Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended June 30, 2000.
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[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
For the transition period from to
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Commission file number 0-23026
Paramark Enterprises, Inc.
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(Exact name of small business issuer as specified in its charter)
Delaware 22-3261564
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(State or other jurisdiction (I.R.S. Employer Identification
of incorporation or organization) No.)
One Harmon Plaza, Secaucus, New Jersey 070940
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(Address of principal executive offices)
201-422-0910
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(Issuer's telephone number including area-code)
One Harmon Plaza, Secaucus, New Jersey 07094 (Former name, former address and
former fiscal year, if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
stock as of the latest practicable date:
Common Stock, $.01 par value - 3,393,383 shares as of August 10, 2000.
Transitional Small Business disclosure Format (check one):
Yes No X
Paramark Enterprises Inc.
PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS PAGE
Independent Accountants Review Report 3
Balance Sheets at December 31, 1999 and 4
June 30, 2000.
Statements of Operations for the three and six 5
months ended June 30, 1999 and June 30, 2000.
Statements of Cash Flows for the six 6
months ended June 30, 1999 and June 30, 2000.
Notes to Financial Statements 7
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 9
PART II
Item 1 Legal Proceedings 13
Item 2 Changes in Securities 13
Item 3 Defaults upon Senior Securities 13
Item 4 Submission of Matters to a Vote of Security Holders 13
Item 5 Other Information 13
Item 6 Exhibits and Reports on Form 8-K 13
SIGNATURES 14
PART I - FINANCIAL INFORMATION
Independent Accountants Review Report
We have reviewed the accompanying condensed consolidated balance sheets of
Paramark Enterprises, Inc. as of June 30, 2000, and the related condensed
consolidated statements of operations for the three and six months ended June
30, 2000, and the related condensed consolidated cash flows for the six months
ended June 30, 2000. These condensed consolidated financial statements are the
responsibility of the company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of the interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying condensed consolidated financial statements for them
to be in conformity with generally accepted accounting principles.
The accompanying condensed consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
1 to the condensed consolidated financial statements, the Company has incurred
significant losses from operations and has a working capital deficiency. Such
circumstances indicate that the Company may be unable to continue as a going
concern. Management's plans in regard to these matters are also described in
Note 1 to the condensed consolidated financial statements. The condensed
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
We have previously audited, in accordance with generally accepted auditing
standards, the balance sheet as of December 31, 1999, and the related statements
of operations, stockholders' equity, and cash flows for the year then ended (not
presented herein); and in our report dated February 8, 2000, we expressed an
unqualified opinion on those financial statements. In our opinion, the
information set forth in the accompanying condensed consolidated balance sheet
as of June 30, 2000 is fairly stated, in all material respects, in relation to
the balance sheet from which it has been derived.
/s/ Amper, Politziner & Mattia, P.A.
August 1, 2000
Edison, New Jersey
3
PARAMARK ENTERPRISES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, June 30,
1999 2000
(Audited) (Unaudited)
ASSETS
Current Assets:
Cash $ 195,977 $ 2,617
Accounts receivable, less allowance for doubtful accounts 385,462 671,504
Notes receivable - current maturities 375,000 125,000
Inventory 279,326 465,061
Prepaid expenses and other current assets, net 110,818 50,446
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Total current assets 1,346,583 1,314,628
Property and equipment 867,964 939,815
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Total Assets $ 2,214,547 $ 2,254,443
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 927,915 $ 1,523,453
Current maturities of long-term debt 56,744 68,662
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Total current liabilities 984,659 1,592,115
Long-term debt, net of current maturities 226,681 272,138
STOCKHOLDERS' EQUITY
Preferred Stock 0 0
Common Stock 33,935 33,935
Additional paid-in capital 6,822,032 6,822,032
Accumulated deficit (5,813,653) (6,426,670)
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1,042,314 429,297
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Less, treasury stock at cost (39,107) (39,107)
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Total stockholders' equity 1,003,207 390,190
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Total Liabilities and Stockholders' Equity $ 2,214,547 $ 2,254,443
=========== ===========
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AND ACCOUNTANTS REVIEW REPORT
4
PARAMARK ENTERPRISES, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
---------------------------- ----------------------------
1999 2000 1999 2000
----------- ----------- ----------- -----------
Revenue:
Wholesale sales $ 1,001,297 $ 2,075,844 $ 1,718,274 $ 3,511,950
Sales from Company-owned stores 0 0 0 0
Royalties and licensing fees 0 0 0 0
----------- ----------- ----------- -----------
Total revenue 1,001,297 $ 2,075,844 1,718,274 $ 3,511,950
Operating expenses:
Cost of goods sold 797,309 1,669,981 1,401,353 2,929,573
Bakery selling, general and administrative 215,311 412,897 405,745 807,133
Corporate selling, general and administrative 201,945 202,380 382,804 394,405
----------- ----------- ----------- -----------
Total operating expenses 1,214,574 2,285,258 2,189,902 4,131,111
----------- ----------- ----------- -----------
Loss from operations (213,276) (209,414) (471,627) (619,161)
----------- ----------- ----------- -----------
Other income (expense):
Interest income (expense), net (2,766) (15,790) (5,944) (28,906)
Gain (loss) from sale of assets (9,727) 0 14,820 0
Other income 22,187 35,050 22,187 35,050
----------- ----------- ----------- -----------
Total other income (expense) 9,694 19,260 31,063 6,144
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Net income (loss) $ (203,582) ($ 190,154) ($ 440,564) ($ 613,017)
=========== =========== =========== ===========
Net income (loss) per common share ($ 0.06) ($ 0.06) ($ 0.14) ($ 0.18)
=========== =========== =========== ===========
Weighted average number of
common shares outstanding 3,390,043 3,393,383 3,390,043 3,393,383
=========== =========== =========== ===========
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AND ACCOUNTANTS REVIEW REPORT
5
PARAMARK ENTERPRISES, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
For the Six Months
Ended June 30,
1999 2000
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Cash flow from operating activities:
Net income (loss) ($440,564) ($613,017)
Adjustments to reconcile net income (loss) to net cash from
operating activities:
Depreciation and amortization 52,776 96,378
Provision for inventory obsolescence 0 38,700
Gain from forgiveness of debt (22,187) (35,050)
(Gain) loss from sale of equipment (15,210) 0
Noncash consulting fees and interest expense 8,522 0
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 67,005 (286,042)
(Increase) decrease in inventories 25,639 (185,735)
(Increase) decrease in prepaid expenses and other current assets (15,264) 60,372
Increase (decrease) in accounts payable and accrued expenses (113,782) 595,538
Net cash used in operating activities (453,064) (328,856)
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Cash flows from investing activities:
Proceeds from notes receivable 250,000 250,000
Purchases of equipment (83,082) (171,881)
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Net cash used in investing activities 166,918 78,119
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Cash flows from financing activities:
Proceeds from financing 57,428 88,543
Purchases of treasury stock (39,107) 0
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Payment of notes payable (6,634) (31,165)
Net cash provided by financing activities 11,687 57,378
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Net increase (decrease) in cash (274,459) (193,359)
Cash at beginning of period 790,873 195,976
Cash at end of period $ 516,414 $ 2,617
========= =========
Supplemental disclosure of cash paid:
Interest, net $ 5,944 $ 28,906
Income Taxes $ 0 $ 0
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AND ACCOUNTANTS REVIEW REPORT
6
Paramark Enterprises, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1 - Basis of Presentation
The accompanying financial statements have been prepared by the
Company, in accordance with generally accepted accounting principles, which
contemplates continuation of the Company as a going concern. However, the
Company has sustained continued losses of $613,017 for the six months ended June
30, 2000 and $1,016,694 for the year ended December 31, 1999. The Company had a
negative working capital deficit of $277,487 on June 30, 2000.
The Company has been exploring a number of strategic alternatives
including a possible merger or sale transaction which would allow the Company to
continue as a going concern. In July 2000, the Company executed a non-binding
letter of intent with Jon Donaire Desserts ("Jon Donaire"), through which the
Company will sell to Jon Donaire a majority of the assets comprising its bakery
operations in El Cajon, California. In view of the Company's negative working
capital and history of continuing operating losses, continued operations of the
Company is dependent upon the closing of the Jon Donaire transaction, or if that
transaction is not consummated, the completion of other possible strategic
alternatives.
Except for the balance sheet at December 31, 1999, all statements are
unaudited. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the interim period are not necessarily
indicative of financial results for the full year.
Additionally, certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principals have been omitted. It is suggested that these unaudited
financial statements be read in connection with the financial statements and
notes thereto included in the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1999. There have been no significant changes of
accounting policies since December 31, 1999.
Note 2 -Earnings Per Share
Basic earnings per share ("EPS") is computed by dividing the net income
(loss) by the weighted average common shares outstanding for the period. Diluted
EPS reflects the potential dilution that would occur if securities or other
contracts to issue common stock were exercised or converted into common stock.
For purposes of the 1999 and 2000 computations, shares issuable upon the
exercise of all common stock purchase options and warrants outstanding have been
excluded from the computation of weighted average shares outstanding since their
effect is antidilutive.
7
Note 3 - Income Taxes
No provision for income taxes has been made for the six months ended
June 30, 2000 and for the year ended December 31, 1999 as the Company has net
operating losses. These net operating losses have resulted in a deferred tax
asset at June 30, 2000. Due to the uncertainty regarding the ultimate amount of
income tax benefits to be derived from the Company's net operating losses, the
Company has recorded a valuation allowance for the entire amount of the deferred
tax asset at June 30, 2000.
Note 4 - License Agreement
The Company is continuing to manufacture T.J. Cinnamons products
pursuant to a license agreement with Triarc with an original term which expired
on December 31, 1998. Triarc has granted the Company numerous short term
extensions of the term of this license agreement which will expire on September
30, 2000, and the Company anticipates that Triarc will continue to renew this
license agreement at the end of its current term.
8
PART I ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
Forward Looking Statements
When used in this Quarterly Report, the words or phrases "will likely
result", "are expected to", "will continue", "is anticipated", "estimate",
"projected", "intends to" or similar expressions are intended to identify
"forward looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements are subject to certain risks and
uncertainties including: history of operating losses and operating cash flow
deficits; potential loss of wholesale sales resulting from the 1998 Triarc
Agreement; possible need for additional financing; dietary trends and consumer
preferences; competition; management of growth; limited manufacturing and
warehouse facilities; dependence on major customers; dependence upon key and
other personnel; government regulations; insurance and potential liability; lack
of liquidity; volatility of market price of the Company's common stock and
warrants; possible adverse effect of penny stock rules on liquidity of the
Company's securities; dividend policy and control by directors and executive
officers. Any of the aforementioned risks and uncertainties could cause the
Company's actual results to differ materially from historical earnings and those
presently anticipated or projected. As a result, potential investors are
cautioned not to place undue reliance on any such forward-looking statements,
which speak only as of the date made.
Balance Sheet Information
Total assets increased by $39,896 from $2,214,547 on December 31, 1999 to
$2,254,443 on June 30, 2000. Cash decreased to $2,617 on June 30, 2000 from
$195,977 on December 31, 1999 due to continuing operating cash flow deficits and
the purchases of equipment. Notes receivable - net of current maturities as of
June 30, 2000 decreased to $125,000 from $500,000 on December 31, 1999 due to
payments received on outstanding notes receivable. Total current liabilities as
of June 30, 2000 increased to $1,592,115 from $927,915 on December 31, 1999
primarily due to increases in trade accounts payable which resulted from
increases in sales and production levels.
The following discussion and analysis should be read in conjunction with the
financial statements and notes thereto appearing elsewhere in this report.
RESULTS OF OPERATIONS (for the three and six month periods ended June
30, 2000 compared to the three and six month periods ended June 30, 1999).
Wholesale sales increased by 207% to $2,075,844 for the three months
ended June 30, 2000 from $1,001,297 for the three months ended June 30, 1999,
and increased by 204% to $3,511,950 for the six months ended June 30, 2000 from
$1,718,274 for the six months ended June 30, 1999. These increases in sales for
the three and six months ended June 30, 2000 were primarily the result of an
expansion of the Company's product line to include a full line of decorated
cakes, and an increased market penetration through distribution of the Company's
products to new areas including Texas, Northern California, Hawaii, and
Pennsylvania. The Company sells a majority of its products through broker and
distributor networks, and estimates that its products are sold in over 2,000
supermarkets.
9
Cost of goods sold increased to $1,669,981, or 80% of net wholesale
sales, for the three months ended June 30, 2000, as compared to $797,309, or 80%
of net wholesale sales, for the three months ended June 30, 1999, and increased
to $2,929,573, or 83% of net wholesale sales, for the six months ended June 30,
2000, as compared to $1,401,353, or 82% of net wholesale sales, for the six
months ended June 30, 1999. The increases in cost of goods sold as a percentage
of net wholesale sales for the six months ended June 30, 2000 were primarily the
result of the introduction of new products with startup costs including
training, product waste and the use of overtime labor.
Bakery selling, general and administrative expenses increased to
$412,897 for the three months ended June 30, 2000 from $215,311 for the three
months ended June 30, 1999, and increased to $807,133 for the six months ended
June 30, 2000 from $405,745 for the six months ended June 30, 1999. These
increases in bakery selling, general and administrative expenses for the three
and six months ended June 30, 2000 were primarily the result of increases in
selling expenses resulting from sales increases, and increases of fixed facility
expenses due to an expansion of the Company's bakery facility in El Cajon,
California from approximately 16,800 square feet to approximately 36,000 square
feet.
Corporate selling, general and administrative expenses increased to
$202,380 for the three months ended June 30, 2000 from $201,945 for the three
months ended June 30, 1999, and increased to $394,405 for the six months ended
June 30, 2000 from $382,804 for the six months ended June 30, 1999. These
increases in corporate selling, general and administrative expenses for the
three and six months ended June 30, 2000 were primarily the result of increases
in management payroll, professional fees and other general and administrative
costs associated with the Company's executive offices located in Secaucus, New
Jersey.
Net interest expense for the three months ended June 30, 2000 was
$15,790 as compared to net interest expense for the three months ended June 30,
1999 of $2,766, and net interest expense for the six months ended June 30, 2000
was $28,906 as compared to net interest income for the six months ended June 30,
1999 of $5,944. This induction in net interest expense resulted primarily from
reduced interest income earned on cash deposits, and an increase in equipment
lease financing.
Gain (loss) from sale of assets were $0 for the three months ended June
30, 2000 as compared to ($9,727) for the three months ended June 30, 1999, and
were $0 for the six months ended June 30, 2000 as compared to $14,820 for the
six months ended June 30, 1999. These gains (losses) from sale of assets
resulted primarily from assets sold pursuant to the 1998 Triarc Agreement.
Other income increased to $35,050 for the three months ended June 30,
2000 from $22,187 for the three months ended June 30, 1999, and increased to
$35,050 for the six months ended June 30, 2000 from $22,187 for the six months
ended June 30, 1999. These increases in other income for the three and six
months ended June 30, 2000 resulted from reductions in accounts payable and
accrued liabilities resulting from discounted settlements and write-offs of
accounts payable based on their being no recent contact with the Company by the
creditors being owed such amounts.
10
Liquidity and Capital Resources
At June 30, 2000, the Company had a working capital deficit of
$277,487. During the six months ended June 30, 2000, the Company experienced
cash flow deficits from its operating activities primarily because its gross
profit was not sufficient to cover its selling, general and administrative
expenses. This deficit has been funded in part by payments received from the
Triarc note receivable more fully discussed below. The Company has initiated
plans to increase its gross profit margins and reduce certain selling, general
and administrative expenses in order to reduce these cash flow deficits from
operating activities.
In an effort to obtain the long term resources necessary to fully
develop the Company's business strategies, the Company has been exploring a
number of strategic alternatives including a possible merger or sale
transaction. In July 2000, the Company executed a non-binding letter of intent
with Jon Donaire, through which the Company will sell to Jon Donaire a majority
of the assets comprising its bakery operations in El Cajon, California. While
the Company is in the process of negotiating a definitive purchase agreement
with Jon Donaire, there can be no assurance that the Company will execute a
definitive purchase agreement or consummate the sale transaction with Jon
Donaire, or that such transaction will be consummated on terms that would be
favorable to the Company's shareholders. In view of the Company's negative
working capital and history of continuing operating losses, continued operations
of the Company is dependent upon the closing of the Jon Donaire transaction, or
if that transaction is not consummated, the completion of other possible
strategic alternatives.
The Company used net cash in operating activities in the amount of
$328,856 for the for the six months ended June 30, 2000 as compared to $453,064
for the for the six months ended June 30, 1999. The Company used net cash in
investing activities in the amount of $171,881 for the for the six months ended
June 30, 2000, as compared to $83,081 for the for the six months ended June 30,
1999. The Company received net cash from financing activities in the amount of
$307,378 for the for the six months ended June 30, 2000 as compared to $261,686
for the for the six months ended June 30, 1999.
In July 1998, the Company borrowed $150,000 from Gelt Financial
Corporation. The loan provided for interest at the rate of 5% above the prime
rate, and was secured by all the payments due the Company under the purchase
agreement dated June 3, 1996 entered into with Triarc Restaurant Group. In order
to induce Gelt Financial Group to enter into this loan, the Company paid Gelt
Financial Group a placement fee in the amount of $15,625 and agreed to issue
Gelt Financial Group 15,000 shares of the Company's unregistered common stock.
This loan was repaid in full in August 1998 from the proceeds of the Triarc
agreement.
In August 1998, Charles Loccisano, the Company's Chairman and Chief
Executive Officer, and Alan Gottlich, the Company's President and Chief
Financial Officer, provided the Company with short term bridge loans aggregating
$100,000. These loans provided for a loan fee of 5% representing the initial
loan fees and interest on the loan. These loans were repaid in full in August
1998 from the proceeds of the Triarc agreement.
11
In August 1998, the Company closed an agreement with Triarc pursuant to
which the Company sold all of its rights and interests under the existing T.J.
Cinnamons franchise agreements and terminated the purchase agreement with Triarc
dated June 3, 1996 and the license agreement and management agreement entered
into with Triarc and affiliates dated August 29, 1996. Under the terms of this
agreement, the Company received payments aggregating $4,000,000 of which
$3,000,000 was paid in cash at closing and $1,000,000 was paid in the form of a
noninterest bearing promissory note payable over 24 months. The balance of this
note receivable was $125,000 on June 30, 2000.
12
PART II OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, the Company is involved as plaintiff or
defendant in various legal proceedings arising in the normal
course of its business. While the ultimate outcome of these
various legal proceedings cannot be predicted with certainty,
it is the opinion of management that the resolution of these
legal actions should not have a material effect on the
Company's financial position, results of operations or
liquidity.
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
The following exhibits are filed herewith.
Exhibit Number Description
27 Financial Data Schedule
(b) Reports on Form 8-K.
The Company did not file any current reports on Form
8-K for the quarter ended June 30, 2000.
13
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereto duly authorized.
Paramark Enterprises, Inc.
Dated: August 10, 2000 By: /s/ Charles N. Loccisano
---------------------------------------
Charles N. Loccisano,
Chairman and Chief Executive Officer
By: /s/ Alan S. Gottlich
---------------------------------------
Alan S. Gottlich,
President and Chief Financial Officer
(Principal Accounting Officer)
14