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 March 31, 1994
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: (708) 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
As of March 31, 1994, there were 4,280,165 shares of common stock outstanding.
PRIME CAPITAL CORPORATION AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Statements of Operations --
Three Months Ended
March 31, 1994 and 1993 . . . . . . . . . . . . 3
Consolidated Balance Sheets --
March 31, 1994 and December 31, 1993 . . . . . . 4
Consolidated Statements of Cash Flows --
Three Months Ended March 31, 1994 and 1993 . . . 5
Notes to Consolidated Financial Statements . . . . 6
Item 2.Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . .7-9
PART II. OTHER INFORMATION . . . . . . . . . . . . . . . .9
SIGNATURE. . . . . . . . . . . . . . . . . . . . . . . . . .10
PART I. Financial Information
Item I. Financial Statements
PRIME CAPITAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations (Unaudited)
Three Months Ended March 31
1993 1994
Revenues:
Rentals on leased equipment 82,043 77,482
Direct financing leases 79,202 52,938
Fee income 288,132 571,762
Gain on sale of leased equipment 197,151 868,323
Interest 49,651 77,369
Other income 22,010 181,094
Total revenues 718,189 1,828,968
Expenses:
Amortization of deferred finance costs 3,045 27,781
Depreciation of leased equipment 38,432 8,412
Selling, general and administrative 1,056,022 993,537
Interest 15,457 244
Net capitalized initial direct costs (70,471) (3,969)
Total expenses 1,042,485 1,026,005
Income (loss) before income tax expense (324,296) 802,963
Income tax expense ---- ----
Net income (loss) (324,296) 802,963
Net income (loss) per common and common
equivalent share: (0.08) 0.19
See accompanying notes to consolidated financial statements.
PRIME CAPITAL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets (Unaudited)
March 31 December 31
ASSETS 1994 1993
Cash and cash equivalents 3,509,591 4,060,079
Receivables:
Rentals on leased equipment 36,835 64,192
Due from equipment trusts 55,978 190,975
Other 2,103,657 2,462,782
Net investment in direct financing leases 4,091,187 2,458,694
Leased equipment, net of accumulated
depreciation of $38,432 at March 31, 1994 1,773,654 ---
Deposits on equipment 820,331 163,779
Property and equipment, net of accumulated
depreciation of $860,073 and $830,792
at March 31, 1994 and December 31, 1993 respectively 348,969 368,243
Other assets 1,337,243 882,147
Total assets 14,077,445 10,650,891
LIABILITIES AND STOCKHOLDERS EQUITY
Notes payable to banks 5,334,763 1,092,258
Accounts payable for equipment 615,750 418,380
Accrued expenses and other liabilities 1,412,874 2,027,648
Deposits and advances 378,923 326,896
Discounted leases rentals 38,286 164,564
Total Liabilities 7,780,596 4,029,746
Stockholders' equity
Common stock, $0.05 par value: authorized 10,000,000 shares; issued and
outstanding 4,374,365 shares at March 31, 1994
and December 31, 1993 218,718 218,718
Additional paid-in capital 9,681,225 9,681,225
Retained deficit (3,303,294) (2,978,998)
Treasury stock, at cost; 94,200 shares
at March 31, 1994 and December 31, 1993 (299,800) (299,800)
Total stockholders' equity 6,296,849 6,621,145
Total liabilities and stockholders' equity 14,077,445 10,650,891
See accompanying notes to consolidated financial statements
PRIME CAPITAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended March 31
1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) (324,296) 802,963
Adjustments to reconcile net income (loss)
to net cash used by operations:
Depreciation 67,714 42,495
Amortization of unearned income (79,202) (52,938)
Amortization of deferred finance costs on
direct finance leases 3,045 27,780
Changes in assets and liabilities:
Rentals on leased equipment and other receivables 386,482 1,735,162
Deferred charges (158,192) (27)
Other assets (305,922) (116,494)
Accrued expenses and other liabilities (614,775) (406,933)
Due from equipment trusts 134,997 (568,829)
Net cash provided (used) by operating activities (890,149) 1,463,179
CASH FLOWS FROM INVESTING ACTIVITIES:
Cost of equipment acquired for lease (8,723,404) (9,519,739)
Proceeds from sale of assets 475,993 159,047
Net cash used in investing activities: (8,247,411) (9,360,692)
CASH FLOWS FROM FINANCING ACTIVITIES:
Discounted lease proceeds from
sale of fully leveraged finance leases 4,344,567 9,865,842
Proceeds from notes payable to banks 4,242,505 ----
Net cash provided by financing activities 8,587,072 9,865,842
Increase (decrease) in cash and cash equivalents (550,488) 1,968,329
Cash and equivalents:
Beginning of period 4,060,079 2,088,870
End of period 3,509,591 4,057,199
Cash paid during the period for interest 15,457 245
Supplemental schedule of noncash financing activities:
Discounted lease rentals on direct finance leases
collected by financial institutions 129,322 377,657
See accompanying notes to consolidated financial statements
PRIME CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of Management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included.
Certain reclassifications have been made in the fiscal 1993 financial statements
to conform to the fiscal 1994 presentation.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Management believes that the reengineering of the Company's business, together
with the elimination of its senior secured debt in 1992, has positioned the
Company to compete more successfully within its chosen markets. The Company
has eliminated excess operating costs and redesigned its management and lease
administration, information and sales systems. As a result, Management believes
that the Company can (i) begin to increase the volume of leases which it
originates and do so with nominal increases in its back office costs; (ii)
access funds to acquire equipment for lease on a competitive basis; and (iii)
administer owned or managed leases in a cost effective and efficient manner.
The Company intends to continue to pursue a strategy of periodically
securitizing aggregated pools of warehoused transactions as the primary
methodology of permanently funding the Company's equipment loan and lease
originations. Although this approach was successfully executed in 1993, there
can be no assurance that the requisite volume of transactions, warehouse
financing or securitized asset sales will continue to be available to the
Company on terms and conditions that will enable the Company to attain its
profitability and debt-to-equity objectives.
Management believes that the Company would have reported higher net income for
the quarter ended March 31, 1994 if the Company had elected to permanently
fund its leases with long-term debt, instead of warehousing its leases pending
securitization. Although reportable earnings are adversely impacted during
periods when the Company is accumulating transactions for securitization,
Management believes that the Company will ultimately maximize the profits
that can be realized from its leases through its strategy of aggregating and
securitizing its lease receivables.
RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 1994
Net Income (Loss)
Net loss for the three months ended March 31, 1994 was approximately $324,000 or
$(0.08) per share, as compared to net income of approximately $803,000 or $0.19
per share for the same quarter of 1993. The decrease in net income resulted
primarily from (i) a reduction in fee income as a result of Management's
decision to warehouse transactions during the first quarter of 1994 in
anticipation of a contemplated asset securitization, rather than to
engage in the sale or permanent financing of individual transactions that would
have resulted in immediately reportable fee income for the Company and (ii) a
reduction in gains realized from the remarketing of certain equipment under
various programs which the Company manages on behalf of various investors.
The reduction is attributable to a decrease in the amount of equipment
available for remarketing as a result of the continued expiration of the
remaining leases under these various programs.
Revenues
Revenues for the three months ended March 31, 1994 were approximately $718,000
as compared to revenues of approximately $1,829,000 for the same period last
year. The decrease was largely attributable to (i) a decrease in gain on sale
of leased quipment and (ii) a reduction in fee income.
One component of gains from equipment sales, gains from the remarketing of
equipment on behalf of third-party investors, decreased approximately $671,000
in the first quarter of 1994 as compared to the same period in 1993.
Reportable remarketing gains represent the Company's share of realized
residual values on investor-owned equipment. The reduction is primarily a
result of the expiration of the remaining leases in the program.
Fee income decreased approximately $284,000 in the first quarter of 1994 as
compared to the same period in 1993 as a result of Management's decision to
warehouse transactions during the first quarter of 1994 in anticipation of
a contemplated asset securitization, rather than to engage in the sale or
permanent financing of individual transactions that would have resulted in
a greater level of immediately reportable fee income for the Company.
Expenses
Expenses for the three months ended March 31, 1994 were approximately $1,042,000
compared to approximately $1,026,000 during the same period of 1993, an
increase of approximately 2%. A sharply lower level of amortized deferred
finance costs and an increase in net capitalized initial direct costs were
offset by increases in depreciation expense, selling, general and
administrative expenses, and interest expense.
Depreciation expense increased approximately $30,000 in the first quarter of
1994 compared to the same period last year as a result of the Company
originating and retaining a higher volume of equipment subject to operating
leases.
Interest expense increased due to the Company's decision to warehouse
originations pending securitization.
The increase in net capitalized initial
direct costs reflects the sharply higher volume of leased assets originated and
retained by the Company in the first quarter of 1994 as compared to the first
quarter of 1993.
An increase of approximately $62,000 in selling, general and administrative
costs is primarily the result of an increase in origination fees paid to
the third parties pursuant to vendor sales agreements and an increase in
various miscellaneous expenses. Increases in these expenses more than offset
a decrease in salaries and commissions.
Financial Condition
The Company's financial condition will continue to be dependent upon certain
critical elements. First, the Company must be able to obtain recourse and
nonrecourse financing to fund future acquisition of leases. Second, the
Company must originate a sufficient volume of new business which is structured
and priced in such a way that the Company covers its costs and realizes profits
from its lease originations.
Uncertainty continues to exist in the Company's core health care equipment
leasing business as a result of the national debate over various healthcare
reform proposals.
Although the Company continues to diversify into niche markets that Management
believes offer the Company attractive returns consistent with its underwriting
criteria, there can be no assurance that the Company will achieve operating
results comparable to those realized in 1993.
Liquidity and Capital Resources
The Company believes that existing cash balances, cash flows from its
activities, available warehouse and permanent non-recourse borrowings, and
securitized asset sales will be sufficient to meet its foreseeable financing
needs, provided the Company is able to originate a sufficient volume of
transactions which meet its credit quality and profitability standards.
PART II - OTHER INFORMATION
Items omitted in Part II are either not applicable or the answer to the items is
no.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PRIME CAPITAL CORPORATION
(Registrant)
May 13, 1994 /s/ David L. Daum_____________________
David L. Daum, Senior Vice President
David L. Daum is the Principal Financial and
Accounting Officer and has been duly
authorized to sign on behalf of the Registrant
May 13, 1994 /s/ James A. Friedman
James A. Friedman, Chief Executive Officer