U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1994
(x) Annual report under section 13 or 15(d) of the
Securities Exchange Act of 1934
( ) Transition report pursuant to section 13 or 15(d)
of the Securities Exchange Act of 1934
Commission File Number 0-14888
PRIME CAPITAL CORPORATION
(Name of small business issuer in its charter)
Delaware 36-3347311
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
O'Hare International Center,
10275 W. Higgins Rd., Rosemont, IL 60018-3890
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(708) 294-6000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:Common Stock, $0.05
par value
Check whether the issuer (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 ( )
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will 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-KSB or any amendment to this Form 10-KSB. ( )
Issuer's revenues for year ending December 31, 1994 were $4,678,401.
The approximate market value of stock held by non-affiliates was $1,189,147
based upon 1,463,565 shares held by such persons and the average of the bid
and asked prices of the Common Stock on March 30, 1995 ($.8125).
The number of shares outstanding of the Registrant's $0.05 par value common
stock at March 30, 1995 was 4,280,165. Such quotations reflect inter-dealer
prices, without retail mark-up, mark-down on commission and may not
necessarily represent actual transactions. (The officers and directors of
the registrant are considered affiliates only for purposes of this
calculation).
Documents incorporated by reference
Exhibit Index is located on pages 30 through 31. The total number of pages
is 34.
<PAGE>
PRIME CAPITAL CORPORATION
FORM 10-KSB
YEAR ENDED DECEMBER 31, 1994
INDEX
PART I
Item
Number
Page
1. BUSINESS. . . . . . . . . . . . . . . . . . . . . .. . . . . . . . .2
2. PROPERTIES. . . . . . . . . . . . . . . . . . . . .. . . . . . . . .4
3. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . .. . . . . . . . .5
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. . . . . . . . .5
PART II
5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . .6
6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . .6
7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA . . . . . . . . . . . . 10
8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURES . . . . . . . . . . . . . . . 10
PART III
9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. . . . . . . . . 11
10. EXECUTIVE COMPENSATION AND OTHER INFORMATION . . . . . . . . . . . 13
11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT . . 15
12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . . . . . . . 16
13. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . . . . 17
Item 1. BUSINESS
General
The Company is engaged principally in providing specialized equipment leasing
and other financial services throughout the United States. The Company
provides a variety of services including: equipment leasing and rentals,
financial consulting, private placement of long-term debt,
tax-exempt financing, off balance sheet real estate financing, joint
ventures, project development, and healthcare equipment remarketing.
The Company was organized in 1977 as Prime Leasing, Inc., an Illinois
Corporation, by James A. Friedman. In March, 1986, Prime Capital Corporation,
a Delaware corporation, became a holding company for Prime
Leasing, Inc. and its affiliates. Unless the context otherwise
requires, the terms "Prime" and the "Company", as used herein, refer to
Prime Capital Corporation and its subsidiaries.
From the fourth quarter of fiscal year 1987, through fiscal year 1988, the
Company financed the acquisition of its leased assets principally with funds
drawn down on its recourse debt facility (the "Senior Secured Debt").
The Senior Secured Debt had two components: a revolving credit
facility in the maximum amount of $60 million, and a term loan
facility consisting of three Promissory Notes each in the amount of $10
million with varying maturity dates. During 1992, the Company pursued a
settlement of the Senior Secured Debt based on a number of factors which are
discussed in detail in the Company's Form 10-KSB for the fiscal
year ended December 31, 1992 (the "1992 Form 10-KSB").
On December 30, 1992, the Company reached an agreement with its lenders
pursuant to which the Company was released from its obligations under the
Senior Secured Debt effective as of June 30, 1992. The 1992 Form
10-KSB describes in detail the terms of the Settlement Agreement.
Management believes that the extinguishment of the Company's Senior
Secured Debt, together with the ongoing re-engineering of the Company's
business operations, has positioned the Company to compete more effectively
in its chosen markets.
Fiscal year 1993 was the first year in which the Company could formulate a
business plan not subject to the restrictions associated with the Senior
Secured Debt. In order to return the Company to sustained operating
profitability and renewed growth, the 1993 business plan called for (i)
reducing administrative costs, (ii) increasing operational efficiency,
(iii) establishing new warehousing financing facilities under which the
Company could flexibly and cost effectively finance its lease originations
on an interim basis, (iv) completing a securitized offering of pooled
warehoused assets, (v) adding experienced revenue producing sales personnel,
and (vi) developing a computerized marketing and sales system that would
enhance the productivity of the Company's sales representatives and
provide the Company's senior sales managers with customer feedback.
In fiscal year 1994 the Company invested in broadening its base of lease
originations from its traditional heathcare customers to wholesale
originations such as vendor and structured finance. The Company acquired
Financial Alliance Corporation in July 1994 to expand its vendor
originations. Further, the Company expanded its staffing and efforts
in the structured finance group to develop new products and industry
expertise. The focus of the structured finance group is to broaden the
Company's wholesale origination capabilities. Additionally, the Company
incorporated Prime Healthcare, Inc., a subsidiary formed to acquire, own
and manage outpatient diagnostic imaging facilities and other outpatient
services.
On March 16, 1995, the Company completed the issuance and sale of
$56,725,781 worth of equipment lease-backed pay-through notes. Through
this issuance, the Company permanently financed certain assets and liabilities
carried on the Company's balance sheet as of December 31, 1994; thus removing
them from the balance sheet and recognizing sales treatment in the first
quarter of 1995.
Marketing and Sales Activities
Substantially all of the Company's lease transactions are originated through
its own force of approximately sixteen persons. The sales force is
divided into three groups: the direct sales group, the vendor sales group,
and the structured finance group.
The direct sales group calls directly on potential end users for equipment.
The Company's direct sales efforts are focused on the healthcare marketplace,
i.e., hospitals, major medical centers, ambulatory care facilities,
laboratories, hospital management companies, and other healthcare
organizations throughout the United States.
<PAGE>
The vendor sales group (Financial Alliance Corporation) targets manufacturers
and distributors of equipment with the objective of establishing financing
programs for the vendors' customers. Such programs facilitate product
sales for vendors and provide Prime with access to financing
opportunities that supplement the Company's direct selling efforts.
The structured finance group targets new industries, bank conduit financing,
portfolio acquisitions, and financing projects that involve unique
structures. Their efforts are wholesale in nature but also serve to support
and augment the efforts of both the direct sales and vendor groups.
Lease Terms and Conditions
The Company provides a variety of financial services which includes
equipment leasing and rentals of medical and other equipment. These
lease and rental contracts have terms ranging from two to five years.
All of the Company's leases are noncancelable "net" leases which contain
"hell-or-high water" provisions under which the lessee must make
all lease payments regardless of any defects in the equipment, and which
require the lessee to maintain and service the equipment, insure the
equipment against casualty loss and pay all property, sales and other taxes
on the equipment. In the event of default by the lessee, the Company or
the lender to whom the lease had been assigned may declare the
lessee in default, accelerate all lease payments due under the lease and
pursue other available remedies, including repossession of the equipment.
Upon termination of equipment leases, the lessee typically has an option
which is dependent upon each lease's defined end of term options, to either
purchase the equipment at a mutually agreeable price, or in the case of a
"conditional sales contract", at a predetermined nominal or minimum price,
or to renew the lease. If the option is not exercised and the Company
is unable to lease the equipment to a new user promptly upon
expiration of the original lease, the Company sells the equipment.
The Company conducts its leasing business in a manner designed to conserve
its working capital and minimize its credit exposure. The Company does not
purchase equipment until it has received a noncancelable lease from its
customer and has determined that the lease can be either discounted with a
bank or financial institution on a nonrecourse basis, or meets the lease
origination standards established for a securitized pool.
All lease and loan financing decisions are subject to review under the
Company's underwriting standards. Each potential lessee or borrower is
assigned a credit risk rating based on specific criteria verified during the
credit review process. A credit presentation is prepared and presented to
the Company's Credit and Underwriting Committee. The Committee, (1) reviews
and approves all material aspects of lease transactions, (2) advises on lease
documentation requirements and deal structuring guidelines, (3) revises and
updates underwriting standards, and (4) approves or rejects specific
transactions. If the majority vote is to reject the transaction, suggestions
are given for credit enhancement or repricing in line with credit risk.
When a transaction is approved, a credit approval memo is prepared on the
Company's integrated computerized transaction management system which
triggers final documentation and funding consistent with the credit approval.
Type of Equipment Leased
The Company leases items of equipment with an original cost ranging from
approximately $50,000 to more than $2,000,000. The following table sets
forth the original cost of equipment by category that the Company approved
for lease (including leases to be sold as fully leveraged finance leases or
to third parties) for the years ended December 31, 1994, 1993, and 1992:
<TABLE>
<CAPTION>
Telecommunications
Health Care And Other Total
<S> <C> <C> <C>
1994 $47,746,000 $37,001,000 $84,747,000
1993 $46,248,000 $38,443,000 $84,691,000
1992 $51,444,000 $9,726,000 $61,170,000
</TABLE>
<PAGE>
For the health care market, the Company specializes in leasing diagnostic
imaging and laboratory systems. The Company currently leases to full service
radiology departments "non-invasive" diagnostic equipment, including
conventional x-ray systems, digital subtraction angiography equipment,
computerized tomography (CT) scanning equipment, ultrasound equipment,
nuclear medicine equipment and magnetic resonance imaging equipment.
The Company leases automated hematology and chemistry equipment, such as
blood cell counters and centrifugal and multi-stat analyzers to laboratories.
The Company also leases therapeutic equipment, such as lithotripters,
used in the treatment of kidney stones. The telecommunications
equipment in the Company's managed portfolio is primarily
sophisticated customer premises equipment.
Customers
Since its inception, the Company has entered into financing transactions
with over 1,500 customers. There is no significant credit exposure with any
one customer. The Company conducts a credit review of prospective
customers through an examination of their financial statements
and credit history, and requests audited financials annually in an
effort to keep current on each customer's financial status. The Company
does not believe that the loss of any one customer would have a material
adverse impact on its operations.
Under vendor programs the Company provides financing programs with vendors,
some exclusive some not, where the Company views the strength of the vendor
as well as the end user in relation to making the credit decision.
Vendor programs generate repeat business as the vendor provides financing for
their customers. Most of the vendor agreements (programs) include some form
of recourse to the vendor and/or remarketing agreements.
Employees
As of December 31, 1994, the Company had 44 employees, none of whom were
represented by a labor union.
Competition
The equipment leasing and related businesses of the Company are highly
competitive. Many firms are engaged in the same types of businesses as the
Company, including (1) finance divisions, affiliates and subsidiaries of
equipment manufacturers, (2) banks, their affiliates or subsidiaries,
several of which lend funds to the Company, (3) other leasing
and finance companies, (4) companies and state agencies which sponsor
tax-exempt financing or other investor programs for the acquisition and
lease of equipment, and (5) independently formed partnerships of
individuals or corporations operated for the specific purpose of
leasing equipment. Many of these organizations have greater financial
or other resources than the Company and, therefore, may be able to obtain
funds on terms more favorable than those available to the Company.
The Company believes that its ability to compete effectively depends to a
great extent upon its knowledge of the marketplace, the education,
training and experience of its personnel; the relationship and reputation
it has established for service and keeping its commitments with customers
and vendors; and its flexibility and adaptability to the special
needs of its institutional and technologically-oriented customers.
Item 2. PROPERTIES
The Company's leased corporate headquarters occupy approximately 14,500
square feet of space in an office building located in Rosemont, Illinois
(a suburb of Chicago). Annual rent under the lease is $261,558. The lease
expires on December 31, 1996. The Company also leases sales
offices in Albany, New York; Charlotte, North Carolina; and Ft. Worth,
Texas. Aggregate annual rent for these sales offices is approximately
$21,000.
<PAGE>
Item 3. LEGAL PROCEEDINGS
While the Company is subject from time to time in the ordinary course of its
business to legal actions and claims, it is not now a party to any legal
proceeding that could have material adverse effect on the Company's financial
position or results of operations.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
None.
<PAGE>
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND
RELATED STOCKHOLDER MATTERS.
(a) Price Range of Common Stock
The following table summarizes the quarterly
price range for 1994 and 1993. Such quotations reflect
inter-dealer prices, without retail mark-ups,
mark-downs or commissions and may not necessarily
represent actual transactions. On July 23,
1992, the Company was removed from the National Market
System (NASDAQ) and began being traded in the
over-the-counter market primarily because it did
not meet the minimum bid price requirement of
one dollar to continue to be listed on the NASDAQ.
Quotations of high and low prices after such
date were obtained from Herzog, Heine, Geduld
Incorporated.
<TABLE>
<CAPTION>
1994 1993
Quarter: High Low High Low
<S> <C> <C> <C> <C>
First $ 1-1/2 $1-1/4 $ 3/4 $ 1/2
Second 1-3/8 1-1/8 3/4 1/2
Third 1-1/8 7/8 1 5/8
Fourth 1-1/8 3/4 1-1/2 1
</TABLE>
Approximate Number of
(b) Title of Class Holders (as of December 31, 1994)
Common Stock, $0.05 Par Value 560
(c) Dividends
The Company has never paid a dividend on its Common Stock, and
no dividends are contemplated in the foreseeable future. Payment of
dividends is within the discretion of the Company's Board of
Directors.
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The financial results of 1994 were influenced by a number of economic and
strategic issues including: (i) over the past several years the Company's
traditional healthcare market has been changing both in size and the type of
financing required by the marketplace, (ii) in 1994 the Company
invested in and expanded operations in several areas to diversify
its origination capabilities, (iii) the Company completed a securitization
in September of 1994 totaling $39,424,940, but elected not to securitize
its remaining portfolio of leases as of year end.
<PAGE>
Over the past few years the healthcare system has been undergoing a
restructuring and consolidation. In early 1994 the country was embroiled
in the national "healthcare debate". As a result the healthcare industry was
hesitant to make capital equipment acquisitions and the Company's
traditional market slowed down. A second factor effecting the
traditional market is the trend away from fair market value leases to
financing leases.
Recognizing the change in the traditional market the Company invested in
several areas, in late 1993 and throughout 1994, to expand its vendor
originations as well as to seek other sources of wholesale originations
through a structured finance group that concentrated on different market
areas including portfolio purchases.
The Company has been involved in vendor originations since its inception
and increasing activity in vendor and other wholesale originations is a
strategic direction to compliment the traditional healthcare business.
In July of 1994 the Company purchased a majority interest in Financial
Alliance Corporation. Throughout the second half of 1994 the Company
invested in the staffing and development of this subsidiary.
A second area of investment was in expanding the staffing and activity
of the structured finance group. This group was started in late 1993
and operated throughout 1994. Structured finance develops transactions that
are in different industries, that require unique structuring, purchases
portfolios, and works directly with other financial
institutions.
The Company formed a subsidiary, Prime Healthcare, Inc. (PHI), to acquire,
own and operate diagnostic imaging and outpatient facilities. For years
the Company has been providing long term lease financing to outpatient
facilities and with the advent of federal legislation requiring
physicians to divest their ownership interests the Company sought to
change its involvement from strictly financing to ownership and management.
Two industry experienced executives have been employed to start this
operation, identify acquisition candidates, and to raise both capital and
debt to secure these acquisitions.
The Company intends to continue to pursue a diversified strategy of funding
which will include (i) periodically securitizing aggregated pools of
transactions, (ii) specific program financings, (iii) portfolio sales, (iv)
and financing selected transactions on a "one-off" basis. In 1994 the
Company completed one asset backed securitization ($39,424,940 in September)
and financed other transactions on a "one-off" basis. However, the Company
elected not to close a second securitization in December of 1994 as
the size of the portfolio was not sufficient so as to have made
economic sense. Accordingly the total funded business was lower in 1994 than
1993 and the unsold portfolio is reflected on the Company's balance sheet
as of December 31, 1994.
On March 16, 1995, the Company completed the issuance and sale of
$56,725,781 worth of equipment lease-backed pay-through notes. Through
this issuance the Company permanently financed certain assets and liabilities
carried on the Company's balance sheet as of December 31, 1994; thus removing
them from the balance sheet and recognizing sales treatment in the first
quarter of 1995.
Results of Operations
Revenue Trends - Three Years Ended December 31, 1994. Revenues were
$4,678,401 in 1994, $7,559,411 in 1993, and $10,695,463 in 1992. The
decrease in revenues of $2,881,010, from 1993 to 1994 was primarily due to a
reduction in "gain on sale of leased equipment" of $1,855,495 (In prior
periods the Company recognized "remarketing" revenues, related to
managed programs, upon the disposition of assets under these programs.
These programs are expiring and the opportunity for these "remarketing"
revenues does not exist any longer). Secondly, the Company experienced a
decrease in fee income of $778,094 which is due to the Company having
financed a lower volume of transactions. In 1993 the Company concluded
a securitization in December and recognized sales treatment on all
transaction through that period. In December of 1994 the Company elected
not to complete a securitization and thus did not recognize comparable
sales treatment at year end. The decrease in revenues of $3,136,052 from
1992 to 1993 or 29%, was primarily attributable to the sale of certain
assets and the related lease receivables in connection with the elimination
of the Company's Senior Secured Debt effective June 30, 1992.
Rentals on leased equipment increased $158,001 or 29% from 1993 to 1994.
This increase was primarily the result of the Company originating a higher
volume of operating leases and not concluding a securitization in December
1994 resulting in the Company holding the leases longer. Rentals on leased
equipment decreased $4,449,125 or 89% from 1992 to 1993. This decreases
is attributable to a decrease in the number of leases owned by the Company as
a result of the sale of leases in 1992 in connection with the
restructuring of the Company.
<PAGE>
Direct finance lease income decreased insignificantly from 1993 to 1994
(less than 1%), and decreased $602,380 or 44% from 1992 to 1993.
The decrease from 1992 to 1993 was a result of the Company's focus on
generating fully leveraged leases rather than direct finance leases and
the reduction in the Company's owned direct finance lease
portfolio as a result of the asset sale related to the settlement of
recourse debt.
Fee income decreased $778,094 or 26% from 1993 to 1994 and increased
$653,076 or 27% from 1992 to 1993. The decrease from 1993 to 1994 is due
to the Company having financed a lower volume of transactions. The increase
in fee income from 1992 to 1993 was primarily attributable to the sale of
certain assets and the related lease receiveables in connection with the
elimination of the Company's Senior Secured Debt effective June 30, 1992.
The gain on sale of leased equipment decreased $1,855,495 or 87% from 1993
to 1994 and increased $687,407 from 1992 to 1993. The fluctuations in this
income account is a result of one component of this account, gains
realized from the remarketing of equipment on behalf of managed
investor programs. The company shares in gains on remarketing
of investor owned equipment after the investors have received a
predetermined return. The company reported gains from these programs of
approximately $978,000 in 1992, $2,100,000 in 1993, and $280,000 in 1994.
The reduction in 1994 is a result of the expiration of the remaining
leases under these programs.
Interest income increased approximately 22% from 1993 to 1994 and decreased
approximately 2% from 1992 to 1993. The increase from 1993 to 1994 is
attributable to the Company having higher invested cash balances in 1994.
The decreases from 1992 to 1993 is attributable to decreases in interest
rates and investment balances. In 1992 investment balances decreased due to
the elimination of the Company's outstanding recourse debt.
Other income decreased $474,112 from 1993 to 1994 and increased
$583,626 from 1992 to 1993. The changes in each period are primarily the
result of reserve adjustments in 1993 based upon Management's revised
estimates of the underlying liability related to these reserves.
Expense Trends - Two Years Ended December 31, 1994
Expenses were $6,676,405 in 1994 an increase of 20% from the expenses of
$5,551,035 in 1993. The majority of the increase in 1994 was due to
increased selling general and administrative expenses. In 1994 the company
invested resources in several new or expanded activities, and
these activities increased selling, general and administrative expenses by
$915,449. These expenses were investment to expand the Company's origination
capabilities. However, the Company did not recognize any significant
matching revenues in 1994.
Amortization of deferred finance costs decreased $61,011 in 1994 (93%)
and $1,389,804 (96%) in 1993. These decreases were due primarily to
(1) the elimination of a significant portion of the outstanding discounted
lease rentals in connection with the settlement of the Company's
recourse debt, (2) the Company's increased use of off-balance sheet
financing techniques, such as securitized asset sales, which do not give rise
to deferred financing costs, and (3) sales of leases prior to lease
expiration.
Depreciation expense increased $182,349 or 77% in 1994 from 1993 and
declined $2,613,555 or 92% in 1993 from 1992. The increase in 1994 is
attributable to the Company having a higher volume of operating lease
originations and the Company not securitizing in the fourth quarter and
holding transactions longer before sale. These decrease from
1992 to 1993 is the result of the sale of depreciable leased equipment
in connection with the debt settlement in 1992.
Interest expense in 1994 was $749,952 compared to $514,377 in 1993 an
increase of 46%. This increase is the result of the Company warehousing
a greater volume of transactions longer, which is in part the result of not
securitizing in December of 1994.
<PAGE>
Financial Condition
The Company's financial condition continues to be dependent upon certain
critical elements. First, the Company must be able to obtain recourse
and nonrecourse financing to fund future acquisitions of leases. Second,
the Company must originate a sufficient volume of new business which is
structured and priced in such a way so as to permit the Company to finance
or sell those leases for an amount which in the aggregate covers the
Company's cost of operations, plus provides a return on stockholders' equity.
In 1993 the Company originated and financed its assets in such a manner that
the Company realized net income from operations. In 1994 the Company did
not recognize comparable gains on the sales of leased equipment
(related to expiring managed programs) and the company did not sell
and finance the same volume of leases due to their not completing a
securitization in the fourth quarter. Further the Company invested in
expanding it lease originations in response to the changes in its
traditional healthcare business and in a new venture. This investment did not
generate funded transactions in 1994 but Management believes that
the Company is positioned to substantially increase its lease
originations in 1995.
Liquidity and Capital Resources
The Company uses a combination of warehouse credit facilities and internally
generated cash flows to finance, on an interim basis, the acquisition of
its originated lease or loan assets. Available warehouse capacity under loan
agreements with five different financial institutions totalled
approximately $46,400,000 in 1994, of which up to approximately
$35,000,000 was utilized in 1994 to warehouse transactions. During 1994,
Prime employed up to approximately $2,000,000 of its own cash to short-term
fund deals pending securitization. In 1994, the Company had at its
disposal sufficient capital resources to aggregate transactions
on an interim basis in anticipation of securitization or permanent
long-term, non-recourse financing.
Permanent, long-term financing for the Company's originated assets is
provided through either non-recourse debt or securitized asset sales. The
Company currently utilizes approximately twenty institutional lenders to
permanently finance lease rentals on a non-recourse basis. These
financings are collateralized solely by the leased equipment and
related rentals, and the Company has no recourse liability to these
lenders for repayment of debt in the event of a lessee default. Typically,
the proceeds of these borrowings exceed the Company's investment in the
leased equipment. In the past, the Company has been able to obtain adequate
non-recourse funding commitments, and the Company believes
it will be able to do so in the future.
The Company intends to continue to pursue a diversified strategy of funding
which will include (i) periodically securitizing aggregated pools of
transactions (ii) specific program financing agreements (iii) portfolio
sales (iv) and selling selected transactions on a "one-off" basis. In
1994 the Company completed one asset backed securitization
($39,424,940 in September) and sold other transactions on a "one-off"
basis. However, the Company elected not to close a second securitization
in December of 1994 as the size of the portfolio was not sufficient that
the sale made economic sense.
The Company believes that existing cash balances, cash flows from its
activities, available warehouse and permanent non-recourse borrowings,
and securitized asset sales will be sufficient to meet its foreseeable
financing needs, provided the Company is able to originate a sufficient
volume of transactions which meet its credit quality and profitability
standards.
<PAGE>
Item 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements of the registrant and the report thereon
of KPMG Peat Marwick are filed as part of this annual report on Form 10-KSB:
Consolidated Balance Sheets - December 31, 1994 and 1993
Consolidated Statements of Operations
- Years ended December 31, 1994, 1993 and 1992
Consolidated Statements of Stockholders' Equity
- Years ended December 31, 1994, 1993 and 1992
Consolidated Statements of Cash Flows
- Years ended December 31, 1994, 1993 and 1992
Notes to Consolidated Financial Statements
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURES
Not applicable.
<PAGE>
PART III
Item 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT
Directors of the Registrant
Name Principal Occupation During Past
Five Years and Other Information Age Director Since
James A. Friedman President and Chief Executive
Officer of the Company since
November 1978;
Treasurer of the Company from
August 1979 to September 1985.
Officer and Director of PLI. 49 1978
Leander W. Jennings President of Jennings & Associates
since September 1986; Managing
Partner, Chicago Office of KPMG
Peat Marwick from January 1977
to February 1985; Director of A.O.
Smith Corporation, Alberto Culver
Corporation, Teppco Partners L.P.,
and Manville Corporation. 67 1986
Marvin T. Keeling Executive Vice President of the
Company from September 1985 to
August 1993; Secretary of the
Company from November 1978 to
September 1993. Director of PLI. 52 1978
William D. Smithburg Chairman of The Quaker Oats Company
since 1983 and Chief Executive Officer
thereof since 1981; Director of The
Quaker Oats Company, Abbott
Laboratories,The Northern Trust
Corporation and Corning Glass Work. 56 1986
Robert R. Youngquist,
D.D.S. Practicing Orthodontist and owner of
Robert R. Youngquist D.D.S., Ltd.
during the past six years. 46 1978
<PAGE>
Executive Officers of the Registrant
Principal Occupation During
Name of Officer Past Five Years and Other Information Age
James A. Friedman President and Chief Executive
Officer of the Company since November
1978; Treasurer of the Company from
August 1979 to September 1985. 49
Charles G. Schultz Executive Vice President of the Company
since July 1, 1994. For the five previous
years he was Executive Vice President of
Sanwa Business Credit Corporation. 48
David L. Daum Senior Vice President of the Company
since June 1993. From January 1992 through
June 1993, President of Lake Forest
Capital Corporation. From June 1987, through
December, 1991, President of Linc Securities
Corporation. From June, 1984 through
July, 1987, President of Meridian Lease
Funding Corporation. 42
<PAGE>
Item 10. EXECUTIVE COMPENSATION AND OTHER INFORMATION
The following table shows all the cash compensation paid
or to be paid by the Company or any of its subsidiaries, as well as certain
other compensation paid or accrued, during the fiscal years indicated,
to the President and Chief Executive Officer, and the highest paid executive
officer of the Company whose compensation was at least $100,000
for the last fiscal year in all capacities in which they served:
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Long-Term Compensation
Annual Compensation Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Name and Other Restricted All
Principal Annual Stock LTIP Other
Position Year Salary Bonus Compensa- Award(s) Options/ Payouts Compensa-
($) ($) tion ($) ($) SAR ($) tion($)
James A. Friedman, 1994 357,000 3,625
President and 1993 200,150 156,850
Chief Executive 1992 225,537 75,000
Officer
W. Barry Tanner 1994
Senior Vice 1993 102,228 55,000 25,000
President 1992 198,494<F1>
<FN>
<F1> Includes severance payment of $37,500 and a loan of $34,000. See
"Certain Relationships and Related Transactions."
</TABLE>
<TABLE>
<CAPTION>
Options/SAR Grants in Last Fiscal Year
Individual Grants
(a) (b) (c) (d) (e)
<S> <C> <C> <C> <C>
Name Number of Securities % of Total Exercise of Expiration
Underlying Options/SARs Base Price Date
Options/SARs Granted Granted to ($/sh)
(#) Employees in
Fiscal Year
Charles
Schultz 50,000 52% $1.88 July 1, 2004
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Aggregated Option/SAR Exercises in Last Fiscal Year and
FY-End Option/SAR Values
(a)
<S> <C> <C> <C> <C>
Name Shares Acquired Value Number of Value of Unexercised
on Exercise (#) Realized Securities In-the-Money
($) Underlying Options/SARs at FY-
Unexercised End ($)
Options/SARs
at FY-end(#)
Exercisable/ Exercisable/
Unexercisable Unexercisable
David L. Daum -- 8,333/16,667 $0/0
Charles Schultz -- 0/50,000 $0/0
</TABLE>
Director's Compensation
Each Director of the Company who is not an Executive Officer receives an
annual retainer of $10,000 plus a fee of $500 for attendance at each
meeting of the Board. In addition, members of the Committees of the Board
who are not Executive Officers receive a fee of $300 for each
Committee meeting attended. Directors of the Company who are
also Executive Officers receive no compensation for rendering services as a
Director except for reimbursement of out-of-pocket expenses.
Compensation Pursuant to Plans
The Company has adopted the 1984 Incentive Stock Option Plan
(the "ISO Plan"), the 1986 Non-Qualified Stock Option Plan (the
"Non-Qualified Plan") and the 1987 Stock Option Plan (the "1987 Plan").
All descriptions of the various plans are qualified in their entirety by
reference to the actual Plan documents which are available for
examination.
The ISO Plan is administered by a committee of not less than two Directors
of the Board (the "Committee"). The Board must select the members of the
Committee from among those Directors who are ineligible to participate
in, and who have not within the year preceding appointment to
the Committee been eligible to participate in, the ISO Plan or
any other stock option plan of the Company. The ISO Plan empowered the
Committee to grant incentive stock options
to "key employees" of the Company and its subsidiaries to purchase shares
of the Company's Common Stock at any time prior to the approval of the 1987
Plan. Subject to certain limitations, the ISO Plan empowered the
Committee to determine the persons to whom options were granted,
the number of shares to be covered by each option, the option
price per share (which must have been at least equal to 100% of the fair
market value of the Common Stock of the Company on the date the option is
granted) and all other terms and conditions of the option and its exercise.
Termination of an optionee's employment with the Company or its subsidiaries
results in the termination of all options held by such optionee which were
not exercisable at the time of such termination of employment. All options
granted under the ISO Plan are non-assignable and non-transferable other
than by will or the laws of descent and distribution.
The Non-Qualified Plan empowered the Board of Directors for a period of 10
years commencing on March 26, 1986, to grant non-qualified stock options to
purchase shares of the Company's Common Stock to Directors of the
Company who are not Officers or employees of the Company or its
subsidiaries and to key employees who are not Directors of
the Company. The Non-Qualified Plan provided for the issuance of up to
25,000 shares of Common Stock upon the exercise of options thereunder at
any time prior to the approval of the 1987 Plan. A Director participant
could not be granted options to purchase more than 7,500 shares of
Common Stock under the plan. On March 26, 1986, the Board
of Directors delegated the responsibility for the administration of the
Non-Qualified Plan to the Committee. Subject to the provisions of the
Non-Qualified Plan, the Committee determined the persons to whom options are
granted, the number of shares subject to each option, the exercise
price of each option and all other terms and conditions of exercise
Pursuant to an amendment adopted on May 1, 1986, options must have been
granted at not less than 85% of the current fair market value of the
shares of Common Stock. Each option granted under the Non-Qualified Plan
was and is immediately exercisable in full. A portion of the shares
purchased upon exercise of an option granted under
the Non-Qualified Plan may, however, be subject to repurchase by the
Company at the option price if the optionee ceases to be an employee or a
Director, as the case may be, of the Company within five years after the
date of grant of the option. Such repurchase option lapses prorata
over such period and lapses entirely where certain transactions
involving the Company have occurred. Options are not transferable, except
that options may be exercised by the executor, administrator or personal
representative of a deceased optionee for a period of not longer than one
year after the death of such optionee at such time and to such
extent that the optionee, had he lived, would have been entitled
to exercise such option.
<PAGE>
The 1987 Plan was adopted by the Board of Directors on March 24, 1987 and
was approved by the stockholders on May 27, 1987. An aggregate of 300,000
shares of the Company's Common Stock is reserved for issuance pursuant
to the exercise of options under the 1987 Plan, 200,000
of which have been transferred from the ISO Plan and 15,000
of which have been transferred from the Non-Qualified Plan.
The Board of Directors may grant options to purchase shares of the Company's
Common Stock at the times and prices provided for in the agreements
granting the options, subject to the terms of the 1987 Plan, to key employees
(who are not Directors of the Company) and Directors (who are not
Officers or employees of the Company or its subsidiaries) of the Company or
its subsidiaries. Only key employees are eligible to receive incentive
stock options. Key employees and Directors are eligible to receive
non-qualified options. All options are subject to the specific terms and
conditions evidenced by written agreements between the Company and the
optionee. The maximum number of shares for which an option may be granted
to any one key employee (who is not a Director of the Company) is not
limited other than in the discretion of the Board. The total
number of shares of Common Stock subject to options granted
under the 1987 Plan to an optionee who is a Director shall not exceed 25,000.
An optionee may exercise options granted under the 1987 Plan for a period of
three months following, in the case of an optionee who is an employee,
termination of the optionee's employment (12 months if termination of
employment is due to total and permanent disability), or, in the
case of an optionee who is a non-employee Director, the time the
optionee ceases to be a Director of the Company (12 months if he ceases to
be a Director due to total and permanent disability) to the same extent that
the optionee might have exercised such option at the time of such
termination of employment or the time he ceased to be a Director, as
the case may be. The Company shall have the right to repurchase certain
shares on termination of employment or directorship. Options shall not be
transferable, except that options may be exercised by the executor,
administrator or personal representative of a deceased optionee for a
period of not longer than one year after the death of such
optionee at such time and to such extent that the optionee, had he
lived, would have been entitled to exercise such option.
On August 31, 1994 the stockholders approved an additional 200,000 shares
of the Company's Common Stock bereserved for issuance pursuant to the
exercise of options under the 1987 Plan.
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
Current Ownership
The following table sets forth certain information as of December 31, 1994
with respect to the beneficial ownership of the Company's Common Stock by
each stockholder or group known by the Company to be the beneficial owner
of more than 5% of its outstanding Common Stock, by each Director, and by
all Executive Officers and Directors as a group. The information is based,
in part, on data furnished by such Executive Officers, Directors and
stockholders. The address of each holder of more than 5% of the
Company's Common Stock other than First Financial Fund, Inc.
and Wellington Management Company is O'Hare International Center, 10275
West Higgins Road, Rosemont, Illinois 60018. The address for Wellington
Management Company is 75 State Street, Boston, Massachusetts 02109. First
Financial Fund, Inc.'s address is One Seaport Plaza, 25th Floor, New York,
New York 10292.
<PAGE>
<TABLE>
<CAPTION>
Name of Amount and Nature
Beneficial Owner of Beneficial Ownership Percent of Class
<S> <C> <C>
James A. Friedman <F1> 2,198,375 48.9%
Leander W. Jennings <F2> 27,100 *
Marvin T. Keeling <F3> 542,125 12.1%
William D. Smithburg <F2><F4> 29,000 *
Robert R. Youngquist, D.D.S. <F5> 20,000 *
First Financial Fund, Inc. <F6> 330,000 7.3%
All Executive Officers and Directors
as a group (5 persons) <F2> 2,816,600 62.7%
*Less than 1%
<FN>
<F1> Includes 459,975.67 shares owned by a trust for the benefit of Mr.
Friedman's children for which Mr. Friedman disclaims beneficial ownership.
<F2> Includes outstanding options which are currently exercisable or will
become exercisable within 60 days with respect to
the following named individuals or groups: Messrs. Jennings, 25,000
shares; Smithburg, 25,000 shares; all Executive Officers and
Directors as a group, 50,000 shares.
<F3> Includes 22,000 shares owned by trusts for the benefit of Mr. Keeling's
children and 40,000 shares held in a family trust fund for which Mr.
Keeling disclaims beneficial ownership.
<F4> Includes 2,000 shares owned by trusts for the benefit of Mr. Smithburg's
children for which Mr. Smithburg disclaims beneficial ownership.
<F5> Includes 15,000 shares held in a pension plan of which Dr. Youngquist
is a fiduciary and for which Dr. Youngquist disclaims beneficial
ownership.
<F6> According to Schedules 13G filed with the Securities and Exchange
Commission on February 10, 1995, First Financial
Fund, Inc., an investment Company, is the beneficial
owner of such shares, and Wellington Management Company, its
investment advisor, may also be deemed to be a beneficial owner of
those shares.
</TABLE>
Item 12. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS
There are no family relationships among the Directors and Executive Officers
of the Company.
Prior to 1986 Mr. Friedman participated in various investor programs in
which he bought equipment from PLI, and PLI assigned to him leases executed
by various hospitals or other lessees. These transactions were effected in a
period during which Mr. Friedman was a Director and Executive
Officer of the Company. The transactions were structured
on substantially the same terms as the Company's other investor programs,
except the acquisition fees paid by the Executive Officer of the Company
were 50% of the usual fee. Mr. Friedman did not purchase any new transactions
in 1992, 1993, or 1994.
<PAGE>
The following is a summary of all transactions entered into prior to fiscal
1986 involving Executive Officers and Directors which were in effect as of
December 31, 1994:
Number Aggregate Aggregate
of Equipment Gross
Investor Leases Cost Proceeds
James A. Friedman 2 $261,036 $56,717
In September 1991, James A. Friedman purchased one lease and the underlying
telecommunications equipment from the Company for a price of approximately
$350,000, made up of cash and an assumption of the debt secured by
those assets. The transaction was approved by the Company's
outside directors in accordance with the Company's policy
of related party transactions. The Company originally purchased the
equipment for approximately $456,000 and entered into this lease in
February, 1990. At the date of the sale to Mr. Friedman, the assets were
carried on the Company's books at approximately $373,000. There was no
income recognized by Mr. Friedman on this lease in 1994.
During 1992, W. Barry Tanner received two advances from
the Company totalling $71,500. Upon Mr. Tanner's termination with the
Company in August 1993, one of the advances in the amount of $37,500 was
forgiven and recharacterized as a severance payment as part of Mr.
Tanner's termination arrangements with the Company. The additional $34,000
still remains outstanding.
Item 13. EXHIBITS AND REPORTS ON FORM 8-K
1. Financial Statements Sequential Page No.
The following financial statements of Prime
Capital Corporation and Subsidiaries are filed
as part of this annual report on Form 10-KSB:
a) Independent Auditors' Report 18
b) Consolidated Balance Sheets as of December 31,
1994 and 1993 19
c) Consolidated Statements of Operations for the
years ended December 31, 1994, 1993 and 1992 20
d) Consolidated Statements of Stockholders'
Equity for the years ended December 31, 1994,
1993 and 1992 21
e) Consolidated Statements of Cash Flows for the
years ended December 31, 1994, 1993 and 1992 22
f) Notes to Consolidated Financial Statements 23
2. Exhibits
The exhibits filed in response to Item 601 of Regulation S-B as part
of this Annual Report on Form 10-KSB are
listed in the Exhibit Index on pages 30 through 31.
3. Reports on Form 8-K
There were no reports on Form 8-K filed by the Company during the
fourth quarter of the Company's fiscal year ended December 31, 1994.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Prime Capital Corporation:
We have audited the accompanying consolidated balance sheets of Prime
Capital Corporation and subsidiaries as of December 31, 1994 and 1993, and
the related consolidated statements of operations, stockholders' equity,
and cash flows for each of the years in the three-year period ended
December 31, 1994. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position
of Prime Capital Corporation and subsidiaries at December 31, 1994 and 1993,
and the results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1994 in conformity
with generally accepted accounting principles.
As discussed in Note 1 of Notes to Consolidated Financial Statements, the
Company adopted the provisions of FASB Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes, in 1993.
KPMG PEAT MARWICK LLP
Chicago, Illinois
February 16, 1995
<PAGE>
PRIME CAPITAL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
December 31,
<CAPTION>
ASSETS 1994 1993
<S> <C> <C>
Cash and cash equivalents $1,945,353 $4,060,079
Receivables:
Rentals on leased equipment 59,329 64,192
Due from equipment trusts 68,609 190,975
Other 2,107,271 2,462,782
Net investment in direct financing
leases 16,846,541 2,458,694
Leased equipment, net of accumulated
depreciation of $73,254 in 1994 1,924,634 --
Deposits on equipment 755,354 163,779
Property and equipment, net of
accumulated depreciation of $942,890
and $830,792 in 1994 and 1993,
respectively 272,134 368,243
Other assets 2,962,224 882,147
Total assets $26,941,449 $10,650,891
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable to banks $ 7,889,502 $1,092,258
Accounts payable for equipment 11,919,579 418,380
Accrued expenses and other liabilities 1,996,002 2,027,648
Deposits and advances 513,225 326,896
Discounted lease rentals --- 164,564
Total liabilities 22,318,308 4,029,746
Stockholders' equity
Common stock, $0.05 par value:
authorized 10,000,000 shares;
issued and outstanding
4,374,365 shares in
1994 and 1993 218,718 218,718
Additional paid-in capital 9,681,225 9,681,225
Accumulated deficit (4,977,002) (2,978,998)
Treasury stock, at cost; 94,200
shares in 1994 and 1993 (299,800) (299,800)
Total stockholders' equity 4,623,141 6,621,145
Total liabilities and stockholders'
equity $26,941,449 $10,650,891
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
PRIME CAPITAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
<TABLE>
Years Ended December 31,
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Revenues:
Rentals on leased
equipment $ 700,938 $ 542,937 $ 4,992,062
Direct financing leases 764,827 770,969 1,373,349
Fee income 2,267,641 3,045,735 2,392,659
Gain on sale of leased
equipment 276,848 2,132,343 1,444,936
Interest 416,420 341,588 350,244
Other income 251,727 725,839 142,213
Total revenues 4,678,401 7,559,411 10,695,463
Expenses:
Amortization of deferred
finance costs 4,357 65,368 1,455,172
Depreciation of leased
equipment 419,837 237,488 2,851,043
Selling, general and
administrative 5,785,905 4,904,483 6,277,023
Interest 749,952 514,377 1,427,247
Net amortized
(capitalized) initial
direct costs (283,646) (170,681) 82,664
Bad debt expense -- -- 87,523
Total expenses 6,676,405 5,551,035 12,180,672
Income (loss) before
extraordinary items (1,998,004) 2,008,376 (1,485,209)
Extraordinary items:
Gain on settlement of
debt, net of tax
effect of $720,496 -- -- 2,572,648
Tax effect from utilization
of net operating loss
carryforward -- -- 720,496
Net income (loss) $(1,998,004) $2,008,376 $1,807,935
Income (loss) per common
and common equivalent
share:
Income (loss) before
extraordinary items $(0.47) $0.47 $(0.35)
Extraordinary items -- -- 0.77
Net income (loss) $(0.47) $0.47 $ 0.42
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
PRIME CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN ACCUMULATED TREASURY STOCKHOLDERS'
STOCK CAPITAL DEFICIT STOCK EQUITY
<S> <C> <C> <C> <C> <C>
Balance at
December 31, 1991 $218,551 $10,325,628 $(6,795,309) $(279,453) $3,459,417
Net Income -- -- 1,807,935 -- 1,807,935
Stock options
exercised 167 250 -- -- 417
Stock warrants
repurchased -- (644,653) -- -- (644,653)
Treasury stock
purchased -- -- -- (10,347) (10,347)
Balance at
December 31, 1992 218,718 9,681,225 (4,987,374) (299,800) 4,612,769
Net Income -- -- 2,008,376 -- 2,008,376
Balance at
December 31, 1993 218,718 9,681,225 (2,978,998) (299,800) 6,621,145
Net loss -- -- (1,998,004) -- (1,998,004)
Balance at
December 31, 1994 $218,718 $9,681,225 $(4,977,002) $(299,800) $4,623,141
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
PRIME CAPITAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
Years Ended December 31,
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $(1,998,004) $2,008,376 $ 1,807,935
Adjustments to reconcile net
income (loss) to net cash
provided (used) by operating
activities:
Depreciation 531,936 320,846 3,027,373
Amortization of unearned income (756,654) (771,342) (1,469,734)
Amortization of deferred
finance costs on
direct finance leases 4,356 65,368 985,077
Amortization of the principal
portion of discounted lease
rentals on operating leases ---- ---- (3,711,978)
Gain on settlement of debt ---- ---- (3,293,144)
Gain on securitization (632,459) (1,874,333) ----
Changes in assets and liabilities
net of effects of settlement of
debt in 1992:
Rentals on leased equipment and
other receivables 1,084,162 2,363,810 1,695,261
Deferred charges (261,286) (139,690) 135,555
Other assets (1,864,686) (849,646) 875,955
Accrued expenses and other
liabilities (31,646) (210,647) (1,468,394)
Due from equipment trusts 122,366 287,273 (379,015)
Net cash provided (used) by
operating activities (3,801,915) 1,200,015 (1,795,109)
CASH FLOWS FROM INVESTING ACTIVITIES:
Cost of equipment acquired for
lease (63,753,378) (70,171,172) (50,520,775)
Proceeds from sale of assets 479,954 789,030 10,886,066
Net cash used in investing
activities (63,273,424) (69,382,142) (39,634,709)
CASH FLOWS FROM FINANCING ACTIVITIES:
Discounted lease proceeds and
proceeds from sale of fully
leveraged finance leases 22,810,629 28,334,734 48,944,853
Proceeds (repayments) of notes
payable to banks 6,797,244 1,092,258 (5,750,000)
Issuance of common stock ---- ---- 417
Common stock purchased and put
in treasury ---- ---- (10,347)
Settlement of debt ---- ---- (2,367,422)
Proceeds from securitization,
net of expenses 35,352,740 40,726,344 -----
Net cash provided by financing
activities 64,960,613 70,153,336 40,817,501
Increase (decrease) in cash and
cash equivalents (2,114,726) 1,971,209 (612,317)
Cash and cash equivalents:
Beginning of year 4,060,079 2,088,870 2,701,187
End of year $ 1,945,353 $ 4,060,079 $2,088,870
Cash paid during the year for:
Interest $ 732,618 $ 506,926 $1,183,457
Income taxes $ ---- $ --- $ 17,041
Supplemental schedule of noncash
financing activities:
Discounted lease rentals on direct
finance leases collected by
financial institutions $ 168,920 $1,095,047 $7,257,364
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
PRIME CAPITAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies
Prime Capital Corporation, through its wholly-owned subsidiaries, is
engaged principally in providing specialized equipment leasing and
other financial services to the healthcare industry. Prime Capital
Corporation also provides financial services in other select markets
that meet its credit and underwriting standards. The accompanying
consolidated financial statements include the accounts of Prime Capital
Corporation and its wholly-owned subsidiaries, Prime Leasing, Inc.
(and its subsidiaries Prime Healthcare, Inc. and Financial Alliance
Corp.), Prime Equities, Ltd., Americom Resources, Inc., formerly
Interstate Telecommunications Corporation, Prime Finance
Corporation 1993-A, and Prime Finance Corporation
1994-A. All material intercompany transactions have been eliminated.
(a) Revenue Recognition
Completed lease contracts which qualify as direct financing leases, as
defined by Statement of Financial Accounting Standards (SFAS) No. 13,
are accounted for by recording on the balance sheet the total minimum
lease payments receivable, plus the estimated unguaranteed residual
value of the leased equipment, less the unearned income. The unearned
lease income represents the excess of the total minimum lease payments,
plus the estimated residual expected to be realized at the end of the
lease term, over the cost of the related equipment. Unearned lease
income is recognized as revenue over the term of the lease as
a constant percentage interest return on the net investment.
The initial direct costs are capitalized as part of the
net investment in direct financing leases and amortized over the
lease term as a reduction in yield.
The cost of equipment acquired for the Company's lease transactions that
qualify as operating leases, as defined by SFAS No. 13, is recorded as
leased equipment and depreciated on a straight-line basis to an estimated
residual value at lease termination. Lease revenue consists of
periodic rentals. Initial direct costs of originating operating leases
are capitalized and amortized on a straight-line basis over the lease
term.
Fee income is generated from the sale of equipment and receivables. The
Company records as fee income from the sale of equipment the difference
between the net sales proceeds received and the book value of equipment.
When the sale of contract receivables occurs, the net proceeds on the
sale less the net book value of the sold receivables is recorded as fee
income.
(b) Cash and Cash Equivalents:
Cash and cash equivalents are generally comprised of highly liquid
instruments with original maturities of 90 days or less.
(c) Income Taxes
As of January 1, 1993, the Company adopted SFAS No. 109, "Accounting
for Income Taxes". The adoption of this standard changed the Company's
method of accounting for income taxes from the deferred method to an
asset and liability approach. The adoption of SFAS No. 109 did
not have an impact on the financial position or results of operations of
the Company.
<PAGE>
PRIME CAPITAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(d) Net Income per Share
Net income per common and common equivalent share is computed based on
the weighted average number of common and common equivalent shares
outstanding during each period. Stock options are not included in the
number of common and common equivalent shares because they are not
dilutive. The number of common and common equivalent shares used in the
computation of net income per common and common equivalent share for
the years ended December 31, 1994, 1993, and 1992 were 4,280,165,
4,280,165, and 4,287,803 respectively.
(e) Reclassifications
Certain reclassifications have been made to the 1992 and 1993
consolidated financial statements to conform with the presentation used
in 1994.
(2) Net Investment in Direct Financing Leases
The components of the net investment in direct financing leases as of
December 31 are as follows:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Minimum lease payments receivable $22,036,563 $2,756,293
Estimated unguaranteed residual value of
leased equipment 154,709 133,735
Capitalized initial direct costs 4,448 483
Unearned income (5,339,179) (381,817)
Allowance for uncollectible accounts (10,000) (50,000)
Net investment in direct financing leases $16,846,541 $2,458,694
</TABLE>
The estimated unguaranteed residual value of leased equipment at
December 31, 1994 and 1993 includes residuals of $127,723 and $133,728,
respectively, recorded from residual sharing agreements with investor
programs and other third parties.
<PAGE>
PRIME CAPITAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(2) Net Investment in Direct Financing Leases, Continued
Minimum lease payments to be received on direct financing leases in each
each of the next five years and beyond are as follows:
<TABLE>
<CAPTION>
Year Ending
December 31
<S> <C> <C>
1995 $4,392,617
1996 4,337,888
1997 4,289,113
1998 3,637,215
1999 3,124,034
Thereafter 2,255,696
Minimum lease payments to be
received $22,036,563
</TABLE>
Leased equipment in the Company's portfolio consists primarily of
medical equipment with average 60-month lease terms, for which
estimated residual values of 5% to 37% have been assigned. The
following table summarizes the estimated unguaranteed residual value
on direct financing leases by year of lease termination:
<TABLE>
<CAPTION>
Year Ending
December 31
<S> <C> <C>
1995 $44,027
1996 11,310
1997 72,392
1998 ---
1999 19,573
Thereafter 7,407
Total $154,709
</TABLE>
<PAGE>
PRIME CAPITAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(3) Notes Payable to Banks
On May 8, 1991, Prime Leasing, Inc., (PLI) entered into an agreement
to restructure the terms of its revolving line of credit agreement and
its fixed rate senior secured notes, collectively the Senior Secured Debt.
On December 30, 1992, but effective as of June 30, 1992, the Senior
Secured Debt of $26.4 million was retired pursuant to an Asset Purchase
Agreement with a lease portfolio management company and a Settlement
Agreement with the holders of the Senior Secured Debt. (Both such
agreements are referred to as "Agreement".) As a result of this
Agreement, PLI recorded an extraordinary gain on settlement of debt in
1992 of $2,572,648, net of tax effect of $720,496.
The Senior Secured Lenders held warrants to acquire up to 27.5% of the
Company's common stock on a fully diluted basis at $1.00 per share. PLI
repurchased these warrants under the terms of the Agreement.
Notes payable at December 31, 1994 of $7,889,502 represent amounts
borrowed under various warehouse lines which were used to finance the
Company's purchase of certain equipment on lease. Outstanding borrowings
under the warehouse lines are typically secured by the related
equipment. The various warehouse lines bear different interest rates
and maturities.
(4) Securitization
On December 31, 1993, the Company completed an asset securitization
pursuant to which a wholly-owned, newly-formed, limited-purpose
subsidiary of the Company issued three classes of receivables-backed,
pay-through notes secured by the Company's entire interest in the pooled
assets. The Company realized aggregate proceeds (net of transactional
expenses and amounts disbursed directly by the Trustee to acquire certain
assets in the Trust) of $40,726,344 from the transaction. Under the
related indenture, the Company has provided Noteholders with additional
credit enhancement in the form of (i) a cash reserve fund that will
accrete over time to an amount approximately equal to 3% of
initial aggregate note proceeds and (ii) limited recourse to
the Company for losses that exceed amounts held in the cash reserve
fund up to a maximum aggregate amount equal to 3% of the initial
aggregate note proceeds. The Company has established its own allowance
for expected losses under its recourse obligations to Noteholders based
on its historical loss experience and Management's best estimate of
future losses equal to one-half of one percent (.005%) of the initial
aggregate note proceeds. For financial reporting purposes,
the asset securitization was treated as a sale and a gain of
$1,874,333 has been included in fee income in the accompanying
consolidated financial statements.
On September 19, 1994, the Company completed another asset securitization
pursuant to which a wholly-owned, newly-formed, limited-purpose
subsidiary of the Company issued two classes of receivables-backed,
pay-through notes secured by the Company's entire interest in the pooled
assets. The Company realized aggregate proceeds (net of transactional
expenses and amounts disbursed directly by the Trustee to acquire
certain assets in the Trust) of $35,352,740 from the transaction. The
Company established its own allowance for expected losses under its
recourse obligations to Noteholder based on its historical loss
experience and Management's best estimate of future losses equal to
one-half of one percent (.005%) of the initial equipment cost. For
financial reporting purposes, the asset securitization was treated as a
sale and a gain of $632,459 has been included in fee income in the
accompanying consolidated financial statements.
<PAGE>
PRIME CAPITAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(5) Discounted Lease Rentals
Discounted lease rentals include the assignment of noncancelable
rentals remaining due under the related lease contracts. In return
for assigning the future lease payments, the Company receives a
discounted cash payment from the lender. The Company assigns the
contracts on a non-recourse basis (i.e., in the event of default by
the lessee, the lender has a first lien against the underlying
equipment but has no recourse against the Company).
The aggregate principal payments on nonrecourse obligations remaining
at December 31, 1993 were paid in full during 1994.
(6) Income Taxes
The Company's net income tax provision after consideration of the tax
effect from utilization of net operating loss carryforwards was zero
for the years ended December 31, 1994 and 1993 and 1992.
The reported income tax expense differs from the "expected" tax expense
(benefit) (computed by applying the Federal corporate tax rate to the
income before income taxes) as follows:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Computed "expected" tax
expense (benefit) ($679,321) $ 682,848 $ 614,698
State income tax expense
(benefit) net of Federal
income tax expense (97,550) 100,121 91,565
Other - net 9,282 4,851 14,233
Net operating loss
(carryforward utilized)
unused benefit 767,589 (787,820) (720,496)
Total expense $ --- $ --- $ ---
</TABLE>
<PAGE>
PRIME CAPITAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(6) Income Taxes, Continued
Deferred tax assets and liabilities at December 31, 1994 include:
<TABLE>
<CAPTION>
Assets Liabilities Net
<S> <C> <C> <C>
Net operating and
passive activity
loss carryforwards $ 6,394,913 --- $ 6,394,913
Investment tax credit
carryforward 797,868 --- 797,868
Difference in
securitization accounting
for tax purposes and
financial statement
purposes --- 912,364 (912,364)
Financial statement
reserves not currently
deductible for tax purposes 185,578 --- 185,578
Other, net --- 129,968 (129,968)
Valuation allowance (6,336,027) --- (6,336,027)
$1,042,332 $1,042,332 $ ----
</TABLE>
Included in the SFAS No. 109 at January 1, 1994 were valuation
allowances of $5,212,606. During fiscal 1994, the valuation allowance
increased by $1,123,421 primarily from the additional passive
activity loss generated by Prime Finance Corp. 1993-A and Prime
Finance Corp. 1994-A.
The Company has $797,868 of unused investment tax credit carryforwards
that are available for consolidated tax return purposes which expire at
various times between 1995 and 2001. At December 31, 1994, the
Company had a passive activity loss carryforward of approximately
$10,437,000 and a net operating loss carryforward of approximately
$5,960,000 available for tax return purposes. The passive activity loss
carryforward does not expire, and may be used before the Company's
net operating loss carryforward to offset income from future business
activities of the Company. The net operating loss carryforward expires
in the following manner: $2,847,000 in 2001, $1,238,000 in 2002,
$1,215,000 in 2003, $95,000 in 2004, and $565,000 in 2006.
(7) Commitments and Contingencies
The Company rents office space and equipment under various operating
lease agreements expiring during the next two years. Future minimum
rental payments required under the leases' excluding increases for
future rent escalation and real estate taxes are $282,498 for
1995 and $261,558 for 1996.
Rent expense for the years ended December 31, 1994, 1993, and 1992 was
$283,777, $278,458 and $197,279 respectively.
<PAGE>
PRIME CAPITAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements - Continued
(8) Stock Option Plans
During 1987, the Company adopted the 1987 Stock Option Plan. Shares
eligible for grant under the Company's 1984 Incentive Stock Option
Plan and the 1986 Non-Qualified Stock Option Plan of 200,000 and
15,000, respectively, were rolled into the 1987 Stock Option Plan. An
additional 85,000 shares were reserved for issuance pursuant to the
exercise of options under the 1987 Plan. At the time of adoption of the
plan the total shares available for issuance upon exercise of
the options was 300,000 shares. Shares of stock which
were granted under the 1984 Incentive Stock Option
Plan and the 1986 Non-Qualified Stock Option Plan which
are terminated prior to exercise are not available
for grant of new options under the 1987 plan. In August 1994
an additional 200,000 shares were made eligible for
grant under the Company's 1987 Stock Option Plan. The
changes in the number of shares under the option
plans during 1994, 1993 and 1992, are as follows:
<TABLE>
CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Number of shares:
Shares under option
at beginning of year 274,662 290,162 202,611
Options granted 94,500 33,000 133,000
Options exercised --- --- (3,334)
Options terminated (13,000) (48,500) (42,115)
Shares under option
at end of year 356,162 274,662 290,162
Options exercisable
at end of year 214,831 181,995 153,812
Option price on
exercised options --- --- $0.125
Option price range $0.125 - $12.00 $0.125 - $12.00 $0.12 - $12.00
</TABLE>
(9) Employee Benefit Plan
During 1985, the Company established a defined contribution benefit plan
under Internal Revenue Code (the "Code") section 401(a) with a cash
deferred benefit arrangement under section 401(k) of the Code. The plan
covers all employees. Contributions to the plan are based on
percentages of employee contributions plus discretionary contributions
determined annually by the Board of Directors. Contributions of
approximately $39,000, $58,000 and $32,000 were made in 1994,
1993 and 1992, respectively, for participants in the plan.
<PAGE>
EXHIBIT INDEX
PRIME CAPITAL CORPORATION
Copies of the following documents are filed herewith as exhibits:
<TABLE>
<CAPTION>
Exhibit No. Description Sequential Page No.
<S> <C> <C>
3.1 Certificate of Incorporation *
3.2 By-Laws -
10.1 Sublease dated October 8, 1985 between the *
Dow Chemical Company and Registrant
10.2 1984 Incentive Stock Option Plan of *
Registrant
10.3 1986 Non-Qualified Stock Option Plan of *
Registrant
10.4 Key man life insurance policies maintained *
by Registrant on behalf of Messrs.
Friedman and Keeling
10.5 Remarketing Agreement between Prime Leasing, *
Inc. and Equipment Trust-5, an Illinois
grantor trust
10.6 Employment Agreement between Registrant *
and Marvin T. Keeling
10.13 Master Lease Agreements of Registrant *
10.13(a) Revised Master Lease Agreements of ****
Registrant
10.14 Agreement dated May 31, 1985 between *
Registrant and Marvin T. Keeling
10.15 Stock Restriction Agreement dated July 2, *
1985 between Registrant and Marvin T.
Keeling
10.18 Agreement dated December 18, 1981 between *
Registrant and Prime Computer, Inc.
10.19 Form of Pilot Program Agreement for Hospital *
Group Equipment Leasing
10.20 Form of standard Agreement for Hospital *
Group Equipment Leasing
10.23 Form of Equipment Bill of Sale and Assignment *
contracts used in equipment sale-lease
assignment transactions between
Registrant and each of James A. Friedman,
Marvin T. Keeling, Robert Youngquist,
Thomas W. Heimsoth and Allen M. Olinger,
III
10.29 Employment Agreement between Registrant and **
Terry J. Billingsley (resigned as of
August 30, 1989)
10.31 Employment Agreement between Registrant and **
Teresa W. McMahon (resigned as of
August 31, 1992)
10.32(a) Agreements constituting Senior Secured Debt ***
10.32(b) First Supplement thereto ***
10.32(c) Second Supplement thereto (including all ***
Exhibits thereto)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description Sequential Page No.
<S> <C> <C>
10.32(d) Restated Agreement relating to Revolver ****
Credit, Intercreditor, Senior Note
and Other Loan Documents dated
May 8, 1991 (including Exhibits thereto)
10.33 Complaint in Parker North American v. ***
Prime Capital Corporation
10.33(a) Dismissal of Complaint in Parker North ****
American v. Prime Capital Corporation
10.34 Limited Consent and Waiver dated November ****
30, 1990
10.35 Limited Consent and Waiver dated December ****
31, 1990
10.36 Limited Consent and Waiver dated January ****
31, 1991
10.37 Limited Consent and Waiver dated February ****
28, 1991
10.38 Limited Consent and Waiver dated March ****
29, 1991
10.39 Limited Consent and Waiver dated April ****
30, 1991
10.40 Sale Agreement of Leased Assets to AT&T ***
10.41 Limited Consent and Waiver dated March *****
31, 1992
10.42 Limited Consent and Waiver dated April *****
30, 1992
10.43 Limited Consent and Waiver dated May 31, 1992 *****
10.45 Limited Consent and Waiver dated June 30, 1992 *****
10.46 Limited Consent and Waiver dated July 15, 1992 *****
10.47 Agreement in Principle dated July 10, 1992 *****
10.48(a) Settlement Agreement with Senior Secured *****
Lenders dated as of July 1, 1992, except
immaterial Exhibits or Schedules
10.48(b) Asset Sale Agreement, dated as of June 30, *****
1992, except immaterial Exhibits or Schedules
10.48 Bill of Sale of Lease to James Friedman *****
21 Subsidiaries of Registrant 33
23 Consent of KPMG PEAT MARWICK LLP 34
</TABLE>
* Incorporated by reference to the Company's Registration Statement on
Form S-1, effective May 29, 1986, in which each Exhibit had the same number
as herein.
Exhibit 3.2 is incorporated by reference to the Company's Proxy Statement,
effective April 29, 1987.
** Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1987 as filed on April 8, 1988 and amended
on Form 8 filed on April 29, 1988.
*** Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1988 as filed on November 15, 1989 and
Exhibit 10.40 is incorporated by reference to the Company's Annual
Report on Form 10-K as filed on September 24, 1990.
**** Incorporated by reference to the Company's Annual Report on Form 10-K
as filed on May 10, 1991.
***** Incorporated by reference to the Company's Annual Report on Form 10-K.
For the years ended December 31, 1991 as filed on August 28, 1992 and
amended on Form 8 filed on October 20, 1992.
Exhibits 21 and 23 have been included herein.
<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.
PRIME CAPITAL CORPORATION
(Registrant)
Date: April 17, 1995 /S/ James A. Friedman
James A. Friedman
Chairman and President
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 indicated on this 17 day of April, 1995.
Signature Title
/s/ James A. Friedman Chairman, President and Director
James A. Friedman (Principal Executive Officer)
/s/ David L. Daum Senior Vice President
David L.Daum (Principal Financial Officer)
Directors
/s/ James A. Friedman /s/ William D. Smithburg
James A. Friedman William D. Smithburg
/s/ Marvin T. Keeling /s/ Robert R. Youngquist
Marvin T. Keeling Robert R. Youngquist
/s/ Leander W. Jennings
Leander W. Jennings
<PAGE>
EXHIBIT 21
Subsidiaries of Registrant
Name of Subsidiary Jurisdiction of Incorporation
Prime Leasing, Inc. Illinois
d/b/a's: Americom Financial, Inc.
ITC Leasing Co.
Prime Equities, Ltd. Illinois
Americom Resources, Inc. Illinois
(formerly Interstate Telecommunications
Corporation)
Prime Finance Corp. 1993-A Illinois
Prime Finance Corp. 1994-A Illinois
Prime Healthcare, Inc. Illinois
Financial Alliance Corporation Illinois
<PAGE>
EXHIBIT 23
PRIME CAPITAL CORPORATION
CONSENT OF KPMG PEAT MARWICK LLP
The Board of Directors and Stockholders
Prime Capital Corporation:
We consent to incorporation by reference in the Registration Statement No.
33-8386 on Form S-8 of Prime Capital Corporation of our report dated
February 16, 1995 relating to the consolidated balance sheets of Prime
Capital Corporation and subsidiaries as of December 31, 1994 and
1993 and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1994, which report appears in this December 31,
1994 annual report on Form 10-KSB of Prime Capital Corporation.
KPMG PEAT MARWICK LLP
Chicago, Illinois
March 28, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 1,945,353
<SECURITIES> 0
<RECEIVABLES> 2,235,209
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 24,567,807
<PP&E> 1,215,025
<DEPRECIATION> 942,890
<TOTAL-ASSETS> 26,941,449
<CURRENT-LIABILITIES> 22,318,308
<BONDS> 0
<COMMON> 218,718
0
0
<OTHER-SE> 4,404,423
<TOTAL-LIABILITY-AND-EQUITY> 26,941,449
<SALES> 4,678,401
<TOTAL-REVENUES> 4,678,401
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 6,676,405
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 749,952
<INCOME-PRETAX> (1,998,004)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,998,004)
<EPS-PRIMARY> (.47)
<EPS-DILUTED> 0
</TABLE>
