8
FORM 10-KSB
U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
(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: (847) 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 ended December 31, 1997 were $17,086,470.
The approximate market value of stock held by non-affiliates was
$11,124,000 based upon 2,069,590 shares held by such persons and a
closing price of the Common Stock on March 27, 1998 of $5.375. The number
of shares outstanding of the Registrant's $0.05 par value common stock at
December 31, 1997 was 4,302,065.
Exhibit Index is located on page 37. The total number of pages is 41.
PRIME CAPITAL CORPORATION
FORM 10-KSB
YEAR ENDED DECEMBER 31, 1997
INDEX
Item
Number Page
PART I
1. BUSINESS 2
2. PROPERTIES 7
3. LEGAL PROCEEDINGS 7
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 7
PART II
5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS 8
6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 8
7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 13
8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURES 13
PART III
9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 14
10. EXECUTIVE COMPENSATION AND OTHER INFORMATION 15
11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT 15
12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 15
13. EXHIBITS AND REPORTS ON FORM 8-K 16
OTHER INFORMATION
INDEPENDENT AUDITORS' REPORT 24
CONSOLIDATED BALANCE SHEETS 25
CONSOLIDATED STATEMENTS OF OPERATIONS 26
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY 27
CONSOLIDATED STATEMENTS OF CASH FLOWS 28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 29
EXHIBIT INDEX 37
SIGNATURES FOR ELECTRONIC SUBMISSION 38
EXHIBIT 21: SUBSIDIARIES OF THE REGISTRANT
39
EXHIBIT 23: CONSENT OF KPMG PEAT MARWICK LLP 40
SIGNATURES 41
PART I
Item 1. BUSINESS
General
Prime Capital Corporation is a diversified specialty finance
company that originates, aggregates and services loans,
installment purchase agreements and leases 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. Prime
seeks to become an effective business partner with its clients by
creating comprehensive programs and structures to develop,
promote and administer customer financing programs. Prime funds
its loan and lease receivables primarily by issuing asset-backed
securities to institutional investors.
Prime's target markets are those which are underserved and
underdeveloped, with the objective of developing niche markets
that combine high growth potential with credit and collateral
characteristics consistent with Prime's underwriting standards.
Prime utilizes its proven financial engineering capabilities to
structure transactions which mitigate risk while achieving
attractive spreads. Prime employs a disciplined approach that
allows growth with reasonably protected margins designed to avoid
the necessity of having to compete as either a risk absorber or
pure low cost producer.
The ability of the Company to generate net income is dependent on
a number of factors, including the following; (a) the volume of
originations of Financial Contracts ("Financial Contract
Volume"), (b) on a short-term basis, the net interest spread
between the cost of the warehouse facilities available to the
Company and the all-inclusive interest rate on the Financial
Contracts (the "Short-Term Interest Spread"); and on a long-term
basis, the difference between the implied rate or yield (after
factoring in various components such as expenses, required
reserves, subordination levels and the like) on the
securitizations sponsored by the Company and the weighted average
interest rate on the Financial Contracts sold into such
securitizations (the "Securitization Profit"), (c) the amount of
credit losses arising from delinquencies and defaults on the
Financial Contracts originated or purchased by the Company, and
(d) the expenses incurred by the Company in the operation of its
business, including salaries, commissions and other selling,
general and administrative expenses (collectively, "SG&A
Expenses").
The ability of the Company to generate an acceptable Financial
Contract Volume is, itself, dependent upon a number of factors,
including (i) the size, experience and expertise of its sales
staff, (ii) the availability of sufficient drawable amounts under
the Company's warehouse credit facilities to finance such
Financial Contract volume, (iii) the reluctance of the Company to
accept unattractive credit risk in respect of a particular
borrower or borrowers, (iv) the necessity of such Financial
Contracts to meet the requirements and criteria of a
securitization or other funding source and (v) the competition in
the financial market-place to provide financing to customers
(including competition from commercial banks, finance companies
and other suppliers of capital).
The ability of the Company to maintain an acceptable level of
Short-Term Interest Spread and to generate an acceptable level of
Securitization Profit is, itself, dependent upon a variety of
factors and considerations, including (i) competition in the
financial market-place, (ii) the borrowing cost to the Company
under its warehouse credit facilities, and (iii) the all-in cost
associated with the securitization of the Financial Contracts
originated and sold into such securitization.
The ability of the Company to decrease or eliminate credit risk
(and, thus, write-offs and write-downs of the assets) is highly
dependent on an effective system (and the employment and
retention of adequate personnel to implement and monitor such
system) to review, analyze and assess both the credit quality of
the borrowers and the continuing residual value of the equipment
or other items which form the security for the Financial
Contract. Securitization of a particular portfolio of Financial
Contracts significantly reduces the Company's exposure to credit
risk by transferring a substantial portion of such risk to the
purchasers of the securities. Additionally, any substantial
decrease in the credit quality of a previously-securitized
portfolio will impact the ability of the Company to realize
reserve fund amounts and would likely impact the ability of the
Company to sell all of the securities in future securitizations.
The ability of the Company to manage its expenses, including its
SG&A expenses, is a major factor in determining profitability.
Any decrease in such expenses must be balanced against the risk
associated with possible defections of key personnel and
inadequate staffing levels, particularly with respect to the
sales personnel. The Company believes that some portion of its
SG&A expenses is attributable to (i) the re-focusing of its
products lines, and (ii) the functional equivalent of research-
and-development with respect to new products and services offered
by the Company.
Marketing and Sales Activities
Prime's marketing group is organized into two primary business
units: Vendor Services Group ("VSG") and Structured Finance Group
("SFG").
1) Vendor Services Group builds and maintains formal
alliances for funding private label programs with manufacturers
or distributors each of whom directly or indirectly control the
distribution of the equipment. This allows Prime to capture the
financing opportunity at the point of sale.
2) Structured Finance Group works with other equipment
leasing companies, banks and captive finance companies to provide
project financings which are typically more complex than the
standard equipment lease-backed transaction. These transactions
are generally mid-ticket and larger.
Prime has developed considerable expertise in servicing the
financing needs of its core customers as well as the
corresponding need for equipment manufacturers to arrange
financing for their customers. Prime has established a niche in
markets underserved by the traditional capital providers and has
achieved beneficial synergies with vendors and providers of
capital. Accordingly, Prime has become well established in the
vendor financing, conduit financing, project financing, and asset
portfolio acquisition markets. This provides Prime with a broad
earnings base from complementary businesses, diversifies
portfolio risk and significantly enhances revenues and
profitability.
Credit Underwriting
Prime performs a credit review of prospective customers through
an examination of their financial statements and credit history,
and requests audited financials annually in order to keep current
on each customer's financial status. Since its inception, Prime
has originated or purchased financing contracts with
approximately 2,700 lessees/borrowers.
Prime's credit underwriting and risk management strategies have
historically proven to be extremely effective. The management of
Prime has a substantial and proven history of evaluating
portfolio and vendor risk and in structuring purchases or
programs in a manner that mitigates such risk. Prime's charge-
off history is indicative of its conservative credit philosophy.
Prior to 1997, Prime's credit losses had consistently been
nominal, totaling approximately 0.05% of the portfolio's average
outstanding contract balance.
In its second quarter report Form 10QSB, Prime disclosed that it
had identified customers who had experienced significant
deterioration in their financial condition thereby adversely
impacting their ability to repay financial obligations to Prime.
As a result, Prime initiated a special review of its underwriting
process. As part of this special review all troubled
transactions were re-underwritten, certain underwriting criteria
were adjusted and applied to new business, and the size of the
collection staff was increased. See Management's Discussion and
Analysis of Financial Condition and Results of Operations, Credit
Losses.
Corporate Operations and Portfolio Servicing
Services provided by the common back-room include documentation,
underwriting, credit review, portfolio administration/servicing
and capital funding of transactions. Prime has lowered its
transactional costs of doing business through centralizing those
functions that can benefit from economies of scale and
specialization of functions, but do not hinder the individual
group's marketing activities.
Lease Terms and Conditions
Substantially all leases and loans written by Prime are non-
cancelable, triple-net, full payout leases or loans under which
the aggregate rental due during the initial lease term exceeds
the acquisition cost of the related equipment. During 1997,
initial contract terms ranged from 12 to 84 months, with
approximately 31.6% of the Contracts, measured by Statistical
Calculation Date Aggregate Contract Value, having an average
initial term of 43 months.
Prime uses a master lease or loan agreement, the terms and
conditions of which are sometimes modified to accommodate a
particular lease or loan transaction. In substantially all
cases, the leases or loans are "triple net" leases or loans under
which the lessees or borrowers are obligated to: (i) remit all
rents due regardless of the performance of the equipment; (ii)
operate the equipment in compliance with the manufacturer's
instruction manuals and governmental rules and regulation; (iii)
maintain and service the equipment; (iv) insure the equipment
against casualty loss and provide public liability coverage for
bodily injury and property damage; and (v) pay directly or
reimburse the lessor for any property, use or similar taxes
associated with the equipment.
Under each master lease or loan agreement, in the event of a
default by a lessee or borrower, Prime may declare the lease or
loan in default and pursue its contractual remedies, including
repossession of the equipment.
The master lease or loan agreement gives the lessee or borrower
the right to enforce the warranties made by equipment vendors and
manufacturers. Prime makes no representations or warranties to
the lessee or borrower regarding marketability, fitness for any
purpose, condition, quality, delivery or installation of the
equipment. The equipment is delivered from the supplier directly
to the lessee or borrower and, following the lessee's or
borrower's acceptance of the equipment, Prime pays the purchase
price to the supplier. In the case of leases, Prime maintains
title to the equipment throughout the lease term, while in the
case of loans, Prime maintains a lien and perfected security
interest in the equipment throughout the term of the loan. A
lease may also provide for the renewal of the lease and/or the
purchase of the equipment at the end of the initial lease term.
Residual Terms
Prime has standardized its lease contracts in the following four
categories:
Balloon Payment: Under this provision the lessee is obligated to
purchase the leased equipment at the end of the lease term for a
predetermined price which is greater than the monthly rental
payment paid by the lessee during the term of the lease. The
amount of the final balloon payment is an unconditional promise
of the lessee.
Bargain Purchase Option: This option gives the lessee the right,
but not the obligation, to purchase the equipment at lease
maturity for a price below the expected fair market value. This
provision, the most common provision in a finance lease, is often
referred to as a dollar buyout lease, for it commonly allows the
lessee to purchase the equipment for a nominal amount. The lease
payments are structured to fully amortize the equipment cost over
the term of the lease. The lessee pays a greater amount for use
of the equipment, but effectively obtains the ownership of the
equipment at lease maturity.
Fixed Price Purchase Option: This provision gives the lessee the
right, but not the obligation, to purchase the equipment at the
end of the lease term for a predetermined price. This provision
may characterize either a finance or an operating lease.
Fair Market Value Purchase Option: This provision gives the
lessee the right, but not the obligation, to purchase the
equipment at the end of the lease term at its then fair market
value. This is the most common termination provision in an
operating lease. This provision allows Prime to retain the
upside potential of the equipment value.
Prime also structures certain financing transactions as loans
with a note and security agreement as the underlying
documentation. Loan agreements require the full amortization of
the equipment cost (generally the loan principal balance) during
the term of the agreement. Title to the equipment is held by the
borrower, with the lender having a perfected security interest in
and lien upon the equipment. Upon maturity, the security
interest is released and the equipment is owned by the borrower.
Types of Equipment Leased
The Company typically originates Financial Contracts that have an
original contract balance ranging from approximately $50,000 to
$5,000,000 or greater.
The assets that Prime finances for its clients varies within the
medical, communications, specialty vehicle, hospitality/gaming
and software industries. Prime's Structured Finance Group
finances medical devices used in the treatment of patients and
computer systems for the general operation of hospitals. The
Structured Finance Group also provides financing for casino and
route operators in the gaming industry as well as heating and
cooling equipment for energy management applications. Slot
machines and other furniture & fixtures are the most common
assets included in the gaming contracts. The heating and cooling
equipment is composed of boilers, chillers and the specialized
computers needed for climate control and monitoring. Prime's
Vendor Services Group finances the assets manufactured or
distributed by its clients, including, without limitation,
software for corporate applications, furniture and fixtures for
hospitality, voice mail systems, telephone systems and telephone
switches. The table below shows the distribution of equipment
type stated as a percentage of the initial contract value for the
securitization (March 1997) and whole-loan sale (September 1997)
transactions completed during the year ended December 31, 1997.
Equipment Type March September
1997 1997
------------------------ ------ ---------
Medical 34% 13%
Computer 9 19
Gaming 15 11
Energy Management 3 6
Software 4 12
Furniture, Fixtures &
Physician Practices 20 6
Telecommunications 11 25
Other 4 8
Customers
Since its inception, the Company has entered into financing
transactions with over 2,700 customers.
Employees
As of December 31, 1997, the Company had 62 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 (i) finance divisions,
affiliates and subsidiaries of equipment manufacturers, (ii)
banks, their affiliates or subsidiaries, several of which lend
funds to the Company, (iii) other leasing and finance companies,
(iv) companies and state agencies which sponsor tax-exempt
financing or other investor programs for the acquisition and
lease of equipment, and (v) 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: a) its knowledge of the
marketplace, b) the education, training and experience of its
personnel, c) the relationship and reputation it has established
for service and keeping its commitments with customers and
vendors, and d) its flexibility and adaptability to the special
needs of its institutional and technologically-oriented
customers.
Item 2. PROPERTIES
The Company's leased corporate headquarters occupied
approximately 14,500 square feet of space in an office building
located in Rosemont, Illinois (a suburb of Chicago) near O'Hare
International Airport. The lease, which expired on December 31,
1996, has been extended pursuant to a seven-year renewal. In
1997, the Company exercised its option to lease 4,900 square feet
of additional space contiguous with the existing space. The
Company also leases sales offices in Duluth, Georgia and Albany,
New York.
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.
PART II
Item 5 MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
(a) Market Information
The Common Stock was traded on the NASDAQ National Market System
until July 23, 1992 at which time the Common Stock was removed
from the National Market System 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
traded on the NASDAQ Bulletin Board. On June 5, 1996, the Common
Stock once again began trading on the Nasdaq SmallCap Market tier
of the Nasdaq Stock Market under the symbol: PMCP. The following
table summarizes the quarterly price range of the Common Stock
for 1997 and 1996.
1997 1996
------------------ ------------------
Quarter High Low High Low
------- ------- ------- ------- -------
First $6 1/8 $4 $4 $1 5/8
Second 7 1/2 4 3/4 6 3 1/2
Third 6 1/4 4 7/8 6 4 3/4
Fourth 6 5/8 5 6 1/4 4 3/4
(b) Holders
As of December 31, 1997, there were approximately 400 holders of
record of common stock.
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
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.
Sales and Securitizations of Financial Contracts Completed During
the Years Ended December 31, 1997, 1996, And 1995
The following table summarizes the sale and securitization of
Financial Contracts completed during the years ended December 31,
1997, 1996, and 1995.
Years Ended December 31,
(Amounts in thousands)
Description Date 1997 1996 1995
- --------------------- --------------- --------- ------- ------
Prime Finance
Corporation 1995-1 March, 1995 $ 0 0 56,726
Prime Finance
Corporation 1995-A January, 1996 0 85,273 0
Prime Finance
Corporation 1996-A December, 1996 0 66,322 0
Prime Finance
Corporation 1997-A March, 1997 77,476 0 0
Private whole-loan
sale September, 1997 44,017 0 0
True sale facility December, 1997 12,091 0 0
--------- ------- ------
Subtotal 133,584 151,595 56,726
Other sale transactions Various 44,046 36,382 36,791
--------- ------- ------
Total $ 177,630 187,977 93,517
========= ======= ======
Year Ended December 31, 1997 Compared With Year Ended December
31,1996
The Company activated Financial Contracts totaling $144.1 million
in 1997, a decrease of 20.7% from the $181.8 million activated in
1996.
Fee income increased $0.2 million, or 2.1% to $10.3 million in
1997 from $10.1 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 $177.6
million and $188.0 million in 1997 and 1996, respectively.
Direct financing lease income increased $1.0 million, or 29.0%,
to $4.5 million in 1997 from $3.5 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 decreased $0.2 million, or 14.8%, to
$1.0 million in 1997 from $1.2 million in 1996. There was a
corresponding decrease in depreciation of leased equipment of
$95,000, or 15.6%, to $513,000 in 1997 from $608,000 in 1996.
Interest income decreased $0.1 million, or 8.6%, to $1.0 million
in 1997 from $1.1 million in 1996.
Other income decreased $153,000, or 33.8%, to $301,000 in 1997
from $454,000 in 1996.
Interest expense decreased $0.1 million, or 3.6%, to $3.5 million
in 1997 from $3.7 million in 1996. Interest related to
subordinated debt totaled $633,681 in 1997. (See "Liquidity and
Capital Resources.")
The Company recorded a provision for credit losses of $7.0
million in 1997, compared with a $0.3 million provision recorded
in 1996. (See "Credit Losses.")
Selling, general and administrative expenses increased $1.0
million, or 13.0%, to $8.6 million in 1997 from $7.6 million in
1996. Employee compensation and related costs, including
commissions, accounted for 63.4% and 63.1% of total selling,
general and administrative expenses in 1997 and 1996,
respectively. The Company had 62 and 52 employees at December
31, 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 $229,000 for dividends declared payable to holder of preferred
stock. Preferred stock dividends declared payable were $56,000
for 1996. (See "Liquidity and Capital Resources.")
Year Ended December 31, 1996 Compared With Year Ended December
31,1995
The Company activated Financial Contracts totaling $181.8 million
in 1996, an increase of 21.1% from the $150.1 million activated
in 1995.
Fee income increased $6.9 million to $10.1 million in 1996 from
$3.2 million in 1995. Fee income includes gains from the sale of
Financial Contracts. The initial value of the contracts sold was
$188.0 million and $93.5 million in 1996 and 1995, respectively.
Direct financing lease income increased $2.1 million, or 146.2%,
to $3.5 million in 1996 from $1.4 million in 1995. 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 $0.5 million, or 60.2%, to
$1.2 million in 1996 from $0.7 million in 1995. There was a
corresponding increase in depreciation of leased equipment of
$291,000, or 91.6%, to $608,000 in 1996 from $317,000 in 1995.
Interest expense increased $2.5 million to $3.7 million in 1996
from $1.2 million in 1995. Interest related to subordinated debt
totaled $156,250 and $0 in 1996 and 1995, respectively. (See
"Liquidity and Capital Resources.")
Selling, general and administrative expenses increased $0.8
million, or 13.1%, to $7.6 million in 1996 from $6.8 million in
1995. Employee compensation and related costs, including
commissions, accounted for 63.1% and 56.6% of total selling,
general and administrative expenses in 1996 and 1995,
respectively. The Company had 52 and 44 employees at December 31,
1996 and 1995, 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 1996, earnings available for common shareholders was reduced
by $56,000 for dividends declared payable to the holder of
preferred stock. There were no preferred dividends declared
payable for 1995. (See "Liquidity and Capital Resources.")
Credit Losses
An allowance for credit losses is initially 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. 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.
During 1997, Prime identified certain customers who had
experienced significant deterioration in their financial
condition, which has 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 an additional
$7.0 million provision for credit losses during the year ended
December 31, 1997.
For three of the more significant 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.
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.
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 issuance of asset-backed securities, (2) portfolio
sales, (3) program financings, and (4) the 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 noncancelable 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.
Liquidity and Capital Resources
In October, 1996, Prime 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 One 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.
In November 1997, the Company entered into a $75.0 million credit
facility. The facility allows the Company, on an ongoing basis,
to transfer and sell finance lease receivables to a wholly-owned,
bankruptcy remote, special purpose entity, Prime Receivables
Finance Corporation I, which will sell such receivables to one or
more trusts. Each trust will issue two classes of certificates
of beneficial ownership, a senior certificate and a residual
interest that will be owned by the Company. Transfers and sales
of finance lease receivables pursuant to the facility are
accounted for as sales under generally accepted accounting
principles and the related gains on the sale are recognized on
the date of such transfers.
In January 1998 and February 1998, the Company entered into two
new warehouse credit facilities totaling $80.0 million. Both
credit facilities will be used to fund Financial Contracts that
arise during the normal course of business. These agreements
replaced and supplemented a $65.0 million credit facility that
matured on December 31, 1997. After completing these two
agreements the Company had a total of $158.0 million of available
credit under four separate agreements.
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 credit facilities.
Prime expects to continue using securitization as a means of
permanently funding a significant portion of its Financial
Contracts. The Company is also exploring other sources of
liquidity to satisfy its ongoing need for additional capital
resources.
Item 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements of the registrant and the
report thereon of KPMG Peat Marwick LLP are filed as part of this
annual report on Form 10-KSB:
Consolidated Balance Sheets - December 31, 1997 and 1996
Consolidated Statements of Operations - Years ended December 31,
1997, 1996 and 1995
Consolidated Statements of Stockholders' Equity - Years ended
December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows - Years ended December 31,
1997, 1996 and 1995
Notes to Consolidated Financial Statements
Item 8 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURES
Not applicable.
PART III
Item 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors of the Registrant
Principal Occupation During Past Director
Name Five Years and Other Information Age since
James A. Friedman President and Chief Executive 52 1978
Officer of the Company or its
predecessor since November 1978.
William D. Smithburg Former Chairman and CEO of The 59 1986
Quaker Oats Company from 1983 to
1997 and Chief Executive Officer
thereof from 1981 to 1997; Director
of Abbott Laboratories, The
Northern Trust Corporation and
Corning Incorporated.
Robert R. Youngquist Practicing Orthodontist and owner 49 1978
D.D.S. of Robert R. Youngquist D.D.S.,
Ltd. during the past six years.
Mark P. Bischoff Senior Managing Partner of 51 1996
Bischoff, Maurides & Swabowski,
Ltd. since 1988; Secretary of the
Board of Directors and General
Counsel of the Company since 1986.
Leander W. Jennings was a member of the Board of Directors from
1986 until his death in December 1997.
Executive Officers of the Registrant
Principal Occupation During Past Five
Name of Officer Years and Other Information Age
James A. Friedman President and Chief Executive Officer of 52
the Company or its predecessor since
November 1978.
John W. Altergott Senior Vice President of the Company 38
since January 1996. Vice President of
the Healthcare Finance Group of Prime
Capital Corporation since March 1988.
Vern E. Landeck Vice President and Chief Financial 39
Officer of the Company since July 1997.
Vice President - Treasurer of the Company
from June 1996 through June 1997.
President of Atlantic Capital Exchange,
Inc. 1988 to 1996.
Philip M. Dinielli Vice President of Operations of the 39
Company since December 1997. Began
employment with Prime Capital in 1988,
serving in various management capacities,
most recently as Vice President of Credit
and Underwriting Operations.
Thomas R. Ehmann Vice President - Finance of the Company 45
since June of 1997. Vice President and
Chief Financial Officer of First
Merchants Acceptance Corp. from 1992 to
1997.
Item 10 EXECUTIVE COMPENSATION AND OTHER INFORMATION
Information regarding executive compensation is incorporated
herein by reference to the descriptions set forth under the
caption "Executive Compensation" in the 1998 Proxy Statement.
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Information regarding security ownership of certain beneficial
owners and management of the Company is incorporated herein by
reference to the information set forth under the caption
"Security Ownership of Certain Beneficial Owners and Management"
in the 1998 Proxy Statement.
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related
transactions with the Company is incorporated herein by reference
to the information set forth under the caption "Certain
Transactions" in the 1998 Proxy Statement.
Item 13. EXHIBITS AND REPORTS ON FORM 8-K
1. Financial Statements
The following financial statements of Prime Capital Corporation
and subsidiaries are filed as part of this annual report on Form
10-KSB:
Sequential
Page No.
----------
a) Independent Auditors' Report 24
b) Consolidated Balance Sheets as of
December 31, 1997 and 1996
25
c) Consolidated Statements of Operations
for the years ended December 31, 1997,
1996 and 1995 26
d) Consolidated Statements of Stockholders'
Equity for the years ended
December 31, 1997, 1996 and 1995 27
e) Consolidated Statements of Cash Flows
for the years ended December 31, 1997,
1996 and 1995 28
f) Notes to Consolidated Financial Statements 29
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 39 through 40.
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, 1997
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,
1997 and 1996, 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, 1997. 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, 1997 and 1996, and the results of their operations
and their cash flows for each of the years in the three-year
period ended December 31, 1997 in conformity with generally
accepted accounting principles.
KPMG PEAT MARWICK LLP
Chicago, Illinois
March 27, 1998
<TABLE>
PRIME CAPITAL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
<CAPTION>
December 31,
--------------------------
ASSETS 1997 1996
------------- ------------
<S> <C> <C>
Cash and cash equivalents $ 3,572,553 7,063,398
Receivables:
Operating lease rentals 115,930 172,758
Other 8,049,271 4,428,668
Net investment in direct financing
leases and loans 17,881,502 56,004,417
Investment in securitized receivables,
including restricted cash 7,799,195 10,712,116
Leased equipment, net of accumulated
depreciation 4,188,097 1,370,289
Deposits on equipment 1,370,326 134,487
Equipment and furniture, net of
accumulated depreciation 720,725 364,499
Other assets 2,133,957 761,317
------------- ------------
Total assets $ 45,831,556 81,011,949
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable 16,357,347 46,418,920
Accounts payable for equipment 6,565,270 7,780,691
Accrued expenses and other liabilities 8,244,271 8,162,837
Deposits and advances 2,415,476 4,592,210
------------- ------------
33,582,364 66,954,658
Subordinated debt 5,000,000 5,000,000
------------- ------------
Total liabilities 38,582,364 71,954,658
------------- ------------
Stockholders' equity
Preferred stock $100 par value:
authorized 250,000 shares;
issued 25,000 shares 2,500,000 2,500,000
Common stock, $0.05 par value:
authorized 10,000,000 shares;
issued 4,396,265 and 4,384,365
shares in 1997 and 1996, respectively 219,813 219,218
Additional paid-in capital 9,483,852 9,480,675
Accumulated deficit (5,659,673) (2,842,802)
Unrealized gain on securities 1,005,000 0
Treasury stock, at cost; 94,200 shares
at December 31, 1997 and 1996 (299,800) (299,800)
------------- ------------
Total stockholders' equity 7,249,192 9,057,291
Total liabilities and stockholders'
equity $ 45,831,556 81,011,949
============= ============
</TABLE>
See accompanying notes to consolidated financial statements
<TABLE>
PRIME CAPITAL CORPORATION AND SUBSIDIARIES
Consolidated statements of Operations
<CAPTION>
Years Ended December 31,
------------------------------------
1997 1996 1995
------------ ----------- -----------
<S> <C> <C> <C>
Revenues:
Fee Income $10,296,305 10,087,077 3,249,544
Direct finance leases
and loans 4,534,897 3,514,885 1,427,943
Rentals on operating
leases 987,574 1,158,419 723,265
Interest income 966,925 1,057,437 754,484
Other income 300,769 454,211 286,110
------------ ----------- -----------
Total revenues 17,086,470 16,272,029 6,441,346
------------ ----------- -----------
Expenses:
Depreciation of leased
equipment 513,193 607,795 317,181
Interest 3,521,361 3,650,901 1,200,662
Selling, general and
administrative 8,640,037 7,645,275 6,759,736
Provision for credit losses 7,000,000 342,000 0
------------ ----------- -----------
Total expenses 19,674,591 12,245,971 8,277,579
Income (loss) before income
taxes and dividends (2,588,121) 4,026,058 (1,836,233)
Income taxes 0 0 0
------------ ----------- -----------
Net income (loss) $(2,588,121) 4,026,058 (1,836,233)
============ =========== ===========
Basic earnings (loss) per
share $ (0.66) 0.93 (0.43)
============ =========== ===========
Diluted earnings (loss)
per share $ (0.66) 0.85 (0.43)
============ =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
PRIME CAPITAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years Ended December 31, 1997, 1996 and 1995
<CAPTION>
Additional Accumu- Unrealized
Total
Preferred Common paid-in lated Gains on Treasury
Shareholders
Stock Stock capital deficit Securities Stock
Equity
--------- ------- --------- ---------- ---------- --------- -
- ----------
<S> <C> <C> <C> <C> <C> <C>
<C>
Balance at
December 31, 1994 0 218,718 9,681,225 (4,977,002) 0 (299,800)
4,623,141
Net loss 0 0 0 (1,836,233) 0 0
(1,836,233)
Balance at
December 31, 1995 0 218,718 9,681,225 (6,813,235) 0 (299,800)
2,786,908
Net income 0 0 0 4,026,058 0 0
4,026,058
Cash dividends-
preferred 0 0 0 (55,625) 0 0
(55,625)
Exercise of options 0 500 2,163 0 0 0
2,663
Issuance of
preferred stock 2,500,000 0 (202,713) 0 0 0
2,297,287
Balance at
December 31, 1996 2,500,000 219,218 9,480,675 (2,842,802) 0 (299,800)
9,057,291
Net loss 0 0 0 (2,588,121) 0 0
(2,588,121)
Cash dividends-
preferred 0 0 0 (228,750) 0 0
(228,750)
Exercise of options 0 595 3,177 0 0
3,772
Unrealized gain on
securities 0 0 0 0 1,005,000 0
1,005,000
Balance at
December 31, 1997 2,500,000 219,813 9,483,852 (5,659,673) 1,005,000 (299,800)
7,249,192
</TABLE>
See accompanying notes to consolidated financial statements
<TABLE>
PRIME CAPITAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended December 31,
1997 1996 1995
------------ ------------ -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income (loss) $ (2,588,121) 4,026,058 (1,836,233)
Adjustments to reconcile
net income (loss) to net
cash used in operating
activities:
Depreciation of leased
equipment 513,193 607,795 317,181
Other depreciation and
amortization 218,630 146,555 120,528
Amortization of debt
financing fees 121,563 30,719 0
Non cash gain on
securitization (2,850,064) (4,859,389) (1,834,317)
Provision for credit loss 7,000,000 342,000 0
Changes in assets and
liabilities:
Rentals on leased
equipment and other
receivables (2,609,405) (4,366,474) 75,023
Other assets (511,828) (196,605) 621,177
Accrued expenses and
other liabilities 81,431 4,167,320 2,250,374
------------ ------------ -------------
Net cash used in operating
activities (624,601) (102,021) (286,267)
CASH FLOWS FROM INVESTING
ACTIVITIES
Cost of equipment acquired
for lease (146,861,738)(178,734,731)(132,147,837)
Customer deposits and
payments on direct
finance leases and loans 9,793,153 10,806,507 4,795,648
Purchase of equipment and
furniture (514,884) (225,455) (133,103)
Proceeds from sales of
finance receivables 165,003,773 178,562,299 77,417,405
------------ ------------ -------------
Net cash provided by
(used in) investing
activities 27,420,304 10,408,620 (50,067,887)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from issuance of
subordinated debt 0 5,000,000 0
Net proceeds from issuance
of preferred stock and
warrants 0 2,297,287 0
Proceeds from exercise of
options 3,775 2,663 0
Payment of debt financing
fees 0 (608,143) 0
Preferred stock dividends (228,750) (55,625) 0
Proceeds from (reduction
in) notes payable, net (30,061,573) (11,881,332) 50,410,750
------------ ------------ -------------
Net cash provided by (used
in) financing activities (30,286,548) (5,245,150) 50,410,750
Increase (decrease) in
cash and cash equivalents (3,490,845) 5,061,449 56,596
Cash and cash equivalents:
Beginning of year 7,063,398 2,001,949 1,945,353
------------ ------------ -------------
End of year $ 3,572,553 7,063,398 2,001,949
============ ============ =============
Cash paid during the year
for interest $ 3,827,759 3,030,240 1,225,401
============ ============ =============
</TABLE>
See accompanying notes to consolidated financial statements
PRIME CAPITAL CORPORATION
Notes to Consolidated Financial Statements
Years Ended December 31, 1997, 1996 and 1995
(1) Summary of Significant Accounting Policies
Prime Capital Corporation, through its wholly-owned
subsidiaries, is engaged principally in providing financial
services to non-consumer customers throughout the United
States. The Company's primary focus is on providing
specialty and high value-added financial products that are
targeted to specific needs within selected markets. The
Company is primarily engaged in the business of originating
or, in some cases, purchasing leases, secured loans or
installment purchase agreements (collectively, "Financial
Contracts"), warehousing such Financial Contracts, and
ultimately securitizing (or, in some cases, selling
outright) such Financial Contracts. The accompanying
consolidated financial statements include the accounts of
Prime Capital Corporation and its wholly-owned subsidiaries,
and certain of its special purpose subsidiaries that have
been incorporated to facilitate the sale or securitization
of Financial Contracts ("Prime" or the "Company"). All
material intercompany transactions have been eliminated.
(a) Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results
could differ from those estimates.
(b) Direct Financing Leases and Loans
Loans and 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 consolidated balance sheet the total loan or 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 payments, plus the estimated residual
expected to be realized at the end of the lease term, over
the cost of the related equipment or initial principal
balance. Unearned income is recognized as revenue over the
term of the contract 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 or loans and amortized over the lease term
as a reduction in yield.
(c) Operating Leases
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.
(d) Gain on Sale of Finance Receivables
The Company generally sells or assigns the Financial
Contracts it acquires or originates through securitization
and other structured finance transactions. Gains on the
sale or securitization of Financial Contracts are included
in fee income in the consolidated statement of operations.
In a securitization transaction, the Company sells and
transfers a pool of Financial Contracts to a wholly-owned,
bankruptcy remote, special purpose subsidiary. This
subsidiary in turn simultaneously sells and transfers its
interest in the Financial Contracts to a trust which issues
beneficial interests in the Financial Contracts in the form
of senior and subordinated securities. The Company
generally retains the residual interest in the Financial
Contracts.
Gains on sale of Financial Contracts sold through
securitization transactions are recorded as the difference
between the proceeds received from the sale of senior and
subordinated securities including amounts deposited in
restricted cash reserve accounts, plus the estimated value
of excess cash flows, less future losses expected to arise
from recourse obligations related to the sale of the
Financial Contracts and related insurance expenses, and the
carrying value of the Financial Contracts.
On January 1, 1997, the Company adopted SFAS No. 125,
"Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities" ("SFAS 125"). SFAS 125
provides consistent standards for distinguishing transfers
of financial assets that are sales from transfers that are
secured borrowings. Under SFAS 125, after a transfer of
financial assets, an entity recognizes the financial and
servicing assets it controls and the liabilities it has
incurred, derecognizes financial assets when control has
been surrendered, and derecognizes liabilities when
extinguished. SFAS 125 prohibits early application and,
accordingly, the Company adopted this standard for
transactions which occurred after December 31, 1996. Under
SFAS 125, a transfer of lease assets in which the transferor
surrenders control of the lease assets is accounted for as a
sale and the transferred lease assets are removed from the
balance sheet with the resulting gain or loss on sale
reflected in the statement of operations.
The company also enters into transactions to sell Financial
Contracts, either in single contract or pool transactions.
Gains on such contracts are calculated as the difference
between the proceeds received, net of related selling
expenses, and the carrying amount of the related Financial
Contracts adjusted for ongoing recourse obligations of the
Company, in any.
(e) Allowance for Credit Losses
An allowance for credit losses is initially 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. 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.
(f) Portfolio Servicing Fees
The Company generally agrees to continue servicing the
receivable portfolio it has sold or securitized. Servicing
fees are received monthly and recorded as fee income as
earned.
(g) Cash and Cash Equivalents
Cash and cash equivalents are comprised of highly liquid
instruments with original maturities of 90 days or less.
(h) Restricted Cash
In connection with each securitization completed by the
Company, certain cash reserves are set aside for credit
enhancement of the securitization pools. These reserve
balances are reported as restricted cash and included in the
Company's net investment in securitized receivables. Cash
reserve accounts are initially funded from the proceeds
received from the securitization and are increased by the
excess spread realized from the receipt of payments from
borrowers or lessees over the payments due to the
securitization bondholders. In the event of default or
delinquency by a borrower or lessee, payments to the
bondholder are disbursed from the cash reserve fund.
Typically, the cash reserve funds become available as
unrestricted cash to the Company once all contracts in the
securitization pool are paid in full, however, payout is
sometimes sooner depending upon the specific pool indenture
agreement.
(i) Investments
The Company has classified its entire investment portfolio
as available-for-sale. Available-for-sale securities are
stated at fair value with unrealized gains and losses
included in stockholders' equity. Fair value of the
securities is determined based on market prices. Securities
for which a readily determinable market price is not
available are recorded at cost.
(j) Income Taxes
The Company uses the asset and liability method to account
for income taxes. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax
basis. The measurement of deferred tax assets is reduced,
if necessary, by a valuation allowance for any tax benefits
of which future realization is uncertain.
(k) Net Income (Loss) per Common Share
In 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings Per Share" ("SFAS 128"). SFAS
128 replaced the calculation of primary and fully diluted
earnings per share with basic and diluted earnings per
share. Unlike primary earnings per share, basic earnings
per share exclude any dilutive effect of options and
warrants. Diluted earnings per share are very similar to
the previously reported fully diluted earnings per share.
Earnings per share amounts for all periods have been
restated to conform to the SFAS 128 requirements.
(l) Financial Instruments
The carrying value of the Company's financial instruments
approximates their fair value.
(m) Stock Based Compensation
The Company uses the intrinsic value based method of
accounting for its stock-based compensation arrangements as
promulgated by the Accounting Principles Board ("APB")
Opinion No. 25 and related Interpretations.
(n) Reclassifications
Certain 1996 and 1995 amounts have been reclassified to
conform to the 1997 presentation.
(2) Net Investment in Direct Financing Leases and Loans
The components of the net investment in direct financing
leases and loans as of December 31 were as follows:
<TABLE>
<CAPTION>
1997 1996
------------- ------------
<S> <C> <C>
Minimum lease and loan payments $ 21,849,420 73,784,482
Estimated unguaranteed residual
value of leased equipment 512,708 231,961
Initial direct costs 6,576 22,875
Unearned income (4,477,202) (18,024,901)
Allowance for uncollectible
accounts (10,000) (10,000)
------------- -----------
Net investment in direct
financing leases and loans $ 17,881,502 56,004,417
============= ===========
</TABLE>
The Financial Contracts in the Company's portfolio consists
primarily of medical, telecommunication and other equipment
with average initial contract terms of 46 months.
The following table summarizes the minimum lease and loan
payments to be received and the estimated unguaranteed
residual values of maturing direct financing leases and
loans in each of the next five years and thereafter:
<TABLE>
<CAPTION>
Estimated
Minimum Unguaranteed
Years Ending Lease and Residual
December 31, Loan Payments Values
------------ -------------- ------------
<S> <C> <C>
1998 $ 6,076,050 22,175
1999 5,078,984 29,699
2000 3,991,445 128,061
2001 2,759,991 6,632
2002 2,132,370 273,278
Thereafter 1,810,580 52,863
------------ -------------- ------------
Total $ 21,849,420 512,708
============ ============== ============
</TABLE>
(3) Leased Equipment, Net of Accumulated Depreciation
<TABLE>
<CAPTION>
1997 1996
----------- ----------
<S> <C> <C>
Equipment under operating leases $ 4,214,274 1,449,174
Accumulated depreciation (26,177) (78,885)
----------- ----------
Net $ 4,188,097 1,370,289
=========== ==========
</TABLE>
At December 31, 1997, the minimum lease payments to be
received under operating leases for each of the next five
years and thereafter were as follows:
<TABLE>
<CAPTION>
Years Ending Minimum Lease
December 31, Payments
------------ --------------
<S> <C>
1998 $ 1,205,363
1999 1,067,783
2000 753,834
2001 459,573
2002 182,653
Thereafter 0
--------------
Total $ 3,669,206
==============
</TABLE>
(4) Net Investment in Securitized Receivables, Including
Restricted Cash.
The components of net investment in securitized receivables as of
December 31 were as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Restricted cash $ 6,745,049 7,873,004
Reserve advances 1,057,439 973,369
Notes receivable 1,215,145 0
Servicer advances 239,707 356,309
Estimated excess spread 1,041,359 2,898,428
Allowance for credit losses (2,499,504) (1,388,994)
----------- -----------
Total $ 7,799,195 10,712,116
=========== ===========
</TABLE>
(5) Allowance for Credit Losses
<TABLE>
<CAPTION>
1997 1996 1995
---------- --------- ---------
<S> <C> <C> <C>
Balance at beginning
of year $ 1,998,994 1,120,767 1,005,712
Initial reserves
charged against gains
on sales of finance
receivables 1,688,890 776,367 115,055
Additional provisions
for credit losses 7,000,000 342,000 0
Charge-offs, net of
estimated recoveries (8,178,380) (240,140) 0
---------- --------- ---------
Balance at end of year $ 2,509,504 1,998,994 1,120,767
========== ========= =========
</TABLE>
At December 31, 1997 and 1996, loss reserves were included
as components of the net investment in securitized
receivables and net investment in direct financing leases
and loans. Also at December 31, 1996, $600,000 of loss
reserves were included in accrued expenses and other
liabilities. Estimated recoveries are included in other
receivables and totaled $5,087,590 and $195,659 at December
31, 1997 and 1996, respectively.
(6) Investments Available-for-Sale
At December 31, 1997, the Company held available-for-sale
securities with estimated fair values of $1,005,000
consisting entirely of gross unrealized gains attributable
to warrants to acquire shares of common stock of a customer
of the Company. The warrants were received by the Company in
connection with the origination of a leasing transaction.
At the date the warrants were received by the Company they
were determined to have no material value. There were no
securities available-for-sale at December 31, 1996.
Available-for-sale securities are reported in other assets.
(7) Notes Payable
Notes payable consisted of the following as of December 31:
<TABLE>
<CAPTION>
1997 1996
------------ ----------
<S> <C> <C>
Warehouse Credit Facilities $ 14,387,021 46,282,960
Other 1,970,326 135,960
------------ ----------
Total $ 16,357,347 46,418,920
============ ==========
</TABLE>
The underlying equipment and lease or loan contracts secure
borrowings under the warehouse credit facilities. The
weighted average interest at December 31, 1997 was 8.07% per
annum. The warehouse credit facilities contain certain
covenants and restrictions with which the Company must
comply, see Note 8 to the consolidated financial statements.
In November 1997, the Company entered into a $75.0 million
credit facility. The facility allows the Company, on an
ongoing basis, to transfer and sell finance lease
receivables to a wholly-owned, bankruptcy remote, special
purpose entity, Prime Receivables Finance Corporation I,
which will sell such receivables to one or more trusts.
Each trust will issue two classes of certificates of
beneficial ownership, a senior certificate and a residual
interest that will be owned by the Company. Transfers and
sales of finance lease receivables pursuant to the facility
are accounted for as sales under generally accepted
accounting principles and the related gains on the sale are
recognized on the date of such transfers.
In January 1998 and February 1998, the Company entered into
two new warehouse credit facilities totaling $80.0 million.
Both credit facilities will be used to fund Financial
Contracts that arise during the normal course of business.
These agreements replaced and supplemented a $65.0 million
credit facility that matured on December 31, 1997. After
completing these two agreements the Company had a total of
$158.0 million of available credit under four separate
agreements.
(8) Subordinated Debt and Preferred Stock with Warrants
On October 4, 1996, Prime received $7,500,000 cash and
incurred approximately $800,000 in expenses, in exchange for
a $5.0 million principal amount of five year, 12.5%
subordinated debentures and 25,000 shares of $100 par value
9.0% Dividend non-voting Preferred Stock with warrants to
purchase 499,606 shares of the Company's common stock at
$1.00 per share. Expenses related to the transaction were
allocated between the subordinated debt, preferred stock and
warrants based upon their fair value. Expenses allocated to
the subordinated debt were capitalized and are being
amortized over five years. The unamortized balance of these
expenses were included in other assets on the Company's
consolidated balance sheets at December 31, 1997 and 1996
and amortization of $121,563 and $30,719 respectively is
included in interest expense on the Company's consolidated
statements of operations. The warrants are exercisable in
March 1998.
The Company's various debt agreements contain restrictions
on, among other things, the payment of dividends and the
amount of recourse indebtedness that can be incurred.
Furthermore, the Company is required to maintain a minimum
adjusted tangible net worth (as defined), and the Company
may not exceed a specified ratio of total recourse
liabilities (as defined) to adjusted tangible net worth and
is required to maintain minimum debt service coverage ratios
(as defined). The Company was not in default of any of its
debt agreements at December 31, 1997.
(9) Sales and Securitization of Financial Receivables
During the year ended December 31, 1997, the Company
securitized Financial Contracts in two transactions totaling
$89.6 million. Also, during 1997 the Company sold a pool of
Financial Contracts for $44.0 million
During 1996 and 1995, the Company permanently financed
certain assets and liabilities carried on the Company's
consolidated balance sheet through the issuance and sale of
equipment lease and loan backed securities with aggregate
contract values of $151.6 million and $56.7 million,
respectively. For financial reporting purposes, the assets
and liabilities were removed from the consolidated balance
sheets.
The Company also sold equipment or assigned the related
Financial Contracts to third parties with an aggregate
contract value of $44.0 million, $36.4 million and $36.8
million during the years ended December 31, 1997, 1996, and
1995, respectively.
The net gains from all sales and securitizations totaled
$7.2 million, $7.1 million, and $1.5 million during the
years ended December 31, 1997, 1996, and 1995, respectively.
(10) Income Taxes
The Company's net income tax provision after consideration
of the tax effect from utilizing of net operating loss
carryforwards was zero for the years ended December 31,
1997, 1996 and 1995.
The reported income tax expense differs from the "expected"
tax expense (benefit) (computed by applying the Federal
corporate tax rate to the income (loss) before income taxes)
as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- --------- ---------
<S> <C> <C> <C>
Computed "expected" tax
expense (benefit) $ (880,000) 1,369,000 (624,000)
State income tax expense
(benefit) net of Federal
income tax expense (126,000) 201,000 (89,000)
Other, net 17,000 15,000 12,000
Net operating loss
and passive activity loss
(utilized) benefit not
recognized 989,000 (1,585,000) 701,000
----------- --------- ---------
Total expense $ 0 0 0
=========== ========= =========
</TABLE>
Deferred tax assets and liabilities at December 31, 1997 and
1996 include:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Deferred Tax Assets:
Net operating and passive
activity loss carryforwards $ 9,567,000 9,344,056
Investment tax credit carryforward 554,000 614,361
AMT credit carryforward 135,000 0
Financial statement reserves not
currently deductible for tax
purposes 253,000 324,331
----------- -----------
Gross deferred tax assets 10,509,000 10,282,748
Less: Valuation allowance (7,574,000) (5,296,678)
----------- -----------
Total deferred tax assets 2,935,000 4,986,070
----------- -----------
Deferred Tax Liabilities:
Difference in securitization
accounting for tax purposes
and financial statement purposes 2,527,000 4,694,228
Other, net 408,000 291,842
----------- -----------
Total deferred tax liabilities 2,935,000 4,986,070
----------- -----------
Net deferred taxes $ 0 0
=========== ===========
</TABLE>
Included at January 1, 1997 were valuation allowances of
$5,296,678. During fiscal 1997, the valuation allowance
increased by $2,277,322 due primarily to the additional passive
activity losses generated by certain subsidiaries of the
Company.
The Company has $554,000 of unused investment tax credit
carryforwards that are available for consolidated tax return
purposes that expire at various times between 1998 and 2001.
There is also an alternative minimum tax ("AMT") credit
carryforward of $135,000 that does not expire and can only be
used against regular income tax, not the AMT. At December 31,
1997, the Company had a passive activity loss carryforward of
approximately $20.2 million and net operating loss
carryforwards of approximately $4.3 million available for tax
return purposes. The passive activity loss carryforward does
not expire, and must be used before the Company's net operating
loss carryforwards to offset income from future business
activities of the Company. However, the passive activity loss
cannot be used against portfolio income, therefore, the net
operating loss carryforwards are applied against portfolio
income, which totals $773,000 for 1997. The net operating loss
carryforwards expire as follows: $1,105,000 in 2001, $1,238,000
in 2002, $1,215,000 in 2003, $102,000 in 2004, $5,000 in 2005,
$575,000 in 2006, and $50,000 thereafter through 2012.
(11) Commitments and Contingencies
The Company rents office space under various operating lease
agreements expiring during the next six years. The following
is a schedule of future minimum rental payments required under
these leases and does not include the Company's proportionate
share of future real estate taxes and building operating
expenses.
<TABLE>
<CAPTION>
Year ending
December 31, Amount
------------ ---------
<S> <C>
1998 $ 204,089
1999 213,807
2000 223,526
2001 233,244
2002 242,963
Thereafter $ 252,681
</TABLE>
Rent expense, including the Company's share of real estate
taxes and building operating expenses, for the years ended
December 31, 1997, 1996, and 1995 was $403,736, $294,656, and
$282,513, respectively.
As of December 31, 1997, the Company had commitments to finance
approximately $204.9 million of Financial Contracts. The
management of the Company believes that funding for these
Financial Contracts will be obtained through the normal course
of business.
(12) Stock Option Plans
In 1997, the Company adopted the 1997 Stock Option Plan
("Plan") under which certain employees and Directors of the
Company may be granted the right to purchase shares of common
stock at its fair market value on the date of grant. This plan
superseded and replaced the Company's 1987 Stock Option Plan.
The Company has authorized an aggregate of 750,000 shares of
common stock for issuance under the Plan.
The Company continues to apply the accounting specified by APB
Opinion No. 25 and related Interpretations in accounting for
the Plan. Accordingly, no compensation cost has been recognized
for options granted under the Plan. Had compensation cost for
the Plan been determined consistent with FASB Statement No.
123, the Company's net income (loss) and basic and diluted net
income (loss) per common share would have been reduced to the
pro forma amounts indicated below:
<TABLE>
<CAPTION>
1997 1996 1995
----------- --------- ----------
<S> <C> <C> <C>
Net income (loss)
available to common
shareholders
As Reported $ (2,816,871) 3,970,433 (1,836,233)
Pro Forma $ (3,145,813) 3,712,230 (1,859,826)
Basic net income (loss)
per common share
As Reported $ (0.66) 0.93 (0.43)
Pro Forma $ (0.73) 0.87 (0.43)
Diluted net income
(loss) per common share
As Reported $ (0.66) 0.85 (0.43)
Pro Forma $ (0.73) 0.80 (0.43)
</TABLE>
The fair value of each option grant is estimated on the date of
grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions used for grants in 1997,
1996 and 1995, respectively: dividend yield of 0% for all
years; expected volatility of 71%, 78% and 109%; risk-free
interest rates of 5.97%, 6.12% and 6.56%; and expected lives of
5 years for 1997, 1996 and 1995. Additional adjustments were
made regarding a 5.5% estimated forfeit rate on the grants for
the years following the initial date of grant, beginning in
1996.
A summary of the status of the Company's Stock Option Plan as
of December 31, 1997, 1996 and 1995 and changes during the
years ended on those dates is presented below:
<TABLE>
<CAPTION>
1997 1996 1995
---------------- --------------- ---------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
-------- ------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Shares under
option at
beginning of
year 573,500 $ 2.47 336,094 $ 1.28 356,162 $ 1.39
Options granted 146,000 5.89 289,500 4.37 85,000 1.17
Options expired 0 0 (24,094) 10.59 (18,568) 1.03
Options
terminated (117,017) 2.52 (18,000) 1.25 (86,500) 1.67
Options
exercised ( 11,900) 0.32 (10,000) 0.27 0 0
Shares under
option at end
of year 590,583 $ 3.20 573,500 $ 2.47 336,094 $ 1.28
Options
exercisable
at end of year 279,912 $ 1.43 236,150 $ 0.39 237,428 $ 1.33
Weighted average
fair value of
options granted
during the year $3.73 $ 2.59 $0.96
</TABLE>
The following table summarizes information about stock options
outstanding as of December 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------- -------------------
Weighted-
average Weighted- Weighted-
Range of Number remaining average average
exercise of contractual exercise Number exercise
prices shares life price of shares price
- -----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ .01-$1.50 202,583 3.83 years $ 0.33 195,917 $ 0.30
$1.51-$3.00 52,000 8.01 years 1.88 17,332 1.88
$3.01-$4.50 100,000 8.94 years 4.00 33,332 4.00
$4.51-$6.00 236,000 9.22 years 5.61 33,331 5.25
- -----------------------------------------------------------------
Total 590,583 7.22 years $ 3.20 279,912 $ 1.43
=================================================================
</TABLE>
(13) 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 $98,386 were made in 1997 for participants in the
plan. There were no contributions made in 1996 or 1995.
(14) Earnings Per Share
The following table sets forth the computation of basic and
diluted earnings per share:
<TABLE>
<CAPTION>
1997 1996 1995
------------ --------- -----------
<S> <C> <C> <C>
Numerator:
Net income (loss) $ (2,588,121) 4,026,058 (1,836,233)
Preferred dividends (228,750) (55,625) 0
------------ --------- -----------
Numerator for basic
and diluted earnings
per share-income
(loss) available to
common shareholders $ (2,816,871) 3,970,433 (1,836,233)
=========== ========= ===========
Denominator:
Denominator for basic
earnings per share-
weighted average shares 4,293,799 4,282,610 4,280,165
Effect of dilutive securities:
Options and warrants 710,109 386,352 245,097
----------- --------- -----------
Dilutive potential
common shares 710,109 386,352 245,097
----------- --------- -----------
Denominator for diluted
earnings per share-
adjusted weighted
average shares and
assumed conversions 5,003,908 4,668,962 4,252,262
=========== ========= ===========
Basic earnings (loss)
per share $ (0.66) 0.93 (0.43)
=========== ========= ===========
Diluted earnings (loss)
per share $ (0.66) 0.85 (0.43)
=========== ========= ===========
</TABLE>
(1) In 1997 and 1995, the weighted average shares under the
diluted computation have an anti-dilutive effect, therefore
diluted earnings per share will be shown equal to basic earnings
per share.
Options to purchase an average of 62,802 shares of common stock
at prices between $5.25 and $6.00 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. For additional
disclosures regarding the employee stock options and warrants,
see Notes 8 and 13 to the consolidated financial statements.
EXHIBIT INDEX
PRIME CAPITAL CORPORATION
Copies of the following documents are filed herewith as exhibits:
Exhibit Sequential
No. Description Page No.
- -------- ---------------------------------------------- ----------
3.1 Certificate of Incorporation (a)
3.2 By-Laws (b)
10.1 Sublease dated October 8, 1985 between
the Dow Chemical Company and Registrant (a)
10.2 1984 Incentive Stock Option Plan of Registrant (a)
10.3 1986 Non-Qualified Stock Option Plan of Registrant (a)
10.3 1987 Stock Option Plan (a)
10.3 1997 Stock Option Plan (f)
10.13 Master Lease Agreements of Registrant (a)
10.13(a) Revised Master Lease Agreements of Registrant (d)
10.15 Stock Restriction Agreement dated July 2, 1985
between Registrant and Marvin T. Keeling (a)
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 (a)
10.48 Bill of Sale of Lease to James Friedman (e)
21 Subsidiaries of Registrant 39
23.1 Consent of KPMG Peat Marwick LLP 40
27 Financial Data Schedule (c)
(a) 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.
(b) Exhibit 3.2 is incorporated by reference to the Company's
Proxy Statement, effective April 29, 1987.
(c) Incorporated by reference to the Company's electronic filing
of the December 31, 1997 10 KSB as filed on March 31, 1998.
(d) Incorporated by reference to the Company's Annual Report on
Form 10-K as filed on May 10, 1991.
(e) 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.
(f) Incorporated by reference to the Company's electronic filing
of the 1996 Proxy Statement Def-14A filed on June 3, 1997.
Exhibits 21 and 23.1 have been included herein.
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: March 31, 1998 /S/ James A. Friedman
James A. Friedman
President, Chairman and
Chief
Executive Officer
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 31st day of March, 1998.
Signature Title
/s/ James A. Friedman President, Chairman, and Chief
Executive Officer
James A. Friedman (Principal Executive Officer)
/s/ Vern E. Landeck Vice President and
Chief Financial Officer
Vern E. Landeck (Principal Financial Officer)
Directors
/s/ James A. Friedman /s/ William D. Smithburg
James A. Friedman William D. Smithburg
/s/ Mark P. Bischoff /s/ Robert R. Youngquist
Mark Bischoff Robert R. Youngquist
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: March 31, 1998
James A. Friedman
President, Chairman and
Chief Executive Officer
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 31st day of March, 1998.
Signature Title
Chairman, President,
Director and
Chief Executive Officer
James A. Friedman
(Principal Executive Officer)
Vice President
and Chief Financial Officer
Vern E. Landeck
(Principal Financial Officer)
Directors
James A. Friedman William D. Smithburg
Mark P. Bischoff Robert R. Youngquist
EXHIBIT 21
Subsidiaries of Registrant
Jurisdiction
of
Name of Subsidiary Incorporation
Prime Leasing, Inc.
d/b/a's: Americom Financial, Inc. Illinois
ITC Leasing Co. Prime Equities, Ltd. Illinois
Americom Resources, Inc.
(formerly Interstate Telecommunications
Corporation) Illinois
Prime Finance Corp. 1993-A Illinois
Prime Finance Corp. 1994-A Illinois
Prime Finance Corp. 1995-A Illinois
Prime Finance Corp. 1996-A Illinois
Prime Finance Corp. 1997-A Illinois
Prime Healthcare, Inc. Illinois
Capital Alliance Corporation Illinois
f/k/a Financial Alliance Corporation
Prime Receivables Finance Corporation I Illinois
Prime Receivables Finance Corporation II Illinois
EXHIBIT 23.1
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. 333-43103) on Form S-8 of Prime Capital
Corporation of our report dated March 27, 1998 relating to the
consolidated balance sheets of Prime Capital Corporation and
subsidiaries as of December 31, 1997 and 1996 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, 1997, which report appears in the December 31, 1997
annual report on Form 10-KSB of Prime Capital Corporation.
KPMG PEAT MARWICK LLP
Chicago, Illinois
March 31, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted fro 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.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 3,572,553
<SECURITIES> 1,005,000
<RECEIVABLES> 11,718,851
<ALLOWANCES> (2,499,503)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 2,035,895
<DEPRECIATION> (1,315,170)
<TOTAL-ASSETS> 45,831,556
<CURRENT-LIABILITIES> 0
<BONDS> 5,000,000
0
2,500,000
<COMMON> 219,813
<OTHER-SE> 4,529,379
<TOTAL-LIABILITY-AND-EQUITY> 45,831,556
<SALES> 0
<TOTAL-REVENUES> 17,086,470
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 9,153,230
<LOSS-PROVISION> 7,000,000
<INTEREST-EXPENSE> 3,521,361
<INCOME-PRETAX> (2,816,871)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,816,871)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,816,871)
<EPS-PRIMARY> (0.66)
<EPS-DILUTED> (0.66)
</TABLE>
