UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark one)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
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 0-14888
PRIME CAPITAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 36-3347311
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification no.)
10275 West Higgins Road, Suite 200, Rosemont, Illinois 60018
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(847) 294-6000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No ___
As of September 30, 1996, there were 4,282,565 shares of common stock
outstanding.
PRIME CAPITAL CORPORATION AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
PAGE
Item 1. Financial Statements
Consolidated Statements of Operations --
Three and Nine Months Ended
September 30, 1996 and 1995 3
Consolidated Balance Sheets --
September 30, 1996 and December 31, 1995 4
Consolidated Statements of Cash Flows --
Nine Months Ended September 30, 1996 and 1995 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-10
PART II. OTHER INFORMATION 10
SIGNATURE 11
PART I. FINANCIAL INFORMATION
Item I. Financial Statements
PRIME CAPITAL CORPORATION AND
SUBSIDIARIES
Consolidated Statements of
Operations (Unaudited)
Three Months ended Nine Months ended
September 30, September 30,
<TABLE>
<CAPTION> 1996 1995 1996 1995
<S> <C> <C> <C> <C>
Revenues:
Rentals on leased equipment $ 331,930 $ 132,604 $ 630,927 $ 503,884
Direct financing leases 1,008,270 211,092 1,636,567 751,426
Fee income 308,028 506,893 6,387,611 4,272,347
Gain on sale of leased
equipment 25,169 2,125 41,015 23,398
Interest 117,747 98,619 701,066 620,702
Other income 86,122 57,698 205,882 163,449
Total revenues 1,877,266 1,009,031 9,603,068 6,335,206
Expenses:
Depreciation of leased
equipment 219,432 38,267 358,156 208,765
Selling, general and
administrative expense 1,827,016 1,619,133 5,065,631 5,459,489
Interest 856,523 114,483 2,006,789 677,235
Net capitalized initial
direct costs (41,397) (32,761) (231,253) (88,789)
Total expenses 2,861,574 1,739,122 7,199,323 6,256,700
Income (loss) before income
tax expense (984,308) (730,091) 2,403,745 78,506
Income tax expense 0 0 0 0
Net income (loss) $ (984,308) $ (730,091) $ 2,403,745 $ 78,506
Net income (loss) per common
and dilutive common
equivalent share $ (0.23) $ (0.17) $ 0.54 $ 0.02
Number of common and dilutive
common equivalent shares
outstanding 4,282,665 4,280,165 4,474,266 4,280,165
</TABLE>
See accompanying notes to consolidated financial statements.
PRIME CAPITAL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets (Unaudited)
<TABLE>
<CAPTION> September 30, December 31,
<S> <C> <C>
ASSETS 1996 1995
Cash and cash equivalents $ 2,031,187 $ 2,001,949
Receivables:
Rentals on leased equipment 160,201 100,589
Due from equipment trusts 41,997 38,068
Securitization Receivables, net of loss
reserves 1,501,936 1,643,890
Other 1,096,348 829,205
Net investment in direct financing leases 54,908,110 58,561,185
Leased equipment, net of accumulated
depreciation of $138,193 and $164,542 at
September 30, 1996 and December 31, 1995
respectively 5,273,092 2,581,032
Deposits on equipment 388,259 114,836
Property and equipment, net of accumulated
depreciation of $1,113,909 and $1,062,527
at September 30, 1996 and December 31, 1995,
respectively 327,583 285,599
Restricted Cash 6,357,746 3,717,592
Other assets 331,054 80,481
Total assets $ 72,417,513 $ 69,954,426
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable to banks $ 53,861,207 $ 58,300,252
Accounts payable for equipment 6,876,830 4,057,179
Accrued expenses and other liabilities 4,196,753 4,246,376
Deposits and advances 2,291,445 563,711
Total liabilities 67,226,235 67,167,518
Stockholders' equity
Common stock, $0.05 par value:
authorized 10,000,000 shares; issued and
outstanding 4,376,765 and 4,374,265 at
September 30, 1996 and December 31, 1995,
respectively 218,843 218,718
Additional paid-in capital 9,681,725 9,681,225
Accumulated deficit (4,409,490) (6,813,235)
Treasury stock, at cost; 94,200 shares at
September 30, 1996 and December 31,1995 (299,800) (299,800)
Total stockholders' equity 5,191,278 2,786,908
Total liabilities and stockholders' equity $ 72,417,513 $ 69,954,426
</TABLE>
See accompanying notes to consolidated financial statements.
PRIME CAPITAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended September 30,
<TABLE>
<CAPTION> 1996 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,403,745 $ 78,506
Adjustments to reconcile net income to
net cash used by operating activities:
Depreciation 409,538 296,618
Amortization of unearned income (1,630,267) (751,426)
Gain on securitization (4,223,699) (2,508,887)
Changes in assets and liabilities:
Rentals on leased equipment and
other receivables 715,815 371,638
Deferred charges (241,302) 562,963
Restricted cash and other assets (2,732,895) (1,486,034)
Accrued expenses and other liabilities (49,623) 1,130,157
Due from equipment trusts (3,929) 57,752
Net cash used by operating activities (5,352,617) (2,248,713)
CASH FLOWS FROM INVESTING ACTIVITIES:
Cost of equipment acquired for lease (87,267,777) (78,172,188)
Proceeds from sale of assets 854,916 273,243
Net cash used in investing activities (86,412,861) (77,898,945)
CASH FLOWS FROM FINANCING ACTIVITIES:
Discounted lease proceeds and
proceeds from sale of fully
leveraged finance leases 32,949,433 31,487,685
Repayment of/proceeds from notes payable
to banks (4,439,045) 16,844,943
Proceeds from securitization,
net of expenses 63,284,328 31,221,719
Net cash provided by financing activities 91,794,716 79,554,347
Increase(Decrease)in cash and cash equivalents 29,238 (593,311)
Cash and cash equivalents:
Beginning of period 2,001,949 1,945,353
End of period $ 2,031,187 $ 1,352,042
Supplemental schedule of non cash financing activities:
Cash paid during the period for: $ 1,674,177 $ 677,235
Interest $ -- $ --
Income taxes
</TABLE>
See accompanying notes to consolidated financial statements.
PRIME CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-QSB.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of Management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation
have been included.
Subsequent events
On October 4, 1996 Prime Capital Corporation completed a private sale of
subordinated debentures and preferred stock to Banc One Capital
Corporation. See Page 7 for the Management Discussion and Analysis of
Financial Condition and Results of Operations for details of this
transaction.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The financial results of 1995 and the first nine months of 1996 were
influenced by a number of economic and strategic factors including: (i)
changes in the size and the type of financing required by the marketplace,
(ii) a securitization totaling $56,725,781 completed in March 1995, (iii) a
securitization totaling $85,273,476 completed in January 1996. Since
January 1996, Prime has been accumulating new activated financial contracts
for a securitization expected to be completed in the fourth quarter of
1996.
In June of this year, the Company established a $100 million financing
facility for a major east coast hospital network. The financing facility,
a credit line to be funded in stages over the next four years with an
initial draw of approximately $20 million, will be used for medical network
development.
On October 4, 1996, Prime Capital Corporation completed a private sale of
$5 million principal amount of five year, 12.5% subordinated debentures and
$2.5 million of 9% preferred stock to Banc One Capital Corporation (BOCC),
a subsidiary of Bank One Corporation, Columbus, Ohio. In addition, BOCC
has agreed to purchase up to an additional $2.5 million of Prime Capital's
five year, 12.5% subordinated debentures during the next two years. As part
of the transaction. BOCC also received warrants to purchase up to 12% of
Prime Capital's common stock, depending on the total amount of subordinated
debentures purchased by BOCC. The additional capital will allow the
Company to implement its plan for growth.
Prime Capital's plan for growth is as follows:
1. Increase the volume of integrated delivery system financing for hospital
networks and related entities. Enlist additional affiliations to promote
program use. Develop related flow business within the developing hospital
networks.
2. Target medical equipment and software manufacturers to promote "high
touch" customer service and one day credit approvals. Expand Company
infrastructure to quickly process and assess these transactions.
3. Expand origination capabilities through the selective hiring of
additional experienced sales and marketing professionals by each of the
Company's business development units.
4. Further refine asset securitization methodologies to lower the Company's
cost of funds and minimize exposure to interest rate risk. Secure
additional warehouse capacity for added flexibility.
The Company has invested in increasing its infrastructure to expand its
back office transaction processing capability. Since September 30, 1995,
the Company has hired addition staff to handle increased transaction volume
and has deepened its management team by hiring a Vice President-Corporate
Treasurer and a Senior Vice President of Operations. Both executives bring
significant experience from their prior positions at other leading
companies in the industry.
The Company has established increased lines of credit in 1996. It
currently has available credit lines of $131.4 million compared to $51.4
million as of December 31, 1995.
The company has generated approximately $110 million in financial contracts
since the beginning of the year. Of this amount, $18 million was
securitized in the January 1996 securitization, $28 million was sold
outright, and the remaining $64 million is warehoused for future
securitization. The next securitization is anticipated to be completed in
the fourth quarter of 1996 and will total approximately $65 million. The
securitization is expected to generate significant fee income for the
Company. The proceeds from the securitization will be used to pay down
existing lines of credit which will significantly reduce interest expense
for the remainder of the year.
Revenue Trends
The Company conducts its business in a manner designed to conserve its
working capital and minimize its credit exposure. The Company does not
purchase equipment until; (i) it has received a noncancelable lease or loan
from its customer, and (ii) it has determined that the lease or loan (a)
can be discounted with a bank or financial institution on a non-recourse
basis, or (b) meets the origination standards established for a securitized
pool. 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, and (iv) financing selected transactions on an individual
basis (i.e. non-pooled).
On March 16, 1995, the Company issued and sold equipment lease-backed pay-
through notes in an aggregate initial principal amount of $56,725,781.
Through this issuance the Company permanently financed certain assets and
liabilities carried on the Company's balance sheet as of December 31, 1994.
Pursuant to FASB Statement No. 77, these assets and liabilities were
removed from the balance sheet and the resulting gain was recognized on the
Company's statement of operations in the first quarter of 1995.
On January 22, 1996, the Company issued and sold equipment lease-backed pay-
through notes in an aggregate initial principal amount of $85,273,476.
Through this issuance of such Securitization notes, the Company permanently
financed certain assets and liabilities carried on the Company's balance
sheet as of December 31, 1995. Pursuant to FASB Statement No. 77, these
assets and liabilities were removed from the balance sheet and the
resulting gain was recognized on the Company's statement of operations in
the first quarter of 1996.
RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 1996
Net Income (Loss)
The three months ended September 30, 1996 resulted in a net loss of
$984,308 compared to a net loss of $730,091 for the same quarter of 1995.
While neither period included a securitization, higher warehouse debt for
the quarter ended September 30, 1996 resulted in higher interest expense
and a greater loss for that period.
Revenues
Revenues for the three months ended September 30, 1996 were $1,877,266 as
compared to revenues of $1,009,031 for the same period last year. The
increase was largely attributable to an increase in direct finance lease
income resulting from a greater amount of direct finance contracts held by
the Company for subsequent securitization compared to the same period last
year.
Expenses
Expenses for the three months ended September 30, 1996 were $2,861,574
compared to expenses of $1,739,122 during the same period of 1995. This
increase is mainly due to increased interest expense caused by carrying a
higher level of debt for the three month period of 1996 compared to the
same period in 1995.
Selling, general and administrative expenses increased approximately
$208,000 in the third quarter of 1996 compared to the same period in 1995
due mainly to expenses associated with increased personnel and other
expenses associated with processing an increased volume of financial
contracts.
RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 1996
Net Income (Loss)
The nine months ended September 30, 1996 resulted in net income of
$2,403,745 or $ 0.54 per share compared to net income of $78,506 or $ 0.02
per share for the same period last year. The increase in net income
resulted mainly from the $85,273,476 securitization completed in January
1996 compared to the $56,725,781 securitization completed in March 1995 and
the initial $20.0 million draw on the $100 million financing facility
established in 1996 for a major hospital network.
Revenues
Revenues for the nine months ended September 30, 1996 were $9,603,068
versus $6,335,206 for the same nine months of last year. The increase was
largely attributable to the increase in fee income associated with the
January 1996 securitization compared to that recognized in the March 1995
securitization and the June 1996 draw on the hospital financing facility.
Also contributing to the increase was a greater amount of direct finance
lease income and rental income resulting from warehousing a greater amount
of financial contracts.
Expenses
Expenses for the first nine months of 1996 were $7,199,323 compared to
$6,256,700 during the same period of 1995.
Selling, general and administrative expenses decreased approximately
$394,000 in 1996 compared to the first nine months of 1995 due mainly to
the recognition of nonrecurring charges in 1995 related to the write off of
$537,000 of prepaid expenses and the establishment of a reserve for pending
tax audits of $418,000. Offsetting the above were increased expenditures
in 1996 related to increases in personnel.
Interest expense increased approximately $1,330,000 in the first nine
months of 1996 compared to the same period of 1995 due mainly to increased
warehouse balance of activated financial contracts.
Financial Condition
The Company's financial condition will continue to be dependent upon
certain critical elements. First, the Company must be able to obtain
recourse and nonrecourse financing to fund future acquisitions of lease and
loan contracts. Second, the Company must originate a sufficient volume of
new business which is structured and priced in such a way that the Company
covers its costs and realizes profits from its originations. The Company
intends to utilize a combination of interim warehouse borrowing and long-
term funding methodologies to provide it with borrowing and funding
availability at competitive rates of interest. The long-term funding
methodologies will include: (i) the continued issuance of asset backed
securities; (ii) portfolio sales, (iii) program financings, and (iv) the
discounting of individual Financial Contracts.
Liquidity and Capital Resources
Based upon the Company's estimates of volume of transactions, the Company
believes that existing cash balances, cash flows from its activities,
available warehouse and permanent non-recourse borrowing, and securitized
asset sales will be sufficient to meet its foreseeable financing needs.
PART II - OTHER INFORMATION
Item 2. Changes in securities - subsequent event - On October 4, 1996
Prime Capital Corporation completed a private sale of $2.5 million of 9%
preferred stock with warrants to purchase up to 12% of common stock to Banc
One Capital Corporation. This change was not incorporated into the
financial statements reported herein. For more details regarding this
transaction, see page 7 Item 2 in the Management's Discussion and Analysis
of Financial Condition and Results of Operations.
Item 4. Submission of Matters to a Vote of Security holders - The annual
meeting of Prime Capital's shareholders was held on August 21, 1996. The
following items were voted upon and ratified:
The following members of the board of directors were elected to hold office
until the next Annual Meeting: James A. Friedman, Leander W. Jennings,
William D. Smithburg, Robert R. Youngquist and Mark P. Bischoff. Four
Million Three Hundred Fifty-Seven Thousand Two Hundred Sixty Three
(4,357,263) shares were cast in favor of the motion, and no shares were
cast against the motion or abstained.
The accounting firm of KPMG Peat Marwick, LLP as auditors of the Company
for the current fiscal year was voted upon and ratified. Three Million
Four Hundred Thirty-Nine Thousand Three Hundred Forty-Seven (3,439,347)
shares were cast in favor of the motion, Forty Thousand Five Hundred
Seventy-Five (40,575) shares were cast against the motion and no shares
abstained.
The Company's Stock Option Plan was increased by Two Hundred Fifty Thousand
(250,000) shares. Three Million Sixty-Five Thousand Two Hundred Thirteen
(3,065,213) shares were cast in favor of the motion, Forty-Eight Thousand
Eight Hundred Nine (48,809) shares were cast against the motion and no
shares abstained.
An Amendment to the Certificate of Incorporation was adopted to authorize
the issuance of Two Hundred Fifty Thousand (250,000) shares of preferred
stock. Four Million Three Hundred Forty-Three Thousand Two Hundred
Thirteen (4,343,213) shares were cast in favor, One Thousand (1,000) shares
were cast against and One Thousand Six Hundred (1,600) shares abstained.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PRIME CAPITAL CORPORATION
(Registrant)
November 15, 1996 /s/ Robert C. Benson
Robert C. Benson, Chief Financial Officer
Robert
C. Benson is the Principal Financial
and Accounting Officer and has been
duly authorized to sign on behalf of
the Registrant
November 15, 1996 /s/ James A. Friedman
James
A. Friedman, Chief Executive
Officer.
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 8288738
<SECURITIES> 100195
<RECEIVABLES> 58476303
<ALLOWANCES> (767711)
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<DEPRECIATION> (1418722)
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0
0
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