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 June 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.
(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.)
One Harmon Plaza, Secaucus, New Jersey 070940
-----------------------------------------------------------------------
(Address of principal executive offices)
201-422-0910
(Issuer's telephone number including area-code)
One Harmon Plaza, Secaucus, New Jersey 07094
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports) and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
stock as of the latest practicable date:
Common Stock, $.01 par value - 3,393,383 shares as of August 10, 1999.
Transitional Small Business disclosure Format (check one):
Yes No X
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Paramark Enterprises Inc.
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PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS PAGE
Balance Sheets at December 31, 1998 and 2
June 30, 1999.
Statements of Operations for the three and six months ended 3
June 30, 1998 and June 30, 1999.
Statements of Cash Flows for the three and six months ended 4
June 30, 1998 and June 30, 1999.
Notes to Financial Statements 5
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 8
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
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December 31, June 30,
1998 1999
(Audited) (Unaudited)
ASSETS
Current Assets:
<S> <C> <C>
Cash $ 790,873 $ 516,413
Accounts receivable, less allowance for doubtful accounts 326,217 259,212
Notes receivable - current maturities 500,000 500,000
Inventory 167,956 141,196
Prepaid expenses and other current assets, net 44,352 60,736
----------- -----------
Total current assets 1,829,398 1,477,557
Property and equipment 517,140 547,444
Notes receivable, net of current maturities 375,000 140,209
----------- -----------
Total Assets $ 2,721,538 $ 2,165,210
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 601,593 $ 465,622
Current maturities of long-term debt 13,938 26,768
----------- -----------
Total current liabilities 615,531 492,390
Long-term debt, net of current maturities 55,522 93,486
----------- -----------
Total liabilities 671,053 585,876
----------- -----------
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) (5,237,524)
Total stockholders' equity 2,050,485 1,579,334
----------- -----------
Total Liabilities and Stockholders' Equity $ 2,721,538 $ 2,165,210
=========== ===========
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SEE NOTES TO FINANCIAL STATEMENTS
2
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PARAMARK ENTERPRISES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
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For the Three Months For the Six Months
Ended June 30, Ended June 30,
-------------------------------------------------------------
1998 1999 1998 1999
- ------------------------------------------------------------------------------------------------------------------
Revenue:
<S> <C> <C> <C> <C>
Wholesale sales $ 1,266,710 $ 1,001,297 $ 2,490,697 $ 1,718,274
Sales from Company-owned stores 36,584 0 72,114 0
Royalties and licensing fees 30,000 0 60,000 0
----------- ----------- ----------- -----------
Total revenue 1,333,294 $ 1,001,297 2,622,811 $ 1,718,274
Operating expenses:
Cost of goods sold 1,100,767 797,309 2,120,231
1,401,353
Bakery selling, general and administrative 279,634 215,311 531,767 405,745
Corporate selling, general and administrative 205,692 201,945 469,019
----------- ----------- ----------- -----------
382,804
Total operating expenses 1,586,093 1,214,574 3,121,017 2,189,902
----------- ----------- ----------- -----------
Loss from operations (252,799) (213,276) (498,206) (471,627)
----------- ----------- ----------- -----------
Other income (expense):
Interest income (expense), net (41,948) (2,766) (105,577) (5,944)
Gain (loss) from sale of assets (10,157) (9,727) (10,157) 14,820
Other income 0 22,187 0 22,187
----------- ----------- ----------- -----------
Total other income (expense) (52,105) 9,694 (115,734) 31,063
----------- ----------- ----------- -----------
Net income (loss) $ (304,904) ($ 203,582) ($ 613,940) ($ 440,564)
=========== =========== =========== ===========
Net income (loss) per common share ($ 0.10) ($ 0.06) ($ 0.19) ($ 0.14)
=========== =========== =========== ===========
Weighted average number of
common shares outstanding 3,197,960 3,390,043 3,197,960 3,390,043
=========== =========== =========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
3
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PARAMARK ENTERPRISES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Six Months
Ended June 30,
1998 1999
Cash flow from operating activities:
<S> <C> <C>
Net income (loss) ($613,941) ($440,564)
Adjustments to reconcile net income (loss) to net cash from
operating activities:
Depreciation and amortization 73,121 52,776
Gain from forgiveness of debt 0 (22,187)
(Gain) loss from sale of equipment 10,157 (15,210)
Noncash consulting fees and interest expense 57,390 8,522
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (19,984) 67,005
(Increase) decrease in inventories 63,649 25,639
(Increase) decrease in prepaid expenses and other current assets (4,983) (15,264)
(Increase) decrease in deferred transaction costs (27,842) 0
Increase (decrease) in accounts payable and accrued expenses 233,076 (113,782)
Net cash used in operating activities (229,357) (453,064)
--------- ---------
Cash flows from investing activities:
Purchases of equipment (133,252) (83,081)
--------- ---------
Net cash used in investing activities (133,252) (83,081)
--------- ---------
Cash flows from financing activities:
Proceeds from financing 970,991 57,428
Proceeds from notes receivable (1,698) 250,000
Purchases of treasury stock 0 (39,107)
Payment of notes payable (729,245) (6,634)
Net cash provided by financing activities 240,048 261,686
--------- ---------
Net increase (decrease) in cash (122,561) (274,459)
Cash at beginning of period 122,561 790,873
Cash at end of period $ 0 $ 516,414
========= =========
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SEE NOTES TO FINANCIAL STATEMENTS
4
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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 six months ended June
30, 1999 as the Company has net operating losses. These net operating losses
have resulted in a deferred tax asset at June 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 June
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.
5
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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 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 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 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 June 30, 1999.
6
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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.
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.
7
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PART I ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Forward Looking Statements
When used in this Quarterly Report, the words or phrases "will likely
result", "are expected to", "will continue", "is anticipated", "estimate",
"projected", "intends to" or similar expressions are intended to identify
"forward looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements are subject to certain risks and
uncertainties including: history of operating losses and operating cash flow
deficits; potential loss of wholesale sales resulting from the 1998 Triarc
Agreement; possible need for additional financing; dietary trends and consumer
preferences; competition; management of growth; limited manufacturing and
warehouse facilities; dependence on major customers; dependence upon key and
other personnel; government regulations; insurance and potential liability; lack
of liquidity; volatility of market price of the Company's common stock and
warrants; possible adverse effect of penny stock rules on liquidity of the
Company's securities; dividend policy and control by directors and executive
officers. Any of the aforementioned risks and uncertainties could cause the
Company's actual results to differ materially from historical earnings and those
presently anticipated or projected. As a result, potential investors are
cautioned not to place undue reliance on any such forward-looking statements,
which speak only as of the date made.
Balance Sheet Information
Total assets decreased by $556,328 from $2,721,538 on December 31, 1998 to
$2,165,210 on June 30, 1999 due primarily to a decrease in cash and notes
receivable. Cash decreased to $516,413 on March 31, 1999 from $790,873 on
December 31, 1998 due to repayments of outstanding indebtedness. Notes
receivable - net of current maturities as of June 30, 1999 decreased to $140,209
from $375,000 on December 31, 1998 due to payments received on outstanding notes
receivable. Total liabilities as of June 30, 1999 decreased to $585,876 from
$671,053 on December 31, 1998 due to repayments of outstanding indebtedness.
These decreases in total assets and 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.
The following discussion and analysis should be read in conjunction with the
financial statements and notes thereto appearing elsewhere in this report.
8
<PAGE>
RESULTS OF OPERATIONS (for the three and six month periods ended June 30,
1999 compared to the three and six month periods ended June 30, 1998).
The following tables set forth the components of the Company's revenue:
Three Months Ended June 30,
1998 1999
Wholesale sales $1,266,710 $1,001,297
Company-owned bakery sales 36,584 0
Royalties and licensing fees 30,000 0
---------- ----------
Total Revenue $1,333,294 $1,001,297
========== ==========
Six Months Ended June 30,
1998 1999
Wholesale sales $2,490,697 $1,718,274
Company-owned bakery sales 72,114 0
Royalties and licensing fees 60,000 0
---------- ----------
Total Revenue $2,622,811 $1,718,274
========== ==========
Wholesale sales decreased by 21% to $1,001,297 for the three months
ended June 30, 1999 from $1,266,710 for the three months ended June 30, 1998,
and decreased by 31% to $1,718,274 for the six months ended June 30, 1999 from
$2,490,697 for the six months ended June 30, 1998. These decreases in sales for
the three and six months ended June 30, 1999 were primarily the result of sales
of T.J. Cinnamons branded products to Walmart Super Centers for a seasonal
promotion during the three and six months ended June 30, 1998 which did not
recur during the three and six months ended June 30, 1999. The Company is
continuing to develop its wholesale sales through alliances with food brokers
including Le Grand Marketing, representing retail grocery stores in Southern
California, Nasser Marketing, representing grocery stores in Arizona, DND Sales,
representing grocery stores in Northern California. 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's marketing efforts are
centered on the following core products: (a) T.J. Cinnamons Gourmet Cinnamon
9
<PAGE>
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 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 six
months ended June 30, 1999, sales of T.J. Cinnamons branded products represented
22% of the Company's wholesale sales.
The Company is currently selling products to the following accounts:
Ralphs Supermarkets, Food-4-Less Supermarkets, Luckys Supermarkets, Fry's
Supermarkets, Smiths supermarkets, Raleys Supermarkets, Super Value
Supermarkets, Giant Supermarkets, and Walmart SuperCenters. During the six
months ended June 30, 1999, sales to Ralphs Supermarkets represented 80% of the
Company's wholesale sales.
Company-owned bakery sales decreased to $0 for the three months ended
June 30, 1999 from $36,584 for the three months ended June 30, 1998, and
decreased to $0 for the six months ended June 30, 1999 from $72,114 for the six
months ended June 30, 1998. These 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 June 30 ,1999 from $30,000 for the three months ended June 30, 1998, and
decreased to $0 for the six months ended June 30, 1999 from $60,000 for the six
months ended June 30, 1998. These decreases in royalty and licensing fees were
the result of the Company selling 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 decreased to $797,309 for the three months ended
June 30, 1999 from $1,100,767 for the three months ended June 30, 1998, and
decreased to $1,401,353 for the six months ended June 30, 1999 from $2,120,231
for the six months ended June 30, 1998. These decreases in cost of goods sold
were primarily the result of the decreased volume of product sales to Walmart.
10
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Bakery selling, general and administrative expenses decreased by 23% to
$215,311 for the three months ended June 30, 1999 from $279,634 for the three
months ended June 30, 1998, and decreased by 24% to $405,745 for the six months
ended June 30, 1999 from $531,767 for the six months ended June 30, 1998. These
decreases in bakery selling, general and administrative expenses for the three
and six months ended June 30, 1998 were primarily the result of decreases in
selling, general and administrative costs associated with the Company's
manufacturing plant in El Cajon, California.
Corporate selling, general and administrative expenses decreased by 2%
to $201,945 for the three months ended June 30, 1999 from $205,692 for the three
months ended June 30, 1998, and decreased by 18% to $382,804 for the six months
ended June 30, 1999 from $469,019 for the six months ended June 30, 1998. These
decreases in corporate selling, general and administrative expenses for the
three and six months ended June 30, 1999 were primarily the result of decreases
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 June 30, 1999 was
$2,766 as compared to net interest expense for the three months ended June 30,
1998 of $41,948, and net interest expense for the six months ended June 30, 1999
was $5,944 as compared to net interest income for the six months ended June 30,
1998 of $105,577. This reduction in net interest expense resulted primarily from
reduced borrowings.
Gain (loss) from sale of assets were ($9,727) for the three months
ended June 30, 1999 as compared to ($10,157) for the three months ended June 30,
1998, and were $14,820 for the six months ended June 30, 1999 as compared to
($10,157) for the six months ended June 30, 1998. These gains (losses) from sale
of assets resulted primarily from assets sold pursuant to the 1998 Triarc
Agreement.
Other income increased to $22,187 for the three months ended June 30,
1999 from $0 for the three months ended June 30, 1998, and increased to $22,187
for the six months ended June 30, 1999 from $0 for the six months ended June 30,
1998. These increases in other income for the three and six months ended June
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.
11
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LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1999, the Company had a working capital balance of
approximately $985,000. During the six months ended June 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
$453,064 for the six months ended June 30, 1999, as compared to $229,357 for the
six months ended June 30, 1998. The Company used net cash in investing
activities in the amount of $83,081 for the six months ended June 30, 1999, as
compared to net cash used in investing activities in the amount of $133,252 for
the six months ended June 30, 1999. The Company received net cash from financing
activities in the amount of $261,686 for the six months ended June 30, 1999 as
compared to net cash received from financing activities in the amount of
$240,048 for the six months ended June 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
advance together with interest at a rate of 675 basis points above the prime
rate. The credit line balance was $0 on June 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.
12
<PAGE>
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 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.
13
<PAGE>
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
The Company's Annual Meeting of Stockholders (the "Meeting")
was held on June 10, 1999. The following is a description of the matters
submitted to stockholders for their approval at the Meeting and the votes cast
with respect thereto:
Votes Cast
Proposal For Withheld
Election of directors for one year terms:
Charles Loccisano 2,904,071 40,425
Alan Gottlich 2,905,071 39,425
Philip Friedman 2,905,071 39,425
Paul Bergrin 2,905,071 39,425
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 June 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: August 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 June 30,
1999 and the six 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 516,413
<SECURITIES> 0
<RECEIVABLES> 316,712
<ALLOWANCES> 57,500
<INVENTORY> 141,196
<CURRENT-ASSETS> 1,477,557
<PP&E> 729,889
<DEPRECIATION> 182,445
<TOTAL-ASSETS> 2,165,210
<CURRENT-LIABILITIES> 492,390
<BONDS> 0
0
0
<COMMON> 33,935
<OTHER-SE> 1,545,399
<TOTAL-LIABILITY-AND-EQUITY> 1,579,334
<SALES> 1,718,274
<TOTAL-REVENUES> 1,718,274
<CGS> 1,401,353
<TOTAL-COSTS> 2,189,902
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,944
<INCOME-PRETAX> (440,564)
<INCOME-TAX> 0
<INCOME-CONTINUING> (440,564)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (440,564)
<EPS-BASIC> (0.14)
<EPS-DILUTED> (0.14)
</TABLE>
