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 September 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
(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 - 3,613,383 shares as of November 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
September 30, 2000.
Statements of Operations for the three and nine 5
months ended Sept.30, 1999 and Sept.30, 2000.
Statements of Cash Flows for the nine 6
months ended Sept.30, 1999 and Sept.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
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We have reviewed the accompanying condensed consolidated balance sheets of
Paramark Enterprises, Inc. as of September 30, 2000, and the related condensed
consolidated statements of operations for the three and nine months ended
September 30, 2000, and the related condensed consolidated cash flows for the
nine months ended September 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 September 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.
November 14, 2000
Edison, New Jersey
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PARAMARK ENTERPRISES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, Sept. 30,
1999 2000
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(Audited) (Unaudited)
ASSETS
Current Assets:
Cash $ 195,977 $ 34,586
Accounts receivable, less allowance for doubtful accounts 385,462 654,850
Notes receivable - current maturities 375,000 0
Inventory 279,326 305,131
Prepaid expenses and other current assets, net 110,818 60,952
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Total current assets 1,346,583 1,055,519
Property and equipment 867,964 913,048
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Total Assets $ 2,214,547 $ 1,968,567
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 927,915 $ 1,436,836
Current maturities of long-term debt 56,744 405,822
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Total current liabilities 984,659 1,842,658
Long-term debt, net of current maturities 226,681 262,555
STOCKHOLDERS' EQUITY
Preferred Stock 0 0
Common Stock 33,935 36,135
Additional paid-in capital 6,822,032 6,848,982
Accumulated deficit (5,813,653) (6,982,656)
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1,042,314 (97,539)
Less, treasury stock at cost (39,107) (39,107)
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Total stockholders' equity 1,003,207 (136,646)
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Total Liabilities and Stockholders' Equity $ 2,214,547 $ 1,968,567
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SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS AND ACCOUNTANTS REVIEW REPORT
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PARAMARK ENTERPRISES, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
For the Three Months For the Nine Months
Ended Sept. 30, Ended Sept.30,
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1999 2000 1999 2000
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Revenue:
Wholesale sales $ 1,283,815 $ 1,942,735 $ 3,002,089 $ 5,454,685
Sales from Company-owned stores 0 0 0 0
Royalties and licensing fees 0 0 0 0
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Total revenue 1,283,815 $ 1,942,735 3,002,089 $ 5,454,685
Operating expenses:
Cost of goods sold 1,008,378 1,721,384 2,409,730 4,650,957
Bakery selling, general and administrative 290,833 503,369 696,578 1,310,502
Corporate selling, general and administrative 189,079 211,724 571,883 606,129
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Total operating expenses 1,488,290 2,436,477 3,678,191 6,567,588
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Loss from operations (204,475) (493,742) (676,102) (1,112,903)
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Other income (expense):
Interest income (expense), net (3,439) (79,312) (9,383) (108,218)
Gain from sale of assets 0 0 14,820 0
Other income 3,072 17,068 25,259 52,118
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Total other income (expense) (367) (62,244) 30,696 (56,100)
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Net income (loss) $ (204,842) ($ 555,986) ($ 645,406) ($1,169,003)
=========== =========== =========== ===========
Net income (loss) per common share ($ 0.06) ($ 0.16) ($ 0.19) ($ 0.34)
=========== =========== =========== ===========
Weighted average number of
common shares outstanding 3,391,169 3,405,471 3,391,169 3,405,471
=========== =========== =========== ===========
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AND ACCOUNTANTS REVIEW REPORT
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PARAMARK ENTERPRISES, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
For the Nine Months
Ended Sept. 30,
1999 2000
Cash flow from operating activities:
Net income (loss) ($ 645,406) ($1,169,003)
Adjustments to reconcile net income (loss) to net cash from
operating activities:
Depreciation and amortization 82,800 151,392
Provision for inventory obsolescence 0 62,908
Gain from forgiveness of debt (23,212) (52,118)
(Gain) loss from sale of equipment (15,210) 0
Noncash consulting fees and interest expense 8,522 29,149
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (200,618) (269,388)
(Increase) decrease in inventories (44,223) (25,805)
(Increase) decrease in prepaid expenses and other current assets (32,430) 49,866
Increase (decrease) in accounts payable and accrued expenses 125,547 508,921
Net cash used in operating activities (744,230) (714,078)
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Cash flows from investing activities:
Proceeds from notes receivable 375,000 375,000
Purchases of equipment (108,347) (207,264)
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Net cash provided by investing activities 266,653 167,736
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Cash flows from financing activities:
Proceeds from financing 75,987 434,185
Purchases of treasury stock (39,107) 0
Payment of notes payable 0 (49,233)
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Net cash provided by financing activities 36,880 384,952
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Net increase (decrease) in cash (440,697) (161,390)
Cash at beginning of period 790,873 195,976
Cash at end of period $ 350,176 $ 34,586
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Supplemental disclosure of cash paid:
Interest, net $ 5,944 $ 79,071
Income Taxes $ 0 $ 0
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AND ACCOUNTANTS REVIEW REPORT
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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 $1,169,003 for the nine months ended
September 30, 2000 and $1,016,694 for the year ended December 31, 1999. The
Company had a negative working capital deficit of $787,139 on September 30,
2000.
In October 2000, the Company executed an asset purchase agreement with
Rich Products Manufacturing Corporation ("Rich Products") through which the
Company will sell to Rich Products a majority of the assets comprising its
bakery operations in El Cajon, California. The Rich Products agreement provides
for a purchase price aggregating $2,182,750 inclusive of a payment for
inventory. The aggregate purchase price will be paid as follows: $182,750 on
October 16, 2000, $1,000,000 upon the closing of the Rich Products agreement,
and $1,000,000 payable in semiannual installments over a period of four (4)
years. Rich Products is also assuming approximately $285,000 in equipment lease
related debt. In October 2000, the Company also entered into an asset purchase
and sale agreement with Brooks Street Companies, Inc. ("Brooks Street"),
pursuant to which the Company sold the remainder of its bakery operations to
Brooks Street. The Brooks Street agreement provided for a purchase price in the
form of the assumption by Brooks Street of approximately $70,000 in equipment
lease related debt, the purchase of inventory by Brooks Street in the amount of
$12,500 and the agreement by Brooks Street to make royalty payments to the
Company, over a period of four (4) years, equal to 5% of net sales of pull-apart
cakes to existing customers of the Company plus 1 1/2% of net sales of
pull-apart cakes to new customers of Brooks Street. 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 Rich Products
transaction and the Brooks Street transaction.
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.
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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.
Note 3 - Income Taxes
No provision for income taxes has been made for the nine months ended
September 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 September 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 September 30, 2000.
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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 decreased by $245,980 from $2,214,547 on December 31, 1999 to
$1,968,567 on September 30, 2000. Cash decreased to $34,586 on September 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 September 30, 2000 decreased to $0 from $375,000 on December
31, 1999 due to payments received on outstanding notes receivable. Total current
liabilities as of September 30, 2000 increased to $1,842,658 from $984,659 on
December 31, 1999 primarily due to increases in short term borrowings and trade
accounts payable resulting 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 nine month periods ended
September 30, 2000 compared to the three and nine month periods ended September
30, 1999).
Wholesale sales increased by 51% to $1,942,735 for the three months
ended September 30, 2000 from $1,283,815 for the three months ended September
30, 1999, and increased by 82% to $5,454,685 for the nine months ended September
30, 2000 from $3,002,089 for the nine months ended September 30, 1999. These
increases in sales for the three and nine months ended September 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
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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.
Cost of goods sold increased to $1,721,384, or 89% of net wholesale
sales, for the three months ended September 30, 2000, as compared to $1,008,378,
or 79% of net wholesale sales, for the three months ended September 30, 1999,
and increased to $4,650,957, or 85% of net wholesale sales, for the nine months
ended September 30, 2000, as compared to $2,409,730, or 80% of net wholesale
sales, for the nine months ended September 30, 1999. The increases in cost of
goods sold as a percentage of net wholesale sales for the three and nine months
ended September 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
$503,369 for the three months ended September 30, 2000 from $290,833 for the
three months ended September 30, 1999, and increased to $1,310,502 for the nine
months ended September 30, 2000 from $696,578 for the nine months ended
September 30, 1999. These increases in bakery selling, general and
administrative expenses for the three and nine months ended September 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
$211,724 for the three months ended September 30, 2000 from $189,079 for the
three months ended September 30, 1999, and increased to $606,129 for the nine
months ended September 30, 2000 from $571,883 for the nine months ended
September 30, 1999. These increases in corporate selling, general and
administrative expenses for the three and nine months ended September 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 September 30, 2000 was
$79,312 as compared to net interest expense for the three months ended September
30, 1999 of $3,439, and net interest expense for the nine months ended September
30, 2000 was $108,218 as compared to net interest income for the nine months
ended September 30, 1999 of $9,383. These increases in net interest expense
resulted primarily from reduced interest income earned on cash deposits, and an
increase in equipment lease and working capital financing.
Liquidity and Capital Resources
At September 30, 2000, the Company had a working capital deficit of
$787,139. During the nine months ended September 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.
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On October 9, 2000, the Company entered into an asset purchase
agreement (the "Rich Products Agreement") with Rich Products, pursuant to which
the Company will sell its bakery operations located in El Cajon, California
which represents a majority of the Company's operating assets. On October 9,
2000, the Company also entered into a license agreement with Rich Products
through which the Company granted Rich Products a license to assume full
operational control of the El Cajon bakery facility as of October 9, 2000.
The Rich Products Agreement provides for a purchase price aggregating
$2,182,750 inclusive of a payment for inventory. The aggregate purchase price
will be paid as follows: $182,750 on October 16, 2000, $1,000,000 upon the
closing of the Rich Products Agreement, and $1,000,000 payable in semiannual
installments over a period of four (4) years. Rich Products is also assuming
approximately $285,000 in equipment lease related debt. In addition, pursuant to
the terms of the Rich Products Agreement, Rich Products will enter into
consulting agreements with Charles Loccisano, Alan Gottlich and Wayne Sorensen,
the Company's Chairman and CEO, President and CFO, and Bakery General Manager,
respectively. These consulting agreements provide for compensation to Messrs.
Loccisano, Gottlich and Sorensen over a four year term in an annual amount of
$50,000, $30,000 and $20,000, respectively.
On October 9, 2000, the Company entered into an asset purchase and sale
agreement (the "Brooks Street Agreement") with Brooks Street Companies, Inc.
("Brooks Street"), pursuant to which the Company sold the remainder of its
bakery operations to Brooks Street.
The Brooks Street Agreement provided for a purchase price in the form
of the assumption by Brooks Street of approximately $70,000 in equipment lease
related debt, the purchase of inventory by Brooks Street in the amount of
$12,500 and the agreement by Brooks Street to make royalty payments to the
Company, over a period of four (4) years, equal to 5% of net sales of pull-apart
cakes to existing customers of the Company plus 1 1/2% of net sales of
pull-apart cakes to new customers of Brooks Street. The closing of both
transactions are subject to certain conditions precedent including the approval
of the Company's shareholders, although both Rich Products and Brooks Street
have been given immediate conditional control over the assets they are
respectively acquiring from the Company.
Following the closings of these transactions outlined above, the
Company currently intends to liquidate pursuant to a plan of liquidation. The
Company intends to use the net proceeds received from the Rich Products and the
Brooks Street transactions as follows: $1,382,750 towards the reduction of
outstanding indebtedness, $125,000 towards the expenses of the transactions and
$175,000 towards working capital. The Company currently intends to distribute
the remaining net proceeds to its shareholders over a period of four (4) years
pursuant to the plan of liquidation. Following completion of the Rich Products
and Brooks Street transactions and prior to implementing the plan of
liquidation, the Company intends to explore various options available to the
Company. The Board of Directors reserves the right to terminate the plan of
liquidation following shareholder approval to the extent any of the options
explored by the Company are financially beneficial to the Company's
shareholders.
The foregoing summaries of the Rich Products Agreement and the Brooks
Street Agreement are only a brief description of the agreements and are
qualified in their entirety by the detailed provisions of
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the agreements which were filed as exhibits to the Company's Current Report on
Form 8-K filed on October 18, 2000, and are incorporated herein by reference.
The Company used net cash in operating activities in the amount of
$714,078 for the for the nine months ended September 30, 2000 as compared to
$744,230 for the for the nine months ended September 30, 1999. The Company
received net cash from investing activities in the amount of $167,736 for the
for the nine months ended September 30, 2000, as compared to $266,653 for the
for the nine months ended September 30, 1999. The Company received net cash from
financing activities in the amount of $384,952 for the for the nine months ended
September 30, 2000 as compared to $36,880 for the for the nine months ended
September 30, 1999.
In August 2000, Charles Loccisano, the Company's Chairman and Chief
Executive Officer, provided the Company with a loan of $150,000. The loan
provided for a term of one year and provided for interest in the amount of 5%
per annum. The Company granted Mr. Loccisano 50,000 unregistered shares of
common stock as additional consideration for providing this loan. This loan was
repaid in full out of the proceeds of a loan with Gelt Financial Corporation in
September 2000.
In September 2000, Gelt Financial Corporation ("Gelt") provided the
Company with a credit line in the amount of $250,000. The credit line loan
provided for a term of one year and provided for interest of 5% above the prime
rate. In addition, the Company paid Gelt a placement fee in the amount of
$31,250 and granted Gelt 20,000 unregistered shares of common stock as
additional consideration for providing this loan. The balance of this credit
line loan will be repaid in full out of the proceeds of the Rich Products
Transaction.
In September 2000, Charles Loccisano, the Company's Chairman and Chief
Executive Officer, provided the Company with a credit line in the amount of
$150,000. The credit line provided for a term of one year and provided for
interest in the amount of 5% per annum. The Company granted Mr. Loccisano
150,000 unregistered shares of common stock as additional consideration for
providing this loan. The balance of this credit line was $75,000 as of September
30, 2000, and will be repaid in full out of the proceeds of the Rich Products
Transaction.
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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
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None
Item 3. Defaults upon Senior Securities
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None
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
None
Item 5. Other Information
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Not Applicable
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------------------
(a) Exhibits.
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The following exhibits are filed herewith.
Exhibit Number Description
27 Financial Data Schedule
(b) Reports on Form 8-K.
--------------------
None.
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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: November 14, 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)
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