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 March 31, 2000.
[ ] 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
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(State or other jurisdiction (I.R.S. Employer Identification
of incorporation or organization) No.)
One Harmon Plaza, Secaucus, New Jersey 07094
- -------------------------------------------------------------------------------
(Address of principal executive offices)
201-422-0910
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(Issuer's telephone number including area-code)
Not Applicable
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since
last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports) and (2) has been
subject to such filing requirements for the past 90 days. Yes 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 May 10, 2000.
Transitional Small Business disclosure Format (check one):
Yes X No ___
<PAGE>
Paramark Enterprises Inc.
PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS PAGE
-----------------------------------------------------------------------
Independent Accountants Review Report 3
Balance Sheets at December 31, 1999 (audited) 4
and March 31, 2000.
Statements of Operations for the three months 5
ended March 31, 1999 and March 31, 2000.
Statements of Cash Flows for the three months 6
ended March 31, 1999 and March 31, 2000.
Notes to Financial Statements 7
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 9
PART II
Item 1 Legal Proceedings 13
Item 2 Changes in Securities 13
Item 3 Defaults upon Senior Securities 13
Item 4 Submission of Matters to a Vote
of Security Holders 13
Item 5 Other Information 13
Item 6 Exhibits and Reports on Form 8-K 13
SIGNATURES 14
PART I - FINANCIAL INFORMATION
-2-
<PAGE>
Independent Accountants Review Report
We have reviewed the accompanying condensed consolidated balance sheets of
Paramark Enterprises, Inc. As of March 31, 2000, and the related condensed
consolidated statements of operations and cash flows for the three months ended
March 31, 2000. These condensed consolidated financial statements are the
responsibility of the company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of the interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying condensed consolidated financial statements for them
to be in conformity with generally accepted accounting principles.
The accompanying condensed consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
1 to the condensed consolidated financial statements, the Company has incurred
significant losses from operations and has a working capital deficiency. Such
circumstances indicate that the Company may be unable to continue as a going
concern. Management's plans in regard to these matters are also described in
Note 1 to the condensed consolidated financial statements. The condensed
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
We have previously audited, in accordance with generally accepted auditing
standards, the balance sheet as of December 31, 1999, and the related statements
of operations, stockholders' equity, and cash flows for the year then ended (not
presented herein); and in our report dated February 8, 2000, we expressed an
unqualified opinion on those financial statements. In our opinion, the
information set forth in the accompanying condensed consolidated balance sheet
as of March 31, 2000, is fairly stated, in all material respects, in relation to
the balance sheet from which it has been derived.
Amper, Politziner & Mattia
May 8, 2000
Edison, New Jersey
-3-
<PAGE>
PARAMARK ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, March 31,
1999 2000
--------- -----------
(Audited) (Unaudited)
ASSETS
Current Assets:
<S> <C> <C>
Cash $ 195,977 $ 6,510
Accounts receivable, less allowance for doubtful accounts 385,462 480,806
Notes receivable- current maturities 375,000 250,000
Inventory 279,326 303,954
Prepaid expenses and other current assets, net 110,818 46,340
----------- -----------
Total current assets 1,346,583 1,087,610
Property and equipment 867,964 944,359
----------- -----------
Total Assets $ 2,214,547 $ 2,031,969
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 927,915 $ 1,126,914
Current maturities of long-term debt 56,744 67,081
----------- -----------
Total current liabilities 984,659 1,193,995
Long-term debt, net of current maturities 226,681 257,630
STOCKHOLDERS' EQUITY
Preferred Stock 0 0
Common Stock 33,935 33,935
Additional paid-in capital 6,822,032 6,822,032
Accumulated deficit (5,813,653) (6,236,516)
----------- -----------
1,042,314 619,451
----------- -----------
Less, treasury stock at cost (39,107) (39,107)
----------- -----------
Total stockholders' equity 1,003,207 580,344
----------- -----------
Total Liabilities and Stockholders' Equity $ 2,214,547 $ 2,031,969
=========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-4-
<PAGE>
PARAMARK ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
----------------------------
1999 2000
----------- -----------
Revenue:
<S> <C> <C>
Wholesale sales $716,977 $1,436,106
----------- -----------
Total revenue 716,977 1,436,136
Operating expenses:
Cost of goods sold 604,045 1,259,592
Bakery selling, general and administrative 190,434 394,236
Corporate selling, general and administrative 180,853 192,025
----------- -----------
Total operating expenses 975,332 1,845,853
----------- -----------
Loss from operations (258,355) (409,747)
----------- -----------
Other income (expense):
Interest income (expense), net (3,178) (13,116)
Gain from sale of assets 14,820 0
Other income 9,727 0
----------- -----------
Total other income (expense) 21,369 (13,116)
----------- -----------
Net loss ($236,986) ($422,863)
=========== ===========
Basic earning per share ($0.07) ($0.12)
Diluted earnings per share ($0.07) ($0.12)
Weighted average common shares outstanding
Basic 3,379,300 3,393,383
Diluted 3,379,300 3,393,383
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-5-
<PAGE>
PARAMARK ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
------------------------
1999 2000
--------- ---------
Cash flow from operating activities:
<S> <C> <C>
Net loss ($236,986) ($422,863)
Adjustments to reconcile net loss to net cash from
operating activities:
Depreciation and amortization 25,265 42,415
Noncash interest expense 8,522 0
Gain from sale of assets (15,210) 0
Gain from forgiveness of debt (9,727) 0
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 91,692 (95,344)
(Increase) decrease in notes receivable 0 0
(Increase) decrease in inventories (5,619) (24,629)
(Increase) decrease in prepaid expenses and other assets (26,936) 64,479
Increase (decrease) in accounts payable and accrued expenses (181,173) 198,908
--------- ---------
Net cash used in operating activities (350,171) (237,034)
--------- ---------
Cash flows from investing activities:
Purchases of property and equipment (18,685) (118,717)
--------- ---------
Net cash used in investing activities (18,685) (118,717)
--------- ---------
Cash flows from financing activities:
Proceeds from notes receivable 125,000 125,000
Purchases of treasury stock (39,107) 0
Net proceeds from (repayments of) notes payable (3,237) 41,285
--------- ---------
Net cash provided by financing activities 82,656 166,285
--------- ---------
Net decrease in cash (286,200) (189,466)
Cash at beginning of period 790,873 195,976
Cash at end of period $504,673 $6,510
========= =========
</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, which
contemplates continuation of the Company as a going concern. However, the
Company has sustained continued losses of $422,863 for the three months
ended March 31, 2000 and $1,016,694 for the year ended December 31, 1999.
The Company had a negative working capital deficit of $106,385 on March 31,
2000.
The Company is exploring a number of strategic alternatives including a
possible equity or debt financing, a merger, or a sale transaction which
would allow the Company to continue as a going concern. In view of these
matters, continued operations of the Company are dependent upon these
possible strategic alternatives.
Except for the balance sheet at December 31, 1999, 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, 1999. There have been no
significant changes of accounting policies since December 31, 1999.
Note 2 -Earnings Per Share
Basic earnings per share ("EPS") is computed by dividing the net income
(loss) by the weighted average common shares outstanding for the period.
Diluted EPS reflects the potential dilution that would occur if securities
or other contracts to issue common stock were exercised or converted into
common stock. For purposes of the 1999 and 2000 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 three months ended
March 31, 2000 and for the year ended December 31, 1999 as the Company has
net operating losses. These net operating losses have resulted in a deferred
tax asset at March 31, 2000. Due to the uncertainty regarding the ultimate
amount of income tax benefits to be derived from the Company's net operating
losses, the Company has recorded a valuation allowance for the entire amount
of the deferred tax asset at March 31, 2000.
-7-
<PAGE>
Note 4 - License Agreement
The Company is continuing to manufacture T.J. Cinnamons products
pursuant to a license agreement with Triarc with an original term which
expired on December 31, 1998. Triarc has granted the Company numerous short
term extensions of the term of this license agreement which will expire on
May 31, 2000, and the Company anticipates that Triarc will continue to
renew this license agreement at the end of its current term.
-8-
<PAGE>
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 $182,578 from $2,214,547 on December 31, 1999 to
$2,031,969 on March 31, 2000 due primarily to a decrease in cash and notes
receivable. Cash decreased to $6,510 on March 31, 2000 from $195,977 on December
31, 1999 due to cash losses from operating activities and the repayment of a
portion of the Company's outstanding indebtedness. Notes receivable - net of
current maturities as of March 31, 2000 decreased to $250,000 from $375,000 on
December 31, 1999 due to payments received on outstanding notes receivable.
Total liabilities as of March 31, 2000 increased to $1,451,625 from $1,211,340
on December 31, 1999 due to increases in accounts payable and accrued expenses
resulting from increased production and sales, and an increase in outstanding
indebtedness.
RESULTS OF OPERATIONS (for the three month period ended March 31, 2000 compared
to the three month period ended March 31, 1999).
The following tables set forth the components of the Company's revenue:
Three Months Ended March 31,
------------------------------
2000 1999
---------- ----------
Wholesale sales $1,436,106 $716,977
---------- ----------
Total Revenue $1,436,106 $716,977
-9-
<PAGE>
Wholesale sales increased by 100% to $1,436,106 for the three months
ended March 31, 2000 from $716,977 for the three months ended March 31, 1999.
This increase in sales for the three months ended March 31, 2000 was primarily
the result of distribution of the Company's existing and new products into new
grocery and distributor accounts. The Company expanded its product line to
include a full line of decorated layer cakes and torte cakes. The Company also
expanded its distribution into Northern California and Texas. The Company sells
most of its products through bakery broker networks and distributors and
estimates that its products are sold in over 2,000 supermarkets.
Cost of goods sold increased to $1,259,592, or 88% of net wholesale
sales, for the three months ended March 31, 2000, as compared to $604,045, or
84% of net wholesale sales, for the three months ended March 31, 1999. This
increase resulted from increases in labor costs due to training for the new
decorated cake line and overtime labor incurred to meet demand for the Company's
products as well as increases in rent and related charges resulting from the
expansion of the manufacturing facility which was completed in February 2000.
Bakery selling general and administrative expenses increased by 107% to
$394,236 for the three months ended March 31, 2000 from $190,434 for the three
months ended March 31, 1999. This increase was primarily the result of increased
selling expenses due to increased sales, increased overhead costs due to the
manufacturing plants expansion, and increases in management labor costs and
obsolete inventory charges.
Corporate selling general and administrative expenses increased by 6%
to $192,025 for the three months ended March 31, 2000 from $180,853 for the
three months ended March 31, 1999. This increase was primarily the result of
increases in management payroll, professional fees and other corporate general
and administrative costs.
Gain from sale of assets was $0 for the three months ended March 31,
2000 as compared to $14,820 for the three months ended March 31, 1999. The gain
from sale of assets for the three months ended March 31, 1999 resulted from
additional consideration received from the sale of assets to Triarc in August
1998.
Net interest expense for the three months ended March 31, 2000
increased to $13,116 as compared to $3,178 for the fiscal year ended December
31, 1998. This increase in net interest expense resulted primarily from
increases in equipment lease financing and a reduction in interest income
resulting from a reduction in cash balances.
Other income decreased to $0 for the three months ended March 31, 2000
from $9,727 for the three months ended March 31, 1999. The forgiveness of debt
for the three months ended March 31, 1999 was due to reductions in accounts
payable and accrued liabilities resulting from discounted settlements and
write-offs of certain accounts payable.
The Company had a net loss of $422,863, or $0.12 per share for the for
the three months ended March 31, 2000 as compared to a net loss of $236,986, or
$0.07 per share for the three months ended March 31, 1999.
-10-
<PAGE>
Liquidity and Capital Resources
At March 31, 2000, the Company had a working capital deficit of
$106,385. During the three months ended March 31, 2000, the Company experienced
cash flow deficits from its operating activities primarily because its gross
profit was not sufficient to cover its selling, general and administrative
expenses. This deficit has been funded in part by payments received from the
Triarc note receivable more fully discussed below. The Company has initiated
plans to increase its gross profit margins and reduce certain selling, general
and administrative expenses in order to reduce and eventually eliminate these
cash flow deficits from operating activities.
In an effort to obtain the long term resources necessary to fully
develop the Company's business strategies, the Company is exploring a number of
strategic alternatives including a possible equity or debt financing, a merger,
or a sale transaction. While the Company is actively pursuing a number of
possible transactions, there can be no assurance that the Company will
consummate any financing, merger, sale or other similar transaction, or that
such transaction will be consummated on terms that would be favorable to the
Company's shareholders.
The Company used net cash in operating activities in the amount of
$237,034 for the for the three months ended March 31, 2000 as compared to
$350,171 for the for the three months ended March 31, 1999. The Company used net
cash in investing activities in the amount of $118,717 for the for the three
months ended March 31, 2000, as compared to $18,685 for the for the three months
ended March 31, 1999. The Company received net cash from financing activities in
the amount of $166,285 for the for the three months ended March 31, 2000 as
compared to $82,656 for the for the three months ended March 31, 1999.
In July 1998, the Company borrowed $150,000 from Gelt Financial
Corporation. The loan provided for interest at the rate of 5% above the prime
rate, and was secured by all the payments due the Company under the purchase
agreement dated June 3, 1996 entered into with Triarc Restaurant Group. In order
to induce Gelt Financial Group 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 in August 1998 from the proceeds of the Triarc
agreement.
-11-
<PAGE>
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 in August
1998 from the proceeds of the Triarc agreement.
In August 1998, the Company closed an agreement with Triarc 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 with Triarc
dated June 3, 1996 and the license agreement and management agreement entered
into with Triarc and affiliates dated August 29, 1996. Under the terms of this
agreement, the Company received payments aggregating $4,000,000 of which
$3,000,000 was paid in cash at closing and $1,000,000 was paid in the form of a
noninterest bearing promissory note payable over 24 months. The balance of this
note receivable was $250,000 on March 31, 2000.
-12-
<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
- ------------------------------------------------------------
Not Applicable
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 March 31, 2000.
-13-
<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: May 11, 2000 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)
-14-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statements of Paramark Enterprises, Inc. as of March 31,
2000 and the three 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 6,510
<SECURITIES> 0
<RECEIVABLES> 818,306
<ALLOWANCES> 87,500
<INVENTORY> 303,954
<CURRENT-ASSETS> 1,063,850
<PP&E> 1,236,169
<DEPRECIATION> 291,810
<TOTAL-ASSETS> 2,031,969
<CURRENT-LIABILITIES> 1,193,995
<BONDS> 0
0
0
<COMMON> 33,935
<OTHER-SE> 546,411
<TOTAL-LIABILITY-AND-EQUITY> 2,031,969
<SALES> 1,436,106
<TOTAL-REVENUES> 1,436,106
<CGS> 1,259,592
<TOTAL-COSTS> 586,219
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,116
<INCOME-PRETAX> (422,821)
<INCOME-TAX> 0
<INCOME-CONTINUING> (422,821)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (422,821)
<EPS-BASIC> (0.12)
<EPS-DILUTED> (0.12)
</TABLE>
