UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
(Mark one)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
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 June 30, 1997, there were 4,292,165 shares of common stock
outstanding.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (no change)
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The operating results of Prime Capital are primarily affected by
the following factors: (1) the volume of financial contract
activations, (2) the amount and timing of financial contract
sales, (3) the level of operating expenditures required to
originate and service the volume of financial contract
activations and sales, and (4) credit losses.
Once a financial contract is activated, it is sold to a third
party or, in most cases, funded through a warehouse finance
facility until it is sold through securitization. Sale of a
contract to a third party results in immediate fee income.
Warehousing a contract for a period of time results in increased
rentals on leased equipment or direct finance lease income and
correspondingly increased interest expense and, if the contract
is an operating lease, depreciation on leased equipment. When
contracts are accumulated to a certain level and sold into
securitization, the Company recognizes fee income from the gain
on securitization and ceases to recognize rental or direct
finance lease income and interest and depreciation expense
associated with the sold contracts. Future revenues from the
securitizations include fee income derived from servicing the
securitization pool and interest income earned on cash reserve
balances until all the contracts in the pool have expired.
Securitizations During the Six Months Ended June 30, 1997 and
1996
On January 22, 1996, the Company issued and sold equipment lease-
backed pay-through notes with an initial aggregate contract value
of $85.3 million. Through this issuance, the Company permanently
financed certain assets and liabilities carried on the Company's
balance sheet as of December 31, 1995. These assets and
liabilities were removed from the balance sheet and the resulting
gain of $4.1 million was recognized on the Company's statement of
operations in the first quarter of 1996.
On March 20, 1997, the Company issued and sold equipment lease-
backed pay-through notes with an initial aggregate contract value
of $77.5 million. Through this issuance, the Company permanently
financed certain assets and liabilities carried on the Company's
balance sheet as of December 31, 1996. These assets and
liabilities were removed from the balance sheet and the resulting
gain of $6.6 million was recognized on the Company's statement of
operations in the first quarter of 1997.
Results of Operations-Six Months Ended June 30, 1997
The Company activated financial contracts totaling $75.3 million
in 1997, a decrease of 7.4% from the $81.3 million activated in
1996.
Fee income increased $0.6 million, or 10.4% to $6.7 million in
1997 from $6.1 million in 1996. Fee income primarily relates to
gains from the sale or securitization of financial contracts.
The initial value of the contracts sold or securitized was $91.9
million and $110.2 million in 1997 and 1996, respectively.
Direct financing lease income increased $1.9 million to $2.5
million in 1997 from $0.6 million in 1996. The longer holding
period of financial contracts and higher average contract
balances held in the warehouse accounted for this increase.
Rentals on leased equipment increased $182,000, or 61.0%, to
$481,000 in 1997 from $299,000 in 1996 due to the longer holding
period of financial contracts and higher average contract
balances held in the warehouse. There was a corresponding
increase in depreciation of leased equipment of $121,000, or
87.2%, to $260,000 in 1997 from $139,000 in 1996.
Interest income decreased $9,000, or 1.7%, to $574,000 in 1997
from $583,000 in 1996.
Other income increased $11,000, or 9.2%, to $131,000 in 1997 from
$120,000 in 1996.
Interest expense increased $0.8 million, or $73.2%, to $2.0
million in 1997 from $1.2 million in 1996. Interest related to
subordinated debt totaled $313,000 in 1997. Also contributing to
increased interest expense was the amortization of debt issuance
costs and the longer holding period as well has higher average
balances of financial contracts funded on the warehouse line of
credit. (See "Liquidity and Capital Resources.")
The Company recorded a provision for credit losses of $4.0
million in 1997. No provision was recorded in 1996. (See
"Credit Losses.")
Selling, general and administrative expenses increased $0.7
million, or 22.7%, to $3.9 million in 1997 from $3.2 million in
1996. Employee compensation and related costs, including
commissions, accounted for 60.7% and 64.0% of total selling,
general and administrative expenses in 1997 and 1996,
respectively. The Company had 57 and 51 employees at June 30,
1997 and 1996 respectively. Selling, general and administrative
expenses have increased primarily due to the hiring of additional
employees and the increase in the serviced financial contract
portfolio.
Net capitalized initial direct costs increased $74,000, or 39.0%,
to $264,000 in 1997 from $190,000 in 1996.
In 1997, earnings available for common shareholders was reduced
by $113,000 for dividends payable to holders of preferred stock.
There were no preferred stock dividends payable for 1996. (See
"Liquidity and Capital Resources.")
Results of Operations-Three Months Ended June 30, 1997
The Company activated financial contracts totaling $41.6 million
in 1997, a decrease of 16.1% from the $49.6 million activated in
1996.
Fee income decreased $1.6 million, or 91.4%, to $0.1 million in
1997 from $1.7 million in 1996. Fee income includes gains from
the sale or securitization of financial contracts. The initial
value of the contracts sold or securitized was $1.2 million and
$24.6 million in 1997 and 1996, respectively.
Direct financing lease income increased $474,000, or 99.2%, to
$952,000 in 1997 from $478,000 in 1996. The longer holding
period of financial contracts and higher average contract
balances held in the warehouse accounted for this increase.
Rentals on leased equipment increased $26,000, or 10.4%, to
$275,000 in 1997 from $249,000 in 1996 due to the longer holding
period of financial contracts and higher average contract
balances held in the warehouse. There was a corresponding
increase in depreciation of leased equipment of $40,000, or
33.5%, to $160,000 in 1997 from $120,000 in 1996.
Interest expense increased $349,000, or 75.0%, to $815,000 in
1997 from $466,000 in 1996. Interest related to subordinated debt
totaled $137,000 in 1997. Also contributing to increased
interest expense was amortization of debt issuance costs and
interest associated with carrying higher contract balances funded
on the warehouse line of credit. (See "Liquidity and Capital
Resources.")
The Company recorded a provision for credit losses of $1.5
million in 1997. No provision was recorded in 1996. (See
"Credit Losses.")
Selling, general and administrative expenses increased $0.4
million, or 21.5%, to $2.1 million in 1997 from $1.7 million in
1996. Employee compensation and related costs, including
commissions, accounted for 68.7% and 61.7% of total selling,
general and administrative expenses in 1997 and 1996,
respectively. Selling, general and administrative expenses have
increased primarily due to the hiring of additional employees and
the increase in the serviced financial contract portfolio.
In 1997, earnings available for common shareholders was reduced
by $56,000 for dividends payable to the holder of preferred
stock. There were no preferred dividends payable for 1996. (See
"Liquidity and Capital Resources.")
Credit Losses
Prime Capital has identified four customers who have experienced
significant deterioration in their financial condition, which has
adversely impacted their ability to repay the financial
obligations to the Company. In the case of three customers, the
Company has alleged fraud and material misrepresentation of the
customer's financial condition or the contract's underlying
collateral.
In each case the Company has and will continue to aggressively
pursue various loss mitigation strategies; including repossession
and sale of collateral, litigation, and other actions against the
lessee-obligors, guarantors of the financial contracts, or other
individuals whose actions may have been detrimental to Prime
Capital.
On June 16, 1997, the Company had previously disclosed its loss
exposure of $6.6 for the largest of the four customers. At June
30, 1997, Prime Capital's aggregate exposure to credit loss from
these four customers totaled $10.5 million. However, the Company
expects to be successful in several of its loss mitigation
strategies and has established loss reserves accordingly.
During the first six months of 1997, the Company has recorded
provisions for credit losses totaling $4.0 million, increasing
its balance sheet loss reserves to $7.0 million at June 30, 1997.
The Company has allocated $4.6 million of its loss reserves to
absorb the estimated shortfall of net recovery proceeds from
these four situations. The Company will continue to closely
monitor each situation to ensure the adequacy of its total loss
reserves.
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 non-recourse financing to fund future
acquisitions and originations of financial contracts. 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 financial contracts for an
amount which, in the aggregate, covers the Company's cost of
operations, plus provides a return on stockholders' equity. 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: (1)
the continued issuance of asset backed securities, (2) portfolio
sales, (3) program financings, and (4) the discounting of
individual financial contracts.
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 or disburse funds until:
(1) it has received a noncancelable lease or loan from its
customer, and (2) 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.
Liquidity and Capital Resources
On October 4, 1996, Prime Capital Corporation raised additional
capital by completing a private sale of $5.0 million principal
amount of five year, 12.5% subordinated debentures and $2.5
million of 9% preferred stock to Banc Once Capital Corporation
(BOCC), a subsidiary of Bank One Corporation, Columbus, Ohio. As
part of the transaction, BOCC also received warrants to purchase
499,606 shares of Prime Capital's common stock at $1.00 per
share.
Management believes that in order to meet its ongoing funding
needs, the Company will require additional capital resources to
supplement the expected cash flows of its operating activities
and anticipated borrowings under its warehouse financing
facility. The Company is expecting to complete one or more sales
or securitizations of financial contracts before the end of the
year. The Company is also exploring other sources of liquidity
to satisfy its needs for additional capital resources.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders (no change)
Item 6. Exhibits and Reports on Form 8-K
a) Exhibit Index
Exhibit No. Description
11 Statement Regarding Computation of Per Share
Earnings (no change)
27 Financial Data Schedule (no change)
b) Reports on Form 8-K (no change)
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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)
August 27, 1997 /s/ Vern Landeck
Vern Landeck, Chief Financial Officer
Vern Landeck is the Principal Financial
and Accounting Officer and has been
duly authorized to sign on behalf of
the Registrant
August 27, 1997 /s/ James A. Friedman
James A. Friedman, Chief Executive Officer
