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 June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission file number 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, 1998, there were 4,434,598 shares of common stock
outstanding.
<PAGE>
PRIME CAPITAL CORPORATION AND SUBSIDIARIES
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Operations --
Three and Six Months Ended
June 30, 1998 and 1997 3
Consolidated Balance Sheets --
June 30, 1998 and December 31, 1997 4
Consolidated Statements of Cash Flows --
Six Months Ended June 30, 1998 and 1997 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
SIGNATURES 11
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE> PRIME CAPITAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
<CAPTION> Three Months Ended June 30, Six Months Ended June 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Revenues:
Fee income 2,003,834 147,932 4,339,454 6,731,502
Direct financing leases
and loans 486,929 951,695 1,272,954 2,535,617
Rentals on operating leases 1,003,688 274,982 1,304,124 481,293
Interest income 258,232 302,799 481,537 573,616
Other income 84,401 62,950 178,277 130,806
--------- --------- --------- ----------
Total revenues 3,837,084 1,740,358 7,576,346 10,452,834
Expenses:
Depreciation on leased
equipment 858,355 159,596 1,050,670 259,673
Interest 928,861 815,028 1,523,437 1,992,311
Provision for credit losses 150,000 1,500,000 150,000 4,000,000
Selling, general and
administrative 2,356,896 1,955,880 4,569,363 3,708,430
--------- --------- --------- ---------
Total expenses 4,294,112 4,430,504 7,293,470 9,960,414
Income (loss) before income
taxes (457,028) (2,690,146) 282,876 492,420
Income taxes - - - -
--------- --------- --------- ---------
Net Income (457,028) (2,690,146) 282,876 492,420
========= ========== ========= =========
Basic earnings per share: $ (0.12) (0.64) 0.04 0.09
========= ========= ========= =========
Dilutive earnings per share: $ (0.12) (0.64) 0.03 0.08
========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE> PRIME CAPITAL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
<CAPTION> June 30, December 31,
ASSETS 1998 1997
(Unaudited) (Audited)
<S> <C> <C>
Cash and cash equivalents $ 741,282 3,572,553
Receivables:
Operating lease rentals 192,960 115,930
Floor plan receivables 4,014,157 -
Other 5,726,990 8,049,271
Net investment in direct financing
leases and loans 20,607,884 17,881,502
Investment in securitized receivables,
including restricted cash 7,505,030 7,799,195
Leased equipment, net of accumulated depreciation 9,326,624 4,188,097
Deposits on equipment 1,055,752 1,370,326
Equipment and furniture, net of accumulated
depreciation 724,122 720,725
Other assets 969,957 2,133,957
---------- ----------
Total assets $50,864,758 45,831,556
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable $23,977,947 16,357,347
Accounts payable for equipment 9,708,269 6,565,270
Accrued expenses and other liabilities 3,785,320 8,244,271
Deposits and advances 1,971,590 2,415,476
Subordinated debt 5,000,000 5,000,000
--------- ----------
Total liabilities 44,443,126 38,582,364
---------- ----------
Stockholders' equity
Preferred stock, $100 par value:
authorized 250,000 shares, issued 25,000
shares in 1996 2,500,000 2,500,000
Common stock, $0.05 par value:
authorized 10,000,000 shares; issued
4,434,598 and 4,396,265 shares in
1998 and 1997, respectively 221,351 219,813
Additional paid-in capital 9,490,004 9,483,852
Accumulated deficit (5,489,922) (5,659,673)
Unrealized gains on securities - 1,005,000
Treasury stock, at cost, 94,200 shares
at December 31, 1996 and 1996 (299,801) (299,800)
---------- ----------
Total stockholders' equity 6,421,632 7,249,192
---------- ----------
Total liabilities and stockholders' equity $50,864,758 45,831,556
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE> PRIME CAPITAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
<CAPTION> Six Months Ended June 30,
1998 1997
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 282,876 492,420
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation of leased equipment 1,050,670 259,673
Other depreciation and amortization 186,161 137,744
Non-cash gain on securitization (1,165,196) (1,913,695)
Provision for credit loss 150,000 4,000,000
Changes in assets and liabilities:
Rentals on leased equipment and other
receivables 2,156,621 (1,318,843)
Other assets 98,218 (491,084)
Accrued expenses and other liabilities (4,458,951) 955,454
---------- ---------
Net cash provided by (used in) operating activities (1,699,601) 2,121,669
CASH FLOWS FROM INVESTING ACTIVITIES:
Cost of equipment acquired for lease (81,275,937) (66,106,106)
Customer deposits and payments on direct
finance leases and loans 5,530,307 3,732,089
Purchase of equipment and furniture (128,777) (306,835)
Investment in inventory finance receivables (2,563,317) -
Proceeds from sales of finance receivables 69,790,892 73,156,301
---------- ----------
Net cash provided by (used in) investing activities (8,646,832) 10,475,449
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of options 7,687 435
Preferred stock dividends (113,125) (112,500)
Net increase (decrease) in notes payable 7,620,600 (16,998,686)
---------- ----------
Net cash provided by (used in) financing activities 7,515,162 (17,110,751)
Decrease in cash and cash equivalents (2,831,271) (4,513,633)
Cash and cash equivalents:
Beginning of period 3,572,553 7,063,398
---------- ----------
End of period $ 741,282 2,549,765
========== ==========
Cash paid during the year for interest $ 1,454,889 2,040,404
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
PRIME CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Basis of Presentation
The interim financial statements have been prepared by Prime Capital
Corporation ("the Company" or "Prime Capital"), without audit, pursuant to
the rules and regulations of the Securities and Exchange Commission
applicable to quarterly reports on Form 10-QSB. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed
or omitted pursuant to such rules and regulations. In the opinion of
management, all adjustments which are of a normal recurring nature and are
necessary for a fair presentation have been included. However, results for
interim periods are not necessarily indicative of the results that may be
expected for a full year. It is suggested that these financial statements be
read in conjunction with the consolidated financial statements and related
notes and schedules included in the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1997.
Certain reclassifications have been made to the 1997 financial statements to
conform to the classifications used in the June 30, 1998 financial
statements. These reclassifications had no effect on net income or
stockholders' equity as previously reported.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
===============================================================
Results of Operations
=====================
Prime Capital Corporation, including its wholly owned subsidiaries, ("Prime"
or the "Company") operates as a diversified specialty finance company that
originates, acquires, aggregates and services loans, installment purchase
agreements and leases ("financial contracts") primarily in the medical,
communications, specialty vehicle, hospitality/gaming and software
industries. Prime develops new business directly with end users and through
private label vendor finance programs with equipment manufacturers,
dealers and distributors. The Company seeks to become an effective business
partner with its clients by structuring and servicing comprehensive finance
programs which contribute to the clients growth and success. Prime funds its
loan and lease receivables primarily by issuing asset-backed securities to
institutional investors.
The operating results of Prime are primarily affected by the following
factors: (1) the volume and pricing 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
direct finance lease income and interest 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.
Sales and Securitizations of Finance Receivables During the Six Months
Ended June 30, 1998 and 1997
The following table summarizes the sale and securitization of Financial
Contracts completed during the six months ended June 30, 1998 and 1997.
<TABLE>
<CAPTION> Six Months Ended June 30,
(Amounts in thousands)
Description Date 1998 1997
<S> <C> <C> <C>
- --------------------- --------------- --------- ---------
Prime Finance
Corporation 1997-A March, 1997 $ - 77,428
Prime Finance
Corporations 1998-A-1 March, 1998
and 1998-A-2 38,937 -
True Sale Facility 19,255 -
-------- --------
Subtotal 58,192 -
Other sale transactions 15,767 5,345
-------- --------
Total $ 73,959 82,773
======== ========
</TABLE>
<PAGE>
In March 1998, equipment lease-receivables backed pay through notes were
jointly issued by Prime Finance Corporation 1998-A-1 and Prime Finance
Corporation 1998-A-2 (collectively referred as "PFC-1998A"), both wholly
owned subsidiaries of the Company.
The initial principal amount of the notes issued by PFC 1998A totaled $106.1
million, which included $62.2 million of receivables related to the
consolidation of certain securitizations completed in prior years, $5.0
million that represents the pre-funding of finance receivables that are to be
sold at a later date, and $1.8 million of proceeds from the assignment of
rentals and residual values of operating leases. Proceeds attributable to
operating lease contracts are reported as debt in the Company's financial
statements.
Results of Operations For The Six Months Ended June 30, 1998 and 1997
=====================================================================
The Company activated financial contracts totaling $77.8 million in 1998,
an increase from the $75.3 million activated in 1997.
Fee income decreased $2.4 million, or 35.6%, to $4.3 million in 1998 from
$6.7 million in 1997. Fee income includes gain from the sale and
securitization of financial contracts of $74.0 million in 1998 and $82.8
million in 1997. The 1998 gain from sale of contracts has been reduced by a
$745,000 loss attributable to the $62.2 million of receivables related to the
consolidation of certain securitizations completed in prior years, and excludes
any gain or loss attributable to the $5.0 million of prefunded receivables.
Fee income for 1998 also includes a $1.9 million gain from the sale of warrants
that were received by the Company in connection with originating a lease
transaction.
Direct financing lease income decreased $1.2 million, or 49.8%, to $1.3 million
in 1998 from $2.5 million in 1997. The decrease is due to shorter holding
period of financial contracts and lower average contract balances held in the
warehouse.
Rentals on leased equipment increased $0.8 million, or 171.0%, to $1.3
million in 1998 from $0.5 million in 1997. Depreciation of leased equipment
increased $0.8 million, to $1.1 million in 1998 from $0.3 million in 1997.
Interest income decreased $92,000, or 16.1%, to $482,000 in 1998 from $574,000
in 1997.
Other income increased $47,000, or 36.3%, to $178,000 in 1998 from $131,000
in 1997.
Interest expense decreased $0.5 million, or 23.5%, to $1.5 million in 1998 from
$2.0 million in 1997, primarily due to lower average borrowings under the
Company's warehouse credit facilities.
Provision for credit losses was $150,000 and $4.0 million in 1998 and 1997,
respectively. (See "Credit Losses").
Selling, general and administrative expenses increased $0.9 million, or 23.2%,
to $4.6 million in 1998 from $3.7 million in 1997. Employee compensation and
related costs, including commissions, accounted for 61.8% and 60.7% of total
selling, general and administrative expenses in 1998 and 1997, respectively.
The Company had 71 and 59 employees at June 30, 1998 and 1997, 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.
<PAGE>
Results of Operations For The Three Months Ended June 30, 1998 and 1997
=====================================================================
The Company activated financial contracts totaling $44.5 million in 1998,
an increase of 7.0% from the $41.6 million activated in 1997.
Fee income increased $1.9 million, to $2.0 million in 1998 from $0.1 million
in 1997. Fee income includes gain from the sale and securitization of
financial contracts of $1.1 million in 1998 and $0.1 million in 1997. Fee income
for 1998 also includes a $503,000 gain from the sale of warrants that were
received by the Company in connection with originating a lease transaction.
Direct financing lease income decreased $0.5 million, or 48.8%, to $0.5
million in 1998 from $1.0 million in 1997. The decrease is due to shorter
holding period of financial contracts and lower average contract balances
held in the warehouse.
Rentals on leased equipment increased $0.7 million, to $1.0 million in 1998
from $0.3 million in 1997. Depreciation of leased equipment increased
$698,000, to $858,000 in 1998 from $160,000 in 1997.
Interest income decreased $44,000, or 14.7%, to $258,000 in 1998 from
$302,000 in 1997.
Other income increased $21,000, or 34.1%, to $84,000 in 1998 from $63,000 in
1997.
Interest expense decreased $114,000, or 14.0%, to $929,000 in 1998 from
$815,000 in 1997, primarily due to lower average borrowings under the
Company's warehouse credit facilities.
Provision for credit losses was $150,000 and $1.5 million in 1998 and 1997,
respectively. (See "Credit Losses").
Selling, general and administrative expenses increased $0.4 million, or
20.5%, to $2.4 million in 1998 from $2.0 million in 1997. Employee
compensation and related costs, including commissions, accounted for 64.0% and
68.7% of total selling, general and administrative expenses in 1998 and 1997,
respectively. The Company had 71 and 59 employees at June 30, 1998 and 1997,
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.
<PAGE>
Credit Losses
=============
Generally, an allowance for credit losses is established when financial
contracts are sold or securitized in transactions where the Company retains
recourse for losses, partial or otherwise. This initial estimate of future
losses reduces the gain recorded at the time sale. This allowance for credit
losses is included as a reduction of the Company's investment in securitized
receivables. If necessary, a provision for credit losses is charged against
earnings to maintain the allowance for credit losses at an amount management
believes necessary to absorb potential losses in the finance contract
portfolio.
Management evaluates the adequacy of the allowance for credit losses by
reviewing credit loss experience, delinquencies, the value of the underlying
collateral, including third party guarantees or insurance recoveries, the
level of finance contract portfolio, as well as, general economic conditions.
An account is reported as charged off at the time the account is to be
repurchased under the Company's recourse obligations of a securitization or
other structured financing transaction. The Company's recourse obligations
generally require an account to be repurchased if the lessee or borrower
declare bankruptcy, the collateral is repossessed, or the account becomes more
than 120 days past due.
At the time an account is charged-off, the initial charge-off is recorded net
of an estimated recovery that is expected to be realized in the future.
Examples of such recoveries include continuing payments from the lessee or
borrower, payments from guarantors, proceeds from the sale of equipment or other
collateral, and proceeds from insurance contracts. Estimated recoveries are
included in other receivables and totaled $5.0 million at June 30, 1998 and
December 31, 1997.
During 1997, Prime identified certain customers who had experienced significant
deterioration in their financial condition, which had adversely impacted their
ability to repay the financial obligations to the Company. The estimated losses
from these situations exceeded the balance of the allowance for credit losses.
Consequently, the Company recorded a $4.0 million provisions for credit losses
during the six months ended June 30, 1998.
Financial Condition
===================
The Company's financial condition will remain dependent upon certain critical
elements. First, the Company must continue to be able to access the capital
markets for recourse and non-recourse financing to fund future originations
and acquisitions 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. Prime 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
discounting of individual financial contracts.
Prime 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 noncancellable lease
or loan agreement from its customer, and (2) it has determined that the lease
or loan agreement (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.
<PAGE>
Liquidity and Capital Resources
===============================
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
The annual meeting of Prime Capital's shareholders was held on June 24, 1998.
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, William D. Smithburg,
Robert R. Youngquist and Mark P. Bischoff. Each director received at least
4,232,790 shares cast in favor of the motion, no shares were cast against
the motion and no more than 13,833 shares abstained.
The election of the accounting firm of KPMG Peat Marwick LLP as auditors of the
Company for the current fiscal year was voted upon and ratified. 4,115,823
shares were cast in favor of the motion, 130,200 shares were cast against the
motion and 600 shares abstained.
With regard to authorizing the Board of Directors to name a successor to the
Board vacancy, 4,239,923 shares were cast in favor of the motion, 6,700 shares
were cast against the motion and 0 shares abstained.
With regard to considering and acting upon a proposal to amend the Company's
by-laws to increase the number of Directors to six, 4,238,523 shares were cast
in favor of the motion, 7,800 shares were cast against the motion and 300 shares
abstained.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibit Index
Exhibit No. Description
11 Statement Regarding Computation of Per Share Earnings
27 Financial Data Schedule
b) Reports on Form 8-K
None.
<PAGE>
SIGNATURES
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 19, 1998 /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 19, 1998 /s/ James A. Friedman
James A. Friedman, Chief Executive Officer
<PAGE>
EXHIBIT 11
<TABLE>
PRIME CAPITAL CORPORATION
Computation of Earnings Per Share
(Unaudited)
<CAPTION> Three Months Six Months
Ended June 30, Ended June 30,
1998 1997 1998 1997
------------------------ ---------------------
<S> <C> <C> <C> <C>
Numerator:
Net income $ (457,028) (2,690,146) 282,876 492,420
Preferred dividends (56,875) (56,250) (113,125) (112,500)
--------- --------- -------- --------
Numerator for basic
and diluted earnings
per share-income
(loss) available to
common shareholders $ (513,903) (2,746,396) 169,751 379,920
========= ========= ========= ========
Denominator:
Denominator for basic
earnings per share-
weighted average shares 4,340,287 4,292,165 4,336,722 4,291,600
Effect of dilutive securities:
Options and warrants 604,170 575,202 612,668 562,937
--------- --------- --------- ---------
Dilutive potential
common shares 604,170 575,202 612,668 562,937
--------- --------- --------- ---------
Denominator for diluted
earnings per share-
adjusted weighted
average shares and
assumed conversions 4,944,457 4,867,367 4,949,390 4,854,537
========= ========= ========= =========
Basic earnings per share $ (0.12) (0.64) 0.03 0.08
========= ========== ========= =========
Diluted earnings per share $ (0.12) (0.64) 0.04 0.09
========= ========== ========= =========
</TABLE>
Options to purchase an average of 167,500 shares of common stock at prices
between $4.94 and $6.00 per share in 1998 were outstanding but were not
included in the computation of diluted earnings per share because the
options' exercise price was greater than the average market price of the
common shares and, therefore, the effect would be antidilutive. Options to
purchase an average of 11,300 shares of common stock at prices between
$5.88 and $5.95 per share in 1997 were outstanding but were not included in
the computation of diluted earnings per share because the options' exercise
price was greater than the average market price of the common shares and,
therefore, the effect would be antidilutive.
<PAGE>
This schedule contains summary financial information extracted from SEC
Form 10QSB and is qualified in its entirety by reference to such financial
statements. Individual data items on this schedule may not add up due to
rounding.
[ARTICLE]5
[PERIOD-TYPE] 6-MOS
[FISCAL-YEAR-END] DEC-31-1998
[PERIOD-END] JUN-30-1998
[CASH] 741,282
[SECURITIES] 0
[RECEIVABLES] 13,164,589
[ALLOWANCES] (2,688,074)
[INVENTORY] 0
[CURRENT-ASSETS] 0
[PP&E] 2,164,672
[DEPRECIATION] (1,440,550)
[TOTAL-ASSETS] 51,314,984
[CURRENT-LIABILITIES] 0
[BONDS] 5,000,000
[PREFERRED-MANDATORY] 0
[PREFERRED] 2,500,000
[COMMON] 221,351
[OTHER-SE] 3,850,280
[TOTAL-LIABILITY-AND-EQUITY] 51,314,984
[SALES] 0
[TOTAL-REVENUES] 7,576,346
[CGS] 0
[TOTAL-COSTS] 0
[OTHER-EXPENSES] 5,620,033
[LOSS-PROVISION] 150,000
[INTEREST-EXPENSE] 1,523,437
[INCOME-PRETAX] 169,751
[INCOME-TAX] 0
[INCOME-CONTINUING] 169,751
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 169,751
[EPS-PRIMARY] 0.04
[EPS-DILUTED] 0.03
