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, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission file number 0-14888
PRIME CAPITAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 36-3347311
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification no.)
10275 West Higgins Road, Suite 200, Rosemont, Illinois 60018
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (847) 294-6000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No ___
As of March 31, 1997, there were 4,292,165 shares of common stock
outstanding.
PRIME CAPITAL CORPORATION AND SUBSIDIARIES
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Operations --
Three Months Ended
March 31, 1997 and 1996 3
Consolidated Balance Sheets --
March 31, 1997 and December 31, 1996 4
Consolidated Statements of Cash Flows --
Three Months Ended March 31, 1997 and 1996 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-8
PART II. OTHER INFORMATION 8
SIGNATURES 9
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PRIME CAPITAL CORPORATION AND
SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
Three Months Ended March 31,
1997 1996
Revenues:
Rentals on leased equipment $ 206,311 $ 49,906
Direct financing leases 1,299,791 150,517
Fee income 6,529,876 4,375,550
Gain on sale of leased equipment 53,694 3,689
Interest 554,948 442,370
Other income 67,856 78,572
Total revenues 8,712,476 5,100,604
Expenses:
Depreciation of leased equipment 100,077 19,154
Selling, general and
administrative expense 4,367,706 1,505,789
Interest 1,177,283 684,604
Net capitalized initial
direct costs (115,156) (29,324)
Total expenses 5,529,910 2,180,223
Income before income
taxes and dividends 3,182,566 2,920,381
Income tax expense -- --
Net income 3,182,566 2,920,381
Preferred dividends 56,250 --
Net income available to
common shareholders $ 3,126,316 $ 2,920,381
Net income per common share $ .65 $ .68
Number of common shares and
dilutive common equivalent
shares outstanding 4,841,707 4,280,165
See accompanying notes to consolidated financial statements.
PRIME CAPITAL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets (Unaudited)
March 31, December 31,
ASSETS 1997 1996
Cash and cash equivalents $ 7,490,316 $ 7,063,398
Restricted cash 9,980,638 7,873,004
Receivables:
Rentals on leased equipment 147,074 172,758
Due from equipment trusts -- 46,948
Securitization receivables, net of loss
reserves 2,059,516 1,851,433
Other 5,191,596 5,369,399
Net investment in direct financing leases
and loans 16,701,202 56,004,417
Leased equipment, net of accumulated
depreciation of $869 and $78,885 at
March 31, 1997 and December 31, 1996
respectively 41,532 1,370,289
Deposits on equipment 134,487 134,487
Property and equipment, net of accumulated
depreciation of $1,189,709 and $1,156,512
at March 31, 1997 and December 31, 1996,
respectively 517,506 364,499
Other assets 717,981 761,317
Total assets $ 42,981,848 $ 81,011,949
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable $ 12,012,433 $ 46,418,920
Accounts payable for equipment 3,479,133 7,780,691
Accrued expenses and other liabilities 7,839,929 8,413,696
Deposits and advances 2,466,309 4,341,351
Subordinated debt 5,000,000 5,000,000
Total liabilities 30,797,804 71,954,658
Stockholders' equity
Preferred stock $100 par value: authorized
250,000 shares, issued 25,000 shares in 1996 2,500,000 2,500,000
Common stock, $0.05 par value:
authorized 10,000,000 shares; issued and
outstanding 4,386,365 and 4,384,365 at
March 31, 1997 and December 31, 1996
respectively 219,318 219,218
Additional paid-in capital 9,481,012 9,480,675
Retained earnings 283,514 (2,842,802)
Treasury stock, at cost; 94,200 shares at
March 31, 1997 and December 31,1996 (299,800) (299,800)
Total stockholders' equity 12,184,044 9,057,291
Total liabilities and stockholders' equity $ 42,981,848 $ 81,011,949
See accompanying notes to consolidated financial statements.
PRIME CAPITAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended March 31,
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,182,566 $ 2,920,381
Adjustments to reconcile net income to
net cash used by operating activities:
Depreciation 133,275 51,271
Amortization of unearned income (1,299,791) (150,517)
Amortization of debt financing fees 30,391 --
Gain on securitization (6,632,820) (4,102,760)
Changes in assets and liabilities:
Rentals on leased equipment and
other receivables (4,596) 692,217
Deferred charges (8,239) 4,055
Other assets (2,293,839) (2,281,546)
Accrued expenses and other liabilities (573,767) (35,227)
Due from equipment trusts 46,948 (26,330)
Net cash used by operating activities (7,419,872) (2,928,456)
CASH FLOWS FROM INVESTING ACTIVITIES:
Cost of equipment acquired for lease (38,074,709) (13,608,305)
Proceeds from sale of assets 102,865 221,654
Net cash used in investing activities (37,971,844) (13,386,651)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of options 437 --
Preferred stock dividends (56,250) --
Discounted lease proceeds and proceeds
from sale of fully of fully leveraged
finance leases 7,366,296 1,707,725
Repayment of notes payable, net (34,406,488) (44,957,186)
Proceeds from securitization, net 72,914,639 60,271,043
Net cash provided by financing activities 45,818,634 17,021,582
Increase in cash and cash equivalents 426,918 706,475
Cash and cash equivalents:
Beginning of period 7,063,398 2,001,949
End of period $ 7,490,316 $ 2,708,424
Supplemental schedule of non cash financing activities:
Cash paid during the period for:
Interest $ 1,146,892 $ 684,604
Income taxes $ -- $ --
See accompanying notes to consolidated financial statements.
PRIME CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. For a more detailed discussion of the Company's
accounting policies, refer to the Company's Form 10KSB for the year ended
December 31, 1996.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
The financial results for the first three months of 1996 and 1997 were
influenced by (i) a securitization totaling $85,273,476 completed in
January 1996 (ii) in October 1996, the company issued 25,000 shares of $100
par value preferred stock with warrants to purchase 499,606 shares of
common stock, (iii) in October 1996 the company issued $5 million of
subordinated debt,(iv) a securitization totaling $66,322,341 completed in
December 1996, (v) a securitization totaling $77,476,378 completed in March
1997, (vi) an increase in personnel from 44 employees to 55 employees, and
(vii) and increase in the market price of the Company's common stock caused
the value of stock options and warrants to have a dilutive effect on the
number of shares outstanding as of March 31, 1997, and thus dilution of
earnings per share.
The higher gain on securitization in March 1997 resulted in greater fee
income for the first quarter of 1997 than in the first quarter of 1996.
The longer holding period of financial contracts before securitization in
1997 resulted in higher direct finance lease income and rentals on leased
equipment for the first quarter of 1997. The holding period also resulted
in increased interest expense and depreciation on leased equipment.
Selling, general and administrative expenses were greater in the first
quarter of 1997 due to planned general business expansion which included
increases in both sales volume and personnel. In an effort to be prudent
and conservative, management made the decision to bolster reserves for
losses by $2.5 million during the first quarter of 1997.
The issuance in October 1996 of $5,000,000 of subordinated debt bearing
interest at 12% per year resulted in an additional $156,250 in interest
expense for the first quarter of 1997 compared to the first quarter of
1996. Also contributing to increased interest expense was the amortization
of fees associated with this transaction and the longer holding period of
financial contracts as mentioned above.
The issuance in October 1996 of $2,500,000 of preferred stock resulted in
accrued dividends which reduced earnings available to common shareholders
by $56,250 in the first quarter of 1997 compared to the first quarter of
1996.
Securitizations during the first quarters of 1997 and 1996
On January 22, 1996, the Company issued and sold equipment lease-backed pay-
through notes with an initial aggregate contract value of $85,273,476.
Through this issuance, the Company permanently financed certain assets and
liabilities carried on the Company's balance sheet as of December 31, 1995.
These assets and liabilities were removed from the balance sheet and the
resulting gain of approximately $4.1 million was recognized on the
Company's statement of operations in the first quarter of 1996.
On March 27, 1997, the Company issued and sold equipment lease-backed pay-
through notes with an initial aggregate contract value of $77,476,378.
Through this issuance, the Company permanently financed certain assets and
liabilities carried on the Company's balance sheet as of December 31, 1996.
These assets and liabilities were removed from the balance sheet and the
resulting gain of approximately $6.6 million was recognized on the
Company's statement of operations in the first quarter of 1997.
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 acquisitions and
originations of Financial Contracts. Second, the Company must originate a
sufficient volume of new business which is structured and priced in such a
way so as to permit the Company to finance or sell those Financial
Contracts for an amount which, in the aggregate, covers the Company's cost
of operations, plus provides a return on stockholders' equity. The Company
intends to utilize a combination of interim warehouse borrowing and long-
term funding methodologies to provide it with borrowing and funding
availability at competitive rates of interest. The long-term funding
methodologies will include: (i) the continued issuance of asset backed
securities; (ii) portfolio sales, (iii) program financings, and (iv) the
discounting of individual Financial Contracts.
The Company conducts its business in a manner designed to conserve its
working capital and minimize its credit exposure. The Company does not
purchase equipment until; (i) it has received a noncancelable lease or loan
from its customer, and (ii) it has determined that the lease or loan (a)
can be discounted with a bank or financial institution on a non-recourse
basis, or (b) meets the origination standards established for a securitized
pool.
Liquidity and Capital Resources
Based upon the Company's estimates of volume of transactions, the Company
believes that existing cash balances, cash flows from its activities,
available warehouse and permanent non-recourse borrowing, and securitized
asset sales will be sufficient to meet its foreseeable financing needs.
PART II - OTHER INFORMATION
NONE
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)
April 30, 1997 /s/ Robert C. Benson
Robert C. Benson, Chief Financial Officer
Robert C. Benson is the Principal
Financial and Accounting Officer and
has been duly authorized to sign on
behalf of the Registrant
April 30, 1997 /s/ James A. Friedman
James A. Friedman, President, Chairman
and Chief Executive Officer.