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, 1998 .
[ ] 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.
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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)
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(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 - 3,373,083 shares as of November 14, 1998.
Transitional Small Business disclosure Format (check one):
Yes ___ No _X_
<PAGE>
Paramark Enterprises Inc.
PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS PAGE
Balance Sheets at December 31, 1997 and 3
September 30, 1998.
Statements of Operations for the three and nine 4
months ended September 30, 1997 and September 30, 1998.
Statements of Cash Flows for the three and nine 5
months ended September 30, 1997 and September 30, 1998.
Notes to Financial Statements 6
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 9
PART II
Item 1 Legal Proceedings 15
Item 2 Changes in Securities 15
Item 3 Defaults upon Senior Securities 15
Item 4 Submission of Matters to a Vote
of Security Holders 15
Item 5 Other Information 16
Item 6 Exhibits and Reports on Form 8-K 16
SIGNATURES 17
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<PAGE>
PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS
PARAMARK ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998
(Audited) (Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 122,561 $ 1,059,761
Accounts receivable, less allowance for doubtful accounts 259,271 290,555
Notes receivable - current maturities 69,837 500,000
Inventory 234,822 244,429
Prepaid expenses and other current assets, net 35,291 73,418
----------- -----------
Total current assets 721,782 2,168,163
Notes receivable, net of current portion 0 500,000
Property and equipment 453,296 516,210
Excess of cost over fair value of net assets acquired 476,667 0
----------- -----------
Total Assets $ 1,651,745 $ 3,184,373
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 1,142,415 $ 689,724
Current maturities of long-term debt 258,545 72,546
----------- -----------
Total current liabilities 1,400,960 762,270
Long-term debt, net of current maturities 69,460 0
----------- -----------
Total liabilities 1,470,420 762,270
----------- -----------
STOCKHOLDERS' EQUITY
Preferred Stock 0 0
Common Stock 30,702 33,740
Additional paid-in capital 6,759,352 6,813,705
Accumulated deficit (6,608,729) (4,425,342)
----------- -----------
Total stockholders' equity 181,325 2,422,103
----------- -----------
Total Liabilities and Stockholders' Equity $ 1,651,745 $ 3,184,373
=========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
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<PAGE>
PARAMARK ENTERPRISES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1997 1998 1997 1998
<S> <C> <C> <C> <C>
Revenue:
Wholesale sales $ 1,589,638 $ 876,811 $ 2,572,352 $ 3,367,508
Sales from Company-owned stores 48,422 14,113 143,000 86,227
Royalties and licensing fees 18,311 20,000 101,866 80,000
----------- ----------- ----------- -----------
Total revenue 1,656,391 910,925 2,817,218 3,533,736
Operating expenses:
Cost of goods sold 1,276,030 829,497 2,073,153 2,816,336
Bakery selling, general and administrative 182,020 164,631 560,617 754,612
Corporate selling, general and administrative 273,721 270,833 866,884 815,031
----------- ----------- ----------- -----------
Total operating expenses 1,731,770 1,264,960 3,500,654 4,385,978
----------- ----------- ----------- -----------
Loss from operations (75,379) (354,035) (683,436) (852,242)
----------- ----------- ----------- -----------
Other income (expense):
Interest income (expense), net (13,277) (42,012) 18,341 (147,589)
Income tax expense (12,597) 0 (12,597) 0
Loss from relocation of bakery 0 (129,192) 0 (129,192)
Gain from sale of assets 0 3,322,567 0 3,312,410
Other income 15 0 63,592 0
----------- ----------- ----------- -----------
Total other income (expense) (25,859) 3,151,363 69,696 3,035,629
----------- ----------- ----------- -----------
Net income (loss) ($ 101,238) $ 2,797,328 ($ 613,740) $ 2,183,387
=========== =========== =========== ===========
Net income (loss) per common share ($ 0.03) $ 0.86 ($ 0.20) $ 0.67
=========== =========== =========== ===========
Weighted average number of
common shares outstanding 3,070,083 3,257,246 3,070,083 3,257,246
=========== =========== =========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
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<PAGE>
PARAMARK ENTERPRISES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
1997 1998
<S> <C> <C>
Cash flow from operating activities:
Net income (loss) ($ 512,501) $ 2,183,387
Adjustments to reconcile net income (loss) to net cash from
operating activities:
Depreciation and amortization 48,941 107,827
Gain from sale of assets 0 (3,312,410)
Non cash loss from sale of assets 0 1,406
Non cash loss from relocation of bakery 0 20,499
Net write-off of receivable resulting from asset sale 0 (26,845)
Noncash consulting fees and interest expense 0 57,390
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 119,297 (31,284)
(Increase) decrease in inventories (89,692) (9,607)
(Increase) decrease in prepaid expenses and
other current assets (3,049) (38,126)
Increase (decrease) in accounts payable and
accrued expenses (237,770) (452,691)
Increase (decrease) in other current liabilities 0 0
----------- -----------
Net cash used in operating activities (674,774) (1,500,454)
----------- -----------
Cash flows from investing activities:
Proceeds from sale of assets 0 2,798,052
Purchases of equipment (71,203) (174,775)
----------- -----------
Net cash provided by (used in) investing activities (71,203) 2,623,277
----------- -----------
Cash flows from financing activities:
Proceeds from financing 163,855 1,315,893
Proceeds from notes receivable 658,303 69,837
Payment of notes payable (115,266) (1,571,353)
----------- -----------
Net cash provided by (used in) financing activities 706,892 (185,623)
----------- -----------
Net increase (decrease) in cash (39,085) 937,200
Cash at beginning of period 49,677 122,561
----------- -----------
Cash at end of period $ 10,582 $ 1,059,761
=========== ===========
</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 pursuant to the
Rules and Regulations of the Securities and Exchange Commission, and except
for the Balance Sheet at December 31, 1997, 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, 1997. There have been no
significant changes of accounting policies since December 31, 1997.
Note 2 - Net Income (Loss) Per Common Share
Net income (loss) per common share is calculated by dividing net income
(loss) by the weighted average number of shares of common stock outstanding
for each period presented. For purposes of the 1997 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. For purposes of the
1998 computations, shares issuable upon the exercise of all common stock
purchase options and warrants outstanding with exercise prices below the
market price, have been included in the weighted average number of shares
outstanding utilizing the treasury stock method.
Note 3 - Income Taxes
No provision for income taxes has been made for the nine months ended
September 30, 1998 as the Company has net operating losses. These net
operating losses have resulted in a deferred tax asset at September 30,
1998. 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, 1998.
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<PAGE>
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.
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.
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.
In August 1998, the Company closed an agreement with TJ Holding Company,
Inc., a wholly owned subsidiary of Triarc and Arby's, Inc. d/b/a/ Triarc
(the "1998 Triarc Agreement") 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 dated June 3, 1996 and the license
agreement and management agreement entered into with Triarc and affiliates
dated August 29, 1996. The Company received payments under the 1998 Triarc
Agreement aggregating $4,000,000 of which $3,000,000 was paid in cash and
$1,000,000 in the form of a non-interest bearing promissory note payable
over 24 months. The agreement further provides for a contingent additional
payment of up to $1,000,000 conditioned on the Company's attainment of
certain sales targets of T.J. Cinnamons products for the fiscal year ending
December 31, 1998.
Note 5 - Short Term Financing
In September 1997 the Company entered into a loan agreement with Gelt
Financial Corporation for a credit line in the amount of $200,000 which was
subsequently increased to $400,000 secured by 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. The credit line had a zero balance on September 30, 1998.
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<PAGE>
In March 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 a credit line in the amount of
$500,000. The credit line is required to be repaid within one year, with
interest payable quarterly at the rate of 5.39% per annum. In consideration
for the credit line, Messrs. Loccisano and Gottlich were granted an
aggregate of 300,000 shares of the Company's common stock. This credit line
was repaid in full out of the proceeds of the 1998 Triarc Agreement.
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<PAGE>
PART I ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
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.
The following discussion and analysis should be read in conjunction with the
financial statements and notes thereto appearing elsewhere in this report.
Cash increased to $1,059,761 on September 30, 1998 from $122,561 on December
31, 1997. Notes receivable - current maturities as of September 30, 1998
increased to $500,000 from $69,837 on December 31, 1997. Notes receivable - net
of current maturities as of September 30, 1998 increased to $500,000 from $0 on
December 31, 1997. These increases in cash and notes receivable reflect the
proceeds received from the sale of certain assets under the 1998 Triarc
Agreement as more fully discussed in Note 4 to the unaudited financial
statements.
Total liabilities decreased by $708,150 on September 30, 1997 to $762,270
from $1,470,420 on December 31, 1997. These decreases in total liabilities
reflect repayments of outstanding indebtedness out of the proceeds received from
the sale of certain assets under the 1998 Triarc Agreement as more fully
discussed in Note 4 to the unaudited financial statements.
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<PAGE>
RESULTS OF OPERATIONS (for the three and nine month periods ended September 30,
1998 compared to the three and nine month periods ended September 30, 1997).
The following tables set forth the components of the Company's revenue:
Three Months Ended September 30,
1997 1998
Wholesale sales $1,589,638 $ 876,811
Company-owned bakery sales 48,422 14,113
Royalties and licensing fees 18,311 20,000
---------- ----------
Total Revenue $1,656,391 $ 910,925
Nine Months Ended September 30,
1997 1998
Wholesale sales $2,572,352 $3,367,508
Company-owned bakery sales 143,000 86,227
Royalties and licensing fees 101,866 80,000
---------- ----------
Total Revenue $2,817,218 $3,533,736
Wholesale sales decreased by 45% to $876,811 for the three months ended
September 30, 1998 from $1,589,638 for the three months ended September 30,
1997, and increased by 31% to $3,367,508 for the nine months ended September 30,
1998 from $2,572,352 for the nine months ended September 30, 1997. The sales
decreases for the three months ended September 30, 1998 were primarily the
result of decreased orders received from SAMS Wholesale Clubs for the Company's
Cinnachip products. The sales increases for the nine months ended September 30,
1997 were due to a continued expansion of the Company's distribution of its
products to grocery stores, wholesale club stores and mass merchandisers. The
Company is continuing to develop its wholesale sales through alliances with Le
Grand Marketing, representing retail grocery stores and American Sales and
Marketing, representing membership club stores nationwide. The Company is
targeting its product line to in-store bakeries and in-store deli areas of
supermarket chains, focusing on large multi-unit accounts. The Company is
focusing its marketing efforts on the following core products: (a) T.J.
Cinnamons Gourmet Cinnamon Rolls and Gourmet Sticky Rolls; (b) T.J. Cinnamons
CinnaChips; (c) Gourmet Rugalach; (d) Gourmet Brownies sold under the Hershey's
label; (e) Gourmet Bundt Cakes; (f) Gourmet Specialty Cakes and (g) Layer Cakes.
All of these products are sold in various packaging and sizes, and are shipped
through both fresh and frozen distribution. Based on the terms of the 1998
Triarc Agreement, the Company's license agreement with Triarc pursuant to which
it is licensed to manufacture and sell "T.J. Cinnamons" branded products expires
on December 31, 1998. During the nine months ended September 30, 1998, sales of
T.J. Cinnamons branded products represented 53.5% of the Company's wholesale
sales.
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<PAGE>
The Company is currently selling products to the following accounts: Ralphs
Supermarkets, Food-4-Less Supermarkets, Luckys Supermarkets, H.E. Butt
Supermarkets and Kings Supermarkets and SAMS Wholesale Clubs. During the nine
months ended September 30, 1998, sales to Ralphs Supermarkets represented 60% of
the Company's wholesale sales.
Company-owned bakery sales decreased by 71% to $14,113 for the three months
ended September 30, 1998 from $48,422 for the three months ended September 30,
1997, and decreased by 40% to $86,227 for the nine months ended September 30,
1998 from $143,000 for the nine months ended September 30, 1997. These bakery
sales decreases resulted from the closing of the Company's retail bakery located
in the Poughkeepsie Galleria Mall in August 1998. The closing of this bakery was
required under the terms of the 1998 Triarc Agreement.
Royalty and licensing fee revenues increased by 9.2% to $20,000 for the
three months ended September 30, 1998 from $18,311 for the three months ended
September 30, 1997 and decreased by 21.5% to $80,000 for the nine months ended
September 30 ,1998 from $101,866 for the nine months ended September 30, 1997.
The decreases in royalties and licensing fees for the nine months ended
September 30, 1998 resulted primarily from decreased franchise royalty
collections. Pursuant to the terms of the 1998 Triarc Agreement, the Company
sold all its interests as franchisor in the T.J. Cinnamons franchise agreements,
and as a result, will not receive any royalty fees following the closing in
August 1998.
Cost of goods sold decreased by 35% to $829,497 for the three months ended
September 30, 1998 from $1,276,030 for the three months ended September 30, 1997
resulting from decreased wholesale sales, and increased by 35.8% to $2,816,336
for the nine months ended September 30, 1998 from $2,073,153 for the nine months
ended September 30, 1997 resulting from an increased volume of wholesale sales
to supermarkets chains and membership club chains.
Bakery selling, general and administrative expenses decreased by 9.5% to
$164,631 for the three months ended September 30, 1998 from $182,020 for the
three months ended September 30, 1997 resulting from decreases in bakery
selling, general and administrative expenses associated with a lower volume of
wholesale sales, and increased 34.6% to $754,612 for the nine months ended
September 30, 1998 from $560,617 for the nine months ended September 30, 1997
resulting from increases in selling, general and administrative expenses
associated with a higher volume of wholesale sales.
Corporate selling, general and administrative expenses decreased by 1.0% to
$270,833 for the three months ended September 30, 1998 from $273,721 for the
three months ended September 30, 1997, and decreased by 6.0% to $815,031 for the
nine months ended September 30, 1998 from $866,884 for the nine months ended
September 30, 1997. These decreases were primarily the result of the
implementation of a corporate cost reduction plan including the relocation of
the Company's executive offices and a reduction in corporate payroll.
Net interest expense for the three months ended September 30, 1998 was
$13,277 as compared to net interest expense for the three months ended September
30, 1997 of $42,012, and net interest expense for the nine months ended
September 30, 1998 was $147,589 as compared to net interest income for the nine
months ended September 30, 1997 of $18,341. These increases in net interest
expense resulted primarily
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<PAGE>
from the loan fees and interest expense from increased borrowings consisting of
the line of credit provided by Gelt Financial Corporation and the line of credit
provided to the Company by Charles Loccisano, the Company's Chairman and Chief
Executive Officer, and Alan Gottlich, the Company's President and Chief
Financial Officer.
Income tax expense in the amount of $12,597 for the three and nine months
ended September 30, 1997 were primarily the result of alternative minimum
taxable income resulting from the sale of assets to Triarc in 1996.
Loss from relocation of bakery in the amount of $129,192 for the three and
nine months ended September 30, 1998 were the result of costs incurred in
connection with the relocation of the Company's commercial bakery facility from
Santa Ana, California to El Cajon, California in June 1998. This relocation was
the result of the expiration of the term of the Santa Ana, California lease.
Gain from sale of assets in the amount of $3,312,410 for the three and nine
months ended September 30, 1998 represents the one time gain resulting from the
sale of assets pursuant to the 1998 Triarc Agreement in August 1998.
Other income decreased to $0 for the three months ended September 30, 1998
from $15 for the three months ended September 30, 1997, and decreased to $0 for
the nine months ended September 30, 1998 from $63,592 for the nine months ended
September 30, 1997. The other income for the three and nine months ended
September 30, 1997 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.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1998, the Company had a working capital balance of
approximately $1,405,900. During the nine months ended September 30, 1998, the
Company experienced cash flow deficits from its operating activities primarily
because its operating expenses exceeded its operating revenues. These operating
deficits experienced during the nine months ended September 30, 1998 were funded
by a credit line provided to the Company by officers of the Company and a loan
from Gelt Financial Corporation. Both of these loans were repaid in full out of
the proceeds of the 1998 Triarc Agreement.
The Company used net cash in operating activities in the amount of
$1,500,454 for the nine months ended September 30, 1998, as compared to $674,774
for the nine months ended September 30, 1997. The Company received net cash from
investing activities in the amount of $2,623,277 for the nine months ended
September 30, 1998, as compared to net cash used in investing activities in the
amount of $71,203 for the nine months ended September 30, 1997. The Company used
net cash in financing activities in the amount of $185,623 for the nine months
ended September 30, 1998 as compared to net cash received from financing
activities in the amount of $706,892 for the nine months ended September 30,
1997.
In September 1997, the Company entered into a loan agreement with Gelt
Financial Corporation for a credit line in the amount of $200,000 which was
subsequently increased to $400,000 secured by the
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<PAGE>
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. The credit line balance was $0 on September
30, 1998.
In October 1997, the Company offered for sale units in a convertible
preferred private placement with Commonwealth Associates acting as placement
agent. This offering was to be held open to investors through January 1998, and
was not consummated as orders for the minimum number of shares were not
obtained. Without alternative sources of financing to fund the Company's
operating deficit, in January 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 loans aggregating $282,500.
In March 1998, based on the need for additional funding resulting from the
receipt of large purchase orders from Walmart Super Centers, the previous
Loccisano and Gottlich loans were repaid in full, and Messrs. Loccisano and
Gottlich agreed to provide the Company with a credit line for up to $500,000
with interest payable quarterly at the applicable federal rate of 5.39% per
annum. The credit line is required to be repaid within one year or such shorter
period if the Company closes the 1988 Triarc Agreement described below. In
consideration for providing this credit line facility, the Company granted
Messrs. Loccisano and Gottlich an aggregate of 300,000 unregistered shares of
Common Stock. These credit lines were repaid in full out of the proceeds of the
1998 Triarc Agreement.
In November 1997, in order to bring the Company into compliance with
requirements necessary for continued listing on the Nasdaq SmallCap Market,
Messrs. Loccisano and Gottlich purchased an aggregate of 20,000 shares of
redeemable Series B preferred stock at a price of $5.00 per share. In January
1998, following a delisting of the Company's securities from the Nasdaq SmallCap
Market and as a result of additional funds loaned to the Company by Messrs.
Loccisano and Gottlich, these shares of Series B preferred stock were redeemed
by the Company at a price of $5.00 per share.
In July 1998 the Company borrowed $150,000 from Gelt Financial Corporation.
Such loan bears interest at the rate of 5% above the prime rate. The loan is
secured by all the payments due the Company under the purchase agreement dated
September 3, 1996 entered into with Triarc Restaurant Group. In order to induce
Gelt Financial Corporation 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 out of the proceeds of the 1998 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 out of the
proceeds of the 1998 Triarc Agreement.
In August 1998, the Company closed an agreement with TJ Holding Company,
Inc., a wholly owned subsidiary of Triarc Restaurant Group and Arby's, Inc.
d/b/a/ Triarc Restaurant Group (the "1998 Triarc Agreement") pursuant to which
the Company sold all of its rights and interests under the existing T.J.
Cinnamons franchise agreements and will terminate the purchase agreement dated
September 3, 1996 and
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<PAGE>
the license agreement and management agreement entered into with Triarc
Restaurant Group and affiliates dated August 29, 1996. The Company received
payments under the 1998 Triarc Agreement aggregating $4,000,000 of which
$3,000,000 was paid in cash and $1,000,000 was paid in the form of a
non-interest bearing promissory note payable over 24 months. The agreement
further provides for a contingent additional payment of up to $1,000,000
conditioned on the Company's attainment of certain sales targets of T.J.
Cinnamons products for the fiscal year ending December 31, 1998.
The Company has an interoffice network of personal computers operating
under a Novell network. All of the Company's PC's utilize the Windows 95
operating system and the Company runs its accounting system on MAS 90. The
Company recently retained outside computer consultants to upgrade its network
system to address Year 2000 issues including upgrading the MAS 90 accounting
system and other spreadsheet and word processing programs. The upgrades were
completed and tested in September 1998 at a cost of approximately $6,000. The
Company believes that as a result of these upgrades, its computer systems are
Year 2000 compliant.
As part of its Year 2000 compliance program, the Company will contact and
survey all of its vendors and suppliers with whom the Company does a material
amount of business to determine whether these parties' systems are subject to
Year 2000 issues. The failure of the Company's vendors and suppliers to convert
their systems on a timely basis may have a material adverse effect on the
Company's operations. The Company is in the process of developing a contingency
plan in the even these vendors and suppliers are not Year 2000 compliant on a
timely basis.
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<PAGE>
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
In July 1998, the Company borrowed 150,000 from Gelt Financial
Corporation. Under the terms of the loan arrangement, in order to
induce Gelt Financial Corporation to enter into this loan, the Company
issued 15,000 shares of its common stock to Gelt Financial
Corporation. The Company claimed exemption from registration of these
securities under Section 4(2) of the Securities Act of 1933, as
amended.
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Stockholders (the "Meeting") was held
on August 11, 1998. The following is a description of the matters
submitted to stockholders for their approval at the Meeting and the
votes cast with respect thereto:
Proposal Votes Cast
For Withheld
1. Election of directors for one year terms:
Charles N. Loccisano 2,668,840 325,350
Alan S. Gottlich 2,668,840 325,350
Philip Friedman 2,668,840 325,350
Paul Bergrin 2,668,840 325,350
2. To (a) approve amendments to the Company's 1996 Amended and Restated
Stock Option Plan which increases the number of shares issuable under the 1996
Stock Option Plan by 500,000 shares to 1,000,000 shares, and (b) ratify the
class of employees which may receive shares pursuant to the 1996 Stock Option
Plan.
Broker
For Against Abstain Non-votes
1,891,856 394,948 300 707,086
-15-
<PAGE>
3. To consider and vote upon the proposed sale of certain assets of the
Company, including the T.J. Cinnamons franchise agreements, and the termination
of the purchase agreement dated June 3, 1996 and the license agreement and
management agreement entered into with Triarc Restaurant Group and affiliates on
August 29, 1996 in consideration of $3,000,000 in cash, $1,000,000 in the form
of a non-interest bearing promissory note, and additional contingent payments of
up to $1,000,000 pursuant to the terms and conditions of the Agreement between
and among Paramark Enterprises, Inc., TJ Holding Company, Inc., a subsidiary of
Triarc Restaurant Group, and Arby's, Inc. dated June 30,1998.
For Against Abstain Non-votes
2,283,204 2,900 1,000 707,086
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.
On July 9, 1998 the Company filed a Current Report on Form 8-K
disclosing the Company's execution of a definitive agreement with
TJ Holding Company, Inc. and Arby's, Inc. regarding the sale of
certain assets, including the T.J. Cinnamons franchise
agreements, and the termination of the purchase agreement dated
September 3, 1996 and the license agreement and management
agreement entered into with Triarc Restaurant Group dated August
29, 1996.
-16-
<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: November 12, 1998 By: /s/ Charles N. Loccisano
---------------------------------------------
Charles N. Loccisano,
Chairman and Chief Executive Officer
(Chief Executive Officer)
By: /s/ Alan S. Gottlich
---------------------------------------------
Alan S. Gottlich,
President and Chief Financial Officer
(Principal Financial and Accounting Officer)
-17-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statements of Paramark Enterprises, Inc. as of September
30, 1998 and the nine months then ended, and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<NAME> PARAMARK ENTERPRISES, INC.
<CIK> 0000915661
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,059,761
<SECURITIES> 0
<RECEIVABLES> 1,290,555
<ALLOWANCES> 0
<INVENTORY> 244,429
<CURRENT-ASSETS> 2,168,163
<PP&E> 619,663
<DEPRECIATION> 103,453
<TOTAL-ASSETS> 3,184,373
<CURRENT-LIABILITIES> 762,270
<BONDS> 0
0
0
<COMMON> 33,740
<OTHER-SE> 2,388,363
<TOTAL-LIABILITY-AND-EQUITY> 2,422,103
<SALES> 3,453,735
<TOTAL-REVENUES> 3,533,735
<CGS> 2,816,336
<TOTAL-COSTS> 4,583,978
<OTHER-EXPENSES> (3,183,218)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 147,589
<INCOME-PRETAX> 2,183,387
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,183,387
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,183,387
<EPS-PRIMARY> 0.67
<EPS-DILUTED> 0.67
</TABLE>
