<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: December 31, 1995
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
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (201) 893-0500
87 Route 17 North Maywood, New Jersey 07607
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: 12,848,770 shares outstanding as of
February 13, 1996.
<PAGE>
MARK SOLUTIONS, INC.
Form 10-Q
for
Quarter Ended December 31, 1995
Index
Part I. Financial Information Page No.
Item 1. Financial Statements
Consolidated Balance Sheets as of
December 31, 1995 and June 30,1995 ........ 3
Consolidated Statements of Operations
for the Six Months and Three Months
Ended December 31, 1995
and December 31, 1994 ..................... 5
Consolidated Statements of Cash Flows
for the Six Months Ended December 31,
1995 and December 31, 1994 ................ 6
Notes to Consolidated Financial Statements . 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations ............................... 9
Part II. Other Information
Item 4. Submission of Matters to a Vote of
Security-Holders ........................ 13
Item 6. Exhibits and Reports on Form 8-K ......... 13
Signatures 14
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<PAGE>
Mark Solutions, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
Assets
December 31, 1995 June 30, 1995
<S> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents $ 212,184 $ 116,704
Restricted cash 343,175 359,250
Accounts receivable 871,235 1,267,203
Costs and estimated earnings in excess of
billings on contract in progress 360,227 66,485
Inventories 408,501 231,290
Other current assets 124,783 80,613
---------- ----------
Total Current Assets $ 2,320,105 $ 2,121,545
Property and Equipment:
Machinery and equipment 1,263,563 1,263,563
Demonstration equipment 356,893 337,319
Office furniture and equipment 190,120 188,873
Leasehold improvements 102,981 95,830
Vehicles 38,881 38,882
Property held under capital lease 109,357 56,325
---------- ----------
Total 2,061,795 1,980,792
Less: Accumulated depreciation
and amortization 1,715,357 1,662,301
---------- ----------
Net Property and Equipment 346,438 318,491
Other Assets:
Costs in excess of net assets
of businesses acquired, less accumulated
amortization of $1,555,150 and $1,295,966
at December 31, 1995 and June 30, 1995,
respectively 1,036,680 1,295,864
Net assets of discontinued segment - - - 204,503
Other assets 112,334 37,980
---------- ----------
Total Other Assets 1,149,014 1,538,347
---------- ----------
Total Assets $ 3,815,557 $ 3,978,383
=========== ===========
</TABLE>
The Accompanying Notes are an Integral Part of These Consolidated Financial
Statements.
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<PAGE>
Mark Solutions, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
Liabilities and Stockholders' Equity
December 31, 1995 June 30, 1995
<S> <C> <C> <C> <C>
Current Liabilities:
Accounts payable $ 1,177,673 $ 1,672,222
Current maturities of long-term debt 4,151 3,932
Current portion of obligations under capital lease 18,526 20,020
Due to related parties 52,059 206,923
Accrued liabilities 261,544 266,560
------------ -------------
Total Current Liabilities $ 1,513,953 $ 2,169,657
Other Liabilities:
Long-term debt excluding current maturities 2,250 4,382
Long-term portion of obligations under
capital leases 57,114 15,283
------------ -------------
Total Other Liabilities 59,364 19,665
Commitments and Contingencies - - - - - -
Stockholders' Equity:
Common stock, $.01 par value,
25,000,000 shares authorized,
12,819,472 and 11,734,801 shares issued
and outstanding at December 31, 1995
and June 30, 1995, respectively 128,194 117,347
Additional paid-in capital 21,669,554 18,773,312
Retained earnings (deficit) (19,555,508) (17,101,598)
------------ -------------
Total Stockholders' Equity 2,242,240 1,789,061
----------- -----------
Total Liabilities and Stockholders' Equity $ 3,815,557 $ 3,978,383
=========== ===========
</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
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
December 31 December 31
----------------------- ----------------------
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Revenues:
Sales $ 2,550,492 $ 1,429,819 $ 583,435 $ 717,385
------------- ------------- ------------- ------------
Cost and Expenses:
Cost of sales 2,929,219 1,211,960 820,327 619,563
Selling, general and administrative 1,977,745 1,749,099 975,098 860,521
Research and development - - - 3,938 - - - - - -
------------- ------------- ------------- ------------
Total Costs and Expenses 4,906,964 2,964,997 1,795,425 1,480,084
------------- ------------- ------------- ------------
Operating (Loss) (2,356,472) (1,535,178) (1,211,990) (762,699)
------------- ------------- ------------- ------------
Other Income (Expenses):
Interest earned 12,044 3,288 5,724 2,602
Interest expense (4,979) (1,192) (2,098) (537)
Miscellaneous income - - - 3,537 - - - 74
------------- ------------- ------------- ------------
Net Other Income 7,065 5,633 3,626 2,139
------------- ------------- ------------- ------------
(Loss) From Continuing Operations (2,349,407) (1,529,545) (1,208,364) (760,560)
------------- ------------- ------------- ------------
Discontinued Operations:
Loss on cosmetics segment (35,078) (88,487) - - - (54,367)
Loss on disposal of cosmetics segment (69,425) - - - - - - - - -
------------- ------------- ------------- ------------
Loss From Discontinued Operations (104,503) (88,487) - - - (54,367)
------------- ------------- ------------- ------------
Net (Loss) $ (2,453,910) $ (1,618,032) $ (1,208,364) $ (814,927)
============= ============= ============= ============
(Loss) Per Share $ (.20) $ (.16) $ (.10) $ (.08)
============= ============= ============= ============
Weighted Average Shares Outstanding 12,290,665 10,331,762 12,700,914 10,283,501
============= ============= ============= ============
Dividends Paid $ - 0 - $ - 0 - $ - 0 - $ - 0 -
============= ============= ============= ============
</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 Cash Flows
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
December 31, 1995 December 31, 1994
<S> <C> <C> <C> <C>
Cash Flows From Operating Activities:
Net (loss) $ (2,453,910) $ (1,618,032)
Adjustments to reconcile net (loss) to
net cash (used for) operating activities:
Depreciation and amortization $ 312,600 $ 320,815
Net asset of discontinued segment - - - 88,488
Loss from discontinued operations 104,503 - - -
(Increase) decrease in assets:
Restricted cash 16,075 - - -
Accounts receivable 395,968 (415,452)
Costs and estimated earnings in excess
of billings on contract in progress (293,742) - - -
Inventories (177,211) 315,060
Other current assets (29,170) (35,112)
Other assets (74,354) 1,718
Increase (decrease) in liabilities:
Accounts payable and customer deposits (494,548) 118,371
Billings in excess of costs and estimated
earnings on contract in progress - - - 47,167
Due to related parties (154,864) 19,375
Accrued liabilities (5,016) 141,399
---------- ----------
Net adjustments to reconcile net (loss)
to net cash (used for) operating activities (399,759) 601,829
----------- -----------
Net Cash (Used for) Operating Activities (2,853,669) (1,016,203)
Cash Flows From Investing Activities:
Additions to property and equipment (28,334) - - -
Proceeds from disposition of segment 85,000 - - -
---------- ----------
Net Cash Provided by Investing Activities 56,666 - - -
Cash Flows From Financing Activities:
Repayment of notes payable for equipment (14,605) (5,577)
Payment of offering costs - - - (27,510)
Proceeds from issuance of common stock 2,907,088 1,027,100
---------- ----------
Net Cash Provided by Financing Activities 2,892,483 994,013
----------- -----------
Net Increase (Decrease) in Cash 95,480 (22,190)
Cash at Beginning of Year 116,704 39,757
----------- -----------
Cash at End of Period $ 212,184 $ 17,567
=========== ===========
</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 December 31, 1995 and June 30, 1995 and the results of operations
and cash flows for the six months ended December 31, 1995 and 1994.
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, 1995, respectively, 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 December 31, 1995 and June 30, 1995 consist of the
following:
December 31, 1995 June 30, 1995
Raw materials $ 280,971 $ 112,060
Finished goods 127,530 119,230
--------- ---------
$ 408,501 $ 231,290
========= =========
Note 3 - Common Stock and Additional Paid-In Capital:
During the six months ended December 31, 1995, the Company issued
1,084,671 shares of common stock as a result of exercise of warrants, receiving
gross proceeds of $2,907,088.
Note 4 - Discontinued Operations:
On October 13, 1995, the Company disposed of its cosmetics segment, (the
Bar-Lor Subsidiaries), whose principal services were the packaging and
distribution of cosmetics products. The assets of the segment to be sold consist
primarily of cash, accounts receivable, inventories, and machinery and
equipment.
Operating results of the segment for the period July 1, 1995 through
October 13, 1995 are shown separately in the accompanying Statement of
Operations. The Statement of Operations for September 30, 1994 has been restated
and the operating results of the segment are shown separately.
Revenues of the segment for the period July 1, 1995 through October 13,
1995 and the six months ended December 31, 1994 were $166,989 and $592,940,
respectively. These amounts are not included in the accompanying Statements of
Operations.
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<PAGE>
Note 4 - Discontinued Operations (Continued):
Assets and liabilities of the segment disposed of consisted of the
following:
October 13, 1995 June 30, 1995
---------------- --------------
Cash $ 16,513 $ 50,580
Accounts receivable, net 6,291 (10,485)
Inventories 346,104 363,093
Other current assets 11,434 5,251
Machinery and equipment, net 29,335 33,499
Other 17,880 17,880
---------- ----------
Total Assets 427,557 459,818
---------- ----------
Accounts payable 234,145 239,199
Accrued expenses 8,987 16,116
Notes payable 15,000 - - -
---------- ----------
Total Liabilities 258,132 255,315
---------- ----------
Net Assets of Discontinued
Segment 169,425 $ 204,503
==========
Less: Loss on disposition of
segment 69,425
----------
Net Proceeds from Disposition
of Segment $ 100,000
==========
Note 5 - Subsequent Events:
Subsequent to December 31, 1995, the Company issued 25,200 shares of its
common stock through the exercise of warrants, receiving net proceeds of
$85,890.
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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 acutely affected by sporadic sales of its
principal products, modular steel cells and infectious disease isolation units.
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 products represent a radical alternative to traditional
construction methods, and penetration into the construction market has met
resistance typically associated with a new, 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 by the Company. 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. Subsequent to December 31, 1995, the Company
has reduced office and factory overhead and personnel expenses and, to the
extent practicable, the Company will further reduce overhead and personnel
expenses and review its options regarding the sale or suspension of some of its
products lines if it is unable to improve its operating results or 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
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<PAGE>
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.
For the six months ended December 31, 1995, the Company has submitted
bids on approximately $ 29,513,000 in projects of which $ 233,000 were awarded
to the Company. The Company continues to be under consideration for $ 19,500,000
of the remaining projects.
The Company continues to market its IntraScan medical image systems and
is analyzing the benefits of alliances with other companies with related
products. Management anticipates that the sale of the IntraScan systems,
primarily IntraScan II, will begin to generate revenues in the calendar year
ending December 31, 1996, 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.
On October 13, 1995, the Company disposed of its cosmetics business,
Bar-Lor Cosmetics. Accordingly, the statement of operations contained in this
report segregate the results of Bar-Lor Cosmetics and the following discussion
addresses only the continuing operations.
Results of Operations
Substantially all 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 substantially all of the Company's operating
revenues through September 30, 1996.
Revenues for the six months ended December 31, 1995 increased 78.4% to
$2,550,492 from $ 1,429,819 for the comparable 1994 period. This increase is
attributed to the amount of work completed under modular steel product
contracts during the period, of which the Jackson, Michigan project represented
approximately $ 1,899,000 in revenues.
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<PAGE>
Cost of sales for the six months ended December 31, 1995 which consists
primarily of materials, labor, supplies and fixed overhead expense, increased
141.7% to $2,929,219 from $ 1,211,960 for the comparable 1994 period due to the
increase in sales. Cost of sales as a percentage of revenues increased was
114.8% for the period ended December 31, 1995 as compared to 84.8% for the
comparable 1994 period. This increase was the result of lower profit margins on
construction contracts and a significant increase in factory overhead allocated
to cost of sales. Fixed overhead expenses for the six months ended December 31,
1995 such as rent, real estate taxes, depreciation and repairs and maintenance
increased 22.4% to $ 158,889 from $ 129,771 for the comparable 1994 period.
This increase is primarily attributed to the increase in repairs and
maintenance of machinery and equipment between the two periods.
Selling, general and administrative expenses for the six months ended
December 31, 1995 increased 11.6% to $ 1,951,353 from $ 1,749,099 for the
comparable 1994 period. This increase is primarily due to the hiring of
additional office personnel and an increase in consulting fees, professional
fees and traveling expenses.
Liquidity and Capital Resources
The Company's working capital requirements result principally from
office expense, staff and management overhead and marketing efforts. The
Company's working capital requirements have historically exceeded 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. The Company expects to meet its working
capital requirements from these sources through the fiscal year end 1996. 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.
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<PAGE>
The Company presently has an effective registration statement relating
to approximately 3,075,000 shares of Common Stock issuable upon the exercise of
warrants and options, the majority of which are at exercise prices ranging from
$1.00 to $5.00 per share. The Company is not actively seeking additional
private sales but will initially look to the exercise of the warrants covered
by the registration statement for working capital.
For the six months ended December 31, 1995 the Company sold 1,084,671
shares of Common Stock pursuant to the exercise of the foregoing warrants,
resulting in gross proceeds of $ 2,907,088. Since December 31, 1995, the Company
has sold an additional 25,200 shares of Common Stock through the exercise of
these warrants resulting in gross proceeds of $85,890.
Cash and cash equivalents increased from $ 116,704 at June 30, 1995 to
$212,184 at December 31, 1995 primarily due to the proceeds of the exercise of
warrants offset by operating activities. Working capital increased from
($48,112) at June 30, 1995 to $ 776,732 at December 31, 1995 due to the proceeds
from the exercise of warrants.
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<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security-Holders.
On December 18, 1995, the Company held its Annual Meeting of Shareholders
(the "Annual Meeting") at which directors were elected and the Company's
selection of its independent public accountants, Sax, Macy, Fromm & Co., P.C.
for the year ending June 30, 1996 was ratified. The vote for the foregoing
matters was as follows:
1. Election of Directors
Except for Mr. Michael Nafash, each of the directors was
re-elected.
Name Votes For Votes Against
Carl Coppola 10,676,795 40,640
Richard Branca 10,683,045 34,390
Ronald E. Olszowy 10,683,045 34,390
William Westerhoff 10,683,045 34,390
Michael Nafash 10,678,189 39,246
2. Ratification of Selection of Independent Public Accountants
Votes For Votes Against Abstentions
10,390,762 294,923 31,750
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit No. Exhibit Description
27.1 Financial Data Schedule
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<PAGE>
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: February 13, 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>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 212,184
<SECURITIES> 0
<RECEIVABLES> 871,231
<ALLOWANCES> 0
<INVENTORY> 408,501
<CURRENT-ASSETS> 2,320,105
<PP&E> 2,061,795
<DEPRECIATION> 1,715,357
<TOTAL-ASSETS> 3,815,557
<CURRENT-LIABILITIES> 1,513,953
<BONDS> 0
0
0
<COMMON> 128,194
<OTHER-SE> 2,114,046
<TOTAL-LIABILITY-AND-EQUITY> 3,815,557
<SALES> 2,550,492
<TOTAL-REVENUES> 2,562,536
<CGS> 2,929,219
<TOTAL-COSTS> 4,906,964
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,979
<INCOME-PRETAX> (2,453,910)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,349,407)
<DISCONTINUED> (104,503)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,453,910)
<EPS-PRIMARY> (.20)
<EPS-DILUTED> (.20)
</TABLE>
