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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED SEPTEMBER 30, 1996
COMMISSION FILE NUMBER 0-27190
PARAMOUNT FINANCIAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 11-3072768
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
ONE JERICHO PLAZA, JERICHO, NEW YORK 11753
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(516) 938-3400
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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
--------- ---------
NUMBER OF SHARES OUTSTANDING AT NOVEMBER 12, 1996:
7,990,000 SHARES OF COMMON STOCK, PAR VALUE $0.01 PER SHARE.
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<PAGE>
PARAMOUNT FINANCIAL CORPORATION
INDEX TO FORM 10-Q FOR THE QUARTER ENDED
September 30, 1996
Page No.
--------
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Balance Sheets
September 30, 1996 and December 31, 1995 . . . . . . . . 1
Statements of Operations
Three Months Ended and Nine Months Ended
September 30, 1996 and 1995 . . . . . . . . . . . . . . 2
Statement of Changes in Stockholders' Equity
Nine Months Ended September 30, 1996 . . . . . . . . . . 3
Statements of Cash Flows
Nine Months Ended September 30, 1996 and 1995 . . . . . 4
Notes to Unaudited Financial Statements . . . . . . . . 5
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . 6-10
PART II - Other Information . . . . . . . . . . . . . . . . . . . . . . 11
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
<PAGE>
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PARAMOUNT FINANCIAL CORPORATION
--------------------------------
BALANCE SHEETS
--------------
December 31, Sepember 30,
1995 1996
------------ ------------
(Unaudited)
ASSETS
------
Cash and cash equivalents . . . . . . . $ 1,153,476 $ 3,498,747
Marketable securities available for sale - 3,090,349
Accounts receivable . . . . . . . . . . 106,794 954,756
Net investment in direct finance and
sales-type leases . . . . . . . . . . 6,446,063 19,924,404
Assets held under operating leases, net
of accumulated depreciation . . . . . 3,976,209 9,068,202
696,043 397,454
Other assets . . . . . . . . . . . . . ----------- -----------
$12,378,585 $36,933,912
Total assets . . . . . . . . . . . . . ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Notes payable . . . . . . . . . . . . . $ 1,611,697 $ 18,938
Accounts payable . . . . . . . . . . . 419,624 311,397
Accounts payable - leases . . . . . . . 126,990 4,624,308
Accrued expenses . . . . . . . . . . . 313,673 248,131
Obligations for financed equipment-non-
recourse . . . . . . . . . . . . . . . 9,337,883 22,745,611
419,819
Deferred tax liabililty . . . . . . . . ----------- -----------
11,809,867 28,368,204
Total liabilities . . . . . . . . . . . ----------- -----------
Stockholders' equity:
Preferred stock, $.01 par value;
5,000,000 shares authorized, none
outstanding . . . . . . . . . . . . .
Common stock, $.01 par value; 35,000,000
shares authorized, 3,500,000 and
7,990,000 shares issued and
outstanding, respectively . . . . . . 35,000 79,900
Additional paid-in capital . . . . . . 5,282,049 13,650,880
(4,748,331) (5,165,072)
Accumulated deficit . . . . . . . . . . ----------- -----------
568,718 8,565,708
Total stockholders' equity . . . . . . ----------- -----------
Total liabilities and stockholders'
equity . . . . . . . . . . . .. . . $12,378,585 $36,933,912
=========== ===========
See accompanying notes to financial statements.
<PAGE>
PARAMOUNT FINANCIAL CORPORATION
-------------------------------
STATEMENT OF OPERATIONS
-----------------------
UNAUDITED
---------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ -----------------
1995 1996 1995 1996
---- ---- ---- ----
REVENUES:
Sales . . . . . $ 5,906,174 $ 528,544 $28,627,147 $22,612,437
Lease revenue . 409,977 986,678 1,477,156 2,433,049
Fee and other 13,192 174,059 95,802 187,325
income . . . ----------- ----------- ----------- -----------
Total revenues 6,329,343 1,689,281 30,200,105 25,232,811
----------- ----------- ----------- -----------
DIRECT COSTS:
Cost of sales . 5,302,529 407,067 26,924,308 21,489,156
315,261 882,027 1,199,632 2,234,239
Lease expense . ----------- ----------- ----------- -----------
Total direct 5,617,790 1,289,094 28,123,940 23,723,395
costs . . . . ----------- ----------- ----------- -----------
711,553 400,187 2,076,165 1,509,416
Gross profit ----------- ----------- ----------- -----------
SELLING, GENERAL
AND
ADMINISTRATIVE 459,177 588,119 1,342,441 1,733,030
EXPENSES . . ----------- ----------- ----------- -----------
Income (loss)
from
operations 252,376 (187,932) 733,724 (223,614)
INTEREST
(EXPENSE) (2,632,738) 78,572 (2,606,542) 228,577
INCOME, NET . ----------- ----------- ----------- -----------
(Loss) income
before
provision for
income taxes (2,380,362) (109,360) (1,872,818) 4,963
PROVISION FOR 4,218 375,974 14,512 421,704
INCOME TAXES ----------- ----------- ----------- -----------
Net loss . . ($2,384,580) ($485,334) ($1,887,330) ($416,741)
=========== =========== =========== ==========
Loss per share
($0.06) ($0.05)
=========== ==========
Weighted average
common shares
outstanding .
7,990,000 7,749,927
========== ==========
See accompanying notes to financial statements.
<PAGE>
PARAMOUNT FINANCIAL CORPORATION
-------------------------------
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
--------------------------------------------
AS OF SEPTEMBER 30, 1996
------------------------
UNAUDITED
---------
COMMON STOCK
------------
SHARES AMOUNT
------ ------
BALANCE, DECEMBER 31, 1995 . 3,500,000 $35,000
Issuance of common stock in
the initial public offering,
net of offering costs of
approximately $2,051,000 . 2,990,000 29,900
Issuance of common stock to
bridge lenders . . . . . . 1,500,000 15,000
- -
Net income . . . . . . . . . --------- -------
7,990,000 $79,900
BALANCE, SEPTEMBER 30, 1996 . ========== =========
RETAINED
ADDITIONAL EARNINGS
PAID-IN- ACCUMULATED
CAPITAL (DEFICIT) TOTAL
----------- ----------- -----
BALANCE, DECEMBER 31, 1995 . $5,282,049 ($4,748,331) $ 568,718
Issuance of common stock in
the initial public
offering, net of offering
costs of approximately
$2,051,000 . . . . . . . . 8,383,831 8,413,731
Issuance of common stock to
bridge lenders . . . . . . (15,000) -
- (416,741) (416,741)
Net income . . . . . . . . . ----------- ----------- ----------
$13,650,880
============ ($5,165,072) $8,565,708
BALANCE, SEPTEMBER 30, 1996 . =========== ==========
See accompanying notes to financial statements.
<PAGE>
PARAMOUNT FINANCIAL CORPORATION
-------------------------------
STATEMENTS OF CASH FLOWS
------------------------
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------
UNAUDITED
---------
1995 1996
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss . . . . . . . . . . . . . . . . . . . ($1,887,330) ($ 416,741)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Amortization of deferred financing costs . . 2,625,000 -
Deferred tax liability . . . . . . . . . . . - 419,819
Depreciation . . . . . . . . . . . . . . . . 443,761 1,280,277
Amortization of discounts on marketable
securities . . . . . . . . . . . . . . . . - (118,285)
Amortization of unearned operating lease
revenue from sublease transactions . . . . (78,053) (19,928)
Amortization of prepaid operating lease
expense from sublease transactions . . . . 69,282 25,067
Purchase of equipment for direct finance
leases and sales type leases . . . . . . . (2,489,090) (18,236,564)
Termination of direct finance leases . . . . 721,376 974,152
Proceeds applied to direct finance leases and
sales type leases . . . . . . . . . . . . . 1,461,157 3,784,071
Purchase of equipment for operating leases . (3,950,717) (19,121,819)
Termination of operating leases . . . . . . . 30,200 12,749,549
Increase in non-recourse lease financing . . 6,401,772 34,895,847
Termination of non-recourse lease financing . (734,658) (16,291,873)
Repayments and interest amortization applied
to non-resource lease financing . . . . . . (1,834,767) (5,196,245)
Changes in operating assets and liabilities:
Accounts receivable . . . . . . . . . . . (2,240,852) (847,962)
Other assets . . . . . . . . . . . . . . . (145,015) 273,521
Unearned sales revenue . . . . . . . . . . (825,000) -
Accounts payable . . . . . . . . . . . . . 1,814,839 (108,227)
Accounts payable - leases . . . . . . . . - 4,497,318
Accrued expenses . . . . . . . . . . . . . (69,342) (45,614)
----------- -----------
Net cash used in operating activities . . . . . (687,437) (1,503,637)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities . . . . . - (16,980,988)
Proceeds from sale/maturity of marketable
securities . . . . . . . . . . . . . . . . - 14,008,924
----------- -----------
Net cash used in investing activities . . . . . - (2,972,064)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from sale of common stock in an
initial public offering . . . . . . . . . . - 10,465,000
Repayment of fees in connection with initial
public offering . . . . . . . . . . . . . . - (2,051,269)
Distributions to shareholders in cash . . . . (383,067) -
Proceeds from notes payable . . . . . . . . . 1,020,371 -
Repayment of notes payable . . . . . . . . . - (1,592,829)
----------- -----------
Net cash provided by financing activities . . . 637,304 6,820,972
----------- -----------
Net (decrease) increase in cash and cash
equivalents . . . . . . . . . . . . . . . . . (50,133) 2,345,271
CASH AND CASH EQUIVALENTS, beginning of period 1,286,601 1,153,476
----------- -----------
CASH AND CASH EQUIVALENTS, end of period . . . $ 1,236,468 $ 3,498,747
========================
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for income taxes . . . . . . . . . $ 14,512 $ 49,366
============ ===========
Cash paid for interest . . . . . . . . . . . $ 339,000 $ 923,063
=========== ===========
See accompanying notes to financial statements.
<PAGE>
PARAMOUNT FINANCIAL CORPORATION
-------------------------------
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(UNAUDITED)
-----------
1. The accompanying unaudited financial statements have been
prepared in accordance with the instructions for Form 10-Q
and Regulation S-X related to interim period financial
statements and, therefore, do not include all information
and footnotes required by generally accepted accounting
principles. However, in the opinion of management, all
adjustments (consisting of normal recurring adjustments and
accruals) considered necessary for a fair presentation of
the financial position of Paramount Financial Corporation
(the "Company") at September 30, 1996 and its results of
operations and cash flows for the three and nine months
ended September 30, 1995 and 1996, respectively, have been
included. The results of operations for the interim periods
are not necessarily indicative of the results that may be
expected for the entire year. Reference should be made to
the annual financial statements, including footnotes
thereto, included in the Company's Form 10-K for the fiscal
year ended December 31, 1995.
2. On January 22, 1996, the Company consummated an initial
public offering ("IPO") of its securities. In connection
with the offering, the Company issued a total of 1,495,000
units, inclusive of the underwriter's over-allotment option
which was exercised in full, at a price of $7.00 per unit
generating net proceeds to the Company of approximately $8.4
million. Each unit sold in the offering consisted of two
shares of common stock and two redeemable, detachable class
A warrants. Concurrent with the IPO, the Company issued
750,000 units, identical to those units issued in the IPO,
and 1,500,000 class B warrants to certain lenders (the
"Lenders") as additional compensation for making certain
bridge loans to the Company (the "Bridge Loans").
Concurrent with the IPO, the Company no longer qualified as
a Subchapter "S" Corporation, and became subject to "C"
corporation taxation from that point on.
3. During the quarter ended September 30, 1996, the Company
formed a new wholly owned subsidiary, Paratech Resources,
Inc. ("Paratech"), to offer comprehensive information
technology solutions, including network design and
integration, software applications, training and value-added
support services. The financial statements for the three
and nine months ended September 1996 are consolidated to
include the results of Paratech. All intercompany balances
and transactions have been eliminated. On September 30,
1996, the Company and Select Systems, Inc. agreed to
dissolve Continental Medical Exchange Corporation, a joint
venture 60% owned by the Company. The majority of the
investment was written off as of December 31, 1995.
4. Marketable securities have been classified as available for
sale in accordance with Statement of Financial Accounting
Standards Board No. 115, "Accounting for Certain Investments
in Debt and Equity Securities". Marketable securities
available for sale consist primarily of United States
government and agency bonds with original maturities of one
year or less. The cost basis of these securities
approximates market value, as such there are no unrealized
gains or losses at September 30, 1996. The cost of debt
securities is adjusted for amortization of premiums and
accretion of discounts to maturity. Such amortization,
interest income, realized gains and losses are included in
interest income.
5. In January 1996, the Company, utilizing a portion of the net
proceeds from the IPO, repaid the Lenders an aggregate of
approximately $1,040,000 of indebtedness under the Bridge
Loans, and in March 1996 the Company repaid $495,000
outstanding under a secured line of credit.
6. The Company accounts for income taxes under Statement of
Financial Accounting Standards No. 109, "Accounting for
Income Taxes" ("SFAS 109"). SFAS 109 requires an asset and
liability approach for financial reporting for income taxes.
Under SFAS 109, deferred taxes are provided for temporary
differences between the carrying values of assets and
liabilities for financial reporting and tax purposes at the
enacted rates at which these differences are expected to
reverse. As of September 30, 1996, the Company has recorded
a $420,000 cumulative deferred tax liability which primarily
results from temporary differences with respect to
depreciation.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with, and
is qualified in its entirety by, the unaudited financial
statements, including the notes thereto, included elsewhere in
this report.
GENERAL
The operating results of Paramount Financial Corporation
("Paramount" or the "Company") are subject to quarterly
fluctuations resulting from a variety of factors, including
product announcements by manufacturers, economic conditions,
interest rate fluctuations and variations in the mix of leases
written. In addition, the Company's sales volume can fluctuate
significantly from quarter to quarter based on the closing date
and nature of each particular sales transaction. The mix of
leases written in a quarter is a result of a combination of
factors, including changes in customer demands and/or
requirements, new product announcements, price changes, changes
in delivery dates, changes in maintenance policies and pricing
policies of equipment manufacturers, and price competition from
other lessors. Leasing transactions (other than sales type
leases), in general, do not provide for significant earnings in
the month of lease origination. Instead, revenue, expense and
profit from lease transactions are recorded over the life of the
asset and the lease. Lease revenue and lease expense recognition
is dependent upon a number of factors, including the term of the
lease, the accounting classification of the lease (i.e.
operating, direct finance, or sales type) and the commencement
date of the lease and the lease financing within a particular
period.
The results of operations for the first nine months of 1996
represent a significant change in focus for Paramount as compared
to the prior year's activity. The Company has begun to carry out
its business plan to aggressively expand its end-user lease
origination business. Specifically, the Company has increased
its presence in end-user accounts, put greater emphasis on new
lease origination and established a greater marketing presence in
the high-technology community. In addition, the proceeds of the
Company's January 1996 initial public offering ("IPO") have
increased the Company's ability to make residual value
investments in leased equipment, thus creating new opportunities
for lease origination. See "Liquidity and Capital Resources."
As a result of this change in focus, the Company measures its
progress not only in terms of revenue and profit, but also on the
growth of its lease portfolio, which generates lease revenue
during the term of the leases and sales or lease revenue at lease
expiration through subsequent sales or re-leases of the
equipment.
During the quarter ended September 30, 1996 the Company
activated a new wholly owned subsidiary, Paratech Resources, Inc.
("Paratech"), to offer comprehensive information technology
solutions including network design and integration, software
applications, training and value-added support services such as
help desk. The results of operations from Paratech are
consolidated with those of Paramount. All intercompany balances
and transactions have been eliminated.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THREE MONTHS
ENDED SEPTEMBER 30, 1995
The Company recorded a pre-tax loss of $109,400 for the
three months ended September 30, 1996 as compared to a pre-tax
loss of $2.4 million for the comparable period ended September
30, 1995. During the quarter ended September 30, 1995, the
Company expensed $2.6 million of deferred financing cost related
to the issuance of 1.5 million shares of Common Stock issuable as
additional consideration under the certain Bridge Units which
were originally issued in connection with a Bridge Loan to the
Company entered into in July and August of 1995. This amount
represents one half of the total amount of deferred financing
cost accrued by the Company (which was based on the estimated
value of the Company's Common Stock at the consummation of the
IPO), the balance of which was expensed during the three months
ended December 31, 1995. The expense recorded did not affect the
Company's cash position or net equity as a result of the
corresponding credit made to additional paid-in capital. The
pre-tax loss for the quarter ended September 30, 1996 is largely
attributable to the increased emphasis on new lease origination
and the timing of the associated revenue recognition. See
"General."
<PAGE>
In accordance with Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," the Company
recorded a one time, non-cash adjustment of $419,800 to its
Provision For Income Taxes during the three months ended
September 30, 1996. This adjustment was necessitated by the
change of the Company's tax status from a Sub-Chapter S
Corporation to a C-Corporation in connection with the Company's
January 1996 IPO. The amount of the adjustment represents the
cumulative deferred tax liability, which arose primarily from
temporary tax differences with respect to depreciation, generated
by the S-Corporation and payable in the future by the C-
Corporation. This adjustment does not affect the Company's
current cash position, as a result of the corresponding credit
made to a deferred tax liability account, but did cause the
Company to report an after tax loss of $485,300 for the three
months ended September 30, 1996 as compared to a loss of $2.4
million for the comparable period ended September 30, 1995.
During the three months ended September 30, 1996, the
Company entered into new lease transactions totaling $5.4 million
of equipment cost. Of this amount, $815,500 were classified as
direct finance leases and $4.6 million were classified as
operating leases. For the three months ended September 30, 1995,
the Company entered into $466,100 of direct finance leases and
$3.7 million of operating leases. The increase in new lease
origination is a direct result of the Company's efforts to expand
its end-user lease origination business. See "General." During
the three months ended September 30, 1996, the Company entered
into $2.0 million of non-recourse lease financing arrangements,
net of terminations resulting from lease sales and lease
extensions, as compared with $3.6 million for the three months
ended September 30, 1995. The reduction in the amount of non-
recourse debt entered into in the quarter, both as compared to
last year and as compared to the amount of new lease origination
entered into in the quarter, is a result of the timing of the
closing of certain large lease transactions. Of the total amount
of new lease business in the quarter ended September 30, 1996,
$4.6 million related to leases for which the Company was not
required to pay for the equipment until November 1996. The
Company anticipates entering into non-recourse lease financing
for these leases at the time of such vendor payment. This amount
was recorded as accounts payable-leases on the Company's
September 30, 1996 balance sheet.
Consistent with the growth in new lease origination, lease
revenue, comprised of rental income from operating leases and
interest income from direct finance and sales type leases,
increased by 140.7% to $986,700 for the three months ended
September 30, 1996 from $410,000 for the comparable period ended
September 30, 1995. Lease expense, which includes depreciation
expense on operating leases, interest expense on lease financing
and sublease rent expense, increased by 179.8% to $882,000 for
the three months ended September 30, 1996 from $315,300 for the
three months ended September 30, 1995. See "General."
Revenue from the sale of equipment for the three months
ended September 30, 1996 declined by 91.0% to $528,500 from $5.9
million for the three months ended September 30, 1995. This
decrease is a result of the Company's expansion of its leasing
operation and the increased emphasis on lease origination and
portfolio development. During the three months ended September
30, 1995, the Company entered into a single transaction to sell
equipment on lease to an equipment investor for a total sale
price of $2.4 million. Subsequent to a sale of this variety,
the Company generally is a party to a re-marketing agreement
under which it may earn additional income from the asset's future
re-lease or sale value. The Company includes these leases within
the aggregate value of its active portfolio of owned and managed
leases. Management believes that as the Company's base of end-
user lease and sale customers continues to grow and expand, the
Company should experience a matching growth in sales revenue and
profits. See "General."
During the three months ended September 30, 1996, the
Company generated $174,100 in fee and other income, compared to
$13,200 for the comparable period last year. This revenue is
principally derived from the Company's involvement in certain
transactions in which it acts as an arranger of financing for
transactions originated by third parties. The Company does not
recognize as revenue the gross amount of the lease financing
arranged, but rather records the net profit generated from the
transaction. For the three months ended September 30, 1996, the
Company arranged for lease financing totaling in excess of $4.2
million.
Selling, general and administrative expenses ("SG&A")
totaled $588,100 for the three months ended September 30, 1996,
representing an increase of 28.1% over the $459,200 recorded
during the three months ended September 30, 1995. The increase
in SG&A is a result of the increased sales and support staff at
the Company as well as the increased compliance costs associated
with being a public company.
<PAGE>
During the three months ended September 30, 1996, the
Company recorded $78,600 of interest income, an increase of
$60,100 over the period ended September 30, 1995, excluding the
$2.6 million charge to interest expense related to the Bridge
Units as described above. This increase is due to the investment
of the IPO proceeds in interest bearing cash accounts, cash
equivalents and marketable securities during the three months
ended September 30, 1996.
The tax provision of $375,900 for the three months ended
September 30, 1996 represents the cumulative adjustment of
$419,800, described above, less a benefit of $43,900, which
reflects an effective rate of 40% for federal and state taxes on
the current period loss. Prior to 1996, the Company was an S-
Corporation and not subject to a corporate federal income tax.
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS
ENDED SEPTEMBER 30, 1995
For the nine months ended September 30, 1996, the Company
recorded pre-tax income of $5,000 as compared to a pre-tax loss
of $1.9 million for the comparable period ended September 30,
1995. The results for the nine months ended September 30, 1995
were affected by the Bridge Loan interest expense described
above.
During the nine months ended September 30, 1996, the Company
entered into new lease transactions totaling $37.4 million of
equipment cost. This represents an increase of $31.0 million
over the cost of equipment leased during the nine months ended
September 30, 1995. Of the total cost of equipment leased during
the nine months ended September 30, 1996, $12.4 million was
subsequently sold to an equipment investor, and $7.5 million were
recorded as sales type leases. Of the balance of new lease
origination for the nine months ended September 30, 1996, $10.8
million were recorded as direct finance leases, and $6.7 million
were recorded as operating leases, compared to $2.5 million and
$3.9 million respectively, for the nine months ended September
30, 1995. During the nine months ended September 30, 1996, the
Company entered into $18.6 million of non-recourse lease
financing arrangements, net of terminations resulting from lease
sales and lease extensions, as compared with $5.7 million for the
nine months ended September 30, 1995. See "Liquidity and Capital
Resources."
Consistent with the growth in new lease origination, lease
revenue increased by 64.7% to $2.4 million for the nine months
ended September 30, 1996 from $1.5 million for the comparable
1995 period. Lease expense increased by 86.2% to $2.2 million
for the nine months ended September 30, 1996 from $1.2 million
for the nine months ended September 30, 1995. Included in lease
expense for the nine months ended September 30, 1996 was interest
expense on the financing of certain lease transactions which
were recorded as sales type leases with a portion of the
associated revenue recorded as sales revenue rather than lease
revenue. See "General."
For the nine months ended September 30, 1996, the Company
recorded sales revenue of $22.6 million. Of this amount, $8.2
million was from sales type leases, and $12.5 million was from
the sale of leased equipment to an equipment investor. During
the nine months ended September 30, 1995, the Company recorded
sales revenue of $28.6 million which included $16.4 million of
sales of equipment leases to equipment investors.
During the nine months ended September 30, 1996, the Company
generated $187,300 in fee and other income, compared to $95,800
for the comparable period last year. This revenue is principally
derived from the Company's involvement in certain transactions in
which it acts as an arranger of financing for transactions
originated by third parties. The Company does not recognize as
revenue the gross amount of the lease financing arranged, but
rather records the net profit generated from the transaction.
For the nine months ended September 30, 1996, the Company
arranged for lease financing totaling in excess of $4.2 million
as compared to $3.5 million for the comparable period ended
September 30, 1995.
SG&A totaled $1.7 million for the nine months ended
September 30, 1996, representing an increase of 29.1% over the
$1.3 million recorded during the nine months ended September 30,
1995. The increase in SG&A is as result of the increased sales
and support staff at the Company as well as the increased
compliance costs associated with being a public company.
During the nine months ended September 30, 1996, the Company
recorded $228,600 of interest income, an increase of $183,900
over the period ending September 30, 1995, excluding the $2.6
million charge to interest expense related to the Bridge Units as
described above. This increase is due to the investment of the
IPO proceeds in interest bearing cash accounts, cash equivalents
<PAGE>
and marketable securities during the nine months ended September
30, 1996.
The tax provision of $421,700 for the nine months ended
September 30, 1996 represents the cumulative adjustment of
$419,800, described above, plus $1,900 which reflects an
effective rate of 40% for federal and state taxes on the current
period income. Prior to 1996, the Company was an S-Corporation
and not subject to a corporate federal income tax.
JOINT VENTURES:
The Company is a 20% owner of KRh Financial, LLC ("KRh"), a
company created to lease the Hot Choice Vending Machine, a fully-
integrated freezer-to-oven vending machine. During the nine
months ended September 30, 1996, KRh had successfully leased and
financed vending machines for an aggregate sale price in excess
of $200,000. KRh is still in the early stages of business and
the results of its operation are immaterial to the overall
financial position of Paramount.
In September, 1996, the Company and Select Systems, Inc.
agreed to dissolve Continental Medical Exchange Corporation, a
joint venture 60% owned by Paramount. The majority of the
Company's investment was written off as of December 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES
On January 22, 1996, the Company consummated an initial
public offering of its securities. In connection with the
offering, the Company issued a total of 1,495,000 units,
inclusive of the underwriter's over-allotment option which was
exercised in full, at a price of $7.00 per unit generating net
proceeds to the Company of approximately $8.4 million.
Concurrent with the IPO, the Company repaid the $1.0 million owed
to certain bridge lenders plus the related interest accrued that
was outstanding as of December 31, 1995.
As of September 30, 1996, the Company had $6.6 million in
cash, cash equivalents and marketable securities. Substantially
all of this amount was invested in interest-bearing savings
accounts, money market accounts established by major commercial
banks, or in United States Government or other AA rated
obligations. Since inception, the Company has been able to cover
its operating expenses from internally generated cash flow and
has never had to borrow funds to cover such operating expenses.
Although the Company's business is subject to monthly and
quarterly fluctuations that may require the Company to use its
cash balances to cover such expenses for short periods of time,
the Company does not anticipate having to use significant amounts
of its cash balances to cover such expenses.
At September 30, 1996, the Company had three lines of credit
available. These credit lines, established with The Bank of New
York, The Chase Manhattan Bank (formerly Chemical Bank) and PNC
Bank (formerly Midlantic Bank), allow the Company, subject to the
satisfaction of certain financial covenants with respect to the
PNC Bank credit facility, to borrow up to $2,750,000 in the
aggregate and are secured by equipment and contracts to sell or
lease that equipment. Borrowings under these lines bear interest
at 1% to 1 1/2% above the prime rate. In addition, one of these
lines offers the Company the ability to borrow up to $100,000 on
an unsecured basis. The purpose of these credit lines is to
allow the Company to pay its suppliers on a timely basis while
waiting for the customer to pay or for the non-recourse financing
to occur. As of December 31, 1995, the Company had borrowed
$495,000 from one of these bank lenders in connection with the
acquisition of equipment on lease. This amount was paid in full
in March of 1996 and no additional amounts were outstanding as of
September 30, 1996. The Company is in the process of reviewing
all of its existing credit relationships and hopes to modify the
terms and increase the amounts of these lines in the near future.
The Company finances substantially all of its leases by
discounting the payment streams on a non-recourse basis through
various banks and financial institutions. Thus, the only cash
required in these lease transactions is the residual value
investment by the Company. See "General." As a result of the
Company's IPO, management believes that it has sufficient
resources to make the residual value investments required to grow
its lease portfolio. In addition, the Company has numerous
options available to it for the financing of residual value
investments, including sales of equipment on lease to equipment
investors, recourse loans and non-recourse loans. The Company
<PAGE>
intends to use, on an opportunistic basis, all such available
resources in order to maximize its portfolio of equipment on
lease. In June 1996, in connection with an extension and re-
financing of a lease transaction, the Company repaid $60,500 of a
residual value loan that was outstanding as of December 31,
1995. As of September 30, 1996, the Company had a total of
$18,900 of residual value loans outstanding.
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISK
Statements contained in this Form 10-Q which are not
historical facts are forward-looking statements. The forward-
looking statements in this Form 10-Q are made pursuant to the
safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Forward-looking statements made herein
contain a number of risks and uncertainties that could cause
actual results to differ materially. These risks and
uncertainties include, but are not limited to, the specific
factors impacting the Company's business discussed under the
caption "General," as well as increased competition; the
availability of computer equipment; the ability of the Company to
expand its operations and attract and retain qualified sales
representatives experienced in the purchase, sale and lease of
new and used computer equipment; technological obsolescence of
the Company's portfolio of computer equipment; and general
economic conditions.
<PAGE>
PART II: OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
--------
27. Financial Data Schedule.
(b) Reports on Form 8-K.
-------------------
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
PARAMOUNT FINANCIAL
CORPORATION
Date: November 13, 1996 By: /s/ Paul Vecker
--------------------------
Paul Vecker, Senior
Vice President and
Chief Fiancial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNAUDITED
BALANCE SHEETS, STATEMENT OF OPERATIONS, STATEMENT OF CHANGES IN SHAREHOLDERS'
EQUITY AND STATEMENTS OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 3,499
<SECURITIES> 3,090
<RECEIVABLES> 955
<ALLOWANCES> 0
<INVENTORY> 0
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<TOTAL-ASSETS> 36,934
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0
0
<COMMON> 79
<OTHER-SE> 8,486
<TOTAL-LIABILITY-AND-EQUITY> 36,934
<SALES> 529
<TOTAL-REVENUES> 1,689
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<TOTAL-COSTS> 1,289
<OTHER-EXPENSES> 588
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<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (109)
<INCOME-TAX> (376)
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