FORM 10-QSB
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(MARK ONE)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended March 31, 1998
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Transition Period from __________ to __________
Commission file number 33-75594
MERIDIAN FINANCIAL CORPORATION
(Name of small business issuer in its charter)
INDIANA 35-1894846
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
9265 Counselor's Row, Suite 106
Indianapolis, Indiana 46240-6402
(Address of principal executive offices)
(317) 814-2000
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past twelve 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 [ ]
Number of common shares, without par value, outstanding at April 30, 1998:
1,081.63
Transitional Small Business Disclosure Format: Yes [ ] No [X]
<PAGE>
MERIDIAN FINANCIAL CORPORATION
FORM 10-QSB
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
Condensed Balance Sheets at March 31, 1998 and
September 30, 1997 3
Condensed Statements of Operations for the three months and the
six months ended March 31, 1998 and 1997 4
Condensed Statements of Cash Flows for the six months
ended March 31, 1998 and 1997 5
Notes to Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
Index to Exhibits 14
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
MERIDIAN FINANCIAL CORPORATION
CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
MARCH 31, SEPTEMBER 30,
1998 1997
ASSETS
<S> <C> <C>
FINANCE RECEIVABLES, NET:
NET INVESTMENT IN DIRECT FINANCING LEASES $ 13,291,668 $ 9,552,098
LOAN HELD FOR SALE 1,775,000 1,317,707
TOTAL FINANCE RECEIVABLES 15,066,668 10,869,805
CASH 892,485 627,098
CASH HELD IN ORIGINATION ACCOUNT 3,776 3,658
DEBT SERVICE RESERVE FUNDS 106,667 112,467
DEBT ISSUE COSTS, NET 603,210 694,381
OTHER ASSETS 443,676 392,627
TOTAL ASSETS $ 17,116,482 $ 12,700,036
LIABILITIES AND
SHAREHOLDERS' EQUITY
Bonds payable $ 5,080,655 $ 5,472,283
Bank borrowings-warehouse line 2,045,000 1,629,000
Bank borrowings-term loan 4,501,200 -
Subordinated debt 3,709,863 3,536,164
Accounts payable and accrued expenses 130,269 290,776
Total liabilities 15,466,987 10,928,223
SHAREHOLDERS' EQUITY:
Preferred stock 3,203,060 3,203,060
Common stock 241,866 68,533
Note receivable, common stock (176,150) -
Accumulated deficit (1,619,281) (1,499,780)
Total shareholders' equity 1,649,495 1,771,813
Total liabilities and shareholders' equity $ 17,116,482 $ 12,700,036
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
3
<PAGE>
MERIDIAN FINANCIAL CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Interest and fee income $566,099 $293,314 $1,066,285 $ 585,460
Interest expense 398,554 237,967 772,185 456,037
Net interest income 167,545 55,347 294,100 129,423
Provision for credit losses 3,932 - 52,956 -
Net interest income after provision
for credit losses 163,613 55,347 241,144 129,423
Other income:
Gains from brokerage activities - - 26,280 5,194
Gains on early termination of leases - 49,142 49,142
Total other income - 49,142 26,280 54,336
General and administrative expenses:
Salaries and employee benefits 143,773 89,195 280,185 177,155
Other 31,443 64,798 86,740 123,964
175,216 153,993 366,925 301,119
Net loss (11,603) (49,504) (99,501) (117,360)
Preferred stock dividends 10,000 39,000 20,000 79,000
Loss to common shareholders $ (21,603) $ (88,504) $ (119,501) $(196,360)
Loss per common share and loss per
common share assuming dilution $ (19.97) $ (88.50) $ (114.17) $ (196.36)
Weighted average common shares
outstanding 1,081.63 1,000.00 1,046.65 1,000.00
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
4
<PAGE>
MERIDIAN FINANCIAL CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED
MARCH 31,
1998 1997
<TABLE>
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ (99,501) $ (117,360)
Adjustments to reconcile net earnings (loss)
to net cash from operating activities-
Depreciation and amortization 201,340 157,562
Capitalization of subordinated debt interest 173,699 -
Provision for credit losses 52,956 -
Additions to loan held for sale (457,293) -
Increase in other assets (16,818) (92,735)
Increase (decrease) in accounts payable
and accrued expenses (55,781) 68,383
Net cash provided by (used in) operating activities (201,398) 15,850
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to direct financing leases (6,071,653) (1,671,717)
Principal payments received on direct financing leases
and loans receivable 2,234,176 1,751,560
Other (52,266) -
Net Cash provided by (used in) investing activites (3,889,743) 79,843
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of Series C Preferred Stock - 2,192,308
Proceeds from issuance of Subordinated Debt - 365,384
Redemption of Series B Preferred Stock - (1,500,000)
Principal payments on bonds payable (391,628) (349,842)
Proceeds from bank borrowings 5,322,000 1,102,884
Principal payments on bank borrowings (404,800) (120,006)
Decrease in cash held in debt service
reserves and origination accounts 5,682 33,082
Financing costs paid (154,726) -
Preferred stock dividends (20,000) (79,000)
4,356,528 1,644,810
NET CHANGE IN CASH 265,387 1,740,503
CASH, at beginning of period 627,098 115,744
CASH, at end of period $ 892,485 $ 1,856,247
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
5
<PAGE>
MERIDIAN FINANCIAL CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1998
(UNAUDITED)
1. GENERAL:
THE FINANCIAL INFORMATION INCLUDED HEREIN WAS PREPARED IN CONFORMITY WITH
GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES, AND SUCH PRINCIPLES WERE APPLIED ON A BASIS
CONSISTENT
WITH THOSE REFLECTED IN THE ANNUAL REPORT ON FORM 10-KSB FOR THE YEAR ENDED
SEPTEMBER 30, 1997.
THE INFORMATION FURNISHED INCLUDES ALL ADJUSTMENTS AND ACCRUALS WHICH ARE, IN
THE
OPINION OF MANAGEMENT, NECESSARY FOR A FAIR PRESENTATION OF RESULTS FOR THE
INTERIM PERIODS.
RESULTS FOR ANY INTERIM PERIOD MAY NOT BE INDICATIVE OF THE RESULTS FOR THE
ENTIRE YEAR.
THE DISCLOSURES IN THE NOTES PRESUME THAT THE USERS OF THE INTERIM FINANCIAL
INFORMATION
HAVE READ OR HAVE ACCESS TO THE AUDITED FINANCIAL STATEMENTS INCLUDED IN THE
ANNUAL
REPORT ON FORM 10-KSB FOR THE YEAR ENDED SEPTEMBER 30, 1997.
2. ACCOUNTING POLICY-DERIVATIVES:
THE COMPANY HAS LIMITED INVOLVEMENT WITH DERIVATIVE FINANCIAL INSTRUMENTS AND
DOES NOT USE
THEM FOR TRADING PURPOSES. THE COMPANY ENTERED INTO AN INTEREST RATE SWAP
AGREEMENT AS
A MEANS OF MANAGING THE INTEREST RATE EXPOSURE OF ITS TERM BANK CREDIT
FACILITY. THE INTEREST
RATE SWAP IS ACCOUNTED FOR UNDER THE ACCRUAL METHOD. UNDER THIS METHOD, THE
DIFFERENTIAL TO
BE PAID OR RECEIVED ON THE INTEREST RATE SWAP AGREEMENT IS RECOGNIZED OVER THE
LIFE OF THE
AGREEMENT AS AN ADJUSTMENT TO INTEREST EXPENSE. CHANGES IN FAIR VALUE OF
INTEREST RATE
SWAPS ACCOUNTED FOR UNDER THE ACCRUAL METHOD ARE NOT REFLECTED IN THE
ACCOMPANYING
FINANCIAL STATEMENTS. REALIZED GAINS AND LOSSES ON TERMINATED INTEREST RATE
SWAPS WILL BE
DEFERRED AS AN ADJUSTMENT TO THE CARRYING AMOUNT OF THE DESIGNATED INSTRUMENTS
AND
AMORTIZED OVER THE REMAINING ORIGINAL LIFE OF THE AGREEMENTS. IF THE
DESIGNATED INSTRUMENTS
ARE DISPOSED OF, THE FAIR VALUE OF THE INTEREST RATE SWAP OR UNAMORTIZED
DEFERRED GAINS OR
LOSSES WILL BE INCLUDED IN THE DETERMINATION OF THE GAIN OR LOSS ON THE
DISPOSITION OF SUCH
INSTRUMENTS. TO QUALIFY FOR SUCH ACCOUNTING, THE INTEREST RATE SWAP IS
DESIGNATED TO THE
TERM BANK CREDIT FACILITY AND ALTERS ITS INTEREST RATE CHARACTERISTICS.
3. FINANCE RECEIVABLES:
THE COMPONENTS OF THE COMPANY'S NET INVESTMENT IN DIRECT FINANCING LEASES ARE
AS FOLLOWS:
<TABLE>
MARCH 31, SEPTEMBER 30,
1998 1997
<S> <C> <C>
MINIMUM LEASE PAYMENTS TO BE RECEIVED $ 19,270,146 $ 12,995,061
LESS - UNEARNED INCOME (5,868,148) (3,385,589)
LESS - ALLOWANCE FOR CREDIT LOSSES (110,330) (57,374)
NET INVESTMENT IN DIRECT FINANCING LEASES $ 13,291,668 $ 9,552,098
6
<PAGE>
MERIDIAN FINANCIAL CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1998
(UNAUDITED)
THE COMPANY HAD LEASES WITH A NET INVESTMENT BALANCE OF APPROXIMATELY $1.0
MILLION AT
MARCH 31, 1998, WHICH WERE NOT PERFORMING IN ACCORDANCE WITH THEIR CONTRACTUAL
TERMS.
BASED ON THE COMPANY'S COLLATERAL POSITION, MANAGEMENT EXPECTS NO LOSSES ON
THESE
BALANCES.
4. BONDS PAYABLE:
AT MARCH 31, 1998, BONDS PAYABLE CONSISTED OF TWO SERIES OF BONDS, BEARING
INTEREST
AT RATES OF EITHER 9% OR 10% ($2,294,414 AT 9% AND $2,786,241 AT 10%)
COLLATERALIZED BY
EQUIPMENT PURCHASED AND LEASES ORIGINATED FROM PROCEEDS OF THE OFFERINGS, CASH
HELD IN
THE ORIGINATION ACCOUNT, AND BY DEBT SERVICE RESERVE FUNDS HELD BY A TRUSTEE.
THE TWO
SERIES ARE NOT CROSS-COLLATERALIZED, BUT ARE CROSS-DEFAULTED. QUARTERLY
PRINCIPAL PAYMENTS
ARE REQUIRED FROM THE PRINCIPAL PORTIONS OF THE RELATED LEASE PAYMENTS RECEIVED
BY THE
COMPANY. BASED ON THE LEASES IN PLACE AS OF MARCH 31, 1998, QUARTERLY
PRINCIPAL
PAYMENTS FOR THE NEXT TWELVE MONTHS ARE EXPECTED TO TOTAL APPROXIMATELY
$1,090,000.
5. BANK CREDIT FACILITY:
ON NOVEMBER 18, 1997, THE COMPANY CONVERTED $4,906,000 FROM ITS INITIAL
WAREHOUSE LINE
INTO ITS INITIAL TERM LOAN, UTILIZING THE LIBOR RATE OPTION. THE TERM LOAN
REQUIRES MONTHLY
PAYMENTS OF PRINCIPAL TOTALING $89,200 PLUS INTEREST.
AS A RESULT OF THE ABOVE CONVERSION, THE COMPANY ALSO BEGAN BORROWING ON ITS
SECOND
$5 MILLION WAREHOUSE LINE. AS OF MARCH 31, 1998, THE COMPANY HAD BORROWED
$2,045,000 ON THIS CREDIT LINE.
IN CONJUNCTION WITH THE CONVERSION OF THE WAREHOUSE LINE INTO THE INITIAL TERM
LOAN, EFFECTIVE
NOVEMBER 21, 1997, THE COMPANY ENTERED INTO AN INTEREST RATE SWAP AGREEMENT
WITH
LASALLE NATIONAL BANK TO MAKE FIXED RATE PAYMENTS AT 6.12% AND TO RECEIVE
FLOATING RATE
LIBOR-BASED PAYMENTS (5.6875% AT MARCH 31, 1998) ON AN INITIAL NOTIONAL AMOUNT
OF
$4,906,000 WITH MONTHLY AMORTIZATION OF $89,200. THE MATURITY DATE OF THE SWAP
AGREEMENT IS APRIL 18, 2002. THE INTEREST RATE SWAP AGREEMENT IS ACCOUNTED FOR
ON A
SETTLEMENT BASIS. THE COMPANY IS EXPOSED TO CREDIT LOSS IN THE EVENT OF
NONPERFORMANCE
BY LASALLE NATIONAL BANK FOR THE NET INTEREST RATE DIFFERENTIAL WHEN FLOATING
RATES EXCEED
THE FIXED MAXIMUM RATE. HOWEVER, THE COMPANY DOES NOT ANTICIPATE
NONPERFORMANCE BY
THE COUNTERPARTY.
7
<PAGE>
MERIDIAN FINANCIAL CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1998
(UNAUDITED)
EARNINGS PER SHARE:
Earnings (loss) per common share and earnings (loss) per common share assuming
dilution are computed under a new accounting standard which was first effective
in the
quarter ended December 31, 1997. All prior amounts have been restated to be
comparable.
Earnings (loss) per common share is based on net income (loss) after preferred
dividends,
divided by the weighted average number of shares outstanding during the period.
Earnings
(loss) per common share assuming dilution shows the dilutive effect, if any, of
additional
common shares issuable under convertible securities.
The Company has previously issued 3,000 shares of Series C Convertible
Preferred Stock.
These shares of preferred stock are currently convertible into 3,000 shares of
the Company's
common stock, but have been excluded from the computation of earnings per
common
share assuming dilution because they were antidilutive for the three months and
six months
ended March 31, 1998.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview:
The profitability of the Company depends largely on the Company's ability to
enter into suitable leases, to realize an adequate spread between the interest
rate paid by the Company on its borrowings and the implicit interest rate
charged on the leases, and to avoid defaults by the lessees. The closing of
two financing transactions during the year ended September 30, 1997 allows the
Company access to significant amounts of capital which previously had not been
available. Accordingly, the Company has been able to grow its portfolio at a
much faster rate than in prior years, while maintaining a debt-to-equity ratio
that is below industry average.
Liquidity and Capital Resources:
During the fiscal year ended September 30, 1997, the Company entered into a $10
million Credit Agreement with LaSalle National Bank, which consists of two $5
million warehouse lines which convert to term loans. In November, 1997, the
Company converted its initial warehouse line, with a balance of $4,906,000,
into a term loan. The Company selected the LIBOR rate option, and entered into
a LIBOR interest rate swap agreement to effectively fix the interest rate
related to this term loan.
As of March 31, 1998, the Company had borrowed approximately $2.0 million on
its second $5 million warehouse line.
The Company intends to continue to expand its lease portfolio during fiscal
year 1998 at a growth rate greater than that experienced in fiscal year 1997.
In order to do so, the Company will need additional sources of financing
beginning in the summer of 1998. If no new or expanded credit facilities or
other funding sources are obtained, the Company's cash flow from its existing
lease portfolio would permit only limited growth; however, the Company believes
it will be successful in establishing one or more new or expanded funding
sources by the summer of 1998.
During the six months ended March 31, 1998, the Company sold two leases to a
third party on a non-recourse basis as part of its brokerage activity. Total
proceeds were $502,000, and the transaction resulted in a gain of approximately
$26,000. The Company expects this type of brokerage activity to continue in
the future.
Management believes that its overall sources of liquidity will continue to be
sufficient to satisfy the foreseeable financial obligations of the Company.
Management of the Company knows of no material requirements for capital
expenditures other than to enter into leases.
Analysis of Cash Flows:
Net cash flows from operating activities result primarily from net earnings or
losses, adjusted for non-cash items such as depreciation and amortization of
assets and from changes in working capital. The Company experienced a net cash
outflow from operations of $201,398 for the six months ended March 31, 1998,
compared to a net cash inflow of $15,850 for the six months ended March 31,
1997. The primary component of cash outflow from operations was the continued
funding of a loan held for sale, which amounted to $457,293 during the 1998 six
month period. The sale of this loan in the future will result in a cash inflow
from operations. Excluding the outflow from the loan held for sale, the most
significant contributor to operating cash flow is the
net earnings before non-cash charges for depreciation and amortization,
capitalization of interest
9
<PAGE>
on subordinated debt and provisions for credit losses. Net earnings before
these non-cash charges were $328,494 in 1998 compared to $40,202 in 1997. This
increase in income before non-cash charges, totaling $288,292, benefited from
the increase in net interest income for the period of $164,677, and the
continued capitalization of interest on the Company's subordinated debt as
required in the agreement with the subordinated debt holders. The Company will
begin making quarterly interest payments June 30, 1998, in accordance with the
agreement.
Net cash flows used in investing activities consist primarily of investments in
leases, which is the Company's primary requirement for cash, and principal
payments received from lessees, which is currently the Company's principal
source of cash. During the six months ended March 31, 1998, the Company
invested $6,071,653 in thirty-eight leases, compared to $1,671,717 in
seventeen leases for the same period in 1997, which reflects the Company's
accelerated growth rate. Principal payments received on leases and loans
receivable totaled $2,234,176 for the six months ended March 31, 1998 compared
to $1,751,560 for the same period in 1997. Principal payments received in the
1998 period includes approximately $477,000 from brokerage activity and
$1,290,000 from early terminations of leases. Principal payments in the 1997
period includes approximately $145,000 from brokerage activity and $1,132,000
from early terminations of leases and the prepayment of a mortgage loan
receivable. Investments in leases and principal payments received on leases
are expected to continue to grow in future periods.
Cash inflows from financing activities historically have consisted of bank
borrowings and proceeds from the sale of equity and debt securities. In the
six month period ended March 31, 1998, the Company's only significant source of
cash inflows from financing activities was bank borrowings. Cash outflows
consist of costs incurred in the sale of the securities, principal payments on
borrowings and debt securities, and preferred stock dividends. During the six
months ended March 31, 1998, the Company received proceeds from bank borrowings
of $5,322,000 from its credit lines, a substantial increase from the $1,102,884
under its previous borrowing arrangements during the 1997 period. The Company
also paid $154,726 during the six months ended March 31, 1998 for costs related
to its previously completed financing transactions. Preferred dividends for
the six months ended March 31, 1998 were $20,000, which is less than the
$79,000 paid in the 1997 period due to the redemption of the Company's Series B
Preferred Stock in March, 1997. During the six months ended March 31, 1997,
the Company received approximately $2.6 million of the $3.5 million total debt
and equity financing representing preferred stock and subordinated debt. Of
these proceeds, $1.5 million was used to retire the Series B Preferred Stock.
Management anticipates that the Company's primary cash inflows from financing
activities in the future will be from bank borrowings, and that the amount of
borrowings will continue to grow as the Company's growth in leasing
transactions continues.
Results of Operations:
For the six months ended March 31, 1998, the Company reflected an operating
loss, before preferred dividend requirements, of $99,501 compared to a loss for
the same period in 1997 of $117,360. Gains from brokerage activities were
$26,280 in the 1998 period compared to $54,336 in gains from brokerage
activities and early termination of leases in the 1997 period. Brokerage gains
will fluctuate from period to period, however the Company expects these gains
to increase in the future.
Interest and fee income for the six months ended March 31, 1998 was $1,066,285
and interest expense was $772,185 in the same period, or a net interest spread,
before a provision for credit losses, of $294,100, compared to $585,460 of
interest income, $456,037 of interest expense, and
10
<PAGE>
a net interest spread of $129,423 in the comparable period in 1997. This
increase in interest spread, totaling $164,677, reflects the increased leasing
activity resulting from the Company's financing transactions, which were
consummated in March and April of 1997. In future periods, management expects
the interest spread to increase further as the Company continues to invest in
new leases, and continues to realize the benefits from its 1997 financing
arrangements which have lowered the Company's overall cost of funds.
The Company has continued to add to its general reserve for losses on finance
receivables. During the six months ended March 31, 1998, the Company added
approximately $53,000 to the reserve, resulting in a reserve balance of
approximately $110,000. There have been no chargeoffs against this reserve to
date.
General and administrative expenses increased approximately $66,000 during the
six months ended March 31, 1998 compared to the same period in 1997, primarily
due to an increase in payroll related costs, as the number of employees has
increased from five to seven from the 1997 period to 1998 to handle the
increase in leasing activity.
The Company is already experiencing, and expects to continue to experience, a
significant increase in the amount of funded lease transactions. However, with
its management team in place, general and administrative costs going forward
should be relatively fixed, with the exception of a limited number of personnel
additions required by anticipated growth in the Company's lease portfolio.
Therefore, the interest spread on finance receivables is expected to grow at a
much faster pace than general and administrative expenses.
Impact of Interest Rate Changes and the Restaurant Industry:
The Company markets and funds fixed rate leases, and attempts to fund these
leases with instruments at fixed interest rates, and similar duration, thus
virtually eliminating interest rate risk. This was accomplished in prior years
through the issuance of five-year fixed rate bonds. The Company's more recent
funding sources also allow the Company to manage exposure to interest rate
risk. The Subordinated Notes issued in March and September of 1997, bear
interest at a fixed rate of 10%. With the use of swaps in conjunction with the
term loans in the new bank credit facility, the Company expects to be able to
virtually fix the rate of interest on the term loans. The warehouse lines
which the Company is utilizing carry a variable rate of interest, but have a
duration of only six months. While a dramatic rise in future interest rates
would not have a direct impact on leases booked to date, it may have an impact
on the restaurant industry's growth rate. A rising interest rate environment
may also impact the Company's future gains on brokerage activities.
In the last ten years, the franchise restaurant industry has experienced rapid
growth and the number of franchise units continues to grow. As some concepts
begin to reach a mature stage, and it becomes increasingly more difficult to
sustain a high level of growth in sales, the market is experiencing a
significant increase in the number of new concepts emerging. Since the
Company's target market is the smaller chains (from 100 to 500 units), this
increase in new concepts should provide the Company with an increase in
prospective lease deals. In addition, as large metropolitan areas in some
geographic areas begin to reach saturation points from the standpoint of
restaurant locations, the Company is seeing more prospective lease deals in
more rural locations, which would tend to be the smaller type franchisee that
the Company targets.
Inflation has not had a material effect on the Company's operations.
11
<PAGE>
Credit Risk:
The Company's net investment balance at March 31, 1998 in assets which are not
performing in accordance with their contractual terms is approximately $1.0
million. Management of the Company has reviewed its collateral position on
these credits and has consulted with legal counsel. Based on this review and
consultation, management believes that the Company is adequately secured and
will recover all amounts presently owed, including interest and legal and
professional fees. Management of the Company is actively pursuing the
resolution of these finance receivables, and expects that all of the non-
performing leases will either be repaid or brought current in accordance with
their contractual provisions.
Forward-looking Statements:
The statements contained in this filing on Form 10-QSB that are not historical
facts are forward-looking statements within the meaning of the Private
Securities Litigation Reform Act. Forward-looking statements are made based
upon management's current expectations and beliefs concerning future
developments and their potential effects upon the Company. There can be no
assurance that future developments affecting the Company will be those
anticipated by management. Actual results may differ materially from those
included in the forward-looking statements. These forward-looking statements
involve risks and uncertainties including, but not limited to, the following:
changes in general economic conditions, including changes in interest rates;
competitive or regulatory changes that affect the cost of or demand for the
Company's lease product; and the availability of funds or third-party financing
sources to allow the Company to purchase equipment and enter into new leases.
The Company's future results also could be adversely affected if it is unable
to resolve the current non-performing leases in its portfolio without
significant loss. Readers are also directed to other risks and uncertainties
discussed in other documents filed by the Company with the Securities and
Exchange Commission.
PART II - OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The exhibits listed on the Index to Exhibits appearing on
page 14 are
filed herewith.
(b) No reports on Form 8-K were filed by the Registrant
during the quarter
ended March 31, 1998.
12
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
MERIDIAN FINANCIAL CORPORATION
By:/s/ Michael F. McCoy
Michael F. McCoy
President
By:/s/ Gerald W. Gerichs
Gerald W. Gerichs
Vice President, Secretary
and Treasurer
(Principal Financial Officer)
Date: May 4, 1998
13
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION PAGE NO IN THIS FILING
27 Financial Data Schedule
14
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000917214
<NAME> MERIDIAN FINANCIAL CORPORATION
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,002,928
<SECURITIES> 0
<RECEIVABLES> 15,176,998
<ALLOWANCES> 110,330
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 17,116,482
<CURRENT-LIABILITIES> 0
<BONDS> 5,080,655
0
3,203,060
<COMMON> 65,716
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 17,116,482
<SALES> 0
<TOTAL-REVENUES> 1,092,565
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 366,925
<LOSS-PROVISION> 52,956
<INTEREST-EXPENSE> 772,185
<INCOME-PRETAX> (99,501)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (119,501)
<EPS-PRIMARY> (114.17)
<EPS-DILUTED> (114.17)
</TABLE>
