UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
--- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: December 31, 1997
---------------------------------
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: (973) 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:16,972,212 shares outstanding as of
February 12, 1998.
<PAGE>
MARK SOLUTIONS, INC.
Form 10-Q
for
Quarter Ended December 31, 1997
Index
Part I. Financial Information Page No.
Item 1. Financial Statements
Consolidated Balance Sheets as of
December 31, 1997 and June 30, 1997 ........ 3-4
Consolidated Statements of Operations
for the Six Months and Three Months Ended
December 31, 1997
and December 31, 1996 ...................... 5
Consolidated Statements of Cash Flows
for the Six Months Ended December 31,
1997 and December 31, 1996 ................. 6
Notes to Consolidated Financial Statements ... 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . 8-10
Part II. Other Information
Item 2. Changes in Securities 11-12
Item 4. Submission of Matters to a Vote of Security 12-13
Holders
Item 6. Exhibits and Reports on Form 8-K ............. 13
Signatures 13
2
<PAGE>
MARK SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
December 31, 1997 June 30, 1997
----------------- --------------
Current Assets:
Cash and cash equivalents $ 3,935,244 $ 422,457
Accounts receivable, less
allowance of $5,500 at
December 31 and
June 30,1997 2,306,536 3,178,928
Inventories 1,141,231 336,287
Other current assets 122,181 230,748
------- -------
Total Current Assets $7,505,192 $4,168,420
Property and Equipment, net 362,868 347,259
Other Assets:
Cost in excess of net
assets of business
acquired less accumulated
amortization of
$332,403 and $227,433 at
December 31,1997 and
June 30, 1997,respectively 717,288 822,258
Other assets 82,222 94,340
------ ------
Total Other Assets 799,510 916,598
------- -------
Total Assets $8,667,570 $5,432,277
========== ==========
3
<PAGE>
MARK SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
December 31, 1997 June 30, 1997
----------------- --------------
Current Liabilities:
Accounts payable $ 5,011,563 $ 1,638,288
Short-term borrowings - 435,225
Current maturities of
long-term debt 8,668 448,729
Current portion of
obligations under
capital leases 13,018 8,276
Due to related parties 194,133 296,472
Notes payable to officer 135,163 160,000
Accrued liabilities 149,473 257,973
----------- -----------
Total Current Liabilities $5,512,018 $3,244,963
Other Liabilities:
Long-term debt excluding
current maturities 1,058,567 2,312,556
Long-term portion of
obligations under
capital leases 33,782 27,911
----------- -----------
Total Other Liabilities 1,092,349 2,340,467
Commitments and Contingencies - - - - - -
Stockholders' Equity (Impairment):
Common stock, $.01 par
value,50,000,000 shares
authorized, 16,972,212
and 14,779,085 shares issued
and outstanding at December
31 and June 30, 1997,
respectively 169,972 147,790
Additional paid-in capital 30,382,322 27,454,982
Deficit (28,489,091) (27,755,925)
----------- -----------
Total Stockholders'
Equity (Impairment) 2,063,203 (153,153)
--------- --------
Total Liabilities and
Stockholders' Equity
(Impairment) $8,667,570 $5,432,277
========== ==========
4
<PAGE>
MARK SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
Six Months Six Months Three Months Three Months
Ended Ended Ended Ended
Dec. 31, 1997 Dec. 31, 1996 Dec. 31, 1997 Dec 31, 1996
------------- ------------- ------------- ------------
Revenues:
Sales $ 7,643,231 $ 1,695,207 $ 6,810,990 $ 1,385,849
Costs and Expenses:
Cost of sales 5,879,900 1,358,375 4,822,726 1,116,549
Selling, general,
and admin. expense 2,078,621 1,822,640 955,728 936,872
--------- --------- ------- -------
Total Costs
and Expenses 7,958,521 3,181,015 5,778,454 2,053,421
--------- --------- --------- ---------
Operating Income(loss) (315,290) (1,485,808) 1,032,536 (667,572)
Other Income (Expenses):
Interest income 846 17,146 797 7,464
Interest expense (229,193) (85,583) (32,616) (61,589)
Imputed Int. on
convertible debenture (160,157) (439,997) (64,064) (439,997)
Bad debt expense (29,372) (616)
Loss on disposal of
assets - (3,120) - (1,500)
-------------- ------------ ----------- ------------
(417,876) (511,554) (96,499) (495,622)
-------------- ------------- ----------- ------------
Net Income(Loss) $ (733,166) $ (1,997,362) $ 936,037 (1,163,194)
============== ============= ============ ============
BASIC EARNINGS
PER SHARE
Income(Loss)
per Share $ (0.05) (0.14) 0.06 (0.08)
============== ============== ============ ============
Weighted Average
Number of Shares
Outstanding 15,987,554 14,061,378 16,959,030 14,232,470
========== ========== ========== ==========
DILUTES EARNINGS
PER SHARE
Income (Loss)
per Share $ (0.05) (0.14) 0.05 (0.08)
============ ========= ========== ==========
Weighted Average
Number of Shares
Outstanding 15,987,554 14,061,378 18,193,375 14,232,470
========== ========== ========== ==========
5
<PAGE>
MARK SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Six Months Six Months
Ended Ended
Dec. 31, 1997 Dec. 31, 1996
------------- -------------
Cash Flows From Operating
Activities:
Net (loss) $ (733,166) $ (1,997,365)
Adjustments to reconcile
net (loss) to net
cash provided by (used for)
operating activities:
Depreciation and amortization 177,319 198,846
Accrued interest on debt
conversion - 9,477
Loss on disposal of assets - 3,120
Imputed interest expense on
convertible debt - 440,000
(Increase) decrease in assets:
Restricted cash - (1,907)
Accounts Receivables 872,392 (874,173)
Inventory (804,944) (537,675)
Other current assets 108,567 (68,320)
Other assets 12,118 (34,414)
Increase (decrease) in
liabilities:
Accounts payable 3,373,275 633,281
Due to related parties (102,339) 87,247
Accrued liabilities (108,500) (57,202)
-------- -------
Net adjustments to reconcile
net (loss) to net cash
provided by (used for)
operating activities 3,527,888 (201,720)
--------- --------
Net Cash Provided by
(Used for) Operating Activities 2,794,722 (2,199,085)
========= ==========
Cash Flows From Investing
Activities:
Acquisition of property and
equipment (87,958) (84,146)
--------------- --------------
Net Cash (Used for)
Investing Activities (87,958) (84,146)
--------------- -------------
Cash Flows From Financing
Activities:
Proceeds from issuance of
convertible debt - 2,200,000
Repayment of long term debt (444,050) -
Increase(decrease) of short
term borrowings (435,225) 13,086
Proceeds of equipment loans
less repayments 10,613 (8,386)
Repayment of notes payable
officer (24,837) -
Proceeds from issuance of
common stock 1,701,439 105,982
Debt issue costs (1,917) (162,700)
Payment of issuance costs - (21,279)
------------- --------------
Net Cash Provided by
Financing Activities 806,023 2,126,703
------------- -------------
Net Increase(Decrease) in Cash 3,512,787 (156,528)
Cash and Cash Equivalents
at Beginning of Period 422,457 263,922
------------- -------------
Cash and Cash Equivalents
at End of Period $ 3,935,244 $ 107,394
============= =============
6
<PAGE>
Note 1 INTERIM FINANCIAL INFORMATION
The consolidated balance sheet of the company as of December 31, 1997,
the consolidated statements of operations for the six months and three months
ended December 31, 1997 and 1996 and the consolidated statements of cash flows
for the three months ended December 31, 1997 and 1996 are unaudited and
have been prepared in accordance with generally accepted accounting principles
for interim finanical information and with the instructions to Form 10-Q and
Rule 10-01 of Regulation S-X. In the opinion of management all adjustments
(which include only normal recurring accruals) necessary to present fairly the
financial position, results of operations and cash flows have been included.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. The June 30, 1997 balance sheet data is derived
from the audited consolidated financial statements. The attached financial
statements should be read in connection with the consolidated financial
statements and notes thereto included in the Company's Annual Report on Form
10-K for the year ended June 30, 1997.
Certain reclassifications have been made to the current and prior year
amounts to conform to the current period presentation.
Note 2 INVENTORY
Inventories consist of the following:
December 31, 1997 June 30, 1997
------------------ -------------
Raw Materials $ 1,141,231 $ 300,888
Finished Goods - 35,399
-------------------- --------------
Total $ 1,141,231 $ 336,287
===================== ==============
Note 3 Common Stock and Additional Paid-In Capital
During the six months ended December 31, 1997, the Company issued 580,000
shares of common stock as a result of the exercise of warrants,
receiving gross proceeds of $1,516,250.
7
<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 steel 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
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 become profitable. In addition, the Company is promoting the
incorporation of its modular cell products to State prison industries to
capitalize on its New York State agreement. Since January 1, 1996, the Company
has reduced office staff. From January 1996 to September 1996, the Company
decided not to occupy factory space, but outsourced the manufacturing of its
small modular cell projects to third party manufacturers. The Company occupied
new factory facilities in October 1996. 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
major project, 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 anticipated would generate revenues of approximately
$50,000,000 over three years ending December 31, 1999. Because of an
unanticipated change by New York State to exclude steel cells on a current
prison project, the Company can no longer estimate the potential revenues to be
generated by this contract. Through June 30, 1997, revenues from this contract
were approximately $3,000,000. On August 25, 1997, the Company received an
additional order of approximately $12,000,000, which is scheduled to be
completed and billed by March 31, 1998.
The Company currently has bids pending on approximately $5,900,000 in
projects. For the six months ended December 31, 1997, the Company submitted bids
on approximately $18,000,000 in projects and remains under consideration for
$5,000,000 of these projects.
8
<PAGE>
Through its subsidiaries, MarkCare Medical Systems, Inc. and MarkCare
Medical Systems, Ltd. (collectively "MarkCare"), the Company continues to market
its IntraScan II PACS and teleradiology systems and is attempting to form
strategic alliances with other companies with related medical products.
Effective March 1996, the Company 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, 1998, 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 was derived from the sale of 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 June 30, 1998. For the three months ended December 31, 1997
sales of the modular steel products represented 100% of total revenues.
Revenues for the three months ended December 31, 1997 increased 391.0% to
$6,810,990 from $1,385,849 for the comparable 1996 period. This increase is
solely attributed to the previously awarded purchase order from New York State.
Cost of sales for the three months ended December 31, 1997, which consists
primarily of materials, labor, supplies, and fixed factory overhead expense,
increased 332% to $4,822,726 from $1,116,549 for the comparable 1996 period
reflecting the increase in sales. Cost of sales as a percentage of revenues was
71% for the three months ended December 31, 1997 as compared to 81% for the
comparable 1996 period. This decrease is attributable to efficiencies of running
such a large project. Management expects to achieve increased gross margins in
its steel business due to additional operating efficiencies implemented over the
last six months in the Companys new manufacturing facility.
Selling, general and administrative expenses for the three months ended
December 31, 1997 increased 2% to $955,728 from $936,872 for the comparable
1996. This stability is primarily attributable to the successful implementation
by management of cost controls over the past twelve months.
Revenues for the six months ended December 31, 1997 increased 351% to
$7,643,231 from $1,695,207 for the comparable 1996 period. For the six months
ended December 31, 1997, sales of the modular steel products represented 97.6%
of total revenues. This increase is attributed to the progress on five
previously awarded projects, including $6,866,000 on the most recent New York
State purchase order.
9
<PAGE>
Cost of sales for the six months ended December 31, 1997, increased 333% to
$5,879,900 from $1,358,375 for the comparable 1996 period reflecting the
increase in sales. Cost of sales as a percentage of revenues was 77% for the six
months ended December 31, 1997 as compared to 80% for the comparable 1996
period. This decrease is attributable to efficiencies associated with the New
York State project.
Selling, general and administrative expenses for the six months ended
December 31, 1997 increased 14% to $2,078,621 from $1,822,640 for the comparable
1996. This increase is primarily attributable to an increase in selling expenses
related to the MarkCare products, including staff expenses, travel and
promotional activities and the administrative expenses associated with the
operation of its factories for the modular cells.
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 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 to meet its working capital deficiencies, although no assurance
can be given that such financing will be available. The Company believes its
present available working capital and anticipated cash from its existing
contracts is sufficient to meet its operating requirements through December 31,
1998. The Company obtained a $400,000 revolving line of credit collateralized by
substantially all of its assets and has no outstanding borrowings at February 4,
1998. To the extent it requires additional capital, the Company will continue to
principally look to private sources.
For the six months ended December 31, 1997, the Company sold 580,000 shares
of Common Stock pursuant to the exercise of warrants raising gross proceeds of
$1,516,250.
The Company presently has an effective registration statement relating to
763,425 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 $1,141,231 at December 31, 1997 from
$336,287 at June 30, 1997 due to raw material purchases and component purchases
for the increased production volume.
Cash and cash equivalents increased from $422,457 at June 30, 1997 to
$3,935,244 at December 31, 1997 primarily due to the collection of receivables
generated from its New York State contract and the proceeds from the exercise of
warrants and options. Working capital increased to $1,993,174 at December 31,
1997 from $923,457 at June 30, 1997 primarily due to profits generated and
warrant and option proceeds during the six months ended December 31, 1997.
10
<PAGE>
Forward Looking Statements
Except for the historical information contained herein, the matters
discussed in this report are forward looking statements under the Federal
securities laws that involve risks and uncertainties that could cause actual
results to differ materially from those projected. Such risks and uncertainties
include, among other things, changes to delivery schedules for the New York
State purchase order, collection risks, meeting financing requirements, ability
to obtain materials and the uncertainty of sales of the IntraScan product.
PART II - OTHER INFORMATION
Item 2. Changes in Securities
On December 4, 1997, the Companys stockholders approved an increase in the
Companys authorized shares from 25,000,000 to 50,000,000 shares of Common
Stock. See Item 4 of this report.
The following sets forth information regarding the private placement of
equity securities by the Company during the six months ended December 31, 1997:
On September 3, 1997, the Company reduced the exercise price of certain
outstanding warrants, which were issued to four persons for investor relations
and financial banking consulting services from $5.00 per share. The exercise
price of warrants to purchase 250,000 shares of Common Stock was reduced to
$2.75 per share and the exercise price of warrants to purchase 150,000 shares of
Common Stock was reduced to $2.50 per share.
On December 4, 1997, the Company modified and issued certain warrants and
options as follows:
1. The Company extended the expiration date of its publicly
traded Class A warrants from December 31, 1997 to June
30, 1998. These warrants are exercisable at $3.25 per share.
2. The Company extended the expiration date of outstanding
warrants to purchase 140,000 shares of Common Stock at $2.00
per share from December 31, 1997 to June 30, 1998. These
warrants were previously issued to three individuals in
connection with a private placement financing in 1995.
3. The Company reduced the exercise price of certain warrants to
purchase 50,000 shares of Common Stock at $5.75 per share
and 50,000 shares of Common Stock at $5.125, to $2.625 per
share. These warrants have an expiration date in September
1998 and were previously issued to two individuals for
investor relations and sales consulting services.
11
<PAGE>
4. The Company issued three-year options to purchase 454,000
shares of Common Stock at $2.875 per share to its employees
as incentive compensation.
5. The Company issued warrants to purchase 230,000 shares of
Common Stock to four consultants for investment banking and
legal services. The terms of the warrants is as follows:
Shares Subject Exercise
To Option Price Term in Years
---------- --------- -------------
35,000 $2.875 Two
100,000 4.00 Two
75,000 3.25 Two
20,000 2.875 Three
6. The Company issued to each of its four outside directors
five-year options to purchase 100,000 shares of Common Stock
for serving on the Board of Directors. Options to purchase
300,000 shares are exercisable at $2.875 per share and
options to purchase 100,000 are exercisable at $3.375 per share.
Each of the foregoing transactions was effected in reliance on the
registration exemption provided by Section 4(2) of the Securities Act of 1933 as
not involving a public offering due to the limited nature of each transaction,
the sophistication of certain of the recipients and the recipients' relationship
with the Company.
Item 4. Submission of Matters to a Vote of Security-Holders.
On December 4, 1997, the Company held its Annual Meeting of Shareholders
(the "Annual Meeting") at which directors were elected and the increase in
authorized shares from 25,000,000 shares of Common Stock to 50,000,000 shares of
Common Stock was approved. The vote for the foregoing matters was as follows:
1. Election of Directors
---------------------
Except for Mr. Yitz Grossman, each of the directors was re-elected.
Name Votes for Votes Against
- ---- ---------- -------------
Carl Coppola 14,391,344 311,115
Richard Branca 14,391,474 310,985
Ronald E. Olszowy 14,391,424 311,035
William Westerhoff 14,385,474 316,985
Michael Nafash 14,362,918 339,541
Yitz Grossman 14,395,224 307,235
12
<PAGE>
2. Approval of an Increase in Authorized Shares from 25,000,000 shares of
---------------------------------------------------------------------------
Common Stock to 50,000,000 shares of Common Stock
-------------------------------------------------
Votes For 13,525,357
Votes Against 1,069,597
Abstain 107,505
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: February 12, 1998
MARK SOLUTIONS, INC.
By:/s/ Michael Nafash
---------------------
Chief Financial Officer
13
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> DEC-31-1997
<CASH> 3,935,244
<SECURITIES> 0
<RECEIVABLES> 2,312,036
<ALLOWANCES> 5,500
<INVENTORY> 1,141,231
<CURRENT-ASSETS> 7,505,192
<PP&E> 2,527,706
<DEPRECIATION> 2,164,838
<TOTAL-ASSETS> 8,667,570
<CURRENT-LIABILITIES> 5,512,018
<BONDS> 0
0
0
<COMMON> 169,972
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 8,667,570
<SALES> 6,810,990
<TOTAL-REVENUES> 6,810,990
<CGS> 4,822,726
<TOTAL-COSTS> 956,344
<OTHER-EXPENSES> 63,267
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 32,616
<INCOME-PRETAX> 936,037
<INCOME-TAX> 0
<INCOME-CONTINUING> 936,037
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 936,037
<EPS-PRIMARY> .06
<EPS-DILUTED> .05
</TABLE>
