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 June 30, 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 - 3,070,083 shares as of August 8, 1997.
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<PAGE>
Paramark Enterprises Inc.
Part I FINANCIAL INFORMATION
Item I FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS PAGE
Balance Sheets at December 31, 1996 and 3
June 30, 1997.
Statement of Operations for the three and six 4 months ended
June 30, 1996 and June 30, 1997. 4
Statement of Cash Flows for the six months 5 ended June 30,
1996 and June 30, 1997. 5
Notes to Financial Statements 6
Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 8
SIGNATURES 12
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<PAGE>
PARAMARK ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31, June 30,
1996 1997
(Audited) (Unaudited)
ASSETS
<S> <C> <C>
Current Assets:
Cash $49,667 $10,582
Accounts receivable, less allowance for doubtful accounts 335,322 216,025
Notes receivable - current maturities 1,383,836 765,208
Inventory 82,201 171,893
Prepaid expenses and other current assets, net 40,380 43,430
----------- -----------
Total current assets 1,891,406 1,207,138
Property and equipment 188,547 238,307
Excess of cost over fair value of net assets acquired 531,666 504,167
Notes Receivable, net of current maturities 39,675 0
----------- -----------
Total Assets $2,651,294 $1,949,612
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $833,319 $633,932
Current maturities of long-term debt 168,809 257,073
Other current liabilities 53,383 15,000
----------- -----------
Total current liabilities 1,055,511 906,005
Long-Term Debt, net of current maturities 39,675 0
----------- -----------
Total liabilities 1,095,186 906,005
----------- -----------
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) (5,744,573)
----------- -----------
Total stockholders' equity 1,556,108 1,043,607
----------- -----------
Total Liabilities and Stockholders' Equity $2,651,294 $1,949,612
=========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
3
<PAGE>
PARAMARK ENTERPRISES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1996 1997 1996 1997
<S> <C> <C> <C> <C>
Revenue:
Wholesale sales $163,436 $560,175 $333,272 $982,714
Sales from Company-owned stores 55,509 43,175 115,676 94,558
Royalties and licensing fees 149,352 61,759 310,098 83,555
----------- ----------- ----------- -----------
Total revenue 368,297 665,109 759,046 1,160,827
Operating expenses:
Cost of goods sold 199,293 441,912 391,931 797,123
Selling, general and administrative 387,843 586,081 681,282 971,760
----------- ----------- ----------- -----------
Total operating expenses 587,136 1,027,993 1,073,213 1,768,883
----------- ----------- ----------- -----------
Loss from operations (218,839) (362,884) (314,167) (608,056)
----------- ----------- ----------- -----------
Other income (expense):
Interest income (expense), net (16,631) 8,857 (33,756) 31,618
Other income 0 8,820 0 63,936
----------- ----------- ----------- -----------
Total other income (expense) (16,631) 17,078 (33,756) 95,555
----------- ----------- ----------- -----------
Net income (loss) ($235,649) $(345,806) ($347,923) ($512,501)
=========== =========== =========== ===========
Net income (loss) per common share ($0.08) ($0.11) ($0.12) ($0.17)
=========== =========== =========== ===========
Weighted average number of
common shares outstanding 2,910,833 3,068,833 2,910,833 3,068,833
=========== =========== =========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
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<PAGE>
PARAMARK ENTERPRISES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Six Months
Ended June 30,
1996 1997
<S> <C> <C>
Cash flow from operating activities:
Net income (loss) ($347,923) ($512,501)
Adjustments to reconcile net income (loss) to net cash from
operating activities:
Depreciation and amortization 106,441 48,941
Licensing revenue (12,500) 0
Provision for doubtful accounts 86,706 0
Noncash interest expense 29,059 0
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (127,956) 119,297
(Increase) decrease in inventories 0 (89,692)
(Increase) decrease in prepaid expenses and other current assets 11,814 (3,049)
(Increase) decrease in deferred transaction costs (64,389) 0
Increase (decrease) in accounts payable and accrued expenses 142,372 (237,770)
Increase (decrease) in other current liabilities 38,358 0
(138,018) (674,774)
Cash flows from investing activities:
Purchases of equipment 0 (71,203)
--------- ---------
0 (71,203)
--------- ---------
Cash flows from financing activities:
Proceeds from notes payable 109,464 163,855
Proceeds from notes receivable 0 658,303
Payment of notes payable 0 (115,266)
--------- ---------
109,464 706,892
Net increase (decrease) in cash (28,554) (39,085)
Cash at beginning of period 51,677 49,667
Cash at end of period $23,123 $10,582
========= =========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
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<PAGE>
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 six months ended
June 30, 1997 and 1996 as the Company has net operating losses. These net
operating losses have resulted in a deferred tax asset at June 30, 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 June 30,
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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<PAGE>
Note 4 - Sale of Assets (Continued)
The Company received payments of $1,790,000 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 provides for the
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 in August 1996, 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 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,
fund startup costs of the California bakery facility, and fund working capital.
-7-
<PAGE>
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 and six month periods ended June 30,
1997 compared to the three and six month periods ended June 30, 1996).
The following tables set forth the components of the Company's revenue:
Three Months Ended June 30,
1996 1997
Wholesale sales $163,436 $560,175
Company-owned bakery sales 55,509 43,175
Royalties and licensing fees 149,352 61,759
---------- ----------
Total Revenue $368,297 $665,109
Six Months Ended June 30,
1996 1997
Wholesale sales $333,272 $982,714
Company-owned bakery sales 115,676 94,558
Royalties and licensing fees 310,098 83,555
---------- ----------
Total Revenue $759,046 $1,160,827
Wholesale sales increased by 243% to $560,175 for the three months ended
June 30, 1997 from $163,436 for the three months ended June 30, 1996, and
increased by 195% to $982,714 for the six months ended June 30, 1997 from
$333,272 for the six months ended June 30, 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 pecan sticky cinnamon rolls,
T.J. Cinnamons CinnaChips, gourmet rugalach in four flavor varieties, gourmet
bundt cakes in five flavor varieties, layer cakes, gourmet brownies, and mini
carrot and banana 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 has focused its selling efforts
in targeted geographic areas through alliances with the following key food
brokerage groups: (a) Le Grand Marketing, representing retail grocery stores in
California; and (b) American Sales and Marketing, representing the membership
club stores nationwide and retail grocery stores in the mid-west and southeast.
The Company
<PAGE>
is currently selling products to the following accounts: Ralph's Supermarkets,
Food-4-Less Supermarkets, Lucky's Supermarkets, Price/Costco, Sam's Wholesale
Clubs, H.E. Butt Supermarkets, Hughs Supermarkets, Shoprite Supermarkets and
Kings Supermarkets. These chains represent over 1,350 locations.
In July, 1997, the Company hired Fredrick S. Popp to serve as east coast
regional sales manager. Mr. Popp has approximately 20 years of bakery sales
experience working for Viola Bakeries, Sara Lee, Country Home Bakers, Rich's
Products and Van DeKamps Frozen Foods. Mr. Popp will initially focus his efforts
on the northeast, developing a brokerage network to market and sell the
Company's product line with a marketing launch in the fall season.
Company-owned bakery sales decreased by 22% to $43,175 for the three months
ended June 30, 1997 from $55,509 for the three months ended June 30, 1996, and
decreased by 18% to $94,558 for the six months ended June 30, 1997 from $115,676
for the six months ended June 30, 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.
Royalty and licensing fee revenues decreased to $61,759 for the three
months ended June 30, 1997 from $149,352 for the three months ended June 30,
1996, and decreased to $83,555 for the six months ended June 30, 1997 from
$310,098 for the six months ended June 30, 1996. This decrease in royalties and
licensing fees resulted primarily from the terms of the Triarc Transaction
requiring the Company to provide franchisees an offer to forgive all franchise
royalties for the period August, 1996 through February, 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 decrease 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.
Cost of goods sold increased to $441,912 for the three months ended June
30, 1997 from $199,293 for the three months ended June 30, 1996, and increased
to $797,123 for the six months ended June 30, 1997 from $391,931 for the six
months ended June 30, 1996. These increases are primarily the result of the cost
of the wholesale sales to supermarkets chains and membership club chains.
Selling, general and administrative expenses increased to $586,081 for the
three months ended June 30, 1997 from $387,843 for the three months ended March
31, 1996, and increased to $971,760 for the six months ended June 30, 1997 from
$681,282 for the six months ended June 30, 1996. These increases are primarily
the result of increases in selling, general and administrative costs associated
with the Company's manufacturing plant in Santa Ana, California and the selling
and marketing expenses associated with the launch of the Company's product line
to wholesale channels of distribution.
-9-
<PAGE>
Net interest income for the three months ended June 30, 1997 was $8,842 as
compared to net interest expense for the three months ended June 30, 1996 of
($16,631), and net interest income for the six months ended June 30, 1997 was
$31,618 as compared to net interest expense for the six months ended June 30,
1996 of ($33,756). This change in net interest expense resulted primarily from
the interest earned on the notes receivable from Triarc Restaurant Group.
Other income of $3,553 for the three months ended June 30, 1997 and $63,936
for the six months ended June 30, 1997 are 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.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1997, the Company had a working capital surplus of approximately
$301,100. During the three and six months ended June 30, 1997, the Company
experienced cash flow deficits from its operating activities primarily because
its operating expenses exceeded its operating revenues. These operating deficits
have been funded by the Triarc notes receivable payments.
The Company used net cash in operating activities in the amount of $674,774
for the six months ended June 30, 1997, as compared to $138,018 for the six
months ended June 30, 1996. The Company used net cash from investing activities
in the amount of $71,203 for the six months ended June 30, 1997 resulting from
the purchases of equipment. The Company received net cash provided by financing
activities in the amount of $706,892 for the six months ended June 30, 1997
resulting from proceeds received from notes receivable and notes payable, as
compared to net cash provided by financing activities in the amount of $109,464
for the six months ended June 30, 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 $1,790,000 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. 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.
-10-
<PAGE>
Simultaneous with the closing of the Triarc transaction in August 1996, 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
Financial Corporation 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,
fund startup costs of the California bakery production facility, and fund
working capital.
In June, 1997, the Company received a purchase commitment from Wal-Mart to
supply its CinnaChip products to 445 Sams Wholesale Club stores nationally. In
order to finance the working capital for these sales aggregating $945,000 , the
Company entered into a loan agreement with Gelt Financial Corporation for a
credit line in the amount of $200,000 secured by the Wal-Mart accounts
receivable. The terms of this loan agreement provide for a service fee of 1.5%
of each advance together with interest at a rate of 675 basis points above the
prime rate. In addition, the Company granted Gelt 1,500 shares of the
Company's common stock as a loan origination fee.
In June 1997, the Company terminated its investment advisory letter of
intent with Commonwealth Associates. The Company is currently exploring various
financing options to raise funds to be utilized toward automating the Santa Ana,
California production facility, establishing a North East production facility,
and establishing a working capital reserve.
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<PAGE>
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: 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)
-12-
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000915661
<NAME> PARAMARK ENTERPRISES, INC
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 10,582
<SECURITIES> 0
<RECEIVABLES> 1,045,223
<ALLOWANCES> 64,000
<INVENTORY> 171,893
<CURRENT-ASSETS> 1,207,138
<PP&E> 287,019
<DEPRECIATION> 48,712
<TOTAL-ASSETS> 1,949,612
<CURRENT-LIABILITIES> 906,005
<BONDS> 0
0
0
<COMMON> 30,689
<OTHER-SE> 1,012,918
<TOTAL-LIABILITY-AND-EQUITY> 1,949,612
<SALES> 1,077,272
<TOTAL-REVENUES> 1,160,827
<CGS> 797,123
<TOTAL-COSTS> 1,737,280
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (512,501)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (512,501)
<EPS-PRIMARY> (0.17)
<EPS-DILUTED> (0.17)
</TABLE>
