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: September 30, 1998
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
----- SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number: 0-17118
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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
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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: 19,296,674 shares outstanding as of November 13,
1998.
<PAGE>
MARK SOLUTIONS, INC.
Form 10-Q
for
Quarter Ended September 30,1998
Index
Part I. Financial Information Page No.
Item 1. Financial Statements
Consolidated Balance Sheets as of
September 30, 1998 and June 30, 1998 ............ 3-4
Consolidated Statements of Operations
for the Three Months Ended September 30, 1998
and September 30, 1997 ......................... 5
Consolidated Statements of Cash Flows
for the Three Months Ended September 30,
1998 and September 30, 1997..................... 6
Notes to Consolidated Financial Statements ......... 7-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations... 9
Part II. Other Information
Item 2. Changes in Securities and Use of Proceeds .......... 11
Item 6. Exhibits and Reports on Form 8-K ................... 11
Signatures 12
2
<PAGE>
Mark Solutions, Inc. and Subsidiaries
Consolidated Balance Sheet
ASSETS
<TABLE>
<CAPTION>
September 30, 1998 June 30, 1998
------------------ -------------
Current Assets:
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 1,620,680 $ 564,577
Restricted cash - 1,234,005
Subscriptions receivable - 1,231,000
Accounts receivable, less allowance of
$5,500 at September 30, and June 30,1998 1,207,310 623,912
Due from officer - 102,058
Inventories 856,314 112,474
Other current assets 430,264 208,377
----------- -----------
Total Current Assets 4,114,568 4,076,403
Property and equipment, net 587,673 438,612
Other Assets:
Cost in excess of net assets
of business acquired less accumulated
amortization of $489,858 and $437,373 at
September 30 and June 30, 1998,
respectively 559,833 612,318
Other assets 47,119 46,768
----------- -----------
Total Other Assets 606,952 659,086
----------- -----------
Total Assets $ 5,309,193 $ 5,174,101
=========== ===========
</TABLE>
-3-
<PAGE>
Mark Solutions, Inc. and Subsidiaries
Consolidated Balance Sheet
Liabilities and Stockholders' Equity
<TABLE>
<CAPTION>
September 30, 1998 June 30, 1998
------------------ -------------
Current Liabilities:
<S> <C> <C> <C> <C>
Accounts payable 1,078,848 $ 715,642
Current maturities of long-term debt 108,367 108,171
Current portion of obligations
under capital leases 27,810 19,418
Due to related parties 79,909 14,693
Deferred revenues 206,082 -
Accrued liabilities 113,893 140,262
---------- ----------
Total Current Liabilities 1,614,909 998,186
Other Liabilities:
Long-term debt excluding current maturities 1,084,218 1,029,385
Long-term portion of obligations under
capital leases 41,010 31,031
---------- ----------
Total Other Liabilities 1,125,228 1,060,416
Commitments and Contingencies - -
Temporary Equity 1,220,000 1,220,000
Stockholders' Equity:
Common stock, $.01 par value,
50,000,000 shares authorized,
19,296,674 shares issued and
outstanding at September 30 and
June 30, 1998, respectively 192,967 192,967
Additional paid-in capital 31,812,146 31,846,556
Deficit (30,645,839) (30,144,024)
Treasury Stock (10,218) -
---------- ----------
Total Stockholders' Equity 1,349,056 1,895,499
---------- ----------
Total Liabilities and Stockholders' Equity $5,309,193 $5,174,101
========== ==========
</TABLE>
4
<PAGE>
Mark Solutions, Inc. and Subsidiaries
Consolidated Statement of Operations
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
September 30, 1998 September 30, 1997
------------------ ------------------
<S> <C> <C>
Revenues:
Sales $ 688,861 $ 832,241
-------------- --------------
Costs and Expenses:
Cost of sales 414,851 1,227,587
Selling, general, and
administrative expenses 737,790 952,480
-------------- --------------
Total Costs and Expenses 1,152,641 2,180,067
-------------- --------------
Operating (Loss) (463,780) (1,347,826)
-------------- --------------
Other Income (Expenses):
Interest income 28,224 -
Interest expense (11,426) (196,577)
Imputed Interest expense on
convertible debentures (54,833) (96,093)
Bad debt expense - (28,756)
-------------- --------------
(38,035) (321,426)
-------------- --------------
Net (Loss) $ (501,815) $ (1,669,252)
============== ==============
Basic (Loss) per Share $ (0.03) $ (0.11)
============== ==============
Weighted Average Number of
Shares Outstanding 19,281,674 15,016,078
============== ==============
</TABLE>
5
<PAGE>
Mark Solutions, Inc. and Subsidiaries
Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
September 30, 1998 September 30, 1997
------------------ --------------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net (loss) $ (501,815) $(1,669,203)
Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities:
Depreciation and amortization 74,827 84,075
Deferred Imputed interest on convertible debentures 54,833 -
(Increase) decrease in assets:
Restricted cash 1,234,005 (137,500)
Accounts Receivable (583,398) 1,373,140
Inventory (743,840) (365,071)
Other current assets (119,829) 57,007
Other assets (351) (15,167)
Increase (decrease) in liabilities:
Accounts payable 363,206 300,294
Due to related parties 65,216 (33,677)
Increase in deferred revenue 206,082 -
Accrued liabilities (26,369) (34,896)
Net adjustments to reconcile net (loss) to net cash
--------------- -------------
provided by operating activities 524,382 1,228,205
Net Cash Provided by
--------------- -------------
(Used for) Operating Activities 22,567 (440,998)
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Cash Flows From Investing Activities:
Acquisition of property and equipment (171,403) (12,097)
Net Cash (Used for)
--------------- -------------
Investing Activities (171,403) (12,097)
--------------- -------------
Cash Flows From Financing Activities:
Collection of subscriptions receivable 1,231,000 -
Repayment of convertible debt - (441,296)
Increase in short term borrowings - (394,840)
Proceeds of equipment loans less repayments 18,567 7,580
Repayment of notes payable officer - (19,887)
Proceeds from issuance of common stock - 1,648,908
Debt issue costs - (1,917)
Payment of stock related costs (34,410) -
Purchase of treasury stock (10,218) -
--------------- -------------
Net Cash Provided by Financing Activities 1,204,939 798,548
--------------- -------------
Net Increase in Cash 1,056,103 345,453
Cash and Cash Equivalents at Beginning of Period 564,577 422,457
--------------- -------------
Cash and Cash Equivalents at End of Period $ 1,620,680 $ 767,910
=============== =============
</TABLE>
6
<PAGE>
Note 1 INTERIM FINANCIAL INFORMATION
The consolidated balance sheet of the Company as of September 30, 1998, the
consolidated statements of operations for the three months ended September 30,
1998 and 1997 and the consolidated statements of cash flows for the three months
ended September 30, 1998 and 1997 are unaudited and have been prepared in
accordance with generally accepted accounting principles for interim financial
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 accurals) 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, 1998 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 hereto included in the Company's Annual Report on Form 10-K
for the year ended June 30, 1998.
Certain reclassifications have been made to the current and prior year
amounts to conform to the current period presentation.
Note 2 INVENTORIES
Inventories consist of the following:
September 30, 1998 June 30, 1998
------------------ -------------
Raw Materials $ - $ 84,974
Work-in-progress $ 828,814 $ -
Finished Goods $ 27,500 $ 27,500
--------- --------
Total $ 856,314 $112,474
========= ========
7
<PAGE>
Note 3 COMMON STOCK AND ADDITIONAL PAID-IN CAPITAL
Basic earnings (loss) per common share is computed by dividing the net earnings
by the weighted average number of shares of common stock outstanding during the
period. Dilutive earnings per share gives effect to stock options and warrants
which are considered to be dilutive common stock equivalents. Basic and dilutive
loss per share were equivalent for all periods presented. Earnings per share
have been retroactively restated to reflect FASB No. 128 for all prior periods
presented.
Note 4 TEMPORARY EQUITY
Due to issues regarding certain terms of the June 1998 Private Placement, each
of the investors is an "underwrtirer" of the 1,220,000 Private Placement Shares
in connection with any resale and has rescission rights through November 4,
1999. If any of the investors assert rescission rights and ultimately prevail,
the investors would be entitled to (i) return the Private Placement Shares,
related Warrants and the rights to the Adjustment Shares, if any, and receive a
refund of their purchase price of $1,220,00 plus interest or (ii) if the Private
Placement Shares, related Warrants and the rights to the Adjustment Shares, if
any, are sold, sue for the difference between the purchase price of $1,220,00
and the sales price of these securities. Accordingly, $1,220,000 of the proceeds
from the Private Placement has been classified in the COnsolidated Balance Sheet
at September 30, 1998 as "Temporary Stockholders Equity" and such classification
will continue to the expiration of the potential rights.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
Mark Solutions Inc.'s ("Mark") 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 Mark's products and the
emergence of competition.
Mark's modular steel cells represent an alternative to traditional
construction methods, and penetration into the construction market has met
resistance typically associated with an unfamiliar product. Accordingly, Mark
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, Mark'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.
Mark 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 achieve profitability. In addition, Mark is promoting the
incorporation of its modular cell products to state prison industries programs
to capitalize on its New York State agreement. Mark will continue to review its
overhead and personnel expenses based on operating results and prospects.
Mark is continually bidding on and soliciting joint venture opportunities
regarding construction projects. The anticipated revenues from any major project
would substantially improve Mark's operating results and cash flow, although no
assurances can be given that any of these projects will be awarded to Mark.
Mark currently has bids pending on approximately $11,500,000 in modular
cell projects. Mark bid on $8,200,000 in correctional cell projects during the
three months ended September 30 ,1998, won $210,000, lost $3,400,000 and remains
under consideration for $4,600,000.
Through its subsidiaries, MarkCare Medical Systems Inc. and MarkCare
Medical Systems Ltd., (collectively "MarkCare"), Mark continues to market its
IntraScan II PACS and teleradiology systems and is forming strategic alliances
with other companies with related medical products. Mark has a master supplier
agreement with Data General Corporation, a large computer hardware and systems
integration provider with a client base of over 1,000 installations to which
Data General will include the IntraScan II PACS system and teleradiology
software applications in proposals to healthcare institutions. Mark has recently
signed licensing/marketing agreements with six (6) companies including SANTAX
A/S, Worldcare UK, Ltd., and Konica UK, Ltd. Management anticipates that sales
of the IntraScan II PACS system will begin to generate material revenues in the
fiscal year ending June 30, 1999, although no assurances can be given in this
regard. If the IntraScan II marketing plan is successful, management believes
that the revenues from resulting sales will be more constant than those
9
<PAGE>
presently generated by the modular steel products, and will reduce fluctuations
in Mark's results of operations and financial condition. During the period ended
September 30, 1998, Mark has received two (2) orders for its IntraScan II
software. Both installations are expected to be substantially completed by
December 31, 1998.
Results of Operations
The substantial majority of Mark'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 Mark's operating revenue
through June 30, 1999. For the three months ended September 30, 1998 sales of
the modular steel products represented 83% of total revenues.
Revenues for the three months ended September 30, 1998 decreased 17% to
$688,861 from $832,241 for the comparable 1997 period.
Cost of sales for the three months ended September 30, 1998, which consists
primarily of materials, labor, supplies, and fixed factory overhead expense,
decreased 66% to $414,851 from $1,227,587 for the comparable 1997 period. Cost
of sales as a percentage of revenues was 60% for the three months ended
September 30, 1998 as compared to 148% for the comparable 1997 period. This
decrease is attributable to operating efficiencies implemented at Mark's
manufacturing facility over the past year and better plant management during
slowdowns in projects.
Selling, general and administrative expenses for the three months ended
September 30, 1998 decreased 23% to $737,790 from $952,480 for the comparable
1997. Reduction of these costs are attributable to management's continued focus
on cost controls.
Liquidity and Capital Resources
Mark's working capital requirements result principally from staff and
management overhead, and marketing efforts. Mark's working capital requirements
have historically exceeded its working capital from operations due to sporadic
sales. Accordingly, Mark has been dependent and, absent continued 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.
Cash and cash equivalents increased from $564,577 at June 30, 1998 to
$1,620,680 at September 30, 1998 primarily due to proceeds from the completion
of a private placement, offset by losses incurred during the period. Working
capital decreased to $2,499,659 at September 30, 1998 from $3,078,217 at June
30, 1998 primarily due to losses incurred during the period. Mark believes its
present available working capital and anticipated cash from its existing
contracts is sufficient to meet its operating requirements through June 30,
1999. In addition, Mark has renewed a $400,000 revolving line of credit
collateralized by substantially all of its assets and has no outstanding
borrowings at November 13, 1998.
10
<PAGE>
Mark's inventory increased to $856,314 at September 30, 1998 from $112,474
at June 30, 1998 due to raw material purchases and component purchases for jobs
currently in production. Accounts receivable increased by $583,398 for the
period ended September 30, 1998 to $1,207,310. In addition, accounts payable
increased by $363,206 for the same period.
Forward Looking Statements
Except for the historical information contained herein, the matter
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, competition, collection risks, meeting financial
requirements, ability to obtain materials and the uncertainty of sales of the
IntraScan II PACS product line.
Year 2000 Disclosure
After an evaluation and analysis of its operations, including its financial
and operational computer systems applications, Mark has concluded no material
adverse effects on its operations will occur due to Year 2000 software failures.
To the extent modifications to such systems are required, management believes
the related costs will not materially affect Mark's financial position.
PART II
OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds.
On September 17, 1998, Mark granted three-year options to purchase 859,000
shares of Common Stock at $1.00 per share to 16 employees as incentive
compensation. Each of the grants 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 the offering and the
individual's relationship with Mark.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Exhibit Description
27.1 Financial Data Schedule
(b) Reports on Form 8-K for the Quarter ending September 30, 1998
None
11
<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: November 13, 1998
MARK SOLUTIONS INC.
By:/s/Michael Nafash
-----------------------
Chief Financial Officer
12
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,620,680
<SECURITIES> 0
<RECEIVABLES> 1,212,810
<ALLOWANCES> 5,500
<INVENTORY> 856,314
<CURRENT-ASSETS> 4,114,568
<PP&E> 2,842,216
<DEPRECIATION> 2,254,543
<TOTAL-ASSETS> 5,309,193
<CURRENT-LIABILITIES> 1,614,909
<BONDS> 1,125,228
0
0
<COMMON> 192,967
<OTHER-SE> 1,156,419
<TOTAL-LIABILITY-AND-EQUITY> 5,309,193
<SALES> 688,861
<TOTAL-REVENUES> 688,861
<CGS> 414,851
<TOTAL-COSTS> 1,232,641
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,426
<INCOME-PRETAX> (501,815)
<INCOME-TAX> 0
<INCOME-CONTINUING> (501,815)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (501,815)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
