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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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, 1998
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 MAY 12, 1998:
7,914,000 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
MARCH 31, 1998
PART I - FINANCIAL INFORMATION Page No.
--------
Item 1 - Financial Statements
Consolidated Balance Sheets
December 31, 1997 and March 31, 1998 . . . . . . 1
Consolidated Statements of Operations
Three Months Ended March 31, 1997 and 1998 . . . 2
Consolidated Statement of Changes in Stockholders'
Equity Three Months Ended March 31, 1998 . . . . 3
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1997 and 1998 . . . 4
Notes to Unaudited Consolidated Financial
Statements . . . . . . . . . . . . . . . . . . . . 5
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations . 6-9
PART II - Other Information . . . . . . . . . . . . . . . . . 10
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . 11
<PAGE>
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PARAMOUNT FINANCIAL CORPORATION AND SUBSIDIARIES
------------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
DECEMBER 31, MARCH 31,
ASSETS 1997 1998
------ ------------ ----------
(UNAUDITED)
Cash and cash equivalents . $ 2,209,649 $ 5,282,603
Investments available for
sale . . . . . . . . . . 3,524,456 --
Accounts receivable . . . . 1,138,479 1,495,844
Net investment in direct
finance and sales-
type leases . . . . . . . 39,941,764 37,784,043
Assets held under operating
leases, net of accumulated
depreciation . . . . . . 5,459,895 9,074,108
Other assets . . . . . . . 788,218 1,336,999
------------ ------------
Total assets . . . . . . . $53,062,461 $54,973,597
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Notes payable . . . . . . . $ 2,656,365 $ 2,892,558
Accounts payable . . . . . 1,307,496 705,502
Accounts payable - leases . 708,568 964,863
Accrued expenses . . . . . 383,097 351,530
Obligations for financed
equipment - non-recourse . 40,287,404 42,388,533
Deferred income taxes . . . 73,848 73,848
------------ ------------
Total liabilities . . . . . 45,416,778 47,376,834
------------ ------------
Shareholders' equity:
Preferred stock, $.01 par
value; 5,000,000 shares
authorized, none
outstanding . . . . . -- --
Common stock, $.01 par
value; 35,000,000 shares
authorized, 7,990,000
shares issued and
outstanding,
respectively . . . . . 79,900 79,900
Additional paid-in capital 13,644,228 13,644,228
Accumulated deficit . . . . (6,049,080) (6,082,414)
Treasury stock, 50,000 and
76,000 shares at cost,
respectively . . . . . (29,365) (44,951)
------------ ------------
Total shareholders' equity 7,645,683 7,596,763
------------ ------------
Total liabilities and
shareholders' equity . . . $53,062,461 $54,973,597
============ ============
See accompanying notes to financial statements.
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<PAGE>
PARAMOUNT FINANCIAL CORPORATION AND SUBSIDIARIES
------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
FOR THE THREE MONTHS ENDED MARCH 31,
------------------------------------
UNAUDITED
---------
1997 1998
------------ ----------
REVENUES:
Sales . . . . . . . . . . . . . $ 936,239 $14,481,462
Lease revenue . . . . . . . . . 2,609,347 1,506,328
Fee, interest and other income 500,875 219,927
--------- ----------
Total revenues . . . . . $4,046,461 $16,207,717
--------- ----------
COSTS AND EXPENSES:
Cost of sales . . . . . . . . . 775,144 13,788,191
Lease expense . . . . . . . . . 2,449,082 1,443,175
Selling, general and
administrative expenses . . . 702,636 1,031,907
--------- ----------
Total costs and expenses 3,926,862 16,263,273
--------- ----------
Income (loss) before provision
for (benefit from) income taxes 119,599 (55,556)
PROVISION FOR (BENEFIT FROM)
INCOME TAXES . . . . . . . . . 47,839 (22,222)
--------- ----------
Net income (loss) . . . $ 71,760 ($33,334)
========= ==========
Basic income per common $0.01 --
share . . . . . . . . . ========= ==========
Diluted income per common $0.01 --
share . . . . . . . . . ========= ==========
Shares used in computing net
income per share:
Basic . . . . . . . . . 7,990,000 7,919,733
========= ==========
Diluted . . . . . . . . 7,990,000 7,919,733
========= ==========
See accompanying notes to financial statements.
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<PAGE>
PARAMOUNT FINANCIAL CORPORATION AND SUBSIDIARIES
------------------------------------------------
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
---------------------------------------------------------
FOR THE THREE MONTHS ENDED MARCH 31, 1998
-----------------------------------------
UNAUDITED
---------
COMMON STOCK
----------------------
ADDITIONAL
PAID-IN
SHARES AMOUNT CAPITAL
------------ ---------- ----------
BALANCE, DECEMBER 31,
1997 . . . . . . . . 7,990,000 $79,900 $13,644,228
Net (loss) . . . . . -- -- --
Purchase of treasury
stock . . . . . . . -- -- --
----------- ---------- ------------
BALANCE, MARCH 31,
1998 . . . . . . . . 7,990,000 $79,900 $13,644,228
=========== ========== ============
ACCUMULATED TREASURY
(DEFICIT) STOCK TOTAL
----------- ----------- -------
BALANCE, DECEMBER 31,
1997 . . . . . . . . ($6,049,080) $(29,365) $7,645,683
Net (loss) . . . . . (33,334) -- (33,334)
Purchase of treasury
stock . . . . . . . -- (15,586) (15,586)
------------ --------- -----------
BALANCE, MARCH 31,
1998 . . . . . . . . ($6,082,414) ($44,951) $7,596,763
============ ========= ===========
See accompanying notes to financial statements.
-3-
<PAGE>
PARAMOUNT FINANCIAL CORPORATION AND SUBSIDIARIES
------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
FOR THE THREE MONTHS ENDED MARCH 31,
------------------------------------
UNAUDITED
---------
1997 1998
----------- ------------
CASH FLOWS FROM
OPERATING
ACTIVITIES:
Net income (loss) . . $71,760 $(33,334)
Adjustments to
reconcile net
income (loss)
to net cash
(used in)
provided by
operating
activities:
Depreciation . . . 1,894,449 788,645
Amortization
of discounts
on investments. . (48,436) (26,953)
Amortization of
goodwill . . . . -- 14,778
Changes in operating
assets and liabilities:
Accounts
receivable . . 1,213,799 (18,847)
Other assets . . 14,582 68,582
Accounts payable (62,907) (601,994)
Accounts payable
- leases . . . (17,554,731) 256,295
Accrued expenses 11,469 (116,522)
------------- ------------
Net cash provided by
(used in) operating
activities . . . . . (14,460,015) 330,650
------------- ------------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Purchase of
equipment for
direct finance
leases and sales
-type leases . . (10,110,254) (5,223,675)
Termination of
direct finance
leases . . . . . 272,922 3,159,587
Proceeds applied to
direct finance
leases and sales
-type leases . . 2,156,303 4,158,810
Purchase of
equipment for
operating leases (41,333) (5,110,445)
Termination of
operating leases -- 57,000
Residual value
sharing
arrangements . . 3,009,570 713,587
Payment for
acquisition of
Deltaforce, net
of cash acquired -- (213,706)
Purchases of
investments . . . (1,879,906) (3,084,593)
Proceeds from
sale/maturity of
investments . . . 3,195,000 6,636,003
------------ -----------
Net cash (used in)
provided by
investing
activities . . . . (3,397,698) 1,092,568
------------ -----------
CASH FLOWS FROM
FINANCING
ACTIVITIES:
Repurchase of
common stock . . -- (15,586)
Proceeds from notes
payable . . . . 1,959,567 817,427
Repayment of notes
payable . . . . (555) (1,253,234)
Increase in non-
recourse lease
financing . . . 21,036,113 9,795,722
Termination of non-
recourse lease
financing . . . -- (2,864,076)
Repayments and
interest
amortization
applied to non-
recourse lease
financing . . . (3,748,806) (4,830,517)
------------ ----------
Net cash provided by
financing activities 19,246,319 1,649,736
------------ ----------
Net increase in cash
and cash equivalents 1,388,606 3,072,954
CASH AND CASH
EQUIVALENTS,
beginning of period 3,700,774 2,209,649
------------ -----------
CASH AND CASH
EQUIVALENTS, end of
period . . . . . . . $5,089,380 $5,282,603
============ ===========
SUPPLEMENTAL CASH
FLOW INFORMATION:
Cash paid for
income taxes . . $ 47,850 $ 22,120
============ ===========
Cash paid for
interest . . . . $ 553,374 $ 614,653
============ ===========
See accompanying notes to financial statements.
-4-
<PAGE>
PARAMOUNT FINANCIAL CORPORATION AND SUBSIDIARIES
------------------------------------------------
Notes to Unaudited Consolidated Financial Statements
----------------------------------------------------
1. The accompanying unaudited consolidated 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 and subsidiaries (the "Company") at
March 31, 1998 and its results of operations and cash flows
for the three months ended March 31, 1997 and 1998,
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, 1997.
2. The financial statements for the three months ended March
31, 1998 are consolidated to include the results of the
Company's two wholly owned subsidiaries, Paratech Resources,
Inc. and Deltaforce Personnel Services, Inc ("Deltaforce").
All material intercompany balances and transactions have
been eliminated.
3. On January 9, 1998, the Company acquired 100% of the
outstanding shares of Deltaforce, a privately held New York
City-based staffing company, for approximately $688,000,
which included $325,000 of notes payable. The acquisition
was accounted for as a purchase and accordingly the
operating results of Deltaforce have been included in the
Company's consolidated statements since the date of the
acquisition. The excess of the aggregate purchase price
over the fair market value of the net assets acquired of
approximately $591,000 has been recorded as goodwill and is
being amortized over 15 years.
-5-
<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 Form 10-Q.
GENERAL
Paramount Financial Corporation and subsidiaries ("Paramount"
or the "Company") is a comprehensive asset management and
business solution provider, offering customers a wide range of
integrated services, including lease finance, information
technology ("IT") consulting, network design and implementation
and staffing services. The Company includes two wholly owned
subsidiaries, Paratech Resources, Inc. ("Paratech") and, as of
January 1998, Deltaforce Personnel Services, Inc. ("Deltaforce").
The operating results of Paramount 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. See "Lease Accounting." Given the possibility of such
fluctuation, the Company believes that comparisons of the results
of its operations for preceding quarters are not necessarily
meaningful and that such results for one quarter should not be
relied upon as an indication of future performance.
The first quarter of 1998 was significant for several reasons.
In January, the Company completed the acquisition of Deltaforce
Personnel Services, Inc., a privately held New York City based
staffing company. This acquisition further enhances the
Company's product offerings by including staffing services to its
expanding list of integrated services, and is a continuation of
the Company's strategic diversification plans. In addition to
the Deltaforce acquisition, the Company continued to invest in
the expansion of its systems integration subsidiary, Paratech
Resources, Inc., which is moving ahead with its growth plans in
both personnel and product offerings. Both of these companies
-6-
<PAGE>
are an important part of the evolution of Paramount from a lease
finance company to a diversified business solution provider.
When comparing the first quarter of 1998 with the first quarter
of 1997 it is important to note that Deltaforce was not part of
the Company until January 1998 and Paratech was a relatively
insignificant part of the Company as of March 31, 1997.
The Company remains committed to the growth of its lease
portfolio and continued to expand this activity during the three
months ended March 31, 1998. The Company believes that continued
expansion of the portfolio of IT equipment on lease will create
financial benefits over a continuum of time, since, unlike other
equipment, IT equipment is frequently upgraded and/or enhanced
during the term of its lease, resulting in opportunities to lease
new equipment and re-market displaced equipment. Further, as an
integrated lessor and business solution provider, the Company
believes that it is well positioned to meet the ever-changing
needs of its customers.
LEASE ACCOUNTING
In accordance with Statement of Financial Accounting Standard
No. 13, "Accounting for Leases" ("SFAS 13"), the Company
classifies its leases as either operating leases or direct
finance leases. The allocation of income among accounting
periods within a lease term will vary depending upon the lease
classification, as described below.
Direct Finance Leases: Direct finance leases transfer
substantially all benefits and risks of equipment ownership to
the lessee. A lease is a direct finance lease if it meets one of
the following criteria: (1) the lease transfers ownership of the
equipment to the lessee by the end of the lease term; (2) the
lease contains a bargain purchase option; (3) the lease term at
inception is at least 75% of the estimated economic life of the
leased equipment; or (4) the present value of the minimum lease
payments is at least 90% of the fair value of the leased
equipment at lease inception.
At lease inception, the cost of equipment under direct finance
leases is recorded as "Net investment in direct finance leases".
The difference between the gross lease payments receivable, plus
the estimated residual value of the equipment, and the equipment
cost is recognized as income over the life of the lease using the
effective interest method.
A lease transaction which meets all of the above criteria, and
in which the Company has made a dealer's profit, is recorded as a
sales type lease. A sales type lease is a type of direct finance
lease, but one in which the Company recognizes, at lease
inception, revenue and profit which arises from the difference
between the fair market value of the leased equipment and its
acquisition cost.
Operating Leases: All lease contracts which do not meet the
criteria of direct finance leases are accounted for as operating
leases. Monthly lease payments are recorded as operating lease
revenue. Leased equipment is recorded at the Company's cost and
depreciated on a straight-line basis over the lease term to the
estimated residual value at the expiration of the lease term.
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<PAGE>
The Company's portfolio of equipment on lease is further
divided into equipment owned by Paramount and equipment managed
by Paramount. As of March 31, 1998, the portfolio of equipment
on lease owned by Paramount had a combined net book value on the
balance sheet of $46.9 million and had an original cost basis of
$69.7 million. Equipment managed by Paramount is equipment on
lease to customers of Paramount which was subsequently sold to
investors, but with respect to which Paramount remains the lessor
and remarketing agent. The portfolio of equipment managed by
Paramount had an original cost of $23.2 million. Thus, as of
March 31, 1998, the portfolio of equipment on lease owned and
managed by Paramount had an original acquisition cost of $92.9
million.
The Company is aggressively working to maximize the returns on
the residual value investments made on its lease portfolio. Such
efforts often result in equipment originally leased under an
operating lease, and accounted for as described above, being
upgraded or otherwise enhanced and extended at the original
lessee, or leased to a different end-user. The resulting lease
may qualify under SFAS 13 as a sales type lease, in which the
Company can record as sales revenue the fair market value of the
equipment and recognize as income the difference between this
amount and the equipment's cost or net book value. Since a sales
type lease is a form of direct finance lease, the new lease is
recorded over its remaining term as a direct finance lease
resulting in a reduction of lease rental income and lease expense
compared to the original operating lease accounting.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED
MARCH 31, 1997
Net loss for the first quarter of 1998 was $33,300, after a
benefit from income taxes of $22,200, as compared with net income
of $71,800, after a provision for income taxes of $47,800.
For the three months ended March 31, 1998, the Company
recorded sales revenue of $14.5 million, a $13.5 million increase
over the $936,200 recorded during the three months ended March
31, 1997. The majority of the sales volume in 1998 was a result
of remarketing activities within the Company's existing lease
portfolio. Sales revenue for 1998 includes $12.6 million of
revenue from sales type leases and sales of equipment off lease.
See "Lease Accounting." There were no such transactions in the
first quarter of 1997. Paratech's sales revenue in the first
quarter of 1998 increased by 151.0% to $1.4 million as compared
with $567,700 recorded in the first quarter of 1997. In
addition, the 1998 acquisition of Deltaforce contributed $515,000
to sales revenue in the first quarter. See "General."
As a result of the Company's ongoing remarketing efforts with
respect to its lease portfolio, certain assets which were
recorded as operating leases during the first quarter of 1997
have been upgraded and re-leased, providing the Company with a
return on its residual value investment. The resulting lease has
been accounted for as a sales type. As a result of this
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<PAGE>
activity, and the effect of accounting for a lease as a direct
finance lease versus an operating lease, lease revenue and lease
expense decreased for the three months ended March 31, 1998 when
compared to the three months ended March 31, 1997 by 42.3% and
41.0%, respectively. See "General" and "Lease Accounting."
During the three months ended March 31, 1998, the Company
entered into new lease transactions totaling $10.3 million of
equipment cost as compared with $10.1 million for the three
months ended March 31, 1997. Of the total cost of equipment
leased during the quarter ended March 31, 1998, $5.2 million was
recorded as direct finance leases, and $5.1 million was recorded
as operating leases, compared to $9.4 million and $41,000,
respectively, for the quarter ended March 31, 1997. During the
quarter ended March 31, 1998, the Company entered into $9.8
million of non-recourse lease financing arrangements, as compared
with $21.0 million for the three months ended March 31, 1997.
See "Liquidity and Capital Resources." Non-recourse debt entered
into during the three months ended March 31, 1997 increased at a
faster rate than new lease origination as a result of the timing
of the closing of certain large lease transactions. Of the total
amount of non-recourse debt, $13.3 million related to leases that
commenced in December 1996, but for which the Company was not
required to pay for the equipment until January 1997.
During the three months ended March 31, 1998, the Company
generated $219,900 in fee, interest and other income, compared to
$500,900 for the comparable period last year. In 1997, $416,000
of this income was attributable to the Company's involvement in
certain transactions in which it acted as an arranger of
financing for leases originated by third parties, or otherwise
assisted these companies with their lease related transactions.
In 1998, no such transactions occurred. These transactions come
about as a result of the Company's relationship with other
lessors and financial institutions. The Company cannot predict
with any certainty the timing and nature of any future such
transactions. See "General."
Selling, general and administrative expenses ("SG&A") totaled
$1.0 million for the three months ended March 31, 1998,
representing an increase of 46.9% over the $702,600 recorded
during the three months ended March 31, 1997. The increase in
SG&A is a result of the acquisition of Deltaforce as well as the
continued growth in technical, sales and support staff at the
Company. See "General."
The tax benefit of $22,200 for the three months ended March
31, 1998 reflects an effective rate of 40% for federal and state
taxes. During the three months ended March 31, 1997, the Company
recorded a tax provision of $47,800, reflecting the same 40%
effective tax rate.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1998, the Company had $5.3 million in cash and
cash equivalents, including $600,000 which was pledged as
collateral under a Letter of Credit arrangement. 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
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<PAGE>
obligations. Primarily as a result of the acquisition of
Deltaforce, the continued investment in Paratech and the
Company's continuing investment in its portfolio of IT equipment
on lease, the Company experienced a net cash reduction during the
first quarter of 1998.
The Company's leasing business generates cash primarily from
the remarketing of equipment within its portfolio, and uses cash
to acquire computer equipment to put on lease. In addition, the
Company's leasing business generates cash from fee related
transactions. The Company finances substantially all of its
leases by discounting the payment stream 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. The Company believes that it
currently has sufficient resources to make the residual value
investments required to grow its lease portfolio. In addition,
the Company has numerous options available to finance residual
value investments, including sales of equipment on lease to
equipment investors, residual value sharing arrangements,
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.
The Company believes that it is close to completing the start-
up cash investment in Paratech. Since Deltaforce is an
established operation, the Company does not anticipate investing
significant cash in this business. However, in order to expand
Paratech's and Deltaforce's operations, which the Company is
aggressively seeking to accomplish, the Company will need to
utilize its cash balances to fund follow on acquisitions. The
Company is limited to its current cash balances for funding such
acquisitions, unless the Company is able in the future to raise
significant additional financing. There can be no assurance that
the Company will be able to raise any such financing. Further,
the Company's cash funds for acquisitions might be limited to the
extent that the Company's current operations or the operations or
any future acquisitions require the funding of losses or the
incurrence of capital outlay.
During the quarter ended March 31, 1998, the Company entered
into several residual value sharing and financing arrangements
with an equipment investor totaling $1.4 million. This investor
(i) purchased a portion of the Company's residual value of
equipment on lease in exchange for the right to share in
remarketing proceeds generated from the equipment upon lease, and
(ii) provided recourse financing for the remaining portion of the
Company's residual value investment. The equipment on lease and
the related leases serve as collateral for these financings.
During the quarter ended March 31, 1998, in connection with the
early extension of leases, the Company repaid $847,500 of such
loans using the proceeds of these extensions. The Company
expects to repay the balance of these loans through the proceeds
generated from remarketing the subject equipment in the future.
These transactions allow the Company to continue to grow and
expand its lease portfolio without significantly affecting its
current cash balances.
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<PAGE>
At March 31, 1998, the Company had three types of credit lines
available:
Equipment Bridge Financing Lines: These lines allow the
Company to borrow up to $1.25 million in the aggregate and are
secured by equipment and contracts to sell or lease that
equipment. Borrowings under these lines bear interest at 1%
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.
During the quarter ended March 31, 1998, the Company did not
borrow any amounts from these lines, and accordingly had nothing
outstanding as of March 31, 1998. As a result of its cash
balances, the Company has been able to internally finance its
equipment purchases.
Lease Finance Line: This line allows the Company to borrow up
to $2.0 million to permanently finance, on a recourse basis, the
rental streams under certain lease transactions pledged as
collateral. The facility is secured by the individual leases
pledged and the associated equipment. The Company is required to
maintain certain financial ratios. As of March 31, 1998, the
Company was not in compliance with the debt covenant requiring
tangible net worth of at least $8 million. The Company has
obtained a bank waiver of this covenant. Borrowings are financed
at a fixed rate spread over the US Treasury bill at the time of
funding. As of March 31, 1998, the Company had $257,000
outstanding under this line.
Deltaforce Revolving Credit Facility: Deltaforce has a
$250,000 revolving line of credit agreement with a bank secured
by accounts receivable which expires on January 11, 1999.
Interest on outstanding borrowings accrues at the bank's prime
rate plus 1%. Borrowings are limited to 80% of eligible accounts
receivable. As of March 31, 1998, Deltaforce had $103,800
outstanding under this line.
During the year ended December 31, 1997, the Board of
Directors of the Company approved a plan that would allow for the
repurchase of up to $500,000 worth of Common Stock of the
Company. The repurchase program took effect immediately and is
authorized to continue for a period of two years. Subject to
applicable rules, the plan allows the Company to repurchase
shares at any time during the authorized period in any increments
it deems appropriate. During the first quarter 1998, the Company
repurchased 26,000 shares for a purchase price of $15,600.
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
-11-
<PAGE>
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.
-12-
<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.
-13-
<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: May 13, 1998 By: /s/ Paul Vecker
------------------------------------
Paul Vecker, Senior Vice President
and Chief Fiancial Officer
-14-
<PAGE>
EXHIBIT INDEX
Exhibit Description
------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 5,283
<SECURITIES> 0
<RECEIVABLES> 1,496
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 54,974
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 80
<OTHER-SE> 7,516
<TOTAL-LIABILITY-AND-EQUITY> 54,974
<SALES> 14,481
<TOTAL-REVENUES> 16,208
<CGS> 13,788
<TOTAL-COSTS> 16,263
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (55)
<INCOME-TAX> (22)
<INCOME-CONTINUING> (33)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (33)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
