Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB-Quarterly or Transition Report
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1997.
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT
For the transition period from to
Commission file number 0-23026
Paramark Enterprises, Inc.
(Exact name of small business issuer as specified in its charter)
Delaware 22-3261564
(State or other jurisdiction (I.R.S. Employer Identification
of incorporation or organization) No.)
135 Seaview Drive, Secaucus, New Jersey 07094
(Address of principal executive offices)
201-422-0910
(Issuer's telephone number including area-code)
Not Applicable
(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 * 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 - 3,068,833 shares as of May 14, 1997.
Paramark Enterprises Inc.
Part I FINANCIAL INFORMATION
Item I FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS PAGE
Balance Sheets at December 31, 1996 and 3
March 31, 1997.
Statement of Operations for the three months ended 4
March 31, 1996 and March 31, 1997.
Statement of Cash Flows for the three months ended 5
March 31, 1996 and March 31, 1997.
Notes to Financial Statements 6
Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 8
Part II OTHER INFORMATION 12
Item 6 EXHIBITS AND REPORTS ON FORM 8-K 12
SIGNATURES 13
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PARAMARK ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEET
December 31, March 31,
1996 1997
(Audited) (Unaudited)
ASSETS
Current Assets:
Cash $49,677 $35,569
Accounts receivable, less allowance for doubtful accounts 335,322 225,414
Notes receivable - current maturities 1,383,836 1,074,613
Inventory 82,201 104,351
Prepaid expenses and other current assets, net 40,380 59,188
----------- -----------
Total current assets 1,891,406 1,499,134
Property and equipment 188,547 207,826
Excess of cost over fair value of net assets acquired 531,666 517,917
Notes Receivable, net of current maturities 39,675 26,450
----------- -----------
Total Assets $2,561,294 $2,251,327
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $833,319 $493,504
Current maturities of long-term debt 168,809 308,242
Other current liabilities 53,383 33,717
----------- -----------
Total current liabilities 1,055,511 835,463
Long-Term Debt, net of current maturities 39,675 26,450
----------- -----------
Total liabilities 1,095,186 861,913
----------- -----------
STOCKHOLDERS' EQUITY
Preferred Stock 0 0
Common Stock 30,689 30,689
Additional paid-in capital 6,757,491 6,757,491
Accumulated deficit (5,232,072) (5,398,765)
----------- -----------
Total stockholders' equity 1,556,108 1,389,414
----------- -----------
Total Liabilities and Stockholders' Equity $2,651,294 $2,251,327
=========== ===========
SEE NOTES TO FINANCIAL STATEMENTS
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PARAMARK ENTERPRISES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
For the Three Months
Ended March 31,
1996 1997
Revenue:
Wholesale sales $169,836 $422,539
Sales from Company-owned stores 60,167 51,383
Royalties and licensing fees 144,067 17,129
Other 16,679 4,667
----------- -----------
Total revenue 390,749 495,718
Operating expenses:
Cost of goods sold 192,638 355,210
Selling, general and administrative 294,107 385,678
----------- -----------
Total operating expenses 486,745 740,888
----------- -----------
Loss from operations (95,996) (245,170)
----------- -----------
Other income (expense):
Interest income (expense), net (17,125) 22,761
Other income 668 55,716
----------- -----------
Total other income (expense) (16,457) 78,477
----------- -----------
Net income (loss) ($112,453) $(166,693)
=========== ===========
Net income (loss) per common share ($0.04) $(0.05)
=========== ===========
Weighted average number of
common shares outstanding 2,910,833 3,068,833
=========== ===========
SEE NOTES TO FINANCIAL STATEMENTS
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PARAMARK ENTERPRISES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
For the Three Months
Ended March 31,
1996 1997
Cash flow from operating activities:
Net income (loss) ($112,453) ($166,693)
Adjustments to reconcile net income (loss) to net cash from
operating activities:
Depreciation and amortization 53,400 22,492
Licensing revenue (7,500) 0
Provision for doubtful accounts 10,315 0
Noncash interest expense 14,572 0
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (25,980) 109,908
(Increase) decrease in inventories 0 (22,150)
(Increase) decrease in prepaid expenses and other current assets (29,220) (18,807)
Increase (decrease) in accounts payable and accrued expenses (3,359) (359,482)
Increase (decrease) in other current liabilities 30,038 0
--------- ---------
(70,186) (434,733)
Cash flows from investing activities:
Purchases of equipment 0 (28,021)
--------- ---------
0 (28,021)
--------- ---------
Cash flows from financing activities:
Proceeds from notes payable 50,361 158,257
Proceeds from notes receivable 0 322,448
Payment of notes payable 0 (32,049)
--------- ---------
50,361 448,656
--------- ---------
Net increase (decrease) in cash (19,826) (14,098)
Cash at beginning of period 51,677 49,677
Cash at end of period $31,851 $35,569
========= =========
SEE NOTES TO FINANCIAL STATEMENTS
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Paramark Enterprises, Inc.
Notes to 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 and except for the
Balance Sheet at December 31, 1996, 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.
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 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, 1996. There have been no significant changes of accounting policies since
December 31, 1996. For comparability, certain 1996 amounts have been
reclassified, where appropriate, to conform with the 1997 presentation.
Note 2 - Net Income (Loss) Per Common Share
Net loss per common share is calculated by dividing net loss by the weighted
average number of shares of common stock outstanding for each period presented.
For purposes of these 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 (credit) for income taxes has been made for the three months ended
March 31, 1997 and 1996 as the Company has net operating losses. These net
operating losses have resulted in a deferred tax asset at March 31, 1997. 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 March 31,
1997.
Note 4 - Sale of Assets
In August 1996, the Company closed a purchase agreement (the "Transaction") with
Triarc Restaurant Group d/b/a/ Arby's, Inc. ("Triarc") through which (a) Triarc
purchased the trademarks, service marks, recipes and secret formulas of the
Company, (b) Triarc licensed back to the Company the rights to operate existing
franchised bakery locations and to distribute T.J. Cinnamons products through
retail grocery outlets, and (c) the Company entered into a management agreement
with Triarc to manage the franchise system.
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The Company received payments of $25,000 at the execution of the Transaction,
$1,765,000 at the closing, a promissory note in the amount of $1,650,000 which
is being paid in fifteen (15) equal monthly installments beginning October 1,
1996, a promissory note in the amount of $100,000 which is being paid in twenty
four (24) equal monthly installments beginning October 1, 1996. In addition, the
purchase agreement the potential for contingent payments of up to a maximum of
an additional $5,500,000 over time dependent upon the amount of T.J. Cinnamons
product sales by Triarc exceeding a minimum base system wide sales of $26.3
million. Pursuant to the terms of the Transaction, T.J. Cinnamons, Inc. changed
its name to Paramark Enterprises, Inc.
Simultaneous with the closing of the Transaction, the Company entered into an
agreement with Heinz Bakery Products to terminate the 1992 manufacturing and
license agreement. Under the terms of the agreement, the Company paid Heinz
Bakery Products $600,000 at closing, and assigned to Heinz the Triarc promissory
note in the amount of $100,000 payable with interest in equal installments over
a two year period.
Note 5 - Short Term Financing
In December, 1996 the Company consummated a short term loan with Gelt Financial
Corporation ("Gelt") in the amount of $100,000, and in March, 1997 the Company
increased the loan with Gelt by an additional $175,000. The terms of these Gelt
loans provided for interest at a rate of prime plus three and one half percent,
and a placement fee of 5.5%. These loan have been secured by a security interest
in the 15 month note receivable from Triarc in the original principal amount of
$1,650,000, and will be fully amortized and paid in full by December 1, 1997.
The proceeds of these loans were used to pay outstanding indebtedness and fund
working capital.
-7-
Part I Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
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 month period ended March 31, 1997
compared to the three month period ended March 31, 1996).
The following tables set forth the components of the Company's revenue:
Three Months Ended March 31,
1996 1997
Wholesale sales $169,800 $422,500
Company-owned bakery sales 60,200 51,400
Royalties and licensing fees 144,100 17,100
Other 16,700 4,700
-------- --------
Total Revenue $390,800 $495,700
Wholesale sales were $422,500 for the three months ended March 31, 1997
as compared to $169,800 for the three months ended March 31, 1996. In the fourth
quarter of 1996, the Company began production in its own bakery manufacturing
facility in Santa Ana, California. The current products sold by the Company
include: T.J. Cinnamons gourmet cinnamon rolls, T.J. Cinnamons mini cinnamon
rolls, CinnaChips, C & W Gourmet Rugalach and a variety of specialty cakes. All
of these products are sold in various packaging and sizes, and are shipped
through both fresh and frozen distribution.
To develop its wholesale sales, the Company is focusing its selling
efforts in three geographic areas through alliances with the following three key
food brokerage groups: (a) Le Grand Marketing, representing retail grocery
stores California; (b) American Sales and Marketing, representing the membership
club stores nationwide and retail grocery stores in the mid-west, and (c)
Douglas Sales, representing retail grocery stores in the New York Tri-State
area. The Company is currently selling products to the following accounts:
Ralphs Supermarkets, Lucky's Supermarkets, Price/Costco, Hughs Supermarkets, and
FEDCO. These chains represent over 600 locations.
Company-owned bakery sales decreased by 15% to $51,400 for the three
months ended March 31, 1997 from $60,200 for the three months ended March 31,
1996. This sales decrease resulted from a decline in mall traffic due to a
number of vacancies in the Poughkeepsie Galleria mall. In April 1997, the
Company entered into a management agreement whereby the Poughkeepsie Galleria
mall bakery will be operated with all cash deficits funded by the manager and
all positive cash flow retained by the manager as a management fee.
-8-
Royalty and licensing fee revenue decreased to $17,100 for the three
months ended March 31, 1997 from $144,100 for the three months ended March 31,
1996. This decrease in franchise royalties resulted primarily from the terms of
the Triarc Transaction requiring the Company to provide franchisees an offer to
forgive all royalties for the period August, 1996 through January, 1997 in
exchange for a general release against the Company. Franchisees representing
approximately 80% of the franchised bakery units entered into these general
release agreements. The decreases in license fees are primarily from a decreases
in the sales of "proof and bake" cinnamon rolls utilized in various locations
under licensing agreements. In August, 1996, the Company terminated its
trademark and technology license agreement with Heinz Bakery Products which was
a condition for the closing of the Triarc Transaction.
Product rebates decreased to $4,700 for the three months ended March
31, 1997 as compared to $16,700 for the three months ended March 31, 1996. These
product rebates are from various supplier rebates and commitment fees.
Cost of goods sold increased to $355,210 for the three months ended
March 31, 1997 from $192,210 for the three months ended March 31, 1996. This
increase is primarily the result of the cost of the wholesale sales to
supermarkets and membership club chains.
Selling, general and administrative expenses increased by 31% to
$385,678 for the three months ended March 31, 1997 from $294,107 for the three
months ended March 31, 1996. These increases are primarily the result of
increases in selling general and administrative costs associated with the
Company's entry into the wholesale distribution business.
Net interest income for the three months ended March 31, 1997 was
$22,761 as compared to net interest expense for the three months ended March 31,
1996 of $17,125. This change in net interest expense resulted from the interest
earned on the notes receivable from Triarc Restaurant Group.
Other income of $55,716 for the three months ended March 31, 1997 as
compared to $668 for the three months ended March 31, 1996 are from reductions
in account 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
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1997, the Company had a working capital surplus of
approximately $663,700.
The Company owed approximately $488,600 to various trade and other
creditors at March 31, 1997, of which approximately $200,000 was more than 90
days past due. The Company is currently experiencing cash flow deficits from its
operating activities primarily because its current expenses exceed its current
revenues. These deficits are currently being funded by the Triarc notes
receivable payments. The Company will continue to incur cash flow deficits from
its operating activities until such time that the Company is able to attain
sales levels sufficient to support its operations.
-9-
The Company used net cash in operating activities in the amount of
$434,733 for the three months ended March 31, 1997 resulting primarily from
decreases in accounts payable, as compared to $70,186 for the three months ended
March 31, 1996. The Company used net cash from investing activities in the
amount of $28,021 for the three months ended March 31, 1997 resulting from the
purchases of equipment. The Company received net cash provided by financing
activities in the amount of $448,656 for the three months ended March 31, 1997
resulting from proceeds received from notes receivable and notes payable, as
compared to net cash provided by financing activities in the amount of $50,361
for the three months ended March 31, 1996.
In August 1996, the Company closed a purchase agreement with Triarc
Restaurant Group d/b/a/ Arby's, Inc. ("Triarc") pursuant to which (a) Triarc
purchased the trademarks, service marks, recipes and secret formulas of the
Company, (b) Triarc licensed back to the Company the rights to operate existing
franchised bakery locations and to distribute T.J. Cinnamons products through
retail grocery outlets, and (c) the Company entered into a management agreement
with Triarc to manage the franchise system.
The Company received payments of $25,000 at the execution of the
agreement, $1,765,000 at the closing, a promissory note in the amount of
$1,650,000 which is being paid in fifteen (15) equal monthly installments which
began on October 1, 1996, and a promissory note in the amount of $100,000 which
is being paid in twenty four (24) equal monthly installments which began on
October 1, 1996 with a $50,000 balloon payment on September 1, 1998. In
addition, the purchase agreement provides for contingent payments of up to a
maximum of an additional $5,500,000 over time dependent upon the amount of T.J.
Cinnamons product sales by Triarc exceeding a minimum base system wide sales of
$26.3 million.
Simultaneous with the closing of the Triarc transaction, the Company
entered into an agreement with Heinz Bakery Products to terminate the 1992
manufacturing and license agreement. Under the terms of the agreement, the
Company paid Heinz Bakery Products $600,000 at closing, and assigned to Heinz
the Triarc promissory note in the amount of $100,000 payable with interest in
equal installments over a twenty four (24) month period with a $50,000 balloon
payment.
In December, 1996 the Company consummated a short term loan with Gelt
in the amount of $100,000, and in March, 1997 the Company increased the loan
with Gelt by an additional $175,000. The terms of these Gelt loans provided for
interest at a rate of prime plus three and one half percent, and a placement fee
of 5.5%. These loans have been secured by a security interest in the 15 month
note receivable from Triarc in the original principal amount of $1,650,000, and
will be fully amortized and paid in full by December 1, 1997. The proceeds of
these loans were used to pay outstanding indebtedness and fund working capital.
Following the closing of the Triarc transaction, the Company's
operations have been concentrated exclusively on its wholesale development
activities. Accordingly, the Company is entirely dependent on its wholesale
operations as its primary source of revenues in addition to the additional
revenues generated from the Triarc transaction. The Company has applied the
proceeds from the Triarc transaction towards a reduction of its existing
indebtedness, to develop its wholesale bakery production facility, and to
provide
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working capital for its operations. Management believes that funds generated
from the Triarc transaction will provide sufficient working capital for its
planned product manufacturing and distribution expansion plans at least through
December, 1997.
In May 1997, the Company entered into a letter of intent with
Commonwealth Associates whereby Commonwealth Associates will act as the
Company's investment advisor in areas including long-term financial planning,
expansion and capital structure, mergers, acquisitions and other corporate
financial matters. Pursuant to this relationship, Commonwealth Associates
contemplates acting as the Company's placement agent in connection with a
planned convertible preferred stock private placement. All proceeds derived from
the private placement will be utilized toward automating the Santa Ana
production facility, establishing a North East production facility, and
establishing a working capital reserve.
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PART II OTHER INFORMATION
Item 3 DEFAULTS UPON SENIOR SECURITIES
None
Item 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) No exhibits
(b) On February 6, 1997 the registrant filed a Current Report on Form
8-K covering Item 4, Changes in Registrant's Certifying
Accountant, disclosing the dismissal of Goldstein, Golub, Kessler
& Co., P.C. and the retention of Arthur Andersen LLP as its
independent public accountants. On March 10, 1997 the registrant
filed a Current Report on Form 8-K/A covering Item 4, Changes in
Registrant's Certifying Accountant, disclosing the resignation of
Arthur Andersen LLP and the retention of Amper, Politziner &
Mattia as its indepen- dent public accountants.
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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: May 14, 1997 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)