================================================================
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 March 31, 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 (I.R.S. Employer
of 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 May 9, 1996:
7,990,000 shares of Common Stock, par value $0.01 per share.
=================================================================
<PAGE>
PARAMOUNT FINANCIAL CORPORATION
INDEX TO FORM 10-Q FOR THE QUARTER ENDED
March 31, 1996
Page No.
--------
PART I - FINANNCIAL INFORMATION
Item 1 - Financial Statements
Balance Sheets
March 31, 1996 and December 31, 1995........ 1
Statements of Operations
Three Months Ended March 31, 1996 and 1995.. 2
Statements of Shareholders' Equity
Three Months Ended March 31, 1996........... 3
Statements of Cash Flows
Three Months Ended March 31, 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
PART II - Other Information......................... 9
SIGNATURES.......................................... 10
<PAGE>
PART I: FINANCIAL INFORMTION
Item 1. FINANCIAL STATEMENTS
PARAMOUNT FINANCIAL CORPORATION
-----------------------------
BALANCE SHEETS
--------------
UNAUDITED
---------
ASSETS
------
December 31, March 31,
1995 1996
------------ -----------
Cash and cash equivalents . . . . $ 1,153,476 $ 1,861,506
Marketable securities available
for sale . . . . . . . . . . . - 5,567,650
Accounts receivable . . . . . . . 106,794 276,342
Net investment in direct finance
and sales-type leases . . . . . 6,446,063 14,600,003
Assets held under operating leases,
net of accumulated
depreciation . . . . . . . . . 3,976,209 16,452,153
Other assets . . . . . . . . . . 696,043 264,064
----------- -----------
$12,378,585 $39,021,718
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
LIABILITIES:
Notes payable . . . . . . . . . . $ 576,941 $ 79,511
Bridge loans payable . . . . . . 1,034,756 -
Accounts payable . . . . . . . . 419,624 316,937
Accounts payable - leases . . . . 126,990 3,319,490
Accrued expenses . . . . . . . . 313,673 55,299
Obligations for financed
equipment - non-recourse . . . 9,337,883 26,203,515
---------- ----------
Total liabilities . . . . . . . 11,809,867 29,974,752
---------- ----------
SHAREHOLDERS' 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 13,827,976
Accumulated deficit . . . . . . . (4,748,331) (4,860,910)
----------- -----------
Total shareholders' equity . . 568,718 9,046,933
----------- -----------
$12,378,585 $39,021,984
=========== ===========
See accompanying notes to financial statements.
<PAGE>
PARAMOUNT FINANCIAL CORPORATION
------------------------------
STATEMENTS OF OPERATIONS
-------------------------
FOR THE THREE MONTHS ENDED MARCH 31,
------------------------------------
UNAUDITED
----------
1995 1996
---------- ----------
REVENUES:
Equipment sales . . . . . . . . . $8,554,862 $1,077,297
Lease revenue . . . . . . . . . . 580,607 647,602
Fee and other income . . . . . . 77,514 6,950
---------- ----------
Total revenues . . . . . . . . 9,212,983 1,731,849
---------- ----------
DIRECT COSTS:
Cost of equipment sales . . . . . 8,052,089 964,302
Lease expense . . . . . . . . . . 454,569 559,446
---------- ----------
Total direct costs . . . . . . 8,506,658 1,523,748
---------- ----------
Gross profit . . . . . . . . . 706,325 208,101
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES . . . . 423,388 459,311
---------- ----------
Income (loss) from operations . 282,937 (251,210)
INTEREST INCOME, NET . . . . . . 13,638 63,578
---------- ----------
Income (loss) before provision
for income taxes . . . . . . 296,575 (187,632)
PROVISION FOR (BENEFIT FROM) INCOME
TAXES . . . . . . . . . . . . . 6,054 (75,053)
---------- ----------
Net income (loss) . . . . . . . $ 290,521 $ (112,579)
========== ==========
NET (LOSS) PER SHARE . . . . . . $ (0.02)
==========
Weighted average common
shares outstanding . . . . . . 7,267,143
==========
See accompanying notes to financial statements.
<PAGE>
PARAMOUNT FINANCIAL CORPORATION
------------------------------
STATEMENTS OF SHAREHOLDERS' EQUITY
-----------------------------------
FOR THE THREE MONTHS ENDED MARCH 31, 1996
-----------------------------------------
UNAUDITED
---------
Common Stock
------------------- Additional
Paid-In
Shares Amount Capital
--------- ------- -----------
BALANCE, December 31, 1995. . . 3,500,000 $35,000 $ 5,282,049
Issuance of common stock
in the initial public
offering, net of fees . . . 2,990,000 29,900 8,560,927
Issuance of common stock to
bridge lenders . . . . . . 1,500,000 15,000 (15,000)
Net loss . . . . . . . . . . -- -- --
--------- ------ ---------
BALANCE, March 31, 1996 . . . . 7,990,000 $79,900 $13,827,976
========= ======= ===========
Retained
Earnings Total
------------ ----------
BALANCE, December 31, 1995 . . . . $(4,748,331) $ 568,718
Issuance of common stock
in the initial
public offering,
net of fees . . . . . . . . . -- 8,590,827
Issuance of common stock
to bridge lenders . . . . . . -- --
Net loss . . . . . . . . . . . . (112,579) (112,579)
----------- ----------
BALANCE, March 31, 1996. . . . . . $(4,860,910) $9,046,966
=========== ==========
See accompanying notes to financial statements.
<PAGE>
PARAMOUNT FINANCIAL CORPORATION
------------------------------
STATEMENTS OF CASH FLOWS
------------------------
FOR THE THREE MONTHS ENDED MARCH 31,
------------------------------------
UNAUDITED
---------
1995 1996
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) . . . . . . . . . . . $ 290,521 $ (112,579)
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation . . . . . . . . . . . . 192,578 361,656
Amortization of discount on
marketable securities . . . . . . . -- (37,808)
Amortization of unearned operating
lease revenue from sublease
transaction . . . . . . . . . . . . (26,018) (15,473)
Amortization of prepaid operating
lease expense from sublease
transactions . . . . . . . . . . . 23,094 13,567
Purchase of equipment for direct
finance leases and sales type
leases . . . . . . . . . . . . . . (709,758) (8,840,394)
Termination of direct finance
leases and sales . . . . . . . . . 669,301 --
Proceeds applied to direct finance
leases and sales type leases. . . . 531,417 686,454
Purchase of equipment for
operating leases . . . . . . . . . (59,458) (12,903,224)
Termination of operating leases . . . 21,450 65,626
Increase in non-recourse lease
financing . . . . . . . . . . . . . 1,430,784 17,937,808
Termination of non-recourse lease
financing . . . . . . . . . . . . . (612,574) --
Repayments and interest amortization
applied to non-recourse
lease financing . . . . . . . . . . (691,054) (1,072,176)
Changes in operating assets and
liabilities:
Accounts receivable . . . . . . . . (382,210) (169,548)
Other assets . . . . . . . . . . . (18,481) 418,412
Unearned sales revenue . . . . . . (613,000) --
Accounts payable . . . . . . . . . 1,112,714 (102,688)
Accounts payable - leases . . . . . (820,000) 3,192,500
Accrued expenses . . . . . . . . . (67,360) (242,901)
---------- ----------
Net cash provided by (used in)
operating activities . . . . . . 271,946 (820,768)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable
securities . . . . . . . . . . . . -- (8,529,843)
Proceeds from maturity of
investments . . . . . . . . . . . . -- 3,000,000
Net cash (used in) investing
activities. . . . . . . . . . . . -- (5,529,843)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common
stock in the initial public
offering, net of fees . . . . . . . -- 8,590,827
Distributions to shareholders
in cash . . . . . . . . . . . . . . (47,000) --
Proceeds from notes payable . . . . . 68,213 --
Repayment of notes payable . . . . . (65,870) (1,532,186)
---------- ----------
Net cash provided by
(used in) financing
activities . . . . . . . . . . . (44,657) 7,058,641
---------- ----------
Net increase in cash and
cash equivalents . . . . . . . . . . 227,289 708,030
CASH AND CASH EQUIVALENTS,
beginning of year . . . . . . . . . . 1,286,601 1,153,476
---------- ---------
CASH AND CASH EQUIVALENTS,
end of year . . . . . . . . . . . . . $1,513,890 $1,861,506
========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for incomed taxes . . . . . $ 6,054 $ 9,681
========= ==========
Cash paid for income taxes . . . . . $ 101,097 $ 183,841
========= ==========
See accompanying notes to financial statements.
<PAGE>
PARAMOUNT FINANCIAL CORPORATION
-------------------------------
Notes to Unaudited 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 March 31, 1995 and 1996 and its results
of operations and cash flows for the three months ended
March 31, 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 IPO, 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 approximately $8.1 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 no longer qualified as a Subchapter "S"
Corporation, and became subject to "C" corporation taxation
from that point on.
3. 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 March 31, 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.
4. In January 1996, the Company repaid a bridge loan totaling
approximately $1,040,000 and in March 1996 the Company
repaid $495,000 outstanding under a secured line of credit.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Three Months Ended March 31, 1996 Compared to Three Months Ended
March 31, 1995
Results of Operations
The following table sets forth, for the periods indicated,
the dollar amount of total new business volume generated by the
Company:
Three Months Ended
March 31,
----------------------------------
1995 1996
---- ----
Direct finance leases ..... $ 709,758 $ 8,840,394
Operating leases........... 59,458 12,903,224
----------- -----------
Total new lease volume..... 769,216 21,743,618
----------- -----------
Equipment sales revenue.... 8,554,862 1,077,297
----------- -----------
Total new business volume.. $ 9,324,078 $22,820,915
=========== ===========
During the three months ended March 31, 1996, Paramount
Financial Corporation ( Paramount or the "Company") had total
new business volume (gross revenue from equipment sales and the
cost of new equipment lease transactions) of $22.8 million. This
represents an increase of $13.5 million, or 144.8%, over the
three months ended March 31, 1995. The results of operations for
the 1996 first quarter 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 (the "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." During the three months ended March 31,
1996, the Company entered into new lease transactions totaling
$21.7 million of equipment cost. This represents an increase of
$21.0 million over the cost of equipment leased during the three
months ended March 31, 1995. Of the cost of equipment leased
during the three months ended March 31, 1996, $8.8 million were
classified as direct finance leases and $12.9 million as
operating leases, compared to $709,800 and $59,500, respectively,
for the three months ended March 31, 1995.
The Company's operating results 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. The Company s equipment 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, in general, do not provide
for significant earnings in the month of lease origination.
Instead, revenue and profit from lease transactions are recorded
over the life of the asset and the lease.
Lease revenue increased by 11.5% to $647,600 for the three
months ended March 31, 1996 from $580,600 for the comparable 1995
period. Lease expense, which includes depreciation expense on
operating leases, interest expense on lease financing, and
sublease rent expense increased by 23.1% to $559,400 for the
three months ended March 31, 1996 from $454,600 for the three
months ended March 31, 1995. Lease expense increased at a
greater rate than lease revenue during the quarter ended March
31, 1996 due to a number of lease transactions that had renewed
on a month-to-month basis during the first quarter of 1995 which
generated lease revenue without any related lease expense. There
was no such revenue during the three months ended March 31, 1996.
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 or direct
finance) and the commencement date of the lease within a
particular period. Since the majority of new lease origination
for the three months ended March 31, 1996 occurred towards the
end of the quarter, the increase in lease revenue and lease
expense was less dramatic than the increase in new lease volume.
Consistent with the growth in new lease volume, during the
three months ended March 31, 1996, the Company entered into $17.9
million of non-recourse loans related to newly generated lease
transactions as compared with $1.4 million for the three months
ended March 31, 1995. See "Liquidity and Capital Resources."
Revenue from the sale of equipment for the three months
ended March 31, 1996 declined by 87.4% to $1.1 million from $8.6
million for the three months ended March 31, 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 in the 1996 quarter and the timing of transactions
from quarter to quarter as discussed above. During the three
months ended March 31, 1995, the Company entered into a single
transaction to sell equipment on lease to an equipment investor
for a total sale price of $4.4 million. Following a transaction
of this variety, the Company generally manages such assets on
behalf of the owner and can earn additional profit upon
subsequent re-marketing at lease expiration.
Selling, general and administrative expenses totaled
$459,300 for the three months ended March 31, 1996, representing
an increase of 8.5% over the $423,400 recorded during the three
months ended March 31, 1995. The increase in the dollar amount
of selling, general and administrative expenses is a result of
the Company's increasing the size of its marketing and sales
force.
During the period ending March 31, 1996 the Company recorded
$63,600 of interest income, an increase of $49,900 over the period
ending March 31, 1995. This increase is due to the proceeds of the
IPO in January 1996, and held by the Company as cash, cash
equivalents and marketable securities during the period ended March
31, 1996.
The benefit from income taxes of $75,000 for the three months
ended March 31, 1996 reflects an effective tax rate of 40% for
federal and state taxes. Prior to 1996 the Company was an S-
Corporation and not subject to a corporate federal income tax.
Liquidity and Capital Resources
As of March 31, 1996, the Company had $7.4 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 financial institutions, 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. Due to the timing of transactions, the Company recorded
significant balances of accounts payable as of March 31, 1996.
Substantially all of these amounts were paid by May 1996.
At March 31, 1996, the Company had three lines of credit
available. These credit lines, established with The Bank of New
York, Chemical Bank and Midlantic Bank, allow the Company,
subject to the satisfaction of certain financial covenants with
respect to the Midlantic Bank credit facility, to borrow up to
$2,750,000 in the aggregate and are secured by equipment and
contracts to sell or lease such 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 1996 and no additional amounts
were outstanding as of that date. 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.
In January 1996, the Company, utilizing a portion of the net
proceeds from the IPO, repaid $1 million owed to certain bridge
lenders plus the related interest accrued that was outstanding as
of December 31, 1995.
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. As a result of the 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 intends to use, on an
opportunistic basis, all such available resources in order to
maximize its portfolio of equipment on lease. As of March 31,
1996, the Company had a total of $79,500 of residual value loans
outstanding.
<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
By: /s/ Paul Vecker
-----------------------------
Paul Vecker, Senior Vice
President and Chief
Financial Officer
<PAGE>
EXHIBIT INDEX
Exhibit Description
------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNAUDITED
BALANCE SHEETS, STATEMENTS OF OPERATIONS, STATEMENTS OF 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 1,862
<SECURITIES> 5,568
<RECEIVABLES> 276
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 39,022
<CURRENT-LIABILITIES> 3,692
<BONDS> 0
0
0
<COMMON> 79,900
<OTHER-SE> 9,047
<TOTAL-LIABILITY-AND-EQUITY> 39,022
<SALES> 1,732
<TOTAL-REVENUES> 1,732
<CGS> 1,524
<TOTAL-COSTS> 1,524
<OTHER-EXPENSES> 459
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (188)
<INCOME-TAX> (75)
<INCOME-CONTINUING> (113)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (113)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
