<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 1996
-------------------------------------
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission File Number: 0-17118
------------------------------------
Mark Solutions, Inc.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Delaware 11-2864481
---------------------------- ----------------------------
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation) Identification No.)
Parkway Technical Center
1515 Broad Street
Bloomfield, New Jersey 07003
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (201) 893-0500
----------------------------
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Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report
Indicate by check whether registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that 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:
Indicate 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: 13,501,159 shares outstanding as of November 13,
1996.
<PAGE>
MARK SOLUTIONS, INC.
Form 10-Q
for
Quarter Ended September 30, 1996
Index
Part I. Financial Information Page No.
Item 1. Financial Statements
Consolidated Balance Sheets as of
September 30, 1996 and June 30, 1996 ........ 3
Consolidated Statements of Operations
for the Three Months Ended
September 30, 1996
and September 30, 1995 ...................... 5
Consolidated Statements of Cash Flows
for the Three Months Ended September 30,
1996 and September 30, 1995 ................. 6
Notes to Consolidated Financial Statements ... 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations .................................. 8
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K ............. 11
Signatures 11
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<PAGE>
Mark Solutions, Inc. and Subsidiaries
Consolidated Balance Sheets
Assets
<TABLE>
<CAPTION>
September 30, 1996 June 30, 1996
---------------------- ----------------------
<S> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents $1,555,879 $ 263,922
Restricted cash 183,688 181,781
Accounts receivable 862,100 904,596
Inventories 334,872 146,305
Other current assets 161,805 133,325
---------- ----------
Total Current Assets $3,098,344 $1,629,929
Property and Equipment:
Machinery and equipment 1,472,528 1,472,528
Demonstration equipment 436,349 395,419
Office furniture and equipment 340,978 324,006
Leasehold improvements 14,254 14,254
Vehicles 62,283 68,783
Property held under capital lease - - - 40,929
---------- ----------
Total 2,326,392 2,315,919
Less: Accumulated depreciation
and amortization 1,966,697 1,939,415
---------- ----------
Net Property and Equipment 359,695 376,504
Other Assets:
Costs in excess of net assets of
businesses acquired, less accumulated
amortization of $69,980 as of September 30,
1996 and $17,495 as of June 30, 1996 979,711 1,032,196
Debt issue costs, less accumulated amortization
of $6,780 as of September 30, 1996 155,920 - - -
Other assets 79,549 45,134
---------- ----------
Total Other Assets 1,215,180 1,077,330
---------- ----------
Total Assets $4,673,219 $3,083,763
========== ==========
</TABLE>
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements.
-3-
<PAGE>
Mark Solutions, Inc. and Subsidiaries
Consolidated Balance Sheets
Liabilities and Stockholders' Equity
<TABLE>
<CAPTION>
September 30, 1996 June 30, 1996
--------------------------- ----------------------------
<S> <C> <C> <C> <C>
Current Liabilities:
Accounts payable $ 554,135 $ 499,254
Short term borrowings 107,431 69,414
Current maturities of long-term debt 16,533 11,144
Current portion of obligations
under capital leases - - - 5,921
Due to related parties 150,123 45,194
Accrued liabilities 325,503 323,138
------------ ------------
Total Current Liabilities $ 1,153,725 $ 954,065
Other Liabilities:
Long-term debt excluding current maturities 2,246,794 19,989
Long-term portion of obligations under
capital leases - - - 30,308
------------ ------------
Total Other Liabilities 2,246,794 50,297
Commitments and Contingencies - - - - - -
Stockholders' Equity:
Common stock, $.01 par value,
25,000,000 shares authorized,
13,603,857 shares issued and
outstanding at September 30, 1996
and 13,576,315 shares issued and
outstanding at June 30, 1996 136,037 135,762
Additional paid-in capital 24,287,495 24,260,299
Retained earnings (deficit) (23,150,832) (22,316,660)
------------ ------------
Total Stockholders' Equity 1,272,700 2,079,401
------------ ------------
Total Liabilities and Stockholders' Equity $ 4,673,219 $ 3,083,763
============ ============
</TABLE>
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements.
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<PAGE>
Mark Solutions, Inc. and Subsidiaries
Consolidated Statements of Operations
Three Months Ended Three Months Ended
September 30, 1996 September 30, 1995
------------ ------------
Revenues:
Sales $ 309,358 $ 1,967,056
------------ ------------
Costs and Expenses:
Cost of sales 241,552 2,097,099
Selling, general and administrative
expenses 886,043 1,014,440
------------ ------------
Total Costs and Expenses 1,127,595 3,111,539
------------ ------------
Operating (Loss) (818,237) (1,144,483)
------------ ------------
Other Income (Expense)
Interest expense (23,997) (2,881)
Interest income 9,682 6,320
Loss on disposal of asset (1,620) - - -
------------ ------------
Net Other Income (Deductions) (15,935) 3,439
------------ ------------
(Loss) From Continuing Operations (834,172) (1,141,044)
------------ ------------
Discontinued Operations:
Loss of cosmetics segment - - - (35,078)
Estimated loss on disposal of cosmetics
segment - - - (69,425)
------------ ------------
Total Discontinued Operations - - - (104,503)
------------ ------------
Net (Loss) $ (834,172) $ (1,245,547)
============ ============
(Loss) Per Share $ (.06) $ (.10)
============ ============
Weighted Average Number of Shares
Outstanding 13,584,604 11,880,417
============ ============
Dividends Paid $ -0- $ -0-
============ ============
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements.
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<PAGE>
Mark Solutions, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
September 30, 1996 September 30, 1995
------------------------- -------------------------
<S> <C> <C> <C> <C>
Cash Flows From Operating Activities:
Net (loss) $ (834,172) $(1,245,547)
Adjustments to reconcile net (loss) to
net cash (used for) operating activities:
Depreciation and amortization $ 89,927 $ 148,148
Loss on disposal of asset 1,620 - - -
(Increase) decrease in assets:
Restricted cash (1,907) 198,261
Accounts receivable 42,496 322,401
Cost and estimated earnings in excess of
billings on contract in progress - - - (406,078)
Inventory (188,567) (105,134)
Other current assets (28,480) (16,193)
Other assets (34,415) - - -
Increase (decrease) in liabilities:
Accounts payable 54,881 83,711
Due to related parties 104,929 (179,327)
Accrued liabilities 2,365 16,789
----------- -----------
Net adjustments to reconcile net (loss)
to net cash (used for) operating activities 42,849 62,578
----------- -----------
Net Cash (Used for) Operating Activities (791,323) (1,182,969)
Cash Flows From Investing Activities:
Net assets of discontinued segment - - - 104,503
Acquisition of property and equipment (16,973) - - -
Proceeds from sale of property and equipment 1,500 - - -
----------- -----------
Net Cash Provided by (Used for)
Investing Activities (15,473) 104,503
Cash Flows From Financing Activities:
Proceeds from issuance of convertible debt 2,200,000 - - -
Increase of short term borrowings 38,017 - - -
Repayment of notes payable for equipment (4,035) (7,988)
Proceeds from issuance of common stock 48,750 1,881,990
Payment of debt issue costs (162,700) - - -
Payment of offering costs and commissions (21,279) - - -
----------- -----------
Net Cash Provided by Financing Activities 2,098,753 1,874,002
----------- -----------
Net Increase in Cash 1,291,957 795,536
Cash and Cash Equivalents at Beginning of Year 263,922 116,704
----------- -----------
Cash and Cash Equivalents at End of Period $ 1,555,879 $ 912,240
=========== ===========
</TABLE>
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements.
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<PAGE>
Mark Solutions, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 1 - Financial Statement Presentation:
In the opinion of management, the accompanying consolidated financial
statements contain all normal and recurring adjustments necessary to present
fairly the financial position of Mark Solutions, Inc. and Subsidiaries (the
Company) as of September 30, 1996 and June 30, 1996 and the results of
operations and cash flows for the three months ended September 30, 1996 and
1995.
The accounting policies followed by the Company are set forth in the
Notes to Financial Statements included in the Company's Annual Report on Form
10-K for the fiscal year ended June 30, 1996 and such notes are incorporated
herein by reference.
The results of operations for the interim periods presented are not
necessarily indicative of the results to be expected for the full fiscal year.
Certain reclassifications have been made to the current and prior year
amounts to conform to the current period presentation.
Note 2 - Inventories:
Inventories at September 30, 1996 and June 30, 1996 consist of the following:
September 30, 1996 June 30, 1996
----------- ----------
Raw materials $ 267,898 $ 127,477
Finished goods 66,974 18,828
----------- ----------
$ 334,872 $ 146,305
=========== ==========
Note 3 - Convertible Debentures:
On August 23, 1996, the Company sold $ 2,200,000 principal amount 7%
convertible debentures due August 22, 1998 (the "Debentures"). The Debentures
are convertible into shares of common stock at a conversion price which is the
lesser of (i) $ 5-3/16 or (ii) 80% of the average closing bid price on the five
trading days immediately preceding the date(s) of conversion. Interest on the
Debentures is payable in cash or common stock at the Company's option. The
outstanding balance of $ 2,200,000 as of September 30, 1996 is included in
long-term debt excluding current maturities on the accompanying balance sheet.
In connection with the issuance of these debentures, the Company
incurred $ 162,700 of debt issue costs. These costs have been capitalized and
are amortized over the term of the debentures.
Note 4 - Common Stock and Additional Paid-In Capital:
During the three months ended September 30, 1996, the Company issued 15,000
shares of common stock as a result of exercise of warrants, receiving gross
proceeds of $ 48,750.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
General
Mark Solutions, Inc.'s (the "Company") results of operations,
liquidity, and working capital position have been historically impacted by
sporadic sales of its principal products, modular steel cells. This sales
pattern is primarily the result of the construction industry's unfamiliarity
with the Company's products and the emergence of competition.
The Company's modular steel products represent an alternative to
traditional concrete construction methods, and penetration into the construction
market has met resistance typically associated with an unfamiliar product.
Accordingly, the Company has been and will continue to be subject to significant
sales fluctuations until its modular cell technology receives greater acceptance
in the construction market, which management believes will occur as new projects
are awarded and completed. In an attempt to achieve greater acceptance in the
architectural, engineering and construction communities, the Company's internal
sales and engineering personnel and its nationwide network of independent sales
representatives conduct sales presentations and participate in trade shows and
other promotional activities.
The Company has expanded its marketing efforts to more aggressively
pursue domestic and international joint venture and design/build development
opportunities to obtain projects and improve its results of operations in
efforts to return to profitability. Since January 1, 1996, the Company has
reduced office staff. In addition, from January 1, 1996 until September 1996,
the Company reduced factory staff and decided not to occupy factory space, but
outsourced the manufacturing of its small modular cell projects to third party
manufacturers, including related parties, in order to minimize losses and
maintain the continuity of manufacturing products until significant orders were
obtained. Management believed there was not sufficient work to justify the cost
and expense of renting, maintaining and operating such space. As of October 1996
the Company reoccupied new factory facilities. The Company will continue to
review its overhead and personnel expenses based on operating results and
prospects.
The Company is continually bidding on and soliciting joint venture
opportunities regarding construction projects. The anticipated revenues from any
of these projects, would substantially improve the Company's operating results
and cash flow, although no assurances can be given that any of these projects
will be awarded to the Company. On July 17, 1996, the Company was awarded a
contract from the State of New York which management anticipates will generate
revenues of approximately $ 50,000,000 over three years.
In addition to the New York State agreement, the Company currently has
bids pending on approximately $ 14,400,000 in projects. For the three months
ended September 30, 1996, the Company submitted bids on approximately
$10,950,000 in projects and continues to be under consideration for
approximately $990,000 of these projects. Since October 1, 1996, the Company
has submitted bids on approximately $12,800,000 in additional projects and
continues to be under consideration for all of these projects.
-8-
<PAGE>
Through its subsidiary, MarkCare Medical Systems, Inc. ("MarkCare"),
the Company continues to market its IntraScan II PACS and teleradiology systems
and is forming strategic alliances with other companies with related medical
products. Consistent with this marketing approach, the Company has entered into
a master supplier agreement with Data General Corporation, a large computer
hardware and systems integration provider with a client base of over 1,000
institutions pursuant to which Data General will include the IntraScan II PACS
and teleradiology software applications in proposals to healthcare institutions.
Management anticipates that the sale of the IntraScan II systems will begin to
generate revenues in the calendar year ending December 31, 1997, although no
assurances can be given in this regard. If the IntraScan marketing plan is
successful, management believes that the revenues from resulting sales will be
more constant then those of the modular steel products presently and will reduce
fluctuations in the Company's results of operations and financial condition.
Results of Operations
The substantial majority of the Company's operating revenues for the
reported periods were derived from the sale of its modular cells for
correctional institutions. Management believes that the sale of these modular
steel products will continue to represent the substantial majority of the
Company's operating revenues through March 31, 1997. For the three months ended
September 30, 1996 sales of the modular steel products represented 79.4% of
total revenues.
Revenues for the three months ended September 30, 1996 decreased 84.3%
to $309,358 from $1,967,056 for the comparable 1995 period. This decrease is
attributed to the continued sporadic sales of its modular steel cell products as
discussed in "General" and the completion of the Jackson, Michigan project.
Cost of sales for the three months ended September 30, 1996 which
consists primarily of materials, labor, supplies, and fixed factory overhead
expense, decreased 88.5% to $ 241,552 from $ 2,097,099 for the comparable 1995
period due to the decrease in sales. Cost of sales as a percentage of revenues
was 78.1% for the three months ended September 30, 1996 as compared to 106.6%
for the comparable 1995 period. This decrease is attributable to the relatively
low costs of sales of the Company's MarkCare product lines (18.0% as a
percentage of revenues) as compared to the modular cell product line (74.4% as a
percentage of revenues). The substantial majority of the revenues of the
MarkCare line are attributable to software sales and support services which have
virtually no costs of sales. The high cost of sales associated with the modular
cell products was the result of lower gross profit margins on construction
contracts and losses incurred in connection with the outsourcing of projects for
the three months ended September 30, 1996. For the three months ended September
30, 1996 there was relatively no fixed factory overhead expenses due to the
decision not to maintain a factory for such period as compared to $ 77,866 in
such expenses for the comparable 1995 period.
Selling, general and administrative expenses for the three months ended
September 30, 1996 decreased 12.7% to $ 886,043 from $ 1,014,440 for the
comparable 1995. This decrease is attributable to a decrease of 33.3 % in such
expenses for the three months ended September 30, 1996 as compared to the
comparable 1995 period which resulted from reductions in office staff, trade
show expenses, professional fees and the elimination of amortization expenses
related to the IntraScan I acquisition, partially offset by the inclusion of $
165,185 of selling, general and administrative expenses of Simis Medical
Imaging, Ltd. which was acquired in May 1996.
-9-
<PAGE>
Liquidity and Capital Resources
The Company's working capital requirements result principally from
staff and management overhead, office expense and marketing efforts. The
Company's working capital requirements have historically exceed its working
capital from operations due to the sporadic sales of its products. Accordingly,
the Company has been dependent and, absent significant improvements in
operations, will continue to be dependent on the infusion of new capital in the
form of equity or debt financing although no assurance can be given that such
finacing will be available. The Company expects to meet its working capital
requirements from these sources through July 30, 1997. The Company has been
unable to secure bank financing and, to the extent it requires additional
capital, will continue to principally look to private sources.
The Company's working capital deficits have been met through the
private placement of its securities.
On August 23, 1996, the Company sold $ 2,200,000 principal amount 7%
convertible debentures due August 22, 1998 (the "Debentures"). The Debentures
are convertible into shares of Common Stock at a conversion price which is the
lesser of (i) $ 5-3/16 or (ii) 80% of the average closing bid price on the five
trading days immediately preceding the date(s) of conversion. Interest on the
Debentures is payable in cash or Common Stock at the Company's option.
The Company presently has an effective registration statement relating
to 3,368,880 shares of Common Stock issuable upon the exercise of warrants and
options, the majority of which are exercise prices ranging from $ 2.00 to $ 5.00
per share. The Company will initially look to the exercise of presently
outstanding warrants and options to meet working capital deficits, however, if
sufficient securities are not exercised, the Company will be required to seek
additional private sales of its securities, which, if available, would most
likely be at discounts to the current trading price of the Company's Common
Stock.
The Company's inventory increased to $ 334,872 at September 30, 1996
from $ 146,305 at June 30, 1996 as the Company increased purchases to satisfy
its raw materials needs for certain projects beginning production.
Cash and cash equivalents increased from $ 263,922 at June 30, 1996 to
$ 1,555,879 at September 30, 1996 primarily due to proceeds from the Debenture
placement. Working capital increased to $ 1,944,619 from $ 675,864 at June 30,
1996 primarily due to proceeds from the Debenture placement.
-10-
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Exhibit Description
- ----------- -------------------------
27.1 Financial Data Schedule
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed by the undersigned
thereunto duly authorized.
Date: November 14, 1996
MARK SOLUTIONS, INC.
By: /s/ Carl Coppola
-------------------------------------
Carl Coppola- President,
Chief Executive Officer
and Chief Financial Officer
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
consolidated financial statements and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> SEP-30-1996
<CASH> 1,555,879
<SECURITIES> 0
<RECEIVABLES> 862,100
<ALLOWANCES> 0
<INVENTORY> 334,872
<CURRENT-ASSETS> 3,098,344
<PP&E> 2,326,392
<DEPRECIATION> 1,966,697
<TOTAL-ASSETS> 4,673,219
<CURRENT-LIABILITIES> 1,153,725
<BONDS> 2,246,794
0
0
<COMMON> 136,037
<OTHER-SE> 1,136,663
<TOTAL-LIABILITY-AND-EQUITY> 4,673,219
<SALES> 309,358
<TOTAL-REVENUES> 319,040
<CGS> 241,552
<TOTAL-COSTS> 1,127,595
<OTHER-EXPENSES> 1,620
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,997
<INCOME-PRETAX> (834,172)
<INCOME-TAX> 0
<INCOME-CONTINUING> (834,172)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (834,172)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> (.06)
</TABLE>
