in the secondary marketplace.
During Fiscal Year 1999, the average premium received on the sale of the
guaranteed portion of loans was 109% as compared to 108% for Fiscal Year 2000.
Interest income increased from approximately $3,550,000 for
Fiscal Year 1999 to approximately $4,654,000 for Fiscal Year 2000, or by 31%.
This increase resulted from both an increase in the prime rate, which is the
base rate for all of the Company's loan originations, as well as an increase in
the overall loan originations experienced during the fiscal year. The prime rate
increased to 9.5% as of June 30, 2000, as compared to 8% at June 30, 1999.
Service fee income was $2,355,000 as of June 30, 1999 as
compared to $2,896,000 at June 30, 2000, an increase of 23%. This increase was
primarily due to an increase in the serviced and sold loan portfolio which
approximated $315,340,000 at June 30, 2000 compared to $195,773,000 at June 30,
1999. The increase was partially offset by an overall decrease in the service
fee rates earned on the sale of guaranteed portion of SBA loans as well as an
increase in the amortization or principal payments on the residual interests.
The average service fee earned on the sale of the guaranteed portion of SBA
loans originated during Fiscal Year 2000 was 1.12% as compared to 1.54% for
Fiscal Year 1999. Service fees and residual interest rates earned on both the
SBA and USDA guaranteed loans sold in the secondary market ranged between .25%
and approximately 4.41%.
Miscellaneous income increased from $1,649,000 at June 30,
1999 to $2,129,000 at June 30, 2000, an increase of 29%. This increase can be
21
<PAGE>
attributed to increased fees earned on the origination and sales of non-SBA
loans, as well as fees earned in connection with packaging these and other SBA
and B&I loans.
Operating expenses increased from approximately $8,636,000 for
Fiscal Year 1999 to approximately $11,237,000 for Fiscal Year 2000, an increase
of 30%. This increase resulted from increases in payroll, commissions and travel
associated with continued growth and expansion.
General and administrative expenses increased to approximately
$3,126,000 for Fiscal Year 2000 compared to $2,746,000 at Fiscal Year 1999, an
increase of 14%. This was due to increases in corporate and legal services as
well as amortization of costs associated with additional financing obtained
throughout the past fiscal year.
Interest expense increased by approximately 34% during Fiscal
Year 2000 as compared to the prior year's period. The increase was due to
increased borrowing to meet the continued growth in loan production activities
as well as an increase in the base borrowing rate.
The number and aggregate principal amount of the loans in the
Company's portfolio at the end of Fiscal Year 2000 may be classified and
compared to the loans in its portfolio at the end of Fiscal Year 1999 as
follows:
<TABLE>
<CAPTION>
YEAR ENDED 6/30/00 YEAR ENDED 6/30/99
------------------------------- -------------------------------
Total Guaranteed Ungteed. Total Guaranteed Ungteed.
Amount Amount Amount # Loans Amount Amount Amount # Loans
----------------------------------------------------------- -------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Performing Loans $352,314,000 $258,867,000 $93,447,000 578 $238,586,000 $173,610,000 $64,976,000 418
Delinquent Loans 11,447,000 8,293,000 3,154,000 15 870,000 653,000 217,000 1
Loans in
liquidation 12,246,000 8,921,000 3,325,000 33 9,088,000 7,415,000 1,673,000 35
------------ ------------ ------------ --- ------------ ------------ ------------ ----
Total Loans $376,007,000 $276,081,000 $99,926,000 626 $248,544,000 $181,678,000 $66,866,000 454
============= ============ ==== ============ ============ ====
LESS:
Loans Sold $75,934,000 $42,878,000
Allowance for Credit Losses 1,153,000 914,000
Deferred Income & Other 548,000 1,138,000
------------ -----------
Loans Receivable Net $22,291,000 $21,936,000
============= ============
</TABLE>
22
<PAGE>
Loans for which interest and principal payments are due for a
period greater than 60 days are categorized by the Company as "delinquent."
Delinquent loans generally are a result of various factors, including temporary
downturns in the borrower's business, seasonal working capital constraints,
changes in business location or products, and other factors specifically related
to each borrower. The borrowers often regain current status after a period of
time.
In certain cases, when the aforementioned factors prevent the
borrower from making any payments for a prolonged period of time, and the loan
falls beyond 90 days past due, the loan may then be categorized as in
"liquidation." After formal request is made by the Company or the fiscal
transfer agent ("FTA"), the SBA honors its guaranty by purchasing the guaranteed
portion of the loan, as well as all interest that is due for a period of up to
120 days. In general, loans in liquidation are serviced through the efforts of
Business Loan Center.
Fiscal Year 1999 vs. Fiscal Year 1998. The Company recorded
net income of $3,103,000 (or $.16 per basic share) for Fiscal Year 1999 as
compared to net income of $3,226,000 (or $.18 per basic share) for the year
ended June 30, 1998 ("Fiscal Year 1998"). Net income before provision for income
taxes and extraordinary item ("Operating Income") was $5,154,000 for Fiscal Year
1999, as compared to $5,337,000 for Fiscal Year 1998.
Revenues for Fiscal Year 1999 increased approximately 23% to
$19,422,000 from Fiscal Year 1998 primarily due to gains on loan sales,
servicing fee income, and interest income. This rise is attributed to an
increased serviced loan portfolio of the Company as well as an increase in loan
originations and loan sales during the respective periods. As of June 30, 1999
the Company maintained a serviced loan portfolio of 454 loans, which
approximated $248,544,000 as compared to 359 loans, which approximated
$175,889,000 at June 30, 1998.
Interest income increased from approximately $2,439,000 for
Fiscal Year 1998 to approximately $3,550,000 for Fiscal Year 1999, or by
approximately 46%. This was primarily due to an increase in the average
outstanding and performing retained loan portfolio held by the Company during
the year, which included both the unguaranteed portions of loans held as well as
the guaranteed portion of loans held for multiple disbursements and/or
construction disbursements. A portion of this increase can be attributed to the
increase in the Company's performing and retained loan portfolio at June 30,
1999 which approximated $34,027,000 as compared to $28,971,000 at June 30, 1998.
Service fee income increased by approximately 105% from the
prior year primarily due to the Company's increased serviced and sold loan
portfolio which approximated $195,773,000 at June 30, 1998. Servicing fees
earned by the Company on those guaranteed loans sold in the secondary market
have ranged between .50% and 4.06% per annum.
Operating expenses increased from approximately $6,481,000 for
Fiscal Year 1998 to approximately $8,636,000 for Fiscal Year 1999. This increase
resulted from increases in payroll, commissions and travel associated with
continued growth and expansion. With the addition of new offices during the
year, the Company experienced an unusually high rate of operational expenses. It
is expected that a corresponding increase in loan origination levels, and
23
<PAGE>
therefore, revenues should result from these production offices during the
fiscal year ended June 30, 2000.
General and administrative expenses of approximately
$2,746,000 for Fiscal Year 1999 increased from approximately $1,753,000 for the
prior year's period primarily due to additional loan production offices,
corporate services and amortization of costs associated with the additional
financing obtained throughout the past fiscal year.
Interest expense increased by approximately 34% during Fiscal
Year 1999 as compared to Fiscal Year 1998. The increase was due to increased
borrowing to meet continued growth in loan production activities during this
period which was somewhat offset by an interest rate reduction obtained by the
Company from its lender.
Loans in the approximate aggregate principal amount of
$112,142,000 were originated during Fiscal Year 1999, as compared to loans in
the approximate aggregate principal amount of $93,854,000 for Fiscal Year 1998,
representing a 19% increase in origination activities during the referenced
periods. The guaranteed principal amount of the loans originated during Fiscal
Year 1999 approximated $81,205,000 as compared to the aggregate guaranteed
principal of $67,357,000 for Fiscal Year 1998. Of those loans originated and
fully funded during Fiscal Year 1999, substantially all of the guaranteed
portions were sold in the secondary market subsequent to the full funding of
each loan, at premium rates approximating 109%. During Fiscal Year 1999, the
Company securitized and sold approximately $24,317,000 in unguaranteed loans.
Sales of both the guaranteed and unguaranteed portion of these loans during
Fiscal Year 1999 resulted in $11,868,000 of gains as compared to $10,583,000 for
Fiscal Year 1998.
The number and aggregate principal amount of the loans in the
Company's portfolio at the end of Fiscal Year 1999 may be classified and
compared to the loans in its portfolio at the end of Fiscal Year 1998 as
follows:
24
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED 6/30/99 YEAR ENDED 6/30/98
------------------------------- -------------------------------
Total Guaranteed Ungteed. Total Guaranteed Ungteed.
Amount Amount Amount # Loans Amount Amount Amount # Loans
----------------------------------------------------------- -------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Performing Loans $238,586,000 $173,610,000 $64,976,000 418 $164,037,000 $120,298,000 $43,739,000 321
Delinquent Loans 870,000 653,000 217,000 1 2,630,000 2,060,000 570,000 3
Loans in liquidation 9,088,000 7,415,000 1,673,000 35 9,222,000 7,413,000 1,809,000 35
------------- ------------- ------------ ----- ----------- ------------ ------------- ---------
Total Loans $248,544,000 $181,678,000 $ 66,866,000 454 175,889,000 129,771,000 $46,118,000 359
============ ============ ===== =========== ============ =========
LESS:
Loans Sold $42,878,000 $22,289,000
Allowance for Credit Losses 914,000 641,000
Deferred Income & Other 1,138,000 1,148,000
----------- -----------
Loans Receivable Net $21,936,000 $22,040,000
----------- -----------
</TABLE>
Loans for which interest and principal payments are due for a
period greater than 60 days are categorized by the Company as "delinquent."
Delinquent loans generally are a result of various factors, including temporary
downturns in the borrower's business, seasonal working capital constraints,
changes in business location or products, and other factors specifically related
to each borrower. The borrowers often regain current status after a period of
time.
In certain cases, when the aforementioned factors prevent the
borrower from making any payments for a prolonged period of time, and the loan
falls beyond 90 days past due, the loan may then be categorized as in
"liquidation." After formal request is made by the Company or the FTA, the SBA
honors its guaranty by purchasing the guaranteed portion of the loan, as well as
all interest that is due for a period of up to 120 days. In general, loans in
liquidation are serviced through the efforts of the Company's servicing staff.
25
<PAGE>
Item 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK.
In general, the Company manages its interest rate risk through
the use of variable-based interest rate indices for its borrowing and lending
activities. Specifically, the Company's borrowing rates from its lender are
based upon a spread above Prime Rate and the LIBOR Rate while the lending rate
to its borrowers is based upon a spread above the Prime Rate. During Fiscal Year
2000 the Company entered into a $75 million revolving securitization which
allows the Company to sell the unguaranteed portion of SBA loans into the
securitization conduit. As the Company periodically sells loans into the
conduit, it reduces its exposure to the lender. Accordingly, the potential
interest rate mismatch from the changes in the indices is of short duration.
Since the interest rates on the loans are based on the Prime
Rate and the interest rate on the conduit is based on LIBOR, the Company, under
the terms of the securitization, concurrently with selling loans, enters into
interest rate swaps to provide a cash flow hedge, which substantially mitigates
the interest rate risk. The net charge to operations during Fiscal Year 2000 due
to the interest rate swaps approximated $11,700. As a result, management
believes that the Company has substantially insulated itself from the impact of
a change in interest rates.
While the Company's servicing assets and residual interests
have firm interest rate spreads, these assets may, however, be subject to
impairment should interest rates increase in a fashion which would cause the
discount rate and estimated fair value interest rate to increase. An increase in
these two variables could cause the present value of future cash flows from the
servicing and residual interests to be negatively impacted, therefore decreasing
the carrying value of these financial instruments. However, it should be noted
that an interest rate change would not significantly impact the estimated cash
flows of these assets.
Item 8. FINANCIAL STATEMENT AND SUPPLEMENTARY DATA.
The financial statements located in Item 14(a)(1) and (2) are
included in this report starting on page F-1.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
26
<PAGE>
Part III
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES.
The directors and executive officers of the Company, their ages
and present positions held in the Company are as follows:
<TABLE>
<CAPTION>
Age (at Year Term
Name 9/11/00) Positions Director Since Officer Since Will Expire
----------------------------- -------------- -------------------- ----------------- ---------------- ------------
<S> <C> <C> <C> <C> <C>
Robert F. Tannenhauser (1) 55 President & September 1986 September 1986 2003
Chairman of the
Board
----------------------------- -------------- -------------------- ----------------- ---------------- ------------
Peter D. Blanck (1)(3) 43 Director June 1993 N/A 2003
----------------------------- -------------- -------------------- ----------------- ---------------- ------------
Jerome B. Alenick (2) 71 Director May 1998 N/A 2001
----------------------------- -------------- -------------------- ----------------- ---------------- ------------
Robert W. D'Loren (3) 42 Director June 1997 N/A 2001
----------------------------- -------------- -------------------- ----------------- ---------------- ------------
Irwin E. Redlener, M.D. (3) 56 Director June 1997 N/A 2002
----------------------------- -------------- -------------------- ----------------- ---------------- ------------
Kenneth S. Schwartz, M.D. 55 Director June 1997 N/A 2002
(2)
----------------------------- -------------- -------------------- ----------------- ---------------- ------------
Robert W. Wien (2) 49 Director June 1997 N/A 2001
----------------------------- -------------- -------------------- ----------------- ---------------- ------------
Leonard Rudolph 53 Executive Vice N/A May 1998 N/A
President
----------------------------- -------------- -------------------- ----------------- ---------------- ------------
Jennifer M. Goldstein 28 Chief Financial N/A June 1996 N/A
Officer & Treasurer
----------------------------- -------------- -------------------- ----------------- ---------------- ------------
David I. Redlener 32 Secretary N/A June 1997 N/A
----------------------------- -------------- -------------------- ----------------- ---------------- ------------
</TABLE>
(1) Member of the Executive Committee
(2) Member of the Audit Committee
(3) Member of the Compensation Committee
------------------------------------
Each director holds office, for the term limit set forth above,
until the next annual meeting of the Company's shareholders and until his
successor has been elected and qualified. Since the Company's reorganization,
annual meetings of its shareholders were held in September 1990, June 1993, June
1997, May 1998, April 1999, and March 2000. Each of the executive officers
serves at the pleasure of the Board of Directors.
Robert F. Tannenhauser has been a full time employee of
Business Loan Center, Inc. or its predecessor Business Loan Center, a New York
general partnership, since March 1995. From January 1992 until February 1995,
Mr. Tannenhauser was of counsel to the law firm of Hall Dickler Kent Friedman &
Wood, LLP. Mr. Tannenhauser has been or is a principal or general partner of
various corporations or partnerships engaged in the oil and gas or real estate
businesses. Additionally, Mr. Tannenhauser serves as a Director of the
Children's Health Fund, together with Dr. Redlener.
Peter Blanck has been a Professor of Law since 1993, and a
Professor of Occupational Medicine since 1997 with the University of Iowa. Since
February 1992, Dr. Blanck has been a director and the President of Futuronics
Corporation. Dr. Blanck is the brother-in-law of Robert F. Tannenhauser.
27
<PAGE>
Robert W. D'Loren has been President of CAK Universal Credit
Corporation since February 1, 1998. Prior to that he was self-employed for
eleven years and conducted business in a company known as D'Loren, Levien &
Company, LLC., which provided investment banking services to the mortgage and
asset-backed industry. Prior to forming his own company in 1986, Mr. D'Loren
served as manager in the accounting firm of Deloitte Touche.
Irwin Redlener is currently President of the Children's Hospital
at Montefiore Medical Center and has been a Professor of Pediatrics at the
Albert Einstein College of Medicine, Montefiore Medical Center since 1990. Since
1990, Dr. Redlener has also served as Director of the Division of Community
Pediatrics at Montefiore. Dr. Redlener is President and Director of the
Children's Health Fund, a not-for-profit foundation developed to support health
care for homeless and medically underserved children. Dr. Redlener has been a
special consultant on health care policy for the White House and the federal
Department of Health and Human Services.
Kenneth S. Schwartz is a principal of S&D Medical LLP, New
York. Prior to this, he had been Chief Medical Officer of American Imaging
Management Inc. in Northbrook, Illinois since December 1998. From 1996 to 1998,
Dr. Schwartz was Senior Executive Vice President of Complete Management, Inc.,
New York, New York. From 1981 to 1995, Dr. Schwartz served as a Director of
Radiology at Hudson Valley Hospital, Peekskill, New York and was Medical
Director at Putnam Hospital Center, Carmel, New York from 1991 through 1994.
From March 1995 to November 1996, he was Systems Director of Radiology and
imaging at St. Francis Hospital in Hartford, Connecticut.
Robert W. Wien has been the Managing Director and Director of
Investment Banking at Josephthal & Co., Inc. (formally Josephthal, Lyon & Ross,
Incorporated) since May 1999; he served as Managing Director, Director of
Mergers and Acquisitions from May 1996 until May 1999. From July 1994 to May
1996, Mr. Wien held the position of Director of Corporate Finance and Real
Estate Advisory Services at Coopers & Lybrand, LLP. Additionally, Mr. Wien
served as Senior Vice President of Investment Banking at Dean Witter Reynolds,
Inc. from April 1987 to June 1994. Mr. Wien is a member of the Bar in the State
of New York and a licensed Real Estate Broker in the State of New York.
Jerome B. Alenick has been sole proprietor of Jerome B. Alenick
Investments & Financial Services since 1991. From 1990 to 1991 Mr. Alenick was
Executive Vice President of The Kushner Companies. Mr. Alenick is a member of
the Bars of the State of New Jersey the District of Columbia and is a licensed
Real Estate Broker in the State of New Jersey. He has been an Adjunct Professor
of Real Estate at New York University since 1993 and has been a member of the
faculty at New York University since 1983.
Leonard Rudolph joined the Company as Executive Vice President
in May of 1998 and currently serves as President of Business Loan Center, Inc.
From 1996 until joining Company, Mr. Rudolph served as Executive Vice President,
Senior Credit Officer of Sterling National Bank. Additionally, between 1991 and
1996, Mr. Rudolph held the position of Senior Vice President of Sterling
National Bank.
28
<PAGE>
Jennifer Goldstein has been serving as Chief Financial Officer
since June 1998, and continues to serve as Treasurer, a position she has held
since June 1997. Jennifer Goldstein was Assistant Secretary of the Company from
February 1996 to June 1997. From June 1994 until the present, Ms. Goldstein has
been employed by Business Loan Center. Ms. Goldstein graduated with a degree in
Accounting from San Diego State University and received an MBA in Finance from
Pace University.
David Redlener was elected Secretary of the Company in June
1997. From September 1994 until December 1996, Mr. Redlener was employed as an
Assistant District Attorney in the County of the Bronx, New York. Currently, Mr.
Redlener is employed as Counsel and Vice President of Business Loan Center, Inc.
Mr. Redlener graduated with a degree in Economics from Hunter College and earned
his law degree from Saint Louis University School of Law in May 1994. He is
currently pursuing a MBA in Finance at Fordham University. Mr. Redlener is the
son of Dr. Irwin Redlener, a Director of the Company.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
During fiscal year ended June 30, 2000, there were no late
filings made by any officers or directors or beneficial owner of more than 10%
of the Common stock of the Company with respect to Section 16(a) of the
Securities Exchange Act of 1934, as amended.
Item 11. EXECUTIVE COMPENSATION.
Summary Compensation Table
The following table sets forth all plan and non-plan
compensation paid to the named individual for services rendered in all
capacities to the Company and its subsidiaries during the three fiscal years
ended June 30, 2000. The following salaries and/or benefits are presently
payable pursuant to employment agreements.
29
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
------------------------------ --------------------------- ---------------------------- --------------------------
Name and Principal Position Fiscal Year Annual Compensation Securities Underlying
Options
------------------------------ --------------------------- ---------------------------- --------------------------
<S> <C> <C> <C>
Salary Bonus Other
------ ----- -----
Robert F. Tannenhauser 2000 $300,000 $0 $0 $235,000
President and Director 1999 $224,285 (1) $50,000 $0 375,000
1998 $208,085 (1) $0 $0 500,000
------------------------------ --------------------------- ---------------------------- --------------------------
Leonard Rudolph 2000 $179,808 $15,000 $0 20,000
Executive Vice President 1999 $170,000 $10,000 $0 25,000
1998 $ 36,154(2) $0 $0 70,000 (3)
------------------------------ --------------------------- ---------------------------- --------------------------
Jennifer Goldstein 2000 $143,269 $ $0 100,000
Treasurer 1999 $124,038 $35,000 $0 75,000
1998 $91,923 $15,000 $0 100,000
------------------------------ --------------------------- ---------------------------- --------------------------
</TABLE>
(1) Includes premiums for excess health insurance.
(2) Based upon approximately two months of salary at an annual rate of
$170,000
(3) During the year ended June 30, 1999, the exercise price for these options
were repriced to $3.25 from $4.81.
Compensation of Directors. During Fiscal Year 2000, pursuant
to Non-Qualified Stock Option Agreements, each Director was granted 35,000
options to purchase Common Stock at an exercise price of $2.20, all of which are
exercisable immediately or at any time prior to March 29, 2005. As additional
compensation, each Director is to receive $1,000 per meeting of the Board of
Directors and/or committee thereof.
Executive Employment Agreements. The Company has entered into
Employment Agreements with Robert F. Tannenhauser, President, with Leonard
Rudolph, Executive Vice President, and Jennifer M. Goldstein, Chief Financial
Officer and Treasurer of the Company.
Robert F. Tannenhauser. Robert F. Tannenhauser's Employment
Agreement provides that he shall be employed as President and Chairman of the
Board of the Company and as Chief Executive Officer of Business Loan Center
through January 15, 2001 at an annual gross salary of $200,000. During the
fiscal year ended June 30, 1999, the Board of Directors voted to increase his
salary to $300,000. Mr. Tannenhauser is also entitled to participate in all
benefit plans established from time to time by the Company and Business Loan
Center on the same basis as all other executive employees.
The agreement shall automatically renew for successive
one-year periods until the Company registers the shares of Common Stock held by
Mr. Tannenhauser under the Securities Act and lists the Common Stock for trading
on NASDAQ AMEX or another recognized securities exchange. Thereafter, the
agreement shall automatically renew for additional successive one-year periods
unless notice to the contrary is given by any party not less than 90 days prior
to the expiration of the then current term.
30
<PAGE>
The agreement obliges the Company to pay to Mr. Tannenhauser
the greater of $200,000 or his annual gross salary if (i) Mr. Tannenhauser's
employment is terminated for any reason other than his death or disability, (ii)
the agreement is not renewed by Business Loan Center or (iii) Mr. Tannenhauser
terminates the agreement due to a reduction in Mr. Tannenhauser's salary or
benefits or the diminution of his responsibility, authority or status as chief
executive.
Leonard Rudolph. Leonard Rudolph's Employment Agreement
provides that he shall be employed as Executive Vice President and President of
Business Loan Center, Inc. through April 30, 2003 at an annual gross salary of
$170,000. Mr. Rudolph was also granted a $10,000 signing bonus as well as
options to purchase 70,000 shares of Common Stock at an exercise price of $4.81,
which shall vest equally over four years. During Fiscal Year 2000, Mr. Rudolph's
salary was increased to $185,000. During Fiscal Year 1999, the Board of
Directors of the Company adjusted the exercise price of the options to purchase
70,000 shares to $3.25 per share. Mr. Rudolph is also entitled to participate in
all benefit plans established from time to time by the Company and Business Loan
Center, Inc. on the same basis as all other executive employees. He may
terminate this Agreement in the event that Robert. F. Tannenhauser is no longer
affiliated with the Company. Mr. Tannenhauser shall be deemed to be affiliated
with the Company as long as he serves as an Officer or Director of the Company.
A termination under this provision shall not be deemed a termination for cause
under his employment agreement.
The agreement shall automatically renew for successive
one-year periods unless notice to the contrary is given by any party not less
than 90 days prior to the expiration of the then current term.
The agreement obliges the Company to pay to Mr. Rudolph the
greater of $170,000 or his annual gross salary if (i) Mr. Rudolph's employment
is terminated for any reason other than his death or disability, (ii) the
agreement is not renewed by the Company or Business Loan Center or (iii) Mr.
Rudolph terminates the agreement due to a reduction in Mr. Rudolph's salary or
benefits or the diminution of his responsibility, authority or status as an
executive.
Jennifer Goldstein. Jennifer Goldstein's employment agreement
provides that she shall be employed as Treasurer and Chief Financial Officer of
the Company, BLC Commercial, BLC Capital and Business Loan Center through
September 30, 2002 at an initial annual gross salary of $100,000. Effective in
each October beginning in 1998 and ending in 2000, this base salary increases by
$25,000. Concurrent with the signing of her employment agreement, Ms. Goldstein
was granted options to purchase 100,000 shares of Common Stock at an exercise
price of $.82, which shall vest equally over the next five years. Ms. Goldstein
is also entitled to participate in all benefit plans established from time to
time by the Company and Business Loan Center on the same basis as all other
executive employees. She may terminate this Agreement in the event that Robert
F. Tannenhauser is no longer affiliated with the Company. Mr. Tannenhauser shall
be deemed to be affiliated with the Company as long as he serves as an Officer
or Director of the Company. A termination under this provision shall not be
deemed a termination for cause under her employment agreement.
31
<PAGE>
The agreement shall automatically renew for successive
one-year periods unless notice to the contrary is given by any party not less
than 90 days prior to the expiration of the then current term.
The agreement obliges the Company to pay to Ms. Goldstein the
greater of $100,000 or her annual gross salary if (i) Ms. Goldstein's employment
is terminated for any reason other than her death or disability, (ii) the
agreement is not renewed by the Company or Business Loan Center or (iii) Ms.
Goldstein terminates the agreement due to a reduction in salary or benefits or
the diminution of her responsibility, authority or status as an executive.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information concerning each
exercise of stock options during Fiscal Year 2000 by the named individual, along
with the year-end value of unexercised options/warrants at June 30, 2000.
<TABLE>
<CAPTION>
----------------------------- ---------------- ---------------- ------------------------ ---------------------------
Number of Securities Value of Unexercised
Name Underlying Unexercised In-The-Money
Shares Options at 6/30/00 Options/Warrants at
Acquired on exercisable / 6/30/00 (4) exercisable /
Exercise Value Realized unexercisable unexercisable
<S> <C> <C> <C> <C>
----------------------------- ---------------- ---------------- ------------------------ ---------------------------
Robert F. Tannenhauser
President and Director 0 0 672,500 / 900,000 (1) $650,652 / 422,000
----------------------------- ---------------- ---------------- ------------------------ ---------------------------
Leonard Rudolph
Executive Vice President 0 0 35,000 / 55,000 (2) $ 0
----------------------------- ---------------- ---------------- ------------------------ ---------------------------
Jennifer Goldstein
Chief Financial Officer 75,000 $103,125 55,000 / 220,000 (3) $ 42,200 / 63,300
----------------------------- ---------------- ---------------- ------------------------ ---------------------------
</TABLE>
(1) Includes 375,000 options at an exercise price of $2.90 of which 75,000 were
currently exercisable at June 30, 2000, 500,000 options at an exercise price of
$.82 of which 100,000 shares were currently exercisable at June 30, 2000,
200,000 options at an exercise price of $1.99 of which none were currently
exercisable at June 30, 2000, 427,500 options at an exercise price of $.60 of
which 427,500 were exercisable at June 30, 2000 (all of which were exercised on
September 7, 2000), and Directors options of 10,000 at an exercise price of
$3.31 and 25,000 at an exercise price of $2.00 and 35,000 at an exercise price
of $2.20 all of which were currently exercisable at June 30, 2000.
(2)Includes 70,000 options at an exercise price of $3.25 of which 35,000 were
currently exercisable at June 30, 2000, 25,000 options at an exercise price of
$2.90 of none of which were currently exercisable at June 30, 2000, and 20,000
options at $1.99 of which none were currently exercisable at June 30, 2000.
(3) Includes 75,000 at an exercise price of $2.90 of which 15,000 were currently
exercisable at June 30, 2000, 100,000 options at an exercise price of $.82 of
which 40,000 were currently exercisable at June 30, 2000, and 100,000 at an
exercise price of $1.99 per share none of which were currently exercisable at
June 30, 2000.
(4)The value realized equals the market value of the common stock at June 30,
2000 (Closing Bid) minus the exercise price multiplied by the number of shares.
The price of a share of common stock at the close of business on June 30, 2000
was $1.875
32
<PAGE>
<TABLE>
<CAPTION>
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
Individual Grants
----------------------- -------------- -------------- ---------- ----------- ------------------- ----------------------
Potential Potential
realizable value realizable value
Number of % Total at assumed annual at assumed annual
securities Options/SARs rates of stock rates of stock
underlying Granted to Exercise price price
options/SARs Employees in Price Expiration appreciation for appreciation for
Name Granted Fiscal Year ($/share) Date option term 5% ($) option term 10% ($)
<S> <C> <C> <C> <C> <C> <C>
----------------------- -------------- -------------- ---------- ----------- ------------------- ----------------------
Robert F. Tannenhauser
President and Director 200,000 34% $1.99 10/24/04 $73,329 $204,330
35,000 6% $2.20 3/29/04 $12,340 $35,735
----------------------- -------------- -------------- ---------- ----------- ------------------- -------------------
Leonard Rudolph
Executive Vice 20,000 3% $1.99 10/24/04 $7,933 $20,433
President
----------------------- -------------- -------------- ---------- ----------- ------------------- -------------------
Jennifer Goldstein
Chief Financial 100,000 17% $1.99 10/24/04 $39,655 $102,165
Officer
----------------------- -------------- -------------- ---------- ----------- ------------------- -------------------
</TABLE>
Reference is made to Item 12 of this Report entitled "Certain
Relationships and Related Transactions" for a description of fees paid to
entities that are affiliated with certain executive officers and a description
of the employment agreements with officers and employees.
Compensation Committee Interlocks and Insider Participation.
At June 30, 2000, Peter Blanck, Robert D'Loren and Irwin
Redlener were members of the Compensation Committee of the Board of Directors of
the Company. The Compensation Committee's functions include the review and
approval of compensation and terms of employment for all executive officers and
administering the grant of employee stock options pursuant to the 1995 Amended
Management Incentive Plan. Peter Blanck is a substantial shareholder, debenture
holder and warrant holder of the Company and brother-in-law to Robert F.
Tannenhauser, who serves as President and Chairman of the Board. In addition,
Robert D'Loren and Irwin Redlener are also warrant and/or option holders and/or
shareholders of the Company. (See Item 12 Security Ownership of Certain
Beneficial Owners and Management).
Indemnification of Directors and Officers
Section 102(b)(7) of the General Corporation Law of the State
of Delaware grants corporations the right to limit or eliminate the personal
liability of their directors in certain circumstances and in accordance with the
provisions therein set forth. Article 7 of the Company's Amended and Restated
Certificate of Incorporation provides for the elimination of personal liability
of a Director to the Corporation or its stockholders for monetary damages for
the breach of the Director's fiduciary duty to the full extent allowable under
Section 102 (b) (7).
Section 145 of the General Corporation Law of the State of
Delaware grants corporations the right to indemnify their directors, officers,
employees and agents in accordance with the provisions therein set forth.
Article 8 of the Company's Certificate of Incorporation provides for
33
<PAGE>
indemnification of such persons to the full extent allowable under applicable
law.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The following table sets forth certain information as of
September 11, 2000 with respect to (i) those persons or groups known to the
Company to beneficially own more than 5% of the Company's Common Stock, (ii)
each director of the Company, (iii) each named executive officer and (iv) all
directors and officers of the Company as a group. The information is determined
in accordance with Rule 13d-3 promulgated under the Securities Exchange Act of
1934 ("Rule 13d-3") based upon information furnished by the persons listed or
known to the Company. Except as indicated on the following page, the
shareholders listed possess sole voting and investment power with respect to
their shares.
<TABLE>
<CAPTION>
--------------------------------------- ------------------------------------- -------------------------------------
Name and Address of Beneficial Amount and Nature of Beneficial
Owner Ownership Percent Of Class
<S> <C> <C>
--------------------------------------- ------------------------------------- -------------------------------------
Futuronics Corporation 2,595,224 (1) 12.05%
3652 Forest Gate Drive, N.E.
Iowa City, Iowa 52240
--------------------------------------- ------------------------------------- -------------------------------------
Peter D. Blanck 3,431,390 (2)(3) 15.78%
University of Iowa, College of Law
Iowa City, Iowa 52241
--------------------------------------- ------------------------------------- -------------------------------------
Richard Blanck 3,211,391 (2)(4) 14.87%
9 Hickory Road
Manhasset Hills, New York 11040
--------------------------------------- ------------------------------------- -------------------------------------
Robert W. D'Loren 290,000(5) 1.33%
72 Woodland Drive
Oyster Bay Cove, NY 11771
--------------------------------------- ------------------------------------- -------------------------------------
Jennifer M. Goldstein 267,275(6) 1.24%
50 West 72nd Street
New York, New York 10023
--------------------------------------- ------------------------------------- -------------------------------------
David I. Redlener 11,940(7) *
155 Henry Street
Brooklyn, New York 11201
--------------------------------------- ------------------------------------- -------------------------------------
Irwin E. Redlener 90,000(8) *
11 Alfred Lane
New Rochelle, New York 10804
--------------------------------------- ------------------------------------- -------------------------------------
Diane Rosenfeld 1,112,484 (9) 5.11%
RR #1 Box 427 D
County Road #86
Amenia, New York 12501
--------------------------------------- ------------------------------------- -------------------------------------
Kenneth S. Schwartz 101,525(10) *
284 Guard Hill Road
Bedford, New York 10506
--------------------------------------- ------------------------------------- -------------------------------------
Carol Tannenhauser 5,800,338 (2)(11) 26.30%
210 East 68th Street
New York, New York 10021
--------------------------------------- ------------------------------------- -------------------------------------
Robert F. Tannenhauser 5,800,338 (11) 26.30%
210 East 68th Street
New York, New York 10021
--------------------------------------- ------------------------------------- -------------------------------------
Jerome B. Alenick 377,500 (12) 1.75%
26 Columbia Turnpike
Florham Park, New Jersey 07932
--------------------------------------- ------------------------------------- -------------------------------------
Robert W. Wien 159,500 (13) *
24 James Road
Mount Kisco, New York 10549
--------------------------------------- ------------------------------------- -------------------------------------
34
<PAGE>
--------------------------------------- ------------------------------------- -------------------------------------
Name and Address of Beneficial Amount and Nature of Beneficial
Owner Ownership Percent Of Class
<S> <C> <C>
--------------------------------------- ------------------------------------- -------------------------------------
Leonard Rudolph 60,925 (14) *
3 Pelham Place
East Brunswick, New Jersey 08816
--------------------------------------- ------------------------------------- -------------------------------------
All Directors and officers 7,783,339(15) 33.83%
as a group (nine persons)
--------------------------------------- ------------------------------------- -------------------------------------
</TABLE>
* Owns less than 1% of the outstanding shares of Common Stock
(1) Includes 2,595,224 shares owned directly by Futuronics Corporation.
Carol Tannenhauser, Richard Blanck, and Peter D. Blanck are officers
and directors of Futuronics Corporation.
(2) Carol Tannenhauser, Richard Blanck, and Peter D. Blanck are siblings.
Each disclaims beneficial ownership of the shares owned by the others.
(3) Includes (a) 160,737 shares owned directly by Peter D. Blanck, (b)
295,267 shares deemed owned by Peter D. Blanck as custodian for his
four children, (c) 70,000 shares underlying options owned by Peter D.
Blanck, (d) 176,830 shares owned by Trust created under the Will of
Albert Blanck under which Peter D. Blanck is a Trustee and Beneficiary,
(e) 2,595,224 shares owned by Futuronics Corporation of which Peter D.
Blanck is an officer and director, (f) 100,000 shares that may be
acquired upon the conversion of Debentures held directly by Peter D.
Blanck and (g) 33,332 shares that may be acquired upon the conversion
of debentures held by Peter D. Blanck as custodian for his four
children.
(4) Includes (a) 273,834 shares owned directly by Richard Blanck, (b)
107,169 shares deemed owned by Richard Blanck as custodian for his two
children, (c) 176,830 shares owned by Trust created under the Will of
Albert Blanck under which Richard Blanck is a Trustee and Beneficiary,
(d) 2,595,224 shares owned by Futuronics Corporation of which Richard
Blanck is an officer and director and (e) 25,000 shares that may be
acquired upon the conversion of Debentures held by Richard Blanck and
(f) 33,334 shares that may be acquired upon the conversion of
Debentures held by Richard Blanck as custodian for his two children.
(5) Includes (a) 200,000 shares that may be acquired upon the exercise of
Warrants held by D'Loren Levien & Company L.L.C. of which Robert
D'Loren is a member and (b) 90,000 shares that maybe acquired upon the
exercise of options held by Robert D'Loren.
(6) Includes (a) 197,275 shares owned by Jennifer M. Goldstein, and (b)
70,000 shares underlying options exercisable as of September 11, 2000
owned by Jennifer M. Goldstein.
(7) Includes (a) 1,940 shares owned by David Redlener and (b) 10,000 shares
that may be acquired upon the exercise of options held by David
Redlener.
(8) Includes 90,000 shares that may be acquired upon the exercise of
options held by Irwin Redlener.
(9) Includes (a) 666,710 shares directly owned by Diane Rosenfeld, (b)
218,274 shares directly owned by Eric Rosenfeld , (b) 202,500 shares
underlying options owned by Diane Rosenfeld and (d) 25,000 shares that
may be acquired upon the exercise of Warrants owned by Diane Rosenfeld.
(10) Includes (a) 11,525 shares directly owned by Kenneth Schwartz or
jointly with Jane Schwartz, and (b) 90,000 shares that may be acquired
upon the exercise of options held by Kenneth Schwartz.
35
<PAGE>
(11) Includes (a) 638,279 shares owned directly by Robert F. Tannenhauser,
(b) 1,325,409 shares directly owned by Carol Tannenhauser, the spouse
of Robert F. Tannenhauser, (c) 2,595,224 owned by Futuronics
Corporation of which the spouse of Robert F. Tannenhauser is an officer
and director, (d) 176,830 shares owned by Trust created under the Will
of Albert Blanck under which the spouse of Robert F. Tannenhauser is
Trustee and Beneficiary, (e)(f) 54,500 shares that may be acquired upon
the conversion of Debentures held by Carol Tannenhauser, (g) 249,500
shares owned by David Tannenhauser, the son of Robert F. Tannenhauser
and Carol Tannenhauser, (h) 164,600 shares owned by Emily Tannenhauser,
the daughter of Robert F. Tannenhauser and Carol Tannenhauser, (i)
84,899 shares owned by Emily Tannenhauser, the daughter of Robert F.
Tannenhauser and Carol Tannenhauser, (j) 4,500 shares that may be
acquired upon the conversion of Debentures held by Robert F.
Tannenhauser, (k) 21,167 shares that may be acquired upon the
conversion of Debentures held by David Tannenhauser, the son of Robert
F. Tannenhauser and Carol Tannenhauser, (l) 21,166 shares that may be
acquired upon the conversion of Debentures held by Emily Tannenhauser,
the daughter of Robert F. Tannenhauser and Carol Tannenhauser, (n)
22,132 shares held in trust for David Tannenhauser, the son of Robert
F. Tannenhauser and Carol Tannenhauser, (o) 22,132 shares held in trust
for Emily Tannenhauser, the daughter of Robert F. Tannenhauser and
Carol Tannenhauser and (p) 420,000 shares underlying options
exercisable as of September 11, 2000 owned by Robert F. Tannenhauser.
(12) Includes (a) 300,000 shares owned by the Defined Benefit Plan for the
Benefit of Jerome Alenick, (b) 70,000 shares underlying options owned
by Jerome Alenick, and (c) 7,500 shares owned by Jerome B. Alenick and
Nicole A. Alenick as joint tenants and tenants in common.
(13) Includes (a) 35,000 shares owned directly by Robert W. Wien, (b) 90,000
shares that may be acquired upon the exercise of options held by Robert
W. Wien, and (c) 34,500 shares that may be acquired upon the exercise
of certain Warrants held by Robert W. Wien.
(14) Includes (a) 25,924 shares owned directly by Leonard Rudolph and (b)
35,000 shares underlying options exercisable as of September 11, 2000
owned by Leonard Rudolph.
(15) Represents shares beneficially owned pursuant to Rule 13d-3 by Mr.
Tannenhauser, a Director and President of the Company, Ms. Goldstein,
Treasurer and Chief Financial Officer of the Company, Leonard Rudolph,
Executive Vice President of the Company, David Redlener, Secretary of
the Company, Messrs. D'Loren, Peter Blanck , Wien, Alenick and Drs.
Redlener and Schwartz, directors of the Company. The shares deemed
beneficially owned by Robert F. Tannenhauser and Peter D. Blanck
through Futuronics Corporation and Trust created under the Will of
Albert Blanck have been added only once to the total shares owned by
officers and directors as a group.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Since June 30, 1992, various members of the immediate family
and affiliates of Robert F. Tannenhauser have made available funds to the
Company for the purpose of originating loans. In exchange for extending such
loans, the Company paid interest to the person or entities funding such loans
during Fiscal Years 2000, 1999, 1998, 1997 and 1996. For those periods, the
Company incurred interest expense relating to such individuals in the aggregate
amounts of $20,000, $19,000, $17,000, $157,000, and $130,000, respectively. The
maximum amounts outstanding for these loans during the periods in question were
$300,000, $1,077,000, $2,594,000, $2,594,000, and $2,108,000, respectively.
Additionally, certain members and affiliates of Mr. Tannenhauser's family
participated in the debenture offering placed by the Company during Fiscal Year
1998 and 1999. During Fiscal Year 2000, interest expense relating to such
individuals approximated $95,000 based upon the outstanding debenture of
$1,240,000. Additionally, during Fiscal Year 1999, interest expense relating to
such individuals totaled approximately $88,000 based upon outstanding debentures
to said parties in the aggregate amount of $950,000.
On November 11, 1997, the Company entered into an investment
banking agreement with Josephthal & Co., Inc. ("Josephthal") pursuant to which
the Company paid a $25,000 retainer to Josephthal and agreed to pay an
additional $12,500 per month for three months commencing in January 1998.
36
<PAGE>
Thereafter the fee would be reduced to $5,000 per month. For the fiscal years
ended June 30, 1999 and 1998, the Company paid Josephthal approximately, $27,000
and $85,000 in fees, respectively. In addition, the Company issued to
Josephthal, pursuant to such Investment Banking Agreement, warrants to purchase
90,000 shares of the Common Stock of the Company. The initial exercise price for
the warrants is $1.10 per share. Robert W. Wien, a director of the Company, is a
Managing Director of Josephthal.
For information on Peter Blanck, Kenneth Schwartz and Robert
D'Loren see Item 11. Executive Compensation-Compensation Committee Interlock and
Insider Participation.
37
<PAGE>
Part IV
Item 14. Exhibits, Financial Statements, Financial Statement Schedules, and
Reports on Form 8-K.
(a)(1) and (2) Financial Statements and Financial Statement
Schedules
REGISTRANT:
The following consolidated financial statements and schedules of BLC Financial
Services, Inc. and subsidiaries, the notes thereto and the related report
thereon of the independent auditors are filed pursuant to Item 8 of this Report:
Independent Auditors' Report............................................ F-2
Consolidated Balance Sheets at June 30, 2000 and 1999................... F-3
Consolidated Statements of Income --
Years Ended June 30, 2000, 1999 and 1998................................F-4
Consolidated Statements of Changes in
Shareholders' Equity --Years ended
June 30, 2000, 1999 and 1998......................................... . F-5
Consolidated Statements of Cash Flows --
Years ended June 30, 2000, 1999 and 1998................................F-6
Notes to Consolidated Financial Statements.................F-7
All other schedules for which provision is made in the
applicable accounting regulation of the Securities and Exchange Commission are
not required under the instructions to Item 8 or are inapplicable, and
therefore, have been omitted.
(a)(3) Exhibits Filed
See Exhibit Index beginning on page 40 of this
Report.
(b) Reports on Form 8-K
The Company filed one Report on Form 8-K during the
fiscal year ending on June 30, 2000. In December 1999,
Business Loan Center, Inc., a wholly-owned subsidiary of the
Company, successfully completed the closing of a revolving
securitization facility which allows for periodic loans sales
into a conduit facility.
(c) Exhibits
See Item 14(a)(3) above.
(d) Financial Statement Schedules
The financial statement schedules required to be
filed pursuant to this Item 14(d) are listed above under Items
14(a)(1) and (2).
38
<PAGE>
BLC FINANCIAL SERVICES, INC.
CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 and 1999
<PAGE>
BLC FINANCIAL SERVICES, INC.
Contents Page
Consolidated Financial Statements
Independent auditors' report F-2
Balance sheets F-3
Statements of income F-4
Statements of changes in shareholders' equity F-5
Statements of cash flows F-6
Notes to financial statements F-7
<PAGE>
INDEPENDENT AUDITORS REPORT
Shareholders and Board of Directors
BLC Financial Services, Inc.
We have audited the accompanying consolidated balance sheets of BLC Financial
Services, Inc. and subsidiaries as of June 30, 2000 and 1999, and the related
consolidated statements of income, changes in shareholders' equity and cash
flows for each of the years in the three year period ended June 30, 2000. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements enumerated above present fairly, in all
material respects, the consolidated financial position of BLC Financial
Services, Inc. and subsidiaries as of June 30, 2000 and 1999 and the
consolidated results of their operations and their consolidated cash flows for
each of the years in the three year period ended June 30, 2000, in conformity
with generally accepted accounting principles.
Richard A. Eisner & Company, LLP
Florham Park, New Jersey
September 15, 2000
F-2
<PAGE>
BLC FINANCIAL SERVICES, INC.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30,
<S> <C> <C>
2000 1999
ASSETS
Loans receivable - net $22,291,000 $ 21,936,000
Loans held for sale 7,494,000 8,922,000
Cash 9,609,000 4,229,000
Restricted cash 1,860,000 1,728,000
Accounts receivable - loans sold 15,121,000 8,982,000
Accounts and other receivables 1,803,000 2,681,000
Prepaid expenses and security deposits 592,000 595,000
Leasehold improvements, furniture and equipment, net of accumulated
depreciation of $882,000 in 2000; $571,000 in 1999 1,288,000 1,207,000
Servicing assets 7,189,000 4,761,000
Residual interests 16,794,000 10,877,000
Deferred tax asset 0 1,000,000
Deferred financing costs, net of accumulated amortization of $1,344,000 in
2000; $774,000 in 1999 1,132,000 669,000
Other assets 723,000 450,000
-------------- --------------
$85,896,000 $ 68,037,000
============== ==============
LIABILITIES
Advances under credit facilities $45,840,000 $ 39,488,000
Accounts payable and accrued expenses 2,073,000 643,000
Due to participants 2,466,000 1,640,000
Allowance for estimated future losses on loans sold 10,000 77,000
Notes payable 0 120,000
Convertible debentures 6,486,000 4,725,000
Customer deposits 2,443,000 2,197,000
Deferred tax liability 1,487,000 0
------------- --------------
Total liabilities 60,805,000 48,890,000
------------- --------------
Commitments and contingencies (Note 8)
SHAREHOLDERS' EQUITY:
Preferred stock, $.10 par value:
Authorized - 2,000,000 shares, issued and outstanding - none
Common stock, $.01 par value:
Authorized - 35,000,000 shares, issued and outstanding
20,467,875 in 2000 and 20,288,875 in 1999 205,000 202,000
Additional paid-in capital 12,923,000 12,659,000
Retained earnings 11,147,000 5,865,000
Accumulated other comprehensive income - unrealized gain on residual interests
(net of income taxes of $533,000 in 2000; $305,000 in 1999) 816,000 421,000
------------ -----------
Total shareholders' equity 25,091,000 19,147,000
------------ ------------
$85,896,000 $ 68,037,000
============ ============
</TABLE>
See notes to financial statements
F-3
<PAGE>
BLC FINANCIAL SERVICES, INC.
Consolidated Statements of Income
<TABLE>
<CAPTION>
Year Ended June 30,
<S> <C> <C> <C>
2000 1999 1998
Revenues:
Gain on sale of loans $16,687,000 $ 11,868,000 $ 10,583,000
Interest income 4,654,000 3,550,000 2,439,000
Service fee income 2,896,000 2,355,000 1,150,000
Miscellaneous 2,129,000 1,649,000 1,557,000
------------- -------------- --------------
26,366,000 19,422,000 15,729,000
------------- -------------- --------------
Expenses:
Operating costs 11,237,000 8,636,000 6,481,000
General and administrative 3,126,000 2,746,000 1,753,000
Interest 3,865,000 2,886,000 2,158,000
------------- -------------- --------------
18,228,000 14,268,000 10,392,000
------------- -------------- --------------
Income before provision for income taxes 8,138,000 5,154,000 5,337,000
Provision for income taxes 2,856,000 2,051,000 2,111,000
------------- -------------- --------------
Net income $ 5,282,000 $ 3,103,000 $ 3,226,000
============= ============== ==============
Earnings per share
Basic $.26 $.16 $.18
Diluted $.22 $.14 $.15
</TABLE>
See notes to financial statements
F-4
<PAGE>
BLC FINANCIAL SERVICES, INC.
Consolidated Statements of Changes in Shareholders' Equity
<TABLE>
<CAPTION>
Common Stock Retained Accumulated
---------------------- Additional Earnings Other
Number Paid-in (Accumulated Comprehensive Comprehensive
of Shares Amount Capital Deficit) Income Income Total
----------- --------- ------------- ------------- -------------- ------------ -------------
<S> <C> <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
Exercise of warrants 2,437,206 24,000 1,264,000 1,288,000
Net income 3,226,000 $ 3,226,000 3,226,000
Pre-confirmation net
operating loss
utilization 1,996,000 1,996,000
Issuance of warrants
in connection
with professional
services rendered 189,000 189,000
Change in unrealized
gain on residual
interests, net of
income tax effect 380,000 380,000 380,000
------------ ----------- ------------- ------------ ----------- ----------- -----------
$3,606,000
-----------
Balance
June 30, 1998 19,778,449 197,000 10,840,000 2,762,000 470,000 14,269,000
Exercise of warrants
and options 510,426 5,000 286,000 291,000
Net income 3,103,000 $3,103,000 3,103,000
Pre-confirmation net
operating loss
utilization 1,533,000 1,533,000
Change in unrealized
gain on residual
interests, net of
income tax effect (49,000) (49,000) (49,000)
----------- ----------- ------------ ------------- ----------- ------------ -----------
$3,054,000
------------
Balance,
June 30, 1999 20,288,875 202,000 12,659,000 5,865,000 421,000 19,147,000
Exercise of warrants
and options 179,000 3,000 89,000 92,000
Net income 5,282,000 5,282,000 5,282,000
Pre-confirmation
net operating loss
utilization 92,000 92,000
Issuance of warrants
in connection
with professional
services rendered 83,000 83,000
Change in unrealized
gain on residual
interests, net of
income tax effect 395,000 395,000 395,000
----------- ----------- ----------- ------------ ----------- ---------- -----------
$5,677,000
----------
Balance,
June 30, 2000 20,467,875 $ 205,000 $12,923,000 $11,147,000 $816,000 $25,091,000
=========== =========== =========== ============ =========== ===========
</TABLE>
See notes to financial statements
F-5
<PAGE>
BLC FINANCIAL SERVICES, INC.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended June 30,
<S> <C> <C> <C>
2000 1999 1998
Cash flows from operating activities:
Net Income $ 5,282,000 $ 3,103,000 $ 3,226,000
Adjustments to reconcile net income to net cash provided by (used in)
Operating activities:
Depreciation 310,000 233,000 131,000
Amortization 1,809,000 1,047,000 782,000
Provisions for credit losses 702,000 398,000 190,000
Deferred income tax expense 2,351,000 1,560,000 1,711,000
Issuance of warrants in connection with professional services
rendered 83,000 0 189,000
Loans held for sale originated (32,345,000) (14,700,000) (20,202,000)
Sales of loans held for sale 33,773,000 15,237,000 15,863,000
Changes in:
Restricted cash (132,000) 40,000 (1,768,000)
Accounts receivable - loans sold (6,139,000) (730,000) (5,005,000)
Accounts and other receivables 878,000 (1,675,000) (724,000)
Prepaid expenses and security deposits 3,000 (162,000) (212,000)
Servicing assets (3,696,000) (2,299,000) (1,712,000)
Accrued expenses 1,430,000 (520,000) 741,000
Due to participants 826,000 1,376,000 (260,000)
Customer deposits 246,000 993,000 873,000
------------- --------------- ------------
Net cash provided by (used in) operating activities 5,381,000 3,901,000 (6,177,000)
------------- --------------- ------------
Cash flows from investing activities:
Loans originated (41,377,000) (21,793,000) (22,673,000)
Principal collections and sales of loans receivable 39,980,000 18,480,000 8,937,000
Origination of residual interest (7,085,000) (6,965,000) (3,823,000)
Principal collections on residual interests 1,791,000 1,061,000 429,000
Acquisition of equipment (391,000) (698,000) (529,000)
------------ ------------- ------------
Net cash used in investing activities (7,082,000) (9,915,000) (17,659,000)
------------ ------------- ------------
Cash flows from financing activities:
Net borrowings under lines of credit 6,352,000 6,947,000 23,921,000
Net proceeds from notes payable 0 620,000 0
Proceeds from issuance of debentures 1,621,000 922,000 2,978,000
Proceeds from issuance of common stock and exercise of warrants
and options 92,000 291,000 1,288,000
Principal payments on debentures 0 (25,000) 0
Due to affiliates 140,000 0 (2,394,000)
Deferred financing costs (1,004,000) (196,000) (920,000)
Principal payments on notes payable (120,000) (46,000) (110,000)
-------------- ------------ ------------
Net cash provided by financing activities 7,081,000 8,513,000 24,763,000
-------------- ------------ ------------
Net increase in cash 5,380,000 2,499,000 927,000
Cash at beginning of year 4,229,000 1,730,000 803,000
-------------- ------------ ------------
Cash at end of year $ 9,609,000 $ 4,229,000 $ 1,730,000
============= ============ ============
Supplemental disclosures of cash flow information:
Cash paid for:
Interest $ 3,696,000 $ 2,899,000 $ 1,950,000
Income taxes $ 408,000 $ 1,011,000 $ 175,000
</TABLE>
See Notes to financial statements
F-6
<PAGE>
BLC FINANCIAL SERVICES, INC.
Notes to Financial Statements
June 30, 2000 and 1999
NOTE 1. BUSINESS OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business operations:
The Company is primarily engaged in the business of originating, selling and
servicing loans to small businesses under the Section 7(a) Guaranteed Loan
Program sponsored by the United States Small Business Administration ("SBA").
Additionally, the Company originates, sells and services loans to businesses
under the United States Department of Agriculture Rural Business - Cooperative
Business and Industry Guaranteed Loan Program ("B&I"). The Company sells the SBA
and B&I guaranteed portion of the loan in the secondary market, without
recourse, at either a premium or at par, and sells the majority of the remaining
SBA unguaranteed portions either as loan sales or securitizations. These sales
may be with limited recourse, full recourse or no recourse.
Principles of consolidation and preparation:
The accompanying consolidated financial statements include the accounts of BLC
Financial Services, Inc. (the "Company") and its corporate subsidiaries after
elimination of all significant intercompany accounts and transactions. The prior
years' financial statements have been reclassified to conform to the current
year presentation.
Accounting for loans and revenue recognition:
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.
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. 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 to the purchaser of the receivables, after considering the effects of
estimated prepayments, repurchases and normal servicing fees. Gains on the sale
of loan receivables 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. Once the Company has determined that it will be
unable to collect all amounts due according to the contractual terms of the loan
agreement, the loan is categorized as impaired and management actively begins
the liquidation process. Typically the SBA or USDA is contacted and the
guaranteed portions of the loan are then repurchased from either the secondary
marketplace or from the Company. Contractual 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.
F-7
<PAGE>
BLC FINANCIAL SERVICES, INC.
Notes to Financial Statements
June 30, 2000 and 1999
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Credit losses:
The adequacy of the allowances for credit losses on loans receivable and loans
sold with recourse are determined through a quarterly review of outstanding
loans, commitments to extend credit and the outstanding loans sold with
recourse. The impact of economic conditions on the creditworthiness of the
borrowers is given consideration, as well as credit loss experience, changes in
the composition and volume of the loan portfolio, and management's assessment of
the risk inherent in the loan portfolio. These and other factors are used in
assessing the overall adequacy of the allowance for credit losses and the
resulting provision for credit losses.
Provisions for credit losses are charged to income in amounts sufficient to
maintain the allowance for credit losses at a level considered adequate to cover
the losses of principal in the existing portfolio. However, the amount to be
realized from collateral securing the impaired loans cannot be determined until
their ultimate disposition. The Company's charge-off policy is based on an
account-by-account review for all loans receivable.
Under certain limited circumstances, the Company may be liable, on loans that it
originated, for losses incurred by the SBA. Management considers this
contingency in determining the adequacy of the allowance for credit losses.
Residual interests:
Upon the sale of loans, the Company may recognize a residual interest. The
residual interest represents the estimated discounted cash flow of the
differential between the total interest to be earned on the loans sold and the
sum of the interest to be paid to the participants and the contractual servicing
fee.
The fair value of the residual interest is determined based on various economic
factors including loan size, dates of origination, terms and geographic
locations. The Company also used other available information such as reports on
historical average loan maturity as compared to the contractual loan maturity.
The Company periodically reviews these factors and, if necessary, adjusts the
remaining asset to the fair value of the residual interest. As of June 30, 2000,
the average loan prepayment, estimated loan loss and cash flow discount rate
assumptions are 18%, 1% and 9-3/4%, respectively.
The residual interests are accounted for as available-for-sale securities and
are stated at estimated fair value. Unrealized gains and losses, net of the
income tax effect, have been included in total accumulated other comprehensive
income.
Servicing assets:
Servicing assets arise from the sale of fractional interests of loans. Servicing
assets represent the estimated present value of the differential between the
contractual servicing fee and the Company's normal servicing cost. These
capitalized amounts are amortized over the estimated average life of the loans
in each pool sold. The Company reviews the carrying amount of each pool for
possible impairment. If the estimated present value of the future servicing
income is less than the carrying amount, the Company recognizes an impairment
loss and reduces future amortization accordingly. Management has determined that
the primary risk characteristics for the servicing pools are the type of loan
and the year of origination.
F-8
<PAGE>
BLC FINANCIAL SERVICES, INC.
Notes to Financial Statements
June 30, 2000 and 1999
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Leasehold improvements, furniture and equipment:
Furniture and equipment are recorded at cost. Depreciation is computed using the
straight-line method over five to seven years, which approximates the estimated
useful lives of the assets. Leasehold improvements are amortized over the lesser
of the lease term or its economic life.
Comprehensive income:
Comprehensive income consists of net income plus all other changes in net assets
from nonownership sources.
Derivatives
In connection with selling loans into a revolving securitization, the Company
enters into interest rate swaps in order to hedge against changes between the
prime rate and LIBOR. These are accounted for as cash flow hedges. "Statement of
Financial Accounting Standards No. 133 Accounting for Derivative Instruments and
Hedging Activities" requires that the impact of cash flow hedges be included in
other comprehensive income until the related cash flow is recognized in the
statement of income.
Per share information:
Basic earnings per share ("EPS") is determined using net income divided by the
weighted average shares outstanding during the period. Diluted EPS is computed
by dividing net income, plus the after tax effect of the interest expense on the
convertible debentures, by the weighted average shares outstanding, assuming all
dilutive potential common shares were issued using, with respect to the assumed
proceeds from the exercise of dilutive options and warrants, the treasury stock
method calculated based upon average market price for the period.
F-9
<PAGE>
BLC FINANCIAL SERVICES, INC.
Notes to Financial Statements
June 30, 2000 and 1999
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The following table presents the basic and diluted EPS for the years ended
June 30, 2000, 1999 and 1998.
<TABLE>
<CAPTION>
2000 1 9 9 9 1 9 9 8
------------------------------------- -------------------------------------- -------------------------------
Weighted Weighted Weighted
Average Average Average
Number of Per Share Number of Per Share Number of Per share
Amount Shares Amount Amount Shares Amount Amount Shares Amount
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net income $5,282,000 $3,103,000 $3,226,000
========== ========== ==========
Basic EPS
Income
available
to common
Shareholders $5,282,000 20,299,453 $.26 $3,103,000 20,017,158 $.16 $3,226,000 18,287,002 $.18
==== ==== ====
Effect of
diluted stock
options and
warrants 2,011,820 2,613,168 2,306,048
Effect of
convertible
debentures 316,000 2,806,893 195,000 1,747,962 91,000 831,025
---------- ---------- ---------- ---------- ---------- ----------
Diluted EPS
Income
available
to common
shareholders $5,598,000 25,118,166 $.22 $3,298,000 24,378,288 $.14 $3,317,000 21,424,075 $.15
========== ========== ==== ========== ========== ==== ========== ========== ====
</TABLE>
Income taxes:
The Company and its subsidiaries file a consolidated Federal income tax return.
Deferred income taxes relate to temporary differences and the net operating loss
carryforwards.
Use of estimates:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Stock-based compensation:
Statement of Financial Accounting Standards No. 123,"Accounting for Stock-Based
Compensation" ("FAS 123") allows companies to either expense the estimated fair
value of stock options or to continue to follow the intrinsic value method set
forth in Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" ("APB 25") but disclose the pro forma effects on net income
had the fair value of the options been expensed. The Company has elected to
continue to apply APB 25 in accounting for its employee stock option incentive
plans.
F-10
<PAGE>
BLC FINANCIAL SERVICES, INC.
Notes to Financial Statements
June 30, 2000 and 1999
NOTE 2. LOANS RECEIVABLE AND ALLOWANCE FOR CREDIT LOSSES
The loans receivable are principally long-term business loans, with initial
terms ranging from 7 to 25 years, made to qualifying small businesses. The loans
have variable interest rates which adjust based upon the prime rate.
As of June 30, 2000 and 1999, loans receivable - net consisted of:
2000 1999
----------- --------------
Loans receivable $23,966,000 $ 23,860,000
Less:
Deferred income (522,000) (1,010,000)
Allowance for credit losses (1,153,000) (914,000)
------------ -------------
Net loans receivable $22,291,000 $21,936,000
============ =============
As of June 30, 2000, contractual maturities of loans receivable for each of the
next five years are as follows:
Year Ending
June 30,
---------------
2001 $ 330,000
2002 370,000
2003 414,000
2004 463,000
2005 519,000
As of June 30, 2000 and 1999, the impaired loan portfolio totaled $1,879,000 and
$1,673,000, respectively, for which specific allocations to the allowance for
credit losses aggregated $538,000 and $382,000 respectively. The average balance
of the impaired loan portfolio for the year ended June 30, 2000 and 1999
approximated $1,776,000 and $1,741,000, respectively. The Company recognized
approximately $138,000 in interest income on its impaired loan portfolio during
the year ended June 30, 2000. The Company did not recognize any interest income
on its impaired loan portfolio during the years ended June 30, 1999 and 1998.
Changes in the allowance for credit losses for the three years ended June 30,
2000 were as follows:
Balance as of June 30, 1998 $ 641,000
Provision for credit losses 787,000
Loans charged off (514,000)
--------------
Balance as of June 30, 1999 914,000
Provision for credit losses 769,000
Loans charged off (530,000)
--------------
Balance as of June 30, 2000 $ 1,153,000
==============
F-11
<PAGE>
BLC FINANCIAL SERVICES, INC.
Notes to Financial Statements
June 30, 2000 and 1999
NOTE 3. SERVICING ASSETS AND RESIDUAL INTERESTS
Changes in servicing assets and residual interests for the three years ended
June 30, 2000 are as follows:
<TABLE>
<CAPTION>
Servicing Residual
Assets Interests
<S> <C> <C>
----------- -------------
Balance, June 30, 1998 $3,270,000 $ 5,057,000
Assets originating from loan sales 2,299,000 6,965,000
Amortization (808,000)
Principal payments (1,061,000)
Change in market value (84,000)
------------- --------------
Balance, June 30, 1999 4,761,000 10,877,000
Assets originating from loan sales 3,696,000 7,085,000
Amortization (1,268,000)
Principal payments (1,791,000)
Change in market value 623,000
------------- -------------
Balance, June 30, 2000 $7,189,000 $16,794,000
============ =============
</TABLE>
As of June 30, 2000, the net unrealized gains related to residual interests were
$1,349,000.
NOTE 4. FINANCING
As of June 30, 2000, the Company had $65,000,000 in revolving credit facilities.
The facilities are collateralized by loans receivable, loans held for sale and
accounts receivable - loans sold and the interest rates range from the LIBOR
rate plus 2% to the prime rate plus 1%. The facilities expire in August 2001 and
include covenants requiring the company to, among other matters, maintain
minimum tangible net worth.
Debentures aggregating $3,303,000 as of June 30, 2000 and June 30, 1999 bear
interest at 9-1/4% per annum, mature November 2001 and are convertible into
1,649,549 shares of the Company's common stock. Debentures aggregating
$3,183,000 as of June 30, 2000 and $1,422,000 as of June 30, 1999 bear interest
at 9% per annum, mature February 2003 and are convertible into 1,157,344 shares
of the Company's common stock. Debentures aggregating $1,540,000 (total
outstanding at the modification date) were initially convertible into common
stock at $3.50 per share. However, during the year ended June 30, 2000, the
conversion price was reduced to $2.75 per share, which exceeded the market price
at the modification date. This modification did not result in a charge to
operations. Additionally, these notes are subordinated to the revolving lines of
credit.
The principal payments on debentures of $3,303,000 and $3,183,000 are due during
the years ending June 30, 2002 and June 30, 2004, respectively.
F-12
<PAGE>
BLC FINANCIAL SERVICES, INC.
Notes to Financial Statements
June 30, 2000 and 1999
NOTE 5. INCOME TAXES
The significant components of the Company's deferred income tax assets and
liabilities as of June 30, 2000 and 1999 are as follows:
<TABLE>
<CAPTION>
2000 1999
------------ --------------
<S> <C> <C>
Deferred income tax assets:
Net operating losses $ 448,000 $ 1,305,000
Allowance for credit losses 442,000 382,000
Loan discount 199,000 390,000
Alternative minimum tax credit carryforward 269,000 220,000
------------- --------------
1,358,000 2,297,000
Valuation allowance (448,000) (992,000)
------------- --------------
910,000 1,305,000
------------- --------------
Deferred income tax liability:
Unrealized gain on residual Interest (533,000) (305,000)
Gain on securitization (1,864,000) 0
------------- -------------
(2,397,000) (305,000)
------------- -------------
Net deferred income tax (liability)asset ($1,487,000) $ 1,000,000
============= ==============
</TABLE>
The valuation allowance represents the tax benefit of the pre confirmation net
operating losses not utilized.
The significant components of the provision for income taxes for the years ended
June 30, 2000, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
2000 1999 1998
-------------- -------------- ---------------
<S> <C> <C> <C>
Current:
Federal $ 61,000 $ 98,000 $ 123,000
State 355,000 393,000 277,000
------------- ------------- --------------
Total current taxes 416,000 491,000 400,000
------------- ------------- --------------
Deferred:
Federal, including utilization of preconfirmation
net operating losses credited to additional
paid-in capital 2,650,000 2,248,000 3,572,000
State 334,000 10,000 (22,000)
Change in valuation allowance (544,000) (698,000) (1,839,000)
------------- ------------- --------------
Total deferred taxes 2,440,000 1,560,000 1,711,000
------------- ------------- --------------
Provision for income taxes $ 2,856,000 $ 2,051,000 $ 2,111,000
============= ============= ==============
The difference between the statutory federal income tax rate on the Company's
income before income taxes and the Company's effective income tax rate for the
years ended June 2000, 1999 and 1998 is summarized as follows:
2000 1999 1998
--------- -------- ---------
Statutory federal income tax rate 34.0% 34.0% 34.0%
State income tax, net of federal benefit 5.6 5.2 4.8
Miscellaneous (4.5) 0.6 0.8
-------- ------ ------
Effective income tax rate 35.1% 39.8% 39.6%
======== ====== ======
</TABLE>
F-13
<PAGE>
BLC FINANCIAL SERVICES, INC.
Notes to Financial Statements
June 30, 2000 and 1999
Note 6. Stock Options and Warrants
The Company has stock option plans (the "Plans") for directors, officers and
employees that provide for the grant of nonqualified and incentive stock
options. The Board of Directors determines the exercise price (not to be less
than fair market value for incentive options) at the date of grant. The options
have a maximum term of 10 years and outstanding options expire from November
2000 through June 2005.
The Company applies APB 25 in accounting for its employee stock option incentive
plan and, accordingly, recognizes compensation expense for the difference
between the fair value of the underlying common stock and the exercise price of
the option at the date of grant. The effects of applying FAS 123 on the
Company's pro forma results is not necessarily representative of the effects on
reported net income or loss for future years due to, among other things, the
vesting period of the stock options and the fair value of additional stock
options in future years. Had compensation cost for the Company's stock option
plans been determined based upon the fair value at the grant date for awards
under the plans consistent with the methodology prescribed under FAS 123, the
Company's net income would have been as follows:
<TABLE>
<CAPTION>
Year Ended June 30,
------------------------------------------
2000 1999 1998
-------- --------- --------
<S> <C> <C> <C>
Pro forma income $4,720,000 $2,938,000 $3,164,000
Pro forma earnings per share:
Basic 0.23 0.15 0.17
Diluted 0.19 0.12 0.15
</TABLE>
The fair value of each option granted in 2000, 1999 and 1998 has been estimated
on the date of grant using the Black-Scholes options pricing model with the
following assumptions: no dividend yield, expected volatility of 40% (1998 and
1999) and 89% (2000), risk free interest rates ranging from 4.58% to 6.26% and
expected lives of five years. The average fair value of options granted during
2000, 1999 and 1998 were $1.33, $1.07 and 1.00, respectively.
F-14
<PAGE>
BLC FINANCIAL SERVICES, INC.
Notes to Financial Statements
June 30, 2000 and 1999
The following table summarizes stock option transactions under the Plans:
<TABLE>
<CAPTION>
Year Ended June 30,
---------------------------------------------------------------------------------------
2000 1999 1998
------------------------- ------------------------------ -------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
<S> <C> <C> <C> <C> <C> <C>
Outstanding options at the
beginning of year 3,491,017 $1.34 2,831,975 $1.04 1,922,475 $0.57
Options granted 800,000 2.05 1,049,042 2.84 1,332,000 1.54
Options exercised (179,000) .51 (35,000) .59 (422,500) 0.50
Options expired or
canceled (3,000) .82 (355,000) 3.47
----------- ----------- ------------
Outstanding options at the
end of year 4,109,017 $1.52 3,491,017 $1.34 2,831,975 $1.04
========== ============ ============
The following table summarizes information about the Plans' outstanding options
as of June 30, 2000:
Options Outstanding Options Exercisable
------------------------------------------------ --------------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Price Outstanding Life (in Years) Price Exercisable Price
---------------- ------------- ---------------- ----------- ------------- ----------
$0.50 - $0.90 2,264,975 1.19 $ .71 1,711,475 $0.67
$1.47 - $2.90 1,498,542 3.93 2.33 527,117 2.26
$3.25 - $3.63 345,500 2.89 3.27 186,100 3.27
</TABLE>
As of June 30, 2000, 1999 and 1998, respectively, 1,086,000, 673,500 and
1,075,500 shares were available for grant under the Employee Stock Option Plan.
During the fiscal year ended June 30, 2000, the shareholders approved an
increase in the shares available under this Plan from 2,500,000 shares to
3,500,000 shares.
As of June 30, 2000, warrants outstanding to purchase 1,161,957 shares of the
Company's common stock ranged from $0.50 to $2.10 per share. These warrants
expire from November 2000 through June 2004.
As of June 30, 2000, 9,163,867 shares have been reserved for the exercise of
warrants, stock options and conversion of debentures.
During the years ended June 30, 1998 and June 30, 2000, the Company issued
warrants, which were immediately exercisable, to purchase 415,000 shares of
common stock (exercisable between $1.10 and $1.85 per share) and 60,000 shares
of common stock (exercisable at $2.10 per share), respectively, in connection
with professional services rendered. The fair value of each warrant granted has
been estimated on the date of grant using the Black-Scholes pricing model with
the following assumptions: no dividend yield, expected volatility of 40% (1998 )
and 89% (2000), risk free interest rates ranging from 5.5% to 6.66% and expected
lives ranging from 3 to 5 years.
F-15
<PAGE>
BLC FINANCIAL SERVICES, INC.
Notes to Financial Statements
June 30, 2000 and 1999
Note 7 - Commitments
Revolving securitization
During the year ended June 30, 2000, the Company entered into a $75 million
revolving securitization. Under the terms of this facility, the Company may
periodically sell the unguaranteed portion of the SBA loans to the
securitization conduit. Additionally, since the interest rates on the loans are
based upon the prime rate and the securitization interest rate is based upon
LIBOR, the Company concurrently with selling loans, enters into interest rate
swaps with an affiliate of the entity which purchases the securitization
instruments. During the year ended June 30, 2000, as a result of the interest
rate swap transactions, the charge to operations aggregated $12,000. As of June
30, 2000, the current balance of loans sold into this facility aggregated
$35,995,000.
Lease commitments:
The Company has entered into operating leases for office space expiring through
May 2009. Minimum future rental payments under these leases are as follows:
Year Ending
June 30,
2001 $ 752,000
2002 574,000
2003 575,000
2004 559,000
2005 538,000
Thereafter 2,016,000
------------
$5,014,000
Rent expense for the years ended June 30, 2000, 1999 and 1998 aggregated
$786,000, $481,000 and $294,000, respectively.
NOTE 8. FINANCIAL INSTRUMENTS, CREDIT RISK CONCENTRATION AND OTHER MATTERS:
Fair value of financial instruments:
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Values of Financial Instruments" ("FAS 107") requires disclosure of fair value
information about financial instruments, whether or not recognized on the
balance sheet, for which it is practicable to estimate that value. Because no
market exists for certain of the Company's assets and liabilities, fair value
estimates are based upon judgments regarding credit risk, investor expectation
of economic conditions, normal cost of administration and other risk
characteristics, including interest rate and prepayment risk. These estimates
are subjective in nature and involve uncertainties and matters of judgment,
which significantly affect the estimates.
F-16
<PAGE>
BLC FINANCIAL SERVICES, INC.
Notes to Financial Statements
June 30, 2000 and 1999
Note 8. FINANCIAL INSTRUMENTS, CREDIT RISK CONCENTRATION AND OTHER MATTERS
(CONTINUED)
The following summarizes the information about the fair value of the financial
instruments recorded on the Company's financial statements in accordance with
FAS 107:
<TABLE>
<CAPTION>
June 30, 2000 June 30, 1999
---------------------------- -----------------------------
Carrying Value Fair Value Carrying Value Fair Value
<S> <C> <C> <C> <C>
Cash $ 9,609,000 $ 9,609,000 $ 4,229,000 $ 4,229,000
Loans held for sale 7,494,000 8,131,000 8,922,000 9,725,000
Servicing assets and residual interest 22,634,000 24,611,000 15,638,000 15,979,000
Loans receivable 23,966,000 25,297,000 23,860,000 24,573,000
Accounts receivable 15,121,000 15,121,000 8,982,000 8,982,000
Notes payable 45,840,000 45,840,000 39,608,000 39,608,000
Debentures 6,486,000 6,486,000 4,725,000 4,725,000
</TABLE>
The methodology and assumptions utilized to estimate the fair value of the
Company's financial instruments are as follows:
Cash:
The carrying amount of cash approximates fair value.
Loans held for sale:
The Company has estimated the fair values reported based on recent sales.
Loans receivable, servicing assets and residual interests:
The Company has estimated the fair value reported based on the present value of
expected future cash flows.
Accounts receivable:
The carrying amount of accounts receivable approximates fair value.
Notes payable:
Since these are primarily variable rate and short-term, the carrying amounts
approximate fair value.
Debentures:
The fair value of the debentures is based upon the greater of market value of
the underlying common stock into which the debentures are convertible or the
effect of the difference between a market rate of interest and the stated fixed
rate of interest.
Loan commitments:
Typically, the Company does not charge fees for commitments to originate loans,
except with respect to loans originated under the B&I Loan Program,
additionally, since the loans are variable rate, changes in interest rates do
not affect their fair value. Accordingly, the off-balance sheet instruments have
no estimated fair value.
F-17
<PAGE>
BLC FINANCIAL SERVICES, INC.
Notes to Financial Statements
June 30, 2000 and 1999
NOTE 8. FINANCIAL INSTRUMENTS, CREDIT RISK CONCENTRATION AND OTHER MATTERS
(CONTINUED)
Off-balance sheet financial instruments and concentrations of credit risk:
Financial instruments which potentially subject the Company to concentrations of
credit risk are primarily cash and loans receivable. The Company maintains its
cash in highly rated financial institutions. As of June 30, 2000, the Company
had bank deposits exceeding federally insured limits by approximately
$11,759,000. The Company originates loans to a large number of customers in
diverse commercial entities and states. In the normal course of business, the
Company enters into commitments to extend credit. The Company uses the same
credit policies in making commitments as it does for loans receivable reflected
on the balance sheet. As of June 30, 2000, the Company's commitments to extend
credit aggregated $72,250,000. However, approximately $55,188,000 of the
commitments are SBA and B&I guaranteed loans which the Company intends to sell
in the secondary market.
As of June 30, 2000, the outstanding balance of loans sold with limited or
unlimited recourse aggregated $70,309,000. The Company's maximum exposure under
the recourse provisions is $9,568,000. The Company lends to diverse industries
across the United States, however, at June 30, 2000, loans originated in the
states of New York and Virginia represented approximately 11% and 10%,
respectively, of the Company's loans receivable. No other state represented more
than 10% of the Company's loans receivable. As of June 30, 2000, the lodging and
restaurant industries represented approximately 12% and 12% of the Company's
loans receivable, respectively. No other industry represented more than 10% of
the Company's loans receivable.
Concentrations:
During the year ended June 30, 2000, no loan production company accounted for
more than 8% of loan originations. During the years ended June 30, 2000 and
1999, two loan production companies accounted for 15% and 24% of the Company's
loan originations, respectively. During the years ended June 30, 2000, 1999 and
1998, 83% of the guaranteed loans were sold to five securities dealers, 75% were
sold to three securities dealers and 83% were sold to four securities dealers,
respectively.
Note 9. Related Parties Transactions
During the years ended June 30, 2000, 1999 and 1998, the maximum amount of
outstanding short-term loans payable to family members of an officer/shareholder
aggregated $300,000, $1,077,000 and $2,594,000, respectively. As of June 30,
2000 and 1999 no loans to the family members were outstanding. Interest expense
on these loans aggregated $20,000, $19,000 and $17,000 in the years ended June
30, 2000, 1999 and 1998, respectively.
Family members of an officer/shareholder purchased $950,000 of the debentures
issued in 1998 and $290,000 of the debentures issued in 1999. For the year ended
June 30, 2000 and 1999, interest expense on these debentures aggregated $95,000
and $88,000, respectively. During the fiscal year ended June 30, 2000, an
officer/shareholder exchanged $140,000 of advances due to him to an unrelated
third party that was then subsequently exchanged for a debenture.
Note 10. Employee Benefit Plan
The Company maintains a contributory employee savings plan for substantially all
its employees, in accordance with the provisions of Section 401(k) of the
Internal Revenue Code. Pursuant to the terms of the plan, participants can defer
a portion of their income through contributions to the plan.
F-18
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: September 28, 2000 BLC FINANCIAL SERVICES, INC.
(Registrant)
By: /s/ Robert F. Tannenhauser
Robert F. Tannenhauser,
President
By: /s/ Jennifer M. Goldstein
Jennifer M. Goldstein,
Treasurer and Chief
Financial Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
<S> <C> <C>
/s/ Robert F. Tannenhauser Director September 28, 2000
Robert F. Tannenhauser
/s/ Peter D. Blanck Director September 28, 2000
Peter D. Blanck
/s/ Robert W. D'Loren Director September 28, 2000
Robert W. D'Loren
/s/ Irwin E. Redlener Director September 28, 2000
Irwin E. Redlener
/s/ Kenneth S. Schwartz Director September 28, 2000
Kenneth S. Schwartz
/s/ Robert W. Wien Director September 28, 2000
Robert W. Wien
/s/ Jerome Alenick Director September 28, 2000
Jerome Alenick
</TABLE>
39
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Incorporated by Exhibit
Reference to Number Description
------------ ------ -------------------------------------------------------
<S> <C> <C>
Exhibit 1.3[15] 3.1 Amended and Restated Certificate of Incorporation of Registrant
Exhibit 1.4[15] 3.2 Amended and Restated By-Laws of Registrant
Exhibit 1.5 [17] 3.3 By-Laws of BLC Financial Corporation
Exhibit 1.6 [17] 3.4 By-Laws of BLC Commercial Capital Corporation
Exhibit 1.7 [19] 3.5 By-Laws of BLC Financial Corp II
Exhibit 1.8 [19] 3.6 By-Laws of BLC Real Estate Corp.
Exhibit 2.1[6] 4.1 Form of Common Stock Certificate of Registrant
Exhibit 2.3[1] 4.2 Form of Warrant Agreement issued by Registrant
Exhibit 2.6[8] 4.3 Form of 7% three-year Unsecured Convertible Debenture issued
by Registrant in connection with its 1994 Debenture-Unit Private Placement
Exhibit 2.8[8] 4.4 Form of Class B Warrant issued by Registrant in
connection with its 1994 Debenture-Unit Private Placement
Exhibit 2.13 [17] 4.5 Form of Warrant 1997-1
Exhibit 2.14 [17] 4.6 Form of Debenture 9-1/4 Convertible Subordinated Note Due 2001
Exhibit 2.15 [19] 4.7 Form of Debenture Note 9% Convertible Subordinated Note Due 2003
Exhibit 2.5[6] 10.1 Form of Stock Option Agreement issued to certain
directors in August 1992
Exhibit 2.9[8] 10.2 Form of Warrant issued by Registrant to Financial Advisor
40
<PAGE>
Incorporated by Exhibit
Reference to Number Description
------------ ------ -------------------------------------------------------
Exhibit 2.10[8] 10.3 Form of Warrant issued by Registrant in connection with its 1994 Common Stock-Unit
Private Placement
Exhibit 2.12[15] 10.4 1995 Employee Stock Purchase Plan
Exhibit 2.15 [17] 10.5 Form of Incentive Stock Option Agreement
Exhibit 2.16 [17] 10.6 Employment Agreement between Business Loan Center and Leonard Rudolph dated May 4, 1998
Exhibit 3.2 [17] 10.7 Employment Agreement between Business Loan Center and
Jennifer Goldstein dated October 8, 1997
Exhibit 4.1[15] 10.8 Small Business Administration Loan Guaranty Agreement (Deferred Participation) dated
March 27, 1997 between BLC-New York and the United States Small Business Administration
(SBA Form 750)
Exhibit 8.1b[15] 10.9 Lease Agreement dated July 31, 1997 by and between The Equitable-Nissei Madison Co., as
landlord, and Business Loan Center, Inc., as tenant.
Exhibit 9.1 [17] 10.10 Guarantee Agreement dated May 7, 1998 between BLC Financial Services, Inc. and
Transamerica Business Credit Corporation.
Exhibit 9.2 [17] 10.11 Guarantee Agreement dated March 25, 1998 between BLC Financial Services, Inc. and
Transamerica Business Credit Corporation.
Exhibit 10.1[9] 10.12 Revolving Credit Agreement dated as of 1994 between BLC-Delaware,
Registrant, Business Loan Center and Sterling National Bank &
Trust Company of New York
Exhibit 10.3[15] 10.13 Amended and Restated Revolving Credit agreement dated August 27, 1997 between BLC
Financial Services, Inc., Business Loan Center, Inc. and Sterling National Bank
(f/k/a/ Sterling National Bank & Trust Company of New York)
41
<PAGE>
Incorporated by Exhibit
Reference to Number Description
------------ ------ -------------------------------------------------------
Exhibit10.4[15] 10.14 Revolving Credit Agreement dated August 27, 1997 between BLC Financial
Services, Inc. and Sterling National Bank (f/k/a/ Sterling National Bank & Trust Company
of New York)
Exhibit 10.5[15] 10.15 Confirmation Agreement by and among Robert F. Tannenhauser in favor of Sterling National
Bank dated August 27, 1997
Exhibit 10.6[15] 10.16 Partial Assignment Agreement between Sterling National Bank and Transamerica Business
Credit Corporation dated August 27, 1997
Exhibit 10.7 [17] 10.17 Loan Agreement between BLC Commercial Capital Corporation as Borrower, BLC Financial
Services as parent and Transamerica Business Credit Corporation as lender dated May 7,
1998
Exhibit 10.8 [17] 10.18 Loan Agreement between Business Loan Center as Borrower, BLC Financial Services as
parent and Transamerica Business Credit Corporation as lender dated March 25, 1998
Exhibit 10.9 [17] 10.19 First Amendment to Loan Agreement between Business Loan Center as Borrower, BLC
Financial Services as parent and Transamerica Business Credit Corporation as lender
dated June 23, 1998
Exhibit 10.10 [17] 10.20 Pooling and Servicing Agreement between Marine Midland Bank (Trustee) and Business Loan
Center (Seller and Servicer) dated as of December 1,1997
Exhibit 10.11 [17] 10.21 Security Agreement between Business Loan Center and Transamerica Business Credit
Corporation as lender dated March 25, 1998
Exhibit 10.12 [17] 10.22 Security Agreement between BLC Commercial Capital Corporation and Transamerica Business
Credit Corporation as lender dated May 7, 1998
42
<PAGE>
Incorporated by Exhibit
Reference to Number Description
------------ ------ -------------------------------------------------------
Exhibit 10.13 [17] 10.23 Revolving Credit Note between BLC Commercial Capital Corporation and Transamerica
Business Credit Corporation dated May 7, 1998
Exhibit 10.14 [17] 10.24 Revolving Credit Note between Business Loan Center and Transamerica Business Credit
Corporation dated March 25, 1998
Exhibit 10.15 [17] 10.25 Amendment and Restated Revolving Credit Note between Business Loan Center and
Transamerica Business Credit Corporation (June 1998)
Exhibit 10.16 [17] 10.26 Multi-Party Agreement between Business Loan Center, Inc., BLC Financial Services, Inc.,
Transamerica Business Credit Corporation, Colson Services Corp., and the United States
Small Business Administration dated March 25, 1998
Exhibit 10.17 [17] 10.27 Multi-Party Agreement Among Business Loan Center, Inc., Marine Midland Bank, Colson
Services Corp., and the SBA dated December 1, 1997
Exhibit 10.18 [17] 10.28 Business Loan Center SBA Loan-Backed Adjustable Rate Certificates (Class A)
Exhibit 10.19 [17] 10.29 Business Loan Center SBA Loan-Backed Adjustable Rate Certificates (Class B)
Exhibit 10.20 [17] 10.30 Business Loan Center SBA Loan Trust 1997-1 between Business Loan Center, Inc. (Seller)
and Marine Midland Bank (Borrower) dated December 1, 1997
Exhibit 11.1[9] 10.31 Security Agreement dated as of December 1994 between BLC-Delaware, Registrant, Business
Loan Center and Sterling National Bank & Trust Company of New York
43
<PAGE>
Incorporated by Exhibit
Reference to Number Description
------------ ------ -------------------------------------------------------
Exhibit 11.2[15] 10.32 Amendment NO.1 to Security Agreement between BLC-Delaware, Registrant,
Business Loan Center and Sterling National Bank (f/k/a Sterling National Bank &
Trust Company of New York) dated August 27, 1997.
Exhibit 11.3[15] 10.33 Release among Sydney Yoskowitz and Sterling National Bank dated August 27, 1997
Exhibit 12.1[9] 10.34 Multi-Party Agreement dated as of December 1994 (relating to SBA Loan Documentation and
Administration)
Exhibit 13.1[10] 10.35 Exchange Agreement between BLC Financial Network, Inc., BLC Financial Services, Inc.,
and Southeastern 1st Financial Network, Inc.
Exhibit 14.1[10] 10.36 Employment Agreement between BLC Financial Network, Inc., BLC Financial Services, Inc.,
and Robert C. McGee
Exhibit 14.3[15] 10.37 Employment Agreement between BLC Financial Network, Inc., BLC Financial Services, Inc.,
and R. Matthew McGee dated April 1, 1997
Exhibit 14.4[10] 10.38 Employment Agreement between BLC Financial Network, Inc., BLC Financial Services, Inc.,
and Mary D. McGee
Exhibit 14.5[10] 10.39 Employment Agreement between BLC Financial Services, Inc., Business Loan Center, and
Robert F. Tannenhauser
Exhibit 14.6[10] 10.40 Employment Agreement between Business Loan Center, and Eric D. Rosenfeld
Exhibit 15.1[10] 10.41 Warrant Certificate for Purchase of Common Stock
Exhibit 15.2[10] 10.42 Class A Warrant to Purchase Shares of Common Stock
Exhibit 15.3[10] 10.43 Class B Warrant to Purchase Shares of Common Stock
Exhibit 16.1[10] 10.44 Stock Purchase Agreement between BLC Financial Services, Inc. and Robert C. McGee
44
<PAGE>
Incorporated by Exhibit
Reference to Number Description
------------ ------ -------------------------------------------------------
Exhibit 16.2[10] 10.45 Stock Purchase Agreement between R. Matthew McGee for 306,818 shares of Common Stock
Exhibit 16.3[10] 10.46 Stock Purchase Agreement between R. Matthew McGee for 380,139 shares of Common Stock
Exhibit 17.1[10] 10.47 Participation Agreement between Business Loan Center and GE Capital Small
Business Finance Corporation
Exhibit 17.2[15] 10.48 Participation Agreement between Business Loan Center and GE Capital Small
Business Finance Corporation - March 20, 1997
Exhibit 18.1[15] 10.49 Agreement between BLC Management Consulting Services, Inc., Business Loan
Center, Inc., and Business Loan Center dated February 3, 1997 (relating to the cessation
of Business Loan Center, a New York general partnership as a small business lending
company)
Exhibit 18.2[15] 10.50 Assignment and Assumption Agreement between Business Loan Center, Inc. and
Business Loan Center, a New York general partnership.
Exhibit 18.3[15] 10.51 Schedule of Assets and Liabilities (relating to Assignment and Assumption
Agreement between Business Loan Center, Inc. and Business Loan Center, a
New York general partnership.
Exhibit 20.1[13] 10.52 Participation Agreement between Business Loan Center, Inc., BLC Financial Services, Inc.
and Transamerica Business Credit Corporation dated May 1, 1997.
Exhibit 20.2[13] 10.53 Security agreement between Business Loan Center, Inc. and Transamerica Business
Credit Corporation dated August 27, 1997
45
<PAGE>
Incorporated by Exhibit
Reference to Number Description
------------ ------ -------------------------------------------------------
Exhibit 20.3[15] 10.54 Guaranty Agreement between Business Loan Center, Inc. and Transamerica Business Credit
Corporation dated August 27, 1997
Exhibit 20.4[15] 10.55 Restated and Amended Loan Agreement between Business Loan Center, Inc., BLC
Financial Services, Inc. and Transamerica Business Credit Corporation dated August 27,
1997
Exhibit 20.5[15] 10.56 Trademark Security Agreement between Business Loan Center, Inc. and
Transamerica Business Credit Corporation dated August 27, 1997
Exhibit 20.6[15] 10.57 Revolving Credit Note between Business Loan Center, Inc. and Transamerica
Business Credit Corporation dated August 27, 1997
Exhibit 20.7[15] 10.58 Intercreditor Agreement between Transamerica Business Credit Corporation and
Sterling National Bank dated August 27, 1997
Exhibit 2.4[6] 10.59 Form of Letter to Unit Holders regarding Conversion of Debentures
Exhibit 23.1[6] 10.60 Service Mark Registration for "BUSINESS LOAN CENTER"
Exhibit 23.2 [19] 10.61 Amendment to lease agreement dated January, 1999
between The Equitable-Nissei Madison Co., as landlord, and Business Loan Center, Inc.,
as tenant.
Exhibit 23.3 [19] 10.62 Lease Agreement dated August 28, 1998 by and between International Mission Board of the
Southern Baptist Convention and BLC Financial Network., Inc as tenant
Exhibit 23.4 {19] 10.63 9% Convertible subordinated Note Due 2003 Conversion Price $3.50 per Share Series 1
Exhibit 23.5 [19] 10.64 Addendum to Confidential Private Placement Memorandum BLC Financial Services, Inc. 9%
Convertible Subordinated Note Due 2003
46
<PAGE>
Incorporated by Exhibit
Reference to Number Description
------------ ------ -------------------------------------------------------
Exhibit 23.6 [19] 10.65 Business Loan Center SBA Loan-Backed Adjustable Rate Certificates, Series 1998-1
$24,316,729.85 Class A Certificate Confidential Placement Memorandum dated December 28,
1998
Exhibit 23.7 [19] 10.66 Second Amendment to Loan Agreement between Business Loan Center as Borrower, BLC
Financial Services as parent and Transamerica Business Credit Corporation as lender
dated September, 1998
Exhibit 23.8 [19] 10.67 Third Amendment to Loan Agreement between Business Loan Center as Borrower, BLC
Financial Services as parent and Transamerica Business Credit Corporation as lender
dated October, 1998
Exhibit 23.9 [19] 10.68 Fourth Amendment to Loan Agreement between Business Loan Center as Borrower, BLC
Financial Services as parent and Transamerica Business Credit Corporation as lender
dated December, 1998
Exhibit 23.10 [19] 10.69 Pooling and Servicing Agreement between Marine Midland Bank (Trustee) and Business Loan
Center (Seller and Servicer) dated as of December 23, 1998
Exhibit 23.11 [19] 10.70 Form of Subscription Agreement
Exhibit 23.12 [20] 10.71 Sale and Servicing Agreement dated November 1, 1999 between BLC Funding Trust
and Business Loan Center
* 10.72 Second Amendment to Loan Agreement between BLC Commercial Capital Corp. as Borrower,
BLC Financial Services, Inc., as parent, and Transamerica Business Credit Corporation
as lender dated April 26, 2000.
* 21 Amended List of Subsidiaries
Exhibit 22 [15] 27.1 EDGAR filing: Article 5 Financial Data Schedule
Exhibit 27.2 [17] 27.2 Financial Data Schedule
Exhibit 27.3 [19] 27.3 EDGAR filing: Article 5 Financial Data Schedule
* 27.4 EDGAR filing: Article 5 Financial Data Schedule
-----------------------
* Filed Herewith
</TABLE>
47
<PAGE>
<TABLE>
<CAPTION>
Previous SEC Filings:
<S> <C>
[1] Registrant's Annual Report on Form 10-K for the year ended June 30, 1993.
[2] Registrant's Annual Report on Form 8-K dated August 8, 1986.
[3] Registrant's Annual Report on Form 10-K for the year ended June 30, 1990.
[4] Registrant's Annual Report on Form 8-K dated May 4, 1990.
[5] Registrant's Annual Report on Form 10-K for the year ended June 30, 1991.
[6] Registrant's Registration Statement on Form S-1 filed with the Securities & Exchange Commission on September 27, 1993.
[7] Pre-effective Amendment No. 2 to Registrant's Registration Statement on Form S-1 filed with the Securities and Exchange
Commission on December 30, 1993.
[8] Pre-effective Amendment No. 5 to Registrant's Registration Statement on Form S-1 filed with the Securities and Exchange
Commission on August 4, 1994.
[9] Registrant's Annual Report on Form 10-K for the year ended June 30, 1996.
[10] Registrant's Current Report on Form 8-K dated February 5, 1996.
[11] Registrant's Current Report on Form 8-K dated June 4, 1996.
[12] Registrant's Current Report on Form 8-K dated September 17, 1996.
[13] Registrant's Current Report on Form 8-K dated May 12, 1997.
[14] Registrant's Notice of Special Meeting (in Lieu of Annual Meeting) of Stockholders
dated June 6, 1997.
[15] Registrant's Annual Report on Form 10-K for the year ended June 30, 1997.
[16] Registrant's Current Report on Form 8-K dated December 30, 1997.
[17] Registrant's Annual Report on Form 10-K for the year ended June 30, 1998.
[18] Registrant's Current Report on Form 8-K dated February 12, 1999.
[19] Registrant's Annual Report on Form 10-K for the year ended June 30, 1999.
[20] Registrant's Current Report on Form 8-K dated December 23, 1999.
</TABLE>
<PAGE>
EXHIBIT 21
The following is a list of the registrant's subsidiaries, other than
subsidiaries that, if considered in the aggregate as a single subsidiary would
not constitute a significant subsidiary as of the end of the year covered by
this report:
Jurisdiction
of
Name of Subsidiary Incorporation
------------------ -------------
Business Loan Center, Inc. Delaware
BLC Commercial Capital Corporation Florida
BLC Capital Corporation Delaware
BLC Financial Network, Inc. Delaware
BLC Financial Network of Florida, Inc. Delaware
BLC Financial Network of Mid-America, Inc. Kansas
Business Loan Center Financial Corporation Delaware
Business Loan Center Financial Corporation II Delaware
Business Loan Center Real Estate Corporation Delaware
BLC Funding Corp Delaware
---------------------
48
<PAGE>
