<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: March 31, 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
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (201) 893-0500
- --------------------------------------------------------------------------------
(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: 13,372,463 shares outstanding as of May 13, 1996.
<PAGE>
MARK SOLUTIONS, INC.
Form 10-Q
for
Quarter Ended March 31, 1996
Index
Part I. Financial Information Page No.
Item 1. Financial Statements
Consolidated Balance Sheets as of
March 31, 1996 and June 30,1995 ..................... 3
Consolidated Statements of Operations
for the Nine Months and Three Months
Ended March 31, 1996
and March 31, 1995 .................................. 5
Consolidated Statements of Cash Flows
for the Nine Months Ended March 31, 1996
and March 31, 1995 .................................. 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 1. Legal Proceedings ..................................... 12
Item 5. Other Information ..................................... 12
Item 6. Exhibits and Reports on Form 8-K ...................... 12
Signatures 13
2
<PAGE>
Mark Solutions, Inc. and Subsidiaries
Consolidated Balance Sheets
Assets
<TABLE>
<CAPTION>
March 31, 1996 June 30, 1995
------------------------- -------------------------
<S> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents $ 15,100 $ 116,704
Restricted cash 300,981 359,250
Accounts receivable 923,187 1,267,203
Costs and estimated earnings in excess of
billings on contract in progress 162,199 66,485
Inventories 285,014 231,290
Other current assets 189,838 80,613
---------- ----------
Total Current Assets $ 1,876,319 $ 2,121,545
Property and Equipment:
Machinery and equipment 1,249,137 1,263,563
Demonstration equipment 395,418 337,319
Office furniture and equipment 186,528 188,873
Leasehold improvements 14,254 95,830
Vehicles 68,784 38,882
Property held under capital lease 40,929 56,325
---------- ----------
Total 1,955,050 1,980,792
Less: Accumulated depreciation
and amortization 1,698,163 1,662,301
---------- ----------
Net Property and Equipment 256,887 318,491
Other Assets:
Costs in excess of net assets
of businesses acquired, less accumulated
amortization of $1,684,741 and $1,295,965
at March 31, 1996 and June 30, 1995,
respectively 907,088 1,295,864
Net assets of discontinued segment -- 204,503
Other assets 105,134 37,980
---------- ----------
Total Other Assets 1,012,222 1,538,347
--------- ---------
Total Assets $ 3,145,428 $ 3,978,383
=========== ===========
</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>
March 31, 1996 June 30, 1995
-------------------------- -------------------------
<S> <C> <C> <C> <C>
Current Liabilities:
Accounts payable $ 802,421 $1,672,222
Current maturities of long-term debt 10,868 3,932
Current portion of obligations under
capital lease 5,584 20,020
Due to related parties 44,887 206,923
Accrued liabilities 215,628 266,560
---------- ----------
Total Current Liabilities $ 1,079,388 $ 2,169,657
Other Liabilities:
Long-term debt excluding current maturities 22,882 4,382
Long-term portion of obligations under
capital lease 31,920 15,283
---------- ----------
Total Other Liabilities 54,802 19,665
Commitments and Contingencies -- --
Stockholders' Equity:
Common stock, $.01 par value,
25,000,000 shares authorized,
13,085,465 and 11,734,801 shares issued
and outstanding at March 31, 1996 and
June 30, 1995, respectively 130,853 117,347
Additional paid-in capital 22,393,191 18,773,312
Retained earnings (deficit) (20,512,806) (17,101,598)
----------- -----------
Total Stockholders' Equity 2,011,238 1,789,061
--------- ---------
Total Liabilities and Stockholders' Equity $ 3,145,428 $ 3,978,383
=========== ===========
</TABLE>
The Accompanying Notes are an Integral Part of These
Consolidated Financial Statements.
4
<PAGE>
Mark Solutions, Inc. and Subsidiaries
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
March 31 March 31
---------------------------- ----------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Sales $ 3,206,371 $ 2,749,847 $ 655,879 $ 1,320,028
------------ ------------ ------------ ------------
Cost and Expenses:
Cost of sales 3,656,949 2,462,786 749,210 1,273,634
Selling, general and administrative 2,807,949 2,761,765 808,724 989,858
Research and development -- 3,938 -- --
------------ ------------ ------------ ------------
Total Costs and Expenses 6,464,898 5,228,489 1,557,934 2,263,492
------------ ------------ ------------ ------------
Operating (Loss) (3,258,527) (2,478,642) (902,055) (943,464)
------------ ------------ ------------ ------------
Other Income (Expense):
Interest earned 20,167 10,781 8,123 7,493
Interest expense (8,344) (8,332) (3,365) (7,140)
Loss on abandonment of leasehold
improvements (72,117) -- (72,117) --
Gain on sale of equipment 12,116 3,537 12,116 --
------------ ------------ ------------ ------------
Net Other Income (Expense) (48,178) 5,986 (55,243) 353
------------ ------------ ------------ ------------
(Loss) From Continuing Operations (3,306,705) (2,472,656) (957,298) (943,111)
------------ ------------ ------------ ------------
Discontinued Operations:
Loss of Bar-Lor Subsidiaries (35,078) -- -- --
Loss on disposal of Bar-Lor Subsidiaries (69,425) (111,841) -- (23,354)
------------ ------------ ------------ ------------
Loss From Discontinued Operations (104,503) (111,841) -- (23,354)
------------ ------------ ------------ ------------
Net (Loss) $ (3,411,208) $ (2,584,497) $ (957,298) $ (966,465)
============ ============ ============ ============
(Loss) Per Share $ (.27) $ (.25) $ (.07) $ (.09)
============ ============ ============ ============
Weighted Average Shares Outstanding 12,500,250 10,418,715 12,923,356 11,111,989
============ ============ ============ ============
Dividends Paid $ -0- $ -0- $ -0- $ -0-
============ ============ ============ ============
</TABLE>
The Accompanying Notes are an Integral Part of These
Consolidated Financial Statements.
5
<PAGE>
Mark Solutions, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
March 31, 1996 March 31, 1995
---------------------------- ----------------------------
<S> <C> <C> <C> <C>
Cash Flows From Operating Activities:
Net (loss) $ (3,411,208) $ (2,584,497)
Adjustments to reconcile net (loss) to
net cash (used for) operating activities:
Net asset of discontinued segment $ -- $ 111,841
Depreciation and amortization 466,350 481,217
Loss from discontinued operations 104,503 --
Loss on disposition of assets 60,001 --
(Increase) decrease in assets:
Restricted cash 58,269 --
Accounts receivable 344,016 (723,501)
Billings in excess of contract
revenue recognized (95,714) (108,507)
Inventories (53,724) 343,347
Other current assets (109,226) (74,145)
Other (67,154) 1,718
Increase (decrease) in liabilities:
Accounts payable (869,801) 291,018
Due to related parties (162,036) (33,239)
Accrued liabilities (50,934) 174,170
------------ ------------
Net adjustments to reconcile net (loss)
to net cash (used for) operating activities (375,450) 463,919
------------ ------------
Net Cash (Used for) Operating Activities (3,786,658) (2,120,578)
Cash Flows From Investing Activities:
Additions to property and equipment (35,437) --
Proceeds from disposition of segment 100,000 --
Proceeds on sale of assets 12,500 --
------------ ------------
Net Cash Provided by Investing Activities 77,063 --
Cash Flows From Financing Activities:
Repayment of notes payable for equipment (25,394) (7,146)
Advances from stockholders -- (400,000)
Repayment of advances from stockholders -- 400,000
Payment of offering costs and commissions (6,092) (321,683)
Proceeds from issuance of common stock 3,639,477 3,272,524
------------ ------------
Net Cash Provided by Financing Activities 3,607,991 2,943,695
------------ ------------
Net Increase (Decrease) in Cash (101,604) 823,117
Cash at Beginning of Year 116,704 39,757
------------ ------------
Cash at End of Period $ 15,100 $ 862,874
============ ============
</TABLE>
The Accompanying Notes are an Integral Part of
These Consolidated Financial Statements.
6
<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 March 31, 1996 and December 31, 1995 and the results of
operations and cash flows for the nine months ended March 31, 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, 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 prior year amounts to
conform to the current period presentation.
Note 2 - Inventories:
Inventories at March 31, 1996 and June 30, 1995 consist of the following:
March 31, 1996 June 30, 1995
-------------- -------------
Raw materials $157,484 $112,060
Finished goods 127,530 119,230
-------- --------
$285,014 $231,290
======== ========
Note 3 - Common Stock and Additional Paid-In Capital:
During the nine months ended March 31, 1996, the Company issued 1,350,664
shares of common stock as a result of exercise of warrants, receiving gross
proceeds of $3,639,477.
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 March 31, 1995 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 nine months ended March 31, 1995 were $166,989 and $918,508,
respectively. These amounts are not included in the accompanying Statements of
Operations.
7
<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 March 31, 1996, the Company issued 286,000 shares of its
common stock through the exercise of warrants, receiving net proceeds of
$624,100.
8
<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 an 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. Since January 1, 1996, the Company has
reduced factory staff, office staff and factory overhead, including the decision
not to occupy manufacturing facilities until sufficient work is obtained to
justify the cost and expense of renting, equipping, maintaining and operating
such space. In the interim, management has and will continue to outsource the
manufacturing of its small modular cell projects to third party manufacturers,
including related parties. Management has identified several available
manufacturing facilities and believes that the Company will be able to lease
adequate space on economically viable terms when and if sales warrant. 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 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 April 10, 1996, the Company announced that it
was the low bidder on several modular cell projects, including a project with
the State of New York. Management anticipates that, if formally awarded, these
projects would generate revenues of approximately $ 50,000,000 over three years,
primarily from the New York State project.
In addition to the New York State project, for the nine months ended March
31, 1996, the Company submitted bids on approximately $ 33,800,000 in projects
of which $ 1,837,346 were awarded to the Company. The Company continues to be
under consideration for approximately $ 5,521,000 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.
Consistent with this marketing approach, the Company has entered into a software
supplier agreement with Data General Corporation, a large computer hardware and
integration provider, pursuant to which Data General may
9
<PAGE>
include the IntraScan II PACS software program in proposals to healthcare
institutions. On April 29, 1996, the Company announced that it had entered into
definitive agreements to purchase Simis Medical Imaging, Ltd., the developer of
the IntraScan II software programs as described in Part II- Item 5 of this
report. Management anticipates that the sale of the IntraScan system products,
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 nine months ended March 31, 1996 increased 16.6% to $
3,206,371 from $ 2,749,847 for the comparable 1995 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 $ 2,195,000 in revenues.
Cost of sales for the nine months ended March 31, 1996 which consists
primarily of materials, labor, supplies and fixed factory overhead expense,
increased 48.5% to $ 3,656,949 from $ 2,462,786 for the comparable 1995 period
due to the increase in sales. Cost of sales as a percentage of revenues was
114.0% for the period ended March 31, 1996 as compared to 89.6% for the
comparable 1995 period. This increase was the result of lower gross profit
margins on construction contracts and costs associated with maintaining factory
operations absent anticipated sales levels. Fixed factory overhead expenses for
the nine months ended March 31, 1996 such as rent, real estate taxes,
depreciation and repairs and maintenance decreased 16.0% to $ 154,090 from $
183,508 for the comparable 1995 period. This decrease is primarily attributed to
the elimination of factory rent and related taxes since January 1, 1996 and the
suspension of depreciation on idle factory equipment since January 1, 1996.
Selling, general and administrative expenses remained relatively constant
for the nine months ended March 31, 1996 as compared to the comparable 1995
period increasing 1.7% to $ 2,807,949 from $ 2,761,765. The Company incurred
increased promotional and travel expenses during the six month period ended
December 31, 1995, which were offset by the reduction of office staff since
January 1, 1996.
10
<PAGE>
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.
Warrants and options to purchase approximately 4,400,000 of the Company's
Common Stock are presently outstanding, the majority of which are at exercise
prices ranging from $ 2.00 to $ 5.00 per share. In order to raise additional
working capital, the Company intends to file a post effective amendment to its
registration statement covering the sale of these shares of Common Stock to
encourage the exercise of the warrants and options. The Company will initially
look to the exercise of presently outstanding warrants and options for working
capital, 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.
For the nine months ended March 31, 1996 the Company sold 1,350,664 shares
of Common Stock pursuant to the exercise of warrants, resulting in gross
proceeds of $ 3,639,477. Since March 31, 1996, the Company has sold an
additional 286,000 shares of Common Stock through the exercise of warrants
resulting in gross proceeds of $ 624,100.
Cash and cash equivalents decreased from $ 116,704 at June 30, 1995 to $
15,100 at March 31, 1996 primarily due to losses associated with operating
activities. Working capital increased from ($48,112) at June 30, 1995 to $
796,931 at March 31, 1996 due primarily to the application of the proceeds from
the exercise of warrants to reduce accounts payable.
11
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
In January 1996, the Company settled its litigation with Maris Equipment
Company, Inc. ("Maris") (Mark Solutions, Inc. v. Maris Equipment Company, Inc.
Docket No. BER-L-8193-94). Pursuant to the settlement, the Company received $
25,000 from Maris's bonding company and the foregoing action was dismissed with
prejudice by both parties.
Item 5. Other Information.
On April 26, 1996, the Company announced that it entered into a
nonexclusive Master Supplier Agreement with Data General Corporation ("DG")
pursuant to which the Company has agreed to provide IntraScan II software and
related services to DG to be incorporated into PACS sales proposals and bids to
healthcare facilities. The products and services to be provided by the Company
will be negotiated on a project by project basis with DG and no assurances can
be given that significant sales will be achieved.
On April 29, 1996, the Company announced that it entered into definitive
agreements to acquire 100% of Simis Medical Imaging, Ltd., a United Kingdom
corporation ("SMI") for $ 1,250,000 payable in the Company's Common Stock. The
consummation of the agreements are subject to the satisfaction of certain
conditions, including the completion of due diligence on the financial condition
and operations of SMI. The Company anticipates that, subject to satisfactory
results of its due diligence, the acquisition will be consummated by May 31,
1996.
SMI is the developer of the IntraScan II software which the Company has
been marketing under an exclusive dealer agreement covering North and South
America. For the fiscal year ended December 31, 1995, SMI had revenues of U.K. L
365,253 and losses of U.K. L 124,674.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit No. Exhibit Description
----------- -------------------
27.1 Financial Data Schedule
12
<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: May 14, 1996
MARK SOLUTIONS, INC.
By: /s/ Carl Coppola
------------------------
Carl Coppola, President,
Chief Executive Officer
and Chief Financial Officer
13
<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> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> MAR-31-1996
<CASH> 15,100
<SECURITIES> 0
<RECEIVABLES> 923,187
<ALLOWANCES> 0
<INVENTORY> 285,014
<CURRENT-ASSETS> 1,876,319
<PP&E> 1,955,050
<DEPRECIATION> 1,698,163
<TOTAL-ASSETS> 3,145,428
<CURRENT-LIABILITIES> 1,079,388
<BONDS> 0
0
0
<COMMON> 130,853
<OTHER-SE> 1,880,385
<TOTAL-LIABILITY-AND-EQUITY> 3,145,428
<SALES> 3,206,371
<TOTAL-REVENUES> 3,238,654
<CGS> 3,656,949
<TOTAL-COSTS> 6,464,898
<OTHER-EXPENSES> 72,117
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,344
<INCOME-PRETAX> (3,306,705)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,306,705)
<DISCONTINUED> (104,503)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,411,208)
<EPS-PRIMARY> (.27)
<EPS-DILUTED> (.27)
</TABLE>
