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, 1999.
[ ] 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)
One Harmon Plaza, Secaucus, New Jersey 07094
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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 - 3,393,383 shares as of November 10, 1999.
Transitional Small Business disclosure Format (check one):
Yes No X
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Paramark Enterprises Inc.
PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS PAGE
Balance Sheets at December 31, 1998 and 3
September 30, 1999.
Statements of Operations for the three and nine 4
months ended Sept. 30, 1998 and Sept. 30, 1999.
Statements of Cash Flows for the three and nine 5
months ended Sept. 30, 1998 and Sept. 30, 1999.
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 15
Item 6 Exhibits and Reports on Form 8-K 15
SIGNATURES 16
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PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS
PARAMARK ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
<S> <C> <C>
December 31, Sept. 30,
1998 1999
(Audited) (Unaudited)
ASSETS
Current Assets:
Cash $ 790,873 $ 350,176
Accounts receivable, less allowance for doubtful accounts 326,217 521,056
Notes receivable - current maturities 500,000 520,987
Inventory 167,956 211,058
Prepaid expenses and other current assets, net 44,352 77,902
----------- -----------
Total current assets 1,829,398 1,681,179
Property and equipment 517,140 542,688
Notes receivable, net of current maturities 375,000 0
----------- -----------
Total Assets $ 2,721,538 $ 2,223,867
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 601,593 $ 703,928
Current maturities of long-term debt 13,938 35,304
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Total current liabilities 615,531 739,232
Long-term debt, net of current maturities 55,522 110,143
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Total liabilities 671,053 849,375
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STOCKHOLDERS' EQUITY
Preferred Stock 0 0
Common Stock 33,740 33,935
Additional paid-in capital 6,813,704 6,822,032
Treasury stock 0 (39,109)
Accumulated deficit (4,796,959) (5,442,366)
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Total stockholders' equity 2,050,485 1,374,492
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Total Liabilities and Stockholders' Equity $ 2,721,538 $ 2,223,867
=========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
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PARAMARK ENTERPRISES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
For the Three Months For the Nine Months
Ended Sept. 30, Ended Sept. 30,
------------------- ---------------------
1998 1999 1998 1999
----------- ----------- ----------- -----------
Revenue:
Wholesale sales $ 876,811 $ 1,283,815 $3,367,508 $3,002,089
Sales from company-owned stores 14,113 0 86,227 0
Royalties and licensing fees 20,000 0 80,000 0
----------- ----------- ----------- -----------
Total revenue 910,925 $ 1,283,815 3,533,736 $ 3,002,089
Operating expenses:
Cost of goods sold 844,300 1,008,378 2,964,532 2,409,730
Bakery selling, general and administrative 247,307 290,833 779,074 696,578
Corporate selling, general and administrative 173,377 189,079 642,396 571,883
----------- ----------- ----------- -----------
Total operating expenses 1,264,984 1,488,290 4,386,002 3,678,191
----------- ----------- ----------- -----------
Loss from operations (354,059) (204,475) (852,266) (676,102)
----------- ----------- ----------- -----------
Other income (expense):
Interest income (expense), net (41,988) (3,439) (147,566) (9,383)
Gain (loss) from sale of assets 3,322,568 0 3,290,505 14,820
Loss from relocation of bakery (128,192) 0 (129,192) 0
Other income 0 3,072 0 25,259
----------- ----------- ----------- -----------
Total other income (expense) 3,151,387 (367) 3,035,653 30,696
----------- ----------- ----------- -----------
Net income (loss) $ 2,797,328 ($ 204,842) $ 2,183,387 ($ 645,406)
=========== =========== =========== ===========
Net income (loss) per common share $ 0.86 ($ 0.06) $ 0.67 ($ 0.19)
=========== =========== =========== ===========
Weighted average number of
common shares outstanding 3,257,246 3,391,169 3,257,246 3,391,169
=========== =========== =========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
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PARAMARK ENTERPRISES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
For the Nine Months
Ended September 30,
1998 1999
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Cash flow from operating activities:
Net income (loss) $ 2,183,387 ($ 645,406)
Adjustments to reconcile net income (loss) to net cash from
operating activities:
Depreciation and amortization 107,827 82,800
Gain from forgiveness of debt 0 (23,212)
Gain from sale of assets (3,312,410) 0
(Gain) loss from sale of equipment 0 (15,210)
Non cash loss from sale of assets 1,406 0
Non cash loss from relocation of bakery 20,499 0
Non cash consulting fees and interest expense 57,390 8,522
Net write off of receivable resulting from asset sale (26,845) 0
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (31,284) (200,618)
(Increase) decrease in inventories (9,607) (44,223)
(Increase) decrease in prepaid expenses and other current assets (38,126) (32,430)
Increase (decrease) in accounts payable and accrued expenses (452,691) 125,547
----------- -----------
Net cash used in operating activities (1,500,454) (744,230)
----------- -----------
Cash flows from investing activities:
Proceeds from sale of assets 2,798,052 0
Purchases of equipment (174,775) (108,347)
----------- -----------
Net cash provided by (used in) investing activities 2,623,277 (108,347)
----------- -----------
Cash flows from financing activities:
Proceeds from financing 1,315,893 75,987
Proceeds from notes receivable 69,837 375,000
Purchases of treasury stock 0 (39,107)
Payment of notes payable
(1,571,353) 0
----------- -----------
Net cash provided by (used in) financing activities (185,623) 411,880
----------- -----------
Net increase (decrease) in cash 937,200 (440,697)
Cash at beginning of period 122,561 790,873
----------- -----------
Cash at end of period $ 1,059,761 $ 350,176
=========== ===========
</TABLE>
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 pursuant to the
Rules and Regulations of the Securities and Exchange Commission, and except
for the Balance Sheet at December 31, 1998, 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, 1998. There have been no
significant changes of accounting policies since December 31, 1998.
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 for income taxes has been made for the nine months ended
September 30, 1999 as the Company has net operating losses. These net
operating losses have resulted in a deferred tax asset at September 30,
1999. 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, 1999.
Note 4 - Sale of Assets
In August 1996, the Company closed a purchase agreement 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 $1,790,000 at the closing, a promissory
note in the amount of $1,650,000 paid over fifteen (15) months and a
promissory note in the amount of $100,000 paid over twenty four (24) months.
Simultaneous with the closing of the purchase agreement 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 was tendered in the form of a non-interest bearing promissory
note payable over 24 months.
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 $300,000 secured by the Company's Wal-Mart
accounts receivable. The terms of this loan agreement provided 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
3,000 shares of its common stock as a loan origination fee. The credit line
had a zero balance on September 30, 1999.
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 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>
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.
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<PAGE>
PART I ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
Forward Looking Statements
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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 $497,671 from $2,721,538 on December 31, 1998 to
$2,223,867 on September 30, 1999 due primarily to a decrease in cash and notes
receivable. Cash decreased to $350,176 on September 30, 1999 from $790,873 on
December 31, 1998 due to continuing losses from operating activities and
repayments of outstanding indebtedness. Notes receivable - net of current
maturities as of September 30, 1999 decreased to $0 from $375,000 on December
31, 1998 due to payments received on outstanding notes receivable. Total
liabilities as of September 30, 1999 decreased to $849,375 from $671,053 on
December 31, 1998 due to an increase in accounts payable and accrued expenses
resulting from increased sales, and an increase in notes payable from equipment
financing.
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<PAGE>
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, 1999 compared to the three and nine month periods ended September 30,
1998).
The following tables set forth the components of the Company's revenue:
Three Months Ended September 30,
1998 1999
Wholesale sales $ 876,811 $1,283,815
Company-owned bakery sales 14,113 0
Royalties and licensing fees 20,000 0
---------- ----------
Total Revenue $ 910,925 $1,283,815
Nine Months Ended September 30,
1998 1999
Wholesale sales $3,367,508 $3,002,089
Company-owned bakery sales 86,227 0
Royalties and licensing fees 80,000 0
---------- ----------
Total Revenue $3,533,736 $3,002,089
Wholesale sales increased by 46% to $1,283,815 for the three months
ended September 30, 1999 from $876,811 for the three months ended September 30,
1998, and decreased by 11% to $3,002,089 for the nine months ended September 30,
1999 from $3,367,508 for the nine months ended September 30, 1998. The increase
in sales for the three months ended September 30, 1999 were primarily the result
of increased distribution of the Company's product line to new supermarket chain
accounts, including Fred Meyer Supermarkets, Fry's Supermarkets, Smiths
Supermarkets, Smart & Final Supermarkets and Raley's Supermarkets. In addition,
the Company began co-packing product for Jon Donaire Cakes and Angel City Cakes
during the three months ended September 30, 1999. The decrease in sales for the
nine months ended September 30, 1999 was primarily the result of sales of T.J.
Cinnamons branded products to Walmart Super Centers for a seasonal promotion
during the three and nine months ended September 30, 1998 which did not recur
during the three and nine months ended September 30, 1999. The Company is
continuing to develop its wholesale sales through alliances with food brokers
including, Nasser Marketing, representing retail grocery stores in Southern
California and Arizona, DND Sales, representing grocery stores in Northern
California, and Lenhart Sales, representing grocery stores in Texas. The Company
is targeting its product line to in-store bakeries and in-store deli areas of
supermarket chains, with primary emphasis on large multi-unit accounts. The
Company's marketing efforts are centered 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
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are sold in various packaging and sizes, and are shipped both fresh and frozen.
The initial term of the 1998 Triarc Agreement, which provides the Company the
license to manufacture and sell "T.J. Cinnamons" branded products, expired on
December 31, 1998. Triarc has granted the Company two three month extensions and
one six month extension which extends the agreement to December 31, 1999. During
the nine months ended September 30, 1999, sales of T.J. Cinnamons branded
products represented 23% of the Company's wholesale sales.
The Company is currently selling products to the following accounts:
Ralphs Supermarkets, Food-4-Less Supermarkets, Fred Meyer Supermarkets, Luckys
Supermarkets, Fry's Supermarkets, Smiths Supermarkets, Raleys Supermarkets,
Smart & Final Supermarkets, Giant Supermarkets, and Walmart SuperCenters. During
the nine months ended September 30, 1999, sales to Ralphs Supermarkets
represented 67% of the Company's wholesale sales.
Company-owned bakery sales decreased to $0 for the three months ended
September 30, 1999 from $14,113 for the three months ended September 30, 1998,
and decreased to $0 for the nine months ended September 30, 1999 from $86,227
for the nine months ended September 30, 1998. Bakery sales decreases resulted
from the Company closing the Poughkeepsie bakery in August 1998 pursuant to a
lease termination settlement agreement with the landlord. The closing of the
Poughkeepsie bakery was a condition under the 1998 Triarc Agreement.
Royalty and licensing fee revenues decreased to $0 for the three months
ended September 30, 1999 from $20,000 for the three months ended September 30,
1998, and decreased to $0 for the nine months ended September 30, 1999 from
$80,000 for the nine months ended September 30, 1998. These decreases in royalty
and licensing fees were the result of the Company's sale of its rights under the
T.J. Cinnamons franchise agreements pursuant to the 1998 Triarc Agreement. See
"Business" in the Company's Annual Report on Form 10-KSB for additional
information relating to the 1998 Triarc Agreement.
Cost of goods sold increased to $1,008,378 for the three months ended
September 30, 1999 from $844,300 for the three months ended September 30, 1998,
and decreased to $2,409,730 for the nine months ended September 30, 1999 from
$2,964,532 for the nine months ended September 30, 1998. The increase in cost of
goods sold for the three months ended September 30, 1999 was primarily due to a
46% increase in wholesale sales. The decrease in cost of goods sold for the nine
months ended September 30, 1999 was primarily due to an 11% decrease in
wholesale sales.
Bakery selling, general and administrative expenses increased by 18% to
$290,833 for the three months ended September 30, 1999 from $247,307 for the
three months ended September 30, 1998, and decreased by 11% to $696,578 for the
nine months ended September 30, 1999 from $779,074 for the nine months ended
September 30, 1998. The increases in bakery selling, general and administrative
expenses for the three nine months ended September 30, 1998 was primarily the
result of increased wholesale sales volume. The decreases in bakery selling,
general and administrative expenses for the nine months ended September 30, 1998
was primarily the result of decreased wholesale sales volume.
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<PAGE>
Corporate selling, general and administrative expenses increased by 9%
to $189,079 for the three months ended September 30, 1999 from $173,377 for the
three months ended September 30, 1998, and decreased by 11% to $571,883 for the
nine months ended September 30, 1999 from $642,396 for the nine months ended
September 30, 1998. These decreases in corporate selling, general and
administrative expenses for the three and nine months ended September 30, 1999
were primarily the result of changes in selling, 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, 1999 was
$3,439 as compared to net interest expense for the three months ended September
30, 1998 of $41,988, and net interest expense for the nine months ended
September 30, 1999 was $9,383 as compared to net interest income for the nine
months ended September 30, 1998 of $147,566. This reduction in net interest
expense resulted primarily from a reduction in borrowings as the Company repaid
outstanding indebtedness.
Gain from sale of assets were $0 for the three months ended September
30, 1999 as compared to $3,322,568 for the three months ended September 30,
1998, and were $14,820 for the nine months ended September 30, 1999 as compared
to $3,290,505 for the nine months ended September 30, 1998. These gains from
sale of assets were primarily the result of assets sold pursuant to the 1998
Triarc Agreement.
Other income increased to $3,072 for the three months ended September
30, 1999 from $0 for the three months ended September 30, 1998, and increased to
$25,259 for the nine months ended September 30, 1999 from $0 for the nine months
ended September 30, 1998. These increases in other income for the three and nine
months ended September 30, 1999 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, 1999, the Company had a working capital balance of
approximately $942,000. During the nine months ended September 30, 1999, the
Company experienced cash flow deficits from its operating activities primarily
because its operating expenses exceeded its operating revenues.
The Company used net cash in operating activities in the amount of
$744,230 for the nine months ended September 30, 1999, as compared to $1,500,454
for the nine months ended September 30, 1998. The Company used net cash in
investing activities in the amount of $108,347 for the nine months ended
September 30, 1999, as compared to net cash provided by investing activities in
the amount of $2,623,277 for the nine months ended September 30, 1999. The
Company received net cash from financing activities in the amount of $411,880
for the nine months ended September 30, 1999 as compared to net cash used in
financing activities in the amount of $185,623 for the nine months ended
September 30, 1998.
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 $300,000 secured by the Wal-Mart accounts receivable.
The terms of this loan agreement provide for a service fee of 1.5% of each
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<PAGE>
advance together with interest at a rate of 675 basis points above the prime
rate. The credit line balance was $0 on September 30, 1999.
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 the license agreement and management agreement entered
into with Triarc Restaurant
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<PAGE>
Group and affiliates dated August 29, 1996. The Company received payments under
the 1998 Triarc Agreement aggregating $4.0 million of which $3.0 million was
paid in cash and $1.0 million 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 $1.0 million conditioned on the Company's
attainment of certain sales targets of T.J. Cinnamons products for the fiscal
year ending December 31, 1998. Based on actual sales for the fiscal year ended
December 31, 1998, the Company did not achieve these sales targets, and as a
result, the Company did not receive any of the conditional additional payments
under the 1998 Triarc Agreement.
In April 1999, the Company obtained bakery equipment financing from JDR
Capital Corporation in the amount of $58,873. This loan is payable in equal
installments amortized over 48 months with interest at a rate of 18% per annum.
In September 1999, the Company obtained bakery equipment financing from BSB
Leasing Company in the amount of $31,425. This loan is payable in equal
installments amortized over a 60 months with interest at a rate of 17.5% per
annum.
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 has contacted
and is in the process of surveying 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. To date, all of the Company's
vendors and suppliers who have responded to the Company's survey are Year 2000
compliant. 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 event any of its vendors and suppliers are not Year 2000 compliant on a
timely basis.
-14-
<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
- ------- -----------------------------------------
None
Item 3. Defaults upon Senior Securities
- ------- -------------------------------
None
Item 4. Submission of Matters to a Vote of Security Holders
- ------- ---------------------------------------------------
None
Item 5. Other Information
- ------- -----------------
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
- ------- --------------------------------
(a) Exhibits.
---------
The following exhibits are filed herewith.
Exhibit Number Description
-------------- -----------
27 Financial Data Schedule
(b) Reports on Form 8-K.
--------------------
The Company did not file any current reports on Form
8-K for the quarter ended September 30, 1999.
-15-
<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 10, 1999 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)
-16-
<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, 1999 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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 350,176
<SECURITIES> 0
<RECEIVABLES> 578,556
<ALLOWANCES> 57,500
<INVENTORY> 211,058
<CURRENT-ASSETS> 1,681,179
<PP&E> 755,155
<DEPRECIATION> 212,467
<TOTAL-ASSETS> 2,223,867
<CURRENT-LIABILITIES> 739,232
<BONDS> 0
0
0
<COMMON> 33,935
<OTHER-SE> 1,340,557
<TOTAL-LIABILITY-AND-EQUITY> 2,223,492
<SALES> 3,002,089
<TOTAL-REVENUES> 3,002,089
<CGS> 2,409,730
<TOTAL-COSTS> 3,678,191
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (40,079)
<INTEREST-EXPENSE> 9,383
<INCOME-PRETAX> (645,406)
<INCOME-TAX> 0
<INCOME-CONTINUING> (645,406)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (645,406)
<EPS-BASIC> (0.19)
<EPS-DILUTED> (0.19)
</TABLE>
