FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark one)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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 No ___
As of September 30, 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 and Nine Months Ended
September 30, 1994 and 1993 . . . . . . . . . . . . . 3
Consolidated Balance Sheets --
September 30, 1994 and December 31, 1993. . . . . . . 4
Consolidated Statements of Cash Flows --
Nine Months Ended September 30, 1994 and 1993. . . . . 5
Notes to Consolidated Financial Statements . . . . . . . 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . .7-10
PART II. OTHER INFORMATION . . . . . . . . . . . . . . . . . . .10
SIGNATURE. . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
PART I. FINANCIAL INFORMATION
Item I. Financial Statements
PRIME CAPITAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations (Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1994 1993 1994 1993
Revenues:
Rentals on leased
equipment $ 296,276 $ 106,267 $ 562,011 $ 243,585
Direct financing
leases 330,722 312,806 604,802 450,774
Fee income 842,355 78,427 1,293,335 1,105,371
Gain on sale of leased
equipment 24,574 782,090 262,502 2,109,659
Interest 249,746 45,403 425,745 161,767
Other income 146,714 35,826 210,460 512,124
Total revenues 1,890,387 1,360,819 3,358,855 4,583,280
Expenses:
Amortization of deferred
finance costs 452 12,165 4,243 59,106
Depreciation of leased
equipment 181,656 66,371 346,583 80,977
Selling, general and
administrative 1,257,310 1,137,835 3,515,974 3,353,352
Interest 467,440 25,247 626,955 25,491
Net capitalized initial
direct costs (81,072) (57,982) (235,506) (70,400)
Total expenses 1,825,786 1,183,636 4,258,249 3,448,526
Income (loss) before
income tax expense 64,601 177,183 (899,394) 1,134,754
Income tax expense --- --- --- ---
Net income (loss) $ 64,601 $ 177,183 $(899,394) $1,134,754
Net income (loss) per common
and common
equivalent share: $0.02 $0.04 $(0.21) $0.27
Average shares
outstanding 4,280,165 4,280,165 4,280,165 4,280,165
See accompanying notes to consolidated financial statements
PRIME CAPITAL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets (Unaudited)
September 30, December 31,
1994 1993
ASSETS
Cash and cash equivalents $ 3,162,897 $ 4,060,079
Receivables:
Rentals on leased equipment 61,509 64,192
Due from equipment trusts 90,121 190,975
Other 2,554,380 2,462,782
Net investment in direct financing leases 511,268 2,458,694
Deposits on equipment 550,952 163,779
Property and equipment, net of accumulated
depreciation of $919,140 and $830,792
at September 30, 1994 and December 31, 1993,
respectively 296,633 368,243
Other assets 2,875,566 882,147
Total assets $10,103,326 $10,650,891
LIABILITIES AND STOCKHOLDERS' EQUITY
Warehouse notes payable to banks $ 868,099 $1,092,258
Accounts payable for equipment 139,435 418,380
Accrued expenses and other liabilities 2,819,748 2,027,648
Deposits and advances 541,207 326,896
Discounted lease rentals 13,086 164,564
Total liabilities 4,381,575 4,029,746
Stockholders' equity
Common stock, $0.05 par value:
authorized 10,000,000 shares; issued and
outstanding 4,374,365 shares at
September 30, 1994 and December 31, 1993 218,718 218,718
Additional paid-in capital 9,681,225 9,681,225
Accumulated deficit (3,878,392) (2,978,998)
Treasury stock, at cost; 94,200 shares
at September 30, 1994 and
December 31, 1993 (299,800) (299,800)
Total stockholders' equity 5,721,751 6,621,145
Total liabilities and stockholders' equity $10,103,326 $10,650,891
See accompanying notes to consolidated financial statements.
PRIME CAPITAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended September 30,
1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (899,394) $ 1,134,754
Adjustments to reconcile net income (loss)
to net cash provided (used) by operating
activities:
Depreciation 434,933 127,427
Amortization of unearned income (596,628) (450,774)
Amortization of deferred finance costs on
direct finance leases 4,243 59,106
Gain on securitization (743,737) ---
Changes in assets and liabilities:
Rentals on leased equipment and other
receivables 634,873 179,550
Deferred charges (547,077) (200,519)
Other assets (1,453,447) (175,724)
Accrued expenses and other liabilities 792,100 (91,185)
Due from equipment trusts 100,854 (473,863)
Net cash provided (used) by operating
activities (2,273,280) 108,772
CASH FLOWS FROM INVESTING ACTIVITIES:
Cost of equipment acquired for lease (44,015,370) (39,133,389)
Proceeds from sale of assets 479,951 754,349
Net cash used in investing activities (43,535,419) (38,379,040)
CASH FLOWS FROM FINANCING ACTIVITIES:
Discounted lease proceeds and proceeds from
sale of fully leveraged finance leases 9,661,660 19,484,910
Proceeds (Repayment) of notes to banks (224,158) 18,843,280
Proceeds from securitization, net of expenses 35,474,015 ---
Net cash provided by financing activities 44,911,517 38,328,190
Increase (decrease) in cash and cash
equivalents (897,182) 57,922
Cash and cash equivalents:
Beginning of period 4,060,079 2,088,870
End of period $ 3,162,897 $ 2,146,792
Cash paid during the period for:
Interest $ 626,955 $ 25,491
Supplemental schedule of noncash financing activities:
Discounted lease rentals on direct finance leases
collected by financial institutions $ 155,721 $ 952,886
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.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Since 1992, the Company has implemented certain strategic initiatives designed
to enhance the Company's competitive strengths, operating results, and
long-term growth prospects. These initiatives included
(i) re-engineering the Company's operations, (ii) establishing a broader
earnings base by diversifying into vendor finance, and (iii) increasing
the overall profitability of the Company's equipment financing transactions
through the use of asset securitizations. Although the investments
required to implement its strategic plan negatively impact currently
reportable operating results, Management believes
that these initiatives will have a positive long-term impact on the
Company's operating profitability and future growth.
The Company has experienced a decline in its core healthcare
equipment leasing business. In order to expand and diversify its revenue
base, the Company has invested resources to establish a vendor sales
operation during 1994. The Company has added two members to its senior
management with substantial experience in developing vendor leasing
programs. The process of arranging new vendor agreements and implementing
the program necessarily takes an appreciable period of time (six to nine
months). Management anticipates that vendor sales activities will make
a significant contribution to the Company's operating results commencing
in 1995. However, during 1994 the expenditures required to develop a
competitive national vendor leasing operation will negatively impact
operating results. Although there can be no certainty that vendor sales
will offset the decline in its direct healthcare equipment leasing business,
Management believes that the Company's growth opportunities will be
enhanced by developing relationships with vendors from outside of the
healthcare industry.
The Company completed a securitization of approximately $39 million of its
equipment loan and lease receivables on September 19, 1994. As a result,
the Company reported net operating income for the three month period ended
September 30, 1994. Management anticipates reporting profitable operating
results on a quarterly basis from and after such time as the Company's
expansion into vendor finance results in a volume of loan and lease
originations that will enable the Company to securitize its contract
receivables on a more frequent basis than is now practicable.
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. Funding through asset securitization vehicles should be
subject to lower interest rates and therefore less expensive for the Company
than the individual sale of transactions. As a result, the increased
use of this technique by the Company should maximize reportable earnings.
Although the strategy of aggregating and securitizing transactions 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.
RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 1994
Net Income (Loss)
Net income for the three months ended September 30, 1994 was approximately
$65,000 or $0.02 per share, as compared to net income of approximately
$177,000 or $0.04 per share for the same quarter of 1993. The decrease
in net income for the current quarter, as compared to the same
quarter of 1993, was principally due to (i) an increase in selling, general
and administrative expenses due to the investment the Company is making
in vendor business (ii) an increase in interest expense which is a
result of Management's decision to warehouse transactions in anticipation of
securitization as opposed to selling the deals outright and (iii) a reduction
in gains realized from the remarketing of certain equipment under various
programs which the Company manages on behalf of third-party investors. This
reduction is attributable to a decrease in the amount of equipment available
for remarketing as a result of the continued expiration of the remaining
operating leases which the Company manages on behalf of the third-party
investors.
Revenues
Revenues for the three months ended September 30, 1994 were approximately
$1,890,000 as compared to revenues of approximately $1,361,000 for the same
quarter of last year. The increase was attributable to an increase in all
revenue categories with the exception of gain on sale of leased equipment.
Fee income increased approximately $764,000 in the third quarter as compared
to the same period in 1993. This increase was primarily a result of higher
fee income earned through the completion of an asset-backed securitization
during the third quarter of 1994; the Company did not complete a
securitization in the third quarter of 1993.
Gain on sale of leased equipment in the third quarter of 1994 decreased
approximately $758,000 as compared to the third quarter of 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 third-party investor programs.
Interest income increased approximately $204,000 for the three months ended
September 30, 1994 as compared to the same period last year. The increase
was due primarily to interest of approximately $206,000 which was earned as
a part of the completion of the asset-backed securitization during the
third quarter of 1994.
Rental income increased approximately $190,000 in the third quarter of 1994 as
compared to the same period of 1993. This increase is a result of the Company
originating a higher volume of equipment subject to operating leases.
Expenses
Expenses for the three months ended September 30, 1994 were approximately
$1,826,000 compared to approximately $1,184,000 during the same period of
1993, an increase of approximately 54%.
Depreciation expense increased approximately $115,000 for the three months ended
September 30, 1994 as compared to the same period last year as a result of the
Company originating a higher volume of equipment subject to operating leases.
Interest expense increased approximately $442,000 due to the Company's
decision to warehouse transactions pending securitization.
Selling, general and administrative expenses increased approximately 10.5%
(about $119,000) in the first quarter of 1994 compared to the same period
of 1993, principally as a result of the addition of experienced vendor
sales personnel.
RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 1994
Net Income (Loss)
Net loss for the nine months ended September 30, 1994 was approximately
$899,000 or $(0.21) per share compared to net income of approximately
$1,135,000 or $0.27 per share for the same period of last year. The net
loss reported by the Company for the first nine months of 1994 is
attributable to an approximate 27% decrease in revenues combined with an
approximate 23% increase in expenses.
Revenues
Revenues for the nine months ended September 30, 1994 were approximately
$3,359,000 versus $4,583,000 for the same nine months of last year. The
decrease of approximately 27% is primarily due to a decrease in gain on sale
of leased equipment of approximately $1,847,000. This decrease is a direct
result of a decline in the amount of equipment available for remarketing
under third-party investor programs.
All other revenue categories, with the exception of Other Income which
decreased by approximately $302,000 when compared to the same period last year,
increased (in aggregate) approximately $923,000 as compared to the same
period of 1993.
Expenses
Expenses for the first nine months of 1994 were approximately $4,258,000
compared to expenses of approximately $3,449,000 for the same period of 1993.
The increase of approximately 23% is primarily attributable to an increase
of approximately $601,000 of interest expense as a result of the Company's
decision to warehouse transactions prior to securitization. Depreciation
expense also increased approximately $266,000 as a result of the Company
originating a higher volume of equipment subject to operating leases.
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 of equipment financing
receivables. Second, the Company must originate a sufficient volume of
equipment lease and loan receivables structured and priced in such a way that
the Company covers its costs and realizes profits from its finance asset
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. The Company is seeking to offset the negative impact of
such uncertainty by expanding into vendor finance.
Although the Company continues to diversify into markets that Management
believes offer the Company attractive returns consistent with its
underwriting criteria, it is doubtful that the Company will achieve
operating results comparable to those realized in 1993. The third quarter's
profitable operations indicate improving results from the Company's
activities. However, it is not expected that these improvements
will be sufficient to offset the decrease in revenues from the gains on sale of
leased equipment realized in 1993, or the investments that the Company has
made in the vendor leasing business (which necessarily will not produce
results until future periods).
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)
November 21, 1994 /s/ Gerald H. Allen_____________________
Gerald H. Allen, Senior Vice President
Gerald H. Allen is the Principal Financial and
Accounting Officer and has been duly authorized
to sign on behalf of the Registrant
November 21, 1994 /s/ James A. Friedman
James A. Friedman, Chief Executive Officer.