-----------------------------------------------------------------
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, 1999
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, 1999:
2,160,000 SHARES OF COMMON STOCK, PAR VALUE $0.04 PER SHARE.
-----------------------------------------------------------------
<PAGE>
PARAMOUNT FINANCIAL CORPORATION
INDEX TO FORM 10-Q FOR THE QUARTER ENDED
MARCH 31, 1999
PART I - FINANCIAL INFORMATION Page No.
--------
Item 1 - Financial Statements
Consolidated Balance Sheets
December 31, 1998 and March 31, 1999 .................1
Consolidated Statements of Operations
Three Months Ended March 31, 1998 and 1999 ............2
Consolidated Statement of Changes in
Stockholders' Equity Three Months Ended
March 31, 1999 ........................................3
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1998 and 1999 ............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 1998 1999
------ ------------ ---------
(UNAUDITED)
Cash and cash equivalents . . . $ 1,495,082 $ 1,136,141
Investments available for sale 613,188 619,898
Accounts receivable . . . . . . 2,632,258 2,791,919
Net investment in direct finance
and sales-type leases . . . . 30,059,378 26,509,086
Assets held under operating
leases, net of accumulated 7,263,181 6,301,690
depreciation . . . . . . . .
Other assets . . . . . . . . . 3,183,523 3,062,480
----------- ------------
Total assets . . . . . . . . . $45,246,610 $40,421,214
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Notes payable . . . . . . . . . $ 4,313,189 $ 3,942,952
Accounts payable . . . . . . . 942,431 1,035,618
Accounts payable - leases . . . 100,000 297,921
Accrued expenses . . . . . . . 658,392 581,211
Obligations for financed 33,435,459 28,880,152
equipment - non-recourse . . ---------- ----------
Total liabilities . . . . . . . 39,449,471 34,737,854
---------- ----------
Shareholders' equity:
Preferred stock, $0.01 par
value; 5,000,000 shares -- --
authorized, none outstanding
Common stock, $0.04 par value;
17,500,000 shares authorized,
2,160,000 shares issued and
outstanding, respectively . . 86,400 86,400
Additional paid-in capital . . 14,456,728 14,456,728
Stock subscription receivable . (812,500) (812,500)
Accumulated deficit . . . . . . (7,882,884) (7,996,663)
Treasury stock, 24,500 shares at (50,605) (50,605)
cost . . . . . . . . . . . . ------------- ------------
Total shareholders' equity . . 5,797,139 5,683,360
------------- ------------
Total liabilities and $45,246,610 $40,421,214
shareholders' equity . . . . ============= ============
See accompanying notes to financial statements.
-1-
<PAGE>
PARAMOUNT FINANCIAL CORPORATION AND SUBSIDIARIES
------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
FOR THE THREE MONTHS ENDED MARCH 31,
------------------------------------
UNAUDITED
---------
1998 1999
----------- -----------
REVENUES:
Sales . . . . . . . . . . . . . $ 14,481,462 $5,693,084
Lease revenue . . . . . . . . . 1,506,328 1,669,886
Fee, interest and other income 219,927 218,565
----------- -----------
Total revenues . $16,207,717 $7,581,535
----------- -----------
COSTS AND EXPENSES:
Cost of sales . . . . . . . . . 13,788,191 4,411,628
Lease expense . . . . . . . . . 1,443,175 1,650,160
Selling, general and 1,031,907 1,632,701
administrative expenses . . . ----------- -----------
Total costs and 16,263,273 7,694,489
expenses . . . ----------- -----------
Loss before (benefit) provision (55,556) (112,954)
for income taxes . . . . . .
(Benefit) provision for income (22,222) 825
taxes . . . . . . . . . . . . ----------- -----------
Net loss . . . . . . . . . $(33,334) $(113,779)
============ ===========
Basic loss per $(0.02) $(0.06)
common share . . . . . . =========== ===========
Diluted loss per $(0.02) $(0.06)
common share . . . . . . =========== ===========
Shares used in computing net
income per share:
Basic . . . . . . . . . . 1,991,117 2,067,397
=========== ===========
Diluted . . . . . . . . . 1,991,117 2,067,397
=========== ===========
See accompanying notes to financial statements.
-2-
<PAGE>
PARAMOUNT FINANCIAL CORPORATION AND SUBSIDIARIES
------------------------------------------------
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
---------------------------------------------------------
FOR THE THREE MONTHS ENDED MARCH 31, 1999
-----------------------------------------
UNAUDITED
---------
COMMON STOCK
------------
ADDITIONAL
PAID-IN
SHARES AMOUNT CAPITAL
------ ------ ----------
BALANCE, DECEMBER 31,
1998 . . . . . . . 2,160,000 $86,400 $14,456,728
Net loss . . . . . . -- -- --
----------- ----------- -----------
BALANCE, MARCH 31,
1999 . . . . . . . 2,160,000 $86,400 $14,456,728
=========== =========== ===========
STOCK
SUBSCRIPTION ACCUMULATED TREASURY
RECEIVABLE (DEFICIT) STOCK TOTAL
----------- ----------- -------- -----
BALANCE, DECEMBER
31, 1998 . . . . . $(812,500) $(7,882,884) $(50,605) $5,797,139
Net loss . . . . . . -- (113,779) -- (113,779)
----------- ----------- --------- ---------
BALANCE, MARCH 31,
1999 . . . . . . . $(812,500) $(7,996,663) $(50,605) $5,683,360
=========== =========== ========= =========
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
---------
1998 1999
------ ------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss . . . . . . . . . . . . . . . $(33,334) $(113,779)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization . . 803,423 1,172,074
Amortization of discounts on (26,953) --
investments . . . . . . . . . .
Changes in operating assets and
liabilities:
Accounts receivable . . . . . (18,847) (159,661)
Other assets . . . . . . . . 68,582 57,101
Accounts payable . . . . . . (601,994) 93,187
Accrued expenses . . . . . . (116,522) (77,181)
------------ ----------
Net cash provided by operating
activities . . . . . . . . . . . . . 74,355 971,741
------------ ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Accounts payable - leases . . . . 256,295 197,921
Purchase of equipment for direct
finance leases and sales-type
leases . . . . . . . . . . . . . (5,223,675) (1,821,840)
Termination of direct finance
leases . . . . . . . . . . . . . 3,159,587 1,302,442
Proceeds applied to direct finance
leases and sales-type leases . . 4,158,810 4,069,690
Purchase of equipment for operating
leases . . . . . . . . . . . . . (5,110,445) (96,526)
Termination of operating leases . 57,000 (115)
Residual value sharing arrangements 713,587 --
Payment for acquisitions, net of
cash acquired . . . . . . . . . (213,706) (50,000)
Purchases of investments . . . . . (3,084,593) (6,710)
Proceeds from sale/maturity of
investments . . . . . . . . . . 6,636,003 --
------------ ----------
Net cash provided by investing
activities . . . . . . . . . . . . . 1,348,863 3,594,862
------------ ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchase of common stock . . . . (15,586) --
Proceeds from notes payable . . . 817,427 370,718
Repayment of notes payable . . . . (1,253,234) (740,955)
Increase in non-recourse lease 9,795,722 1,346,264
financing . . . . . . . . . . .
Termination of non-recourse lease (2,864,076) (875,999)
financing . . . . . . . . . . .
Repayments and interest
amortization applied to
non-recourse lease
financing . . . . . . . . . . . (4,830,517) 5,025,572)
------------ ----------
Net cash provided by financing
activities . . . . . . . . . . . . . 1,649,736 (4,925,544)
------------ ----------
Net decrease in cash and cash
equivalents . . . . . . . . . . . . . 3,072,954 358,941
CASH AND CASH EQUIVALENTS, beginning of
period . . . . . . . . . . . . . . . 2,209,649 1,495,082
------------ ----------
CASH AND CASH EQUIVALENTS, end of
period . . . . . . . . . . . . . . . $5,282,603 $1,136,141
============ ==========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for income taxes . . . . $ 22,120 $ 35,830
============ ==========
Cash paid for interest . . . . . . $ 614,653 $ 619,357
============ ==========
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, 1999 and its results of operations and cash flows
for the three months ended March 31, 1998 and 1999,
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, 1999.
The financial statements for the three months ended March
31, 1999 are consolidated to include the results of the
Company's two wholly owned subsidiaries, Paratech Resources,
Inc. ("Paratech") and Deltaforce Personnel Services, Inc
(the "DeltaGroup"). All material intercompany balances and
transactions have been eliminated.
2. Business Acquisitions
---------------------
On March 3, 1999, Paratech acquired certain assets of Web
Business Systems, Inc., a privately held New York based web
hosting and development company, for a total purchase price
of $80,000. The acquisition will be accounted for as a
purchase; accordingly the purchase price will be allocated
to the underlying assets and liabilities based on their
respective estimated fair market values at the date of
acquisition. The excess of the acquisition costs over the
fair value of the identifiable net assets will be amortized
on a straight-line basis over 15 years. The results of
operations of Web Business Systems, Inc. have been included
in the consolidated financial statements commencing with the
acquisition date.
-5-
<PAGE>
3. Segment Information
-------------------
The following represents selected financial information for
the Company's segments for the three months ended March 31,
1998 and 1999:
Paramount Paratech DeltaGroup Total
--------- -------- ---------- -----
MARCH 31, 1998
--------------
Revenues $14,315,114 $1,377,223 $ 515,380 $16,207,717
Cost of sales 13,768,001 1,150,846 312,519 15,231,366
Net income (loss) 72,478 (113,550) 7,738 (33,334)
Assets 53,379,868 1,117,518 476,211 54,973,597
MARCH 31, 1999
--------------
Revenues $ 3,576,995 $2,410,269 $1,594,271 $ 7,581,535
Cost of sales 3,131,064 1,906,733 1,023,991 6,061,788
Net income (loss) 203,689 (128,258) (189,210) (113,779)
Assets 35,502,200 3,083,032 1,835,982 40,421,414
-6-
<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.
RECENT DEVELOPMENTS
Paramount Financial Corporation and subsidiaries
("Paramount" or the "Company") is a comprehensive business
solution provider, offering customers a wide range of integrated
services, including information technology ("IT") consulting,
network design and implementation, staffing services and lease
financing. The Company includes two wholly owned subsidiaries,
Paratech Resources, Inc. ("Paratech") and Deltaforce Personnel
Services, Inc. (the "DeltaGroup").
The first quarter of 1999 is significant in that it
reinforces the Company's commitment to Paratech and de-emphasizes
its lease portfolio. The Company has made a conscious effort to
aggressively expand Paratech's services through acquisitions, and
its client base by partnering with hardware and software vendors,
as well as expanding its salesforce and aggressively seeking new
customers.
On March 3, 1999, Paratech acquired certain assets of Web
Business Systems, Inc., a privately held New York based web
hosting and development company, for a total purchase price of
$80,000. This acquisition has expanded Paratech s offering of
services and transformed Paratech into a complete IT solution
provider. Paratech now offers IT consulting, network design and
implementation, Internet development and hosting and accounting
and salesforce automation solutions. Paratech intends to be its
customers' sole source for all IT matters.
Paratech has aligned itself with vendors such as Xylan,
Citrix, Security Dynamics, Great Plains and Goldmine to expand
its customer base. The Company believes that the relationships
that it has developed through these vendors will continue to
provide opportunities to enter into new markets and cross-sell
its other IT services.
The DeltaGroup continued to expand its operations and
penetrate the temporary staffing industry during the three months
ended March 31, 1999. The DeltaGroup continues to offer
temporary and permanent legal support staff, attorney and
paralegal placements. The Company plans, through the DeltaGroup,
to begin offering IT temporary consulting and support staff in
the second quarter of 1999.
The Company maintains its lease portfolio and continued to
selectively engage in leasing transactions during the three
months ended March 31, 1999. The Company believes that by acting
-7-
<PAGE>
as an integrated lessor and business solution provider it is well
positioned to meet the ever-changing needs of its customers.
FLUCTUATIONS IN QUARTERLY RESULTS
The operating results of Paramount are subject to quarterly
fluctuations resulting from a variety of factors, including the
volume of new leases written, product announcements by
manufacturers, economic conditions, interest rate fluctuations
and variations in the mix of leases written. In addition, the
Company s revenue can fluctuate significantly from quarter to
quarter based on the closing date and nature of each particular
lease and/or 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."
The Company is aggressively working to maximize the returns
on the residual value investments made on its lease portfolio.
Such efforts, which are an ordinary but not a predictable part of
the Company's business, often result in equipment originally
leased under an operating lease, and accounted for as described
below, being upgraded or otherwise enhanced and extended at the
original account or leased to a different end-user. The
resulting lease may qualify under Statement of Financial
Accounting Standard No. 13, "Accounting for Leases" ("FAS 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.
Marketing efforts may also result in the sale of the leased
asset to the customer which will result in an increase in
revenue, and to the extent the sales proceeds exceed the net book
value, net income, in the quarter in which the sale occurs. Any
such sale will also result in a reduction of revenue, expense and
profit expected in subsequent quarters since the equipment was
sold.
-8-
<PAGE>
Given the possibility of such fluctuations as described
above, 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.
LEASE ACCOUNTING
In accordance with FAS 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 a direct
finance lease 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.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED
MARCH 31, 1998
For the three months ended March 31, 1999, the Company
recorded sales revenue of $7.6 million, a $8.6 million decrease
over the $16.2 million recorded during the three months ended
-9-
<PAGE>
March 31, 1998. The decrease is primarily a result of the
Company's de-emphasis on its leasing segment. Paratech's revenue
in the first quarter of 1999 increased by 71% to $2.4 million as
compared to $1.4 million recorded in 1997. The increase in sales
at Paratech is a result of the Company's aggressive sales and
marketing focus. The DeltaGroup, which was purchased in January
1998, contributed $1.6 million in revenue during the quarter, a
$1.1 million increase over the $515,000 recorded in 1997. This
increase was due to the DeltaGroup's ability to consistently
provide its customers with well-trained temporary personnel on a
timely basis.
As a result of the Company's limited efforts with respect to
its lease portfolio, certain assets which were recorded as
operating leases during the first quarter of 1999 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 lease. As a result of this
activity, the effect of accounting for a lease as a direct
finance lease versus an operating lease, net of new leases
written in the first quarter, lease revenue and lease expense
increased for the three months ended March 31, 1999 by 11% and
14%, respectively, when compared to the three months ended March
31, 1998.
During the three months ended March 31, 1999, the Company
entered into new lease transactions totaling $1.9 million of
equipment cost as compared with $10.3 million for the three
months ended March 31, 1998. During the quarter ended March 31,
1999, the Company entered into $1.3 million of non-recourse lease
financing arrangements, as compared with $9.8 for the three
months ended March 31, 1998. See "Liquidity and Capital
Resources."
During the three months ended March 31, 1999, the Company
generated $219,000 in fee, interest and other income, compared to
$220,000 for the comparable period last year. Generally, fee
income is generated as a result of 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 in their lease related transactions.
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.
Selling, general and administrative expenses totaled $1.6
million for the three months ended March 31, 1999, representing
an increase of 58% over the $1.0 million recorded during the
three months ended March 31, 1998. This increase is attributable
to the continued growth and acquisitions of Paratech, which
contributed $477,000, and the DeltaGroup, which contributed
$681,000, respectively.
The tax provision of $825 for the three months ended March
31, 1999 reflects the minimum state taxes due. During the three
months ended March 31, 1998, the Company recorded a tax benefit
of $22,000, reflecting the standard tax rate for federal and
state taxes.
-10-
<PAGE>
Net loss for the three months ended March 31, 1999 was
$114,000, after a provision for income taxes of $825, as compared
with a net loss of $33,000 after a benefit for income taxes of
$22,000.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1999, the Company had $1.3 million in cash
and cash equivalents and investments available for sale ($450,000
is restricted, see "Term Loan" below). Substantially this entire
amount was invested in interest-bearing savings accounts, money
market accounts established by major commercial banks or in
United States Government, other AA rated obligations and mutual
funds. Primarily as a result of the continued investment in
Paratech and the DeltaGroup, its acquisition of Web Business
Systems, Inc. and the Company s investment in its portfolio of IT
equipment on lease, the Company experienced a reduction in net
cash and investments available for sale during the first quarter
of 1999.
The Company continues to use its cash balances to fund its
operations. In order to expand its operations, which the Company
is aggressively seeking to accomplish, the Company will need to
utilize its cash balances to promote internal growth and fund
potential future acquisitions. However, the Company is limited
to its current cash balances for funding such internal growth and
add-on 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 of any future acquisitions require
the funding of losses or the incurrence of capital outlay.
The Company's leasing business generates cash primarily from
the marketing 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 maintain 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.
At March 31, 1999, the Company had three types of credit lines
available:
Term Loan: In April 1998, Paramount entered into a $500,000 term
loan with a bank collateralized by $600,000 in cash maintained in
an investment account. Principal payments of approximately
$41,600 and interest are due on a quarterly basis through April
-11-
<PAGE>
20, 2001. As of March 31, 1999, approximately $375,000 remained
outstanding under this loan collateralized by $450,000 in cash
maintained in an investment account.
The DeltaGroup Revolving Credit Facility: The DeltaGroup has a
$750,000 revolving line of credit agreement with a bank secured
by accounts receivable which expires on June 30, 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, 1999, the DeltaGroup had $600,000
outstanding under this line. The Company is presently in
negotiations with two financial institutions to refinance this
credit facility before its expiration date.
Paratech Equipment Acquisition Credit Facility: Paratech has a
$2,000,000 revolving line of credit agreement with a finance
company secured by accounts receivable and inventory. Interest
on outstanding borrowings accrues at the prime rate plus 1-1/2%.
Borrowings are limited to 85% of eligible accounts receivable and
99% of eligible inventory. This facility allows the Company to
purchase computer hardware from its vendors with net 30-day terms
interest free. At the expiration of the net 30-day period, the
Company has the option of paying the amount due or, provided the
Company has sufficient eligible collateral, borrowing under the
credit facility. As of March 31, 1999, Paratech had $565,000
outstanding under this line.
The Company believes that cash generated from operations,
amounts available under its credit facilities, and/or other third
party financing will be sufficient to fund necessary capital
expenditures and to provide adequate working capital for at least
the next 12 months. There can be no assurance, however, that the
Company will not require additional financing prior to such date
to fund its operations, if required, that such financing will be
available on commercially reasonable terms. In addition, the
Company may require additional financing after such date to fund
its operations.
IMPACT OF YEAR 2000 ISSUE
Many existing computer programs use only two digits to
identify a year. These programs were frequently designed and
developed without addressing the impact of the upcoming change in
the century. If not corrected, many computer software
applications could fail or create erroneous results before, at or
beyond the Year 2000.
The Company has developed a Year 2000 Readiness Plan. This
plan addresses three main areas: (a) information technology
systems (including the Company's business systems, both hardware
and software related), (b) non-information technology systems
(including embedded technology such as microcontrollers,
typically found in such equipment as telephone systems, fax
systems, elevators, security systems, HVAC, etc.) and (c) supply
chain readiness or third party issues (including customers as
well as inventory and non-inventory suppliers).
-12-
<PAGE>
The Company has not identified any material potential
deficiencies related to Year 2000 in its information technology
systems. The Company's has upgraded its business and computing
system in 1997 and it is now Year 2000 compliant (according to
the Company's software providers). The Company expects to
complete remediation and testing of its internal systems in the
second quarter of 1999. In terms of non-information technology
systems, the Company will be identifying those material items
which may require remediation or replacement. The Company is in
the process of addressing those items and expects to complete
remediation or replacement and testing of its non-information
technology systems in the second quarter of 1999. As for third
parties, the Company is in the process of identifying and
contacting suppliers, both inventory and non-inventory, as well
as customers. This process includes the solicitation of written
responses to questionnaires and/or meetings with certain third
parties. The Company expects to have a better understanding of
the Year 2000 readiness of these third parties by the end of the
third quarter.
Based upon the Company's current estimates, additional
out-of-pocket costs associated with its Year 2000 compliance are
not expected to be material. These costs are anticipated to be
incurred primarily in 1999 and include third party consultants,
remediation or replacement of embedded chips. Such costs do not
include internal management time and the deferral of other
projects, the effects of which are not expected to be material to
the Company's results of operations or financial condition.
At this point in time, the Company believes that it is
difficult to specifically identify the cause of the most
reasonable worst case Year 2000 scenario. As with all businesses,
a reasonable worst case scenario would be the result of failures
of third parties (including, without limitation, governmental
entities and entities with which the Company has no direct
involvement) that continue for more than several days in specific
industries from which the Company's inventory and components are
sourced or to which the Company's products are sold. In
connection with the purchase of inventory and components, the
Company is considering various contingency plans. Continuing
failures in these specific industries would limit procurement or
delivery of product, and most likely would have a material
adverse effect on the Company's results of operations. The extent
of such lost revenue cannot be estimated at this time; however,
the Company is considering contingency plans to limit, to the
extent possible, the effect of such lost revenue on the Company's
result of operations. Any such plans would necessarily be limited
to matters over which the Company can reasonably control.
The Company's Year 2000 efforts are ongoing and its overall
plan, as well as the consideration of contingency plans, will
continue to evolve as new information becomes available. While
the Company anticipates continuity of its business activities,
that continuity will be dependent upon its ability, and the
ability of third parties with whom the Company relies on
directly, or indirectly, to be Year 2000 compliant.
-13-
<PAGE>
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; the ability of the Company to
attract and retain IT professionals skilled in specific
applications; technological obsolescence of the Company's
portfolio of computer equipment; competition in the IT consulting
sector and general economic conditions.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET
RISK
"Quantitative and Qualitative Disclosure about Market Risk",
on page 25 of the Company's annual report (form 10-K) is
incorporated herein by reference. No material changes have
occurred from the disclosure in form 10-K through the three
months ended March 31, 1999.
-14-
<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.
-15-
<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, 1999 By: /s/ Glenn Nortman
--------------------------
Glenn Nortman, Chief
Executive Officer
-16-
<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> 1,136
<SECURITIES> 620
<RECEIVABLES> 2,792
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 40,421
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 86
<OTHER-SE> 5,597
<TOTAL-LIABILITY-AND-EQUITY> 40,421
<SALES> 5,693
<TOTAL-REVENUES> 7,582
<CGS> 4,412
<TOTAL-COSTS> 7,695
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (113)
<INCOME-TAX> (1)
<INCOME-CONTINUING> (114)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (114)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
