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, 1999
------------------
_____ 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: 5,629,997 shares outstanding as of November 12,
1999.
<PAGE>
MARK SOLUTIONS, INC.
Form 10-Q
for
Quarter Ended September 30,1999
Index
Part I. Financial Information Page No.
Item 1. Financial Statements
Consolidated Balance Sheets as of
September 30, 1999 and June 30, 1999. . . 3-4
Consolidated Statements of Operations
for the Three Months Ended
September 30, 1999 and 1998 . . . . . . . . 5
Consolidated Statements of Cash Flows
for the Three Months Ended September 30,
1999 and 1998 . . . . . . . . . . 6
Notes to Consolidated Financial Statements . . . 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. . 8
Part II. Other Information
Item 2. Changes in Securities and Use of Proceeds . . . 12
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . 14
Signatures 14
2
<PAGE>
<TABLE>
<CAPTION>
Mark Solutions, Inc. and Subsidiaries
Consolidated Balance Sheet
Assets
September 30, 1999 June 30, 1999
------------------ -------------
<S> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents $ 117,189 $ 298,167
Note receivable 250,000 250,000
Account receivable 4,476,594 4,744,459
Costs and estimated earnings in excess of
billings on uncompleted contracts 713,826 1,006,955
Deferred tax asset 500,000 500,000
Prepaid expenses 69,810 64,706
---------- ----------
Total Current Assets 6,127,419 6,864,287
Property and equipment, net 1,385,784 1,224,110
Other Assets:
Cost in excess of net assets
of business acquired less accumulated
amortization of $699,798 and $647,313 at
September 30 and June 30, 1999,
respectively 349,893 402,378
Deferred tax asset 500,000 500,000
Other assets 80,804 79,939
--------- ----------
Total Other Assets 930,697 982,317
---------- -----------
Total Assets $8,443,900 $9,070,714
========== ===========
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Mark Solutions, Inc. and Subsidiaries
Consolidated Balance Sheet
Liabilities and Stockholders' Equity
September 30, 1999 June 30, 1999
------------------ -------------------
<S> <C> <C> <C> <C>
Current Liabilities:
Accounts payable $ 3,192,615 $ 3,617,608
Current maturities of long-term debt 577,590 365,000
Current portion of obligations under capital leases 80,544 87,292
Due to related parties 159,546 177,977
Notes payable to officers/stockholders 100,000 375,000
Deferred revenues - 655,874
Litigation settlement 300,000 300,000
Accrued liabilities 253,026 253,299
----------- -----------
Total Current Liabilities 4,663,321 5,832,050
Other Liabilities:
Long-term debt excluding current maturities 154,891 369,961
Long-term portion of obligations under capital leases 131,197 135,017
----------- -----------
Total Other Liabilities 286,088 504,978
Commitments and Contingencies 275,000 -
Stockholders' Equity:
Common stock, $.01 par value, 50,000,000
shares authorized, 5,629,997 and 5,525,296
shares issued and outstanding at September 30,
and June 30, 1999, respectively 56,300 55,253
Preferred stock, $1.00 par value, $10 liquidation
value; 5,000,000 shares authorized:
Series A; authorized and issued 122,000 shares;
21,686 and 24,000 outstanding at September
30, 1999 and June 30, 1999 respectively 22,321 24,000
Series B; authorized and issued 153,000
shares; 6,000 outstanding at September
30, 1999 and June 30, 1999 respectively 6,000 6,000
Series D; authorized and issued 20,000 shares;
20,000 and -0- outstanding at September
30, 1999 and June 30, 1999 respectively 20,000 -
Additional paid-in capital 34,736,284 34,432,927
Deficit (31,783,838) (31,916,792)
Accumulated other comprehensive income 213,126 183,000
Treasury stock, at cost; 17,500 shares at
September 30 and June 30, 1999 (50,702) (50,702)
----------- -----------
Total Stockholders' Equity 3,219,491 2,733,686
Total Liabilities and Stockholders' Equity $8,443,900 $9,070,714
========== ==========
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Mark Solutions, Inc. and Subsidiaries
Consolidated Statements of Operations
Three Months Three Months
Ended Ended
September 30, 1999 June 30, 1999
------------------ -------------------
<S> <C> <C>
Revenues:
Sales $ 3,997,441 $ 688,861
----------- -----------
Costs and Expenses:
Cost of sales 2,166,194 347,552
General, and
administrative expenses 675,006 350,443
Marketing costs 318,163 198,593
Software costs 275,526 158,743
Amortization expense 52,485 52,485
Litigation settlement 275,000 2,000
Consulting fees 72,168 42,825
----------- -----------
Total Costs and Expenses 3,834,542 1,152,641
----------- -----------
Operating Income(Loss) 162,899 (463,780)
----------- -----------
Other Income (Expenses):
Interest income 6,453 28,224
Interest expense (36,398) (11,426)
Imputed Interest expense on
convertible debentures - (54,833)
----------- -----------
(29,945) (38,035)
----------- ------------
Net Income(Loss) $ 132,954 $ (501,815)
=========== ============
Basic Income(Loss) per Share $ 0.02 $ (0.10)
=========== ============
Fully Diluted Income (Loss) per Share $ 0.02 $ (0.10)
=========== ============
Weighted Average Number of
Basic Shares Outstanding 5,535,999 4,820,419
=========== ============
Weighted Average Number of
Fully Diluted Shares Outstanding 6,498,742 4,820,419
=========== ============
Dividends Paid $ - $ -
=========== ============
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Mark Solutions, Inc. and Subsidiaries
Consolidated Statements of Operations
Three Months Three Months
Ended Ended
September 30, 1999 June 30, 1999
------------------ -------------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income(loss) $ 132,954 $ (501,815)
Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities:
Depreciation and amortization 162,614 74,827
Deferred Imputed interest on convertible debentures - 54,833
Securities issued for services 120,982 -
(Increase) decrease in assets:
Restricted cash - 1,234,005
Accounts Receivable 267,865 (583,398)
Inventory - (743,840)
Billing in excess of contract revenue recognized 293,129 -
Other current assets (5,104) (119,829)
Other assets (865) (351)
Increase (decrease) in liabilities:
Accounts payable (424,993) 363,206
Due to related parties (18,431) 65,216
Deferred revenue (655,874) 206,082
Accrued liabilities (273) (26,369)
Commitments and contingencies 275,000 -
Net adjustments to reconcile net income(loss) to
----------- ----------
net cash (used for) provided by operating activities 14,050 524,382
Net Cash Provided by
----------- ----------
Operating Activities 147,004 22,567
----------- ----------
Cash Flows From Investing Activities:
Acquisition of property and equipment (241,767) (171,403)
Net Cash (Used for)
----------- ----------
Investing Activities (241,767) (171,403)
----------- ----------
Cash Flows From Financing Activities:
Collection of subscriptions receivable - 1,231,000
Proceeds from sale of Stock 200,000 -
Proceeds of equipment loans less repayments (13,048) 18,567
Repayment of notes payable officer (375,000) -
Proceeds from notes payable officer 100,000 -
Refund of stock related costs 1,833 (34,410)
Purchase of treasury stock - (10,218)
----------- ----------
Net Cash (Used for) Provided by Financing Activities (86,215) 1,204,939
----------- ----------
Net (decrease)increase in Cash (180,978) 1,056,103
Cash and Cash Equivalents at Beginning of Period 298,167 564,577
----------- ----------
Cash and Cash Equivalents at End of Period $ 117,189 $1,620,680
=========== ==========
</TABLE>
6
<PAGE>
Mark Solutions, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 1 INTERIM FINANCIAL INFORMATION
The consolidated balance sheet of the Company as of September 30, 1999, the
consolidated statement of operations for the three months ended September
30, 1999 and 1998 and the consolidated statements of cash flows for the
three months ended September 30, 1999 and 1998 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 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, 1999 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, 1
Certain reclassifications have been made to the current and prior year
amounts to conform to the current period presentation.
Note 2 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. Earnings per share have been retroactively restated to reflect
FASB No. 128 for all prior periods presented.
7
<PAGE>
Note 3 SEGMENT INFORMATION
The company's two industry segments are modular steel cells for the
corrections industry and software applications for the medical industry.
The following is a summary of selected consolidated financial information
for the Company's industry segments:
<TABLE>
<CAPTION>
Modular
Steel Medical Intersegment
Products Products Charges Total
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Quarter Ended September 30, 1999
Revenues $ 3,038,253 $ 959,188 $ - $ 3,997,441
Interest income 161,357 85 (154,989) 6,453
Interest expense 35,917 155,470 (154,989) 36,398
Depreciation and amortization 71,164 38,965 52,485 162,614
Segment pre-tax profit 338,059 (152,621) (52,485) 132,953
Segment assets 15,962,235 1,114,027 (8,632,362) 8,443,900
Capital expenditures 136,161 25,513 - 161,674
Quarter Ended September 30, 1998
Revenues $ 573,041 $ 115,820 $ - $ 688,861
Interest income 139,242 464 (111,482) 28,224
Interest expense 64,026 113,715 (111,482) 66,259
Depreciation and amortization 4,407 17,935 52,485 74,827
Segment pre-tax profit 88,018 (537,348) (52,485) (501,815)
Segment assets 10,662,746 764,991 (6,118,544) 5,309,193
Capital expenditures 171,403 - - 171,403
</TABLE>
The following table presents revenues by country based on the location of
the use of the product or service:
9/30/99 9/30/98
------- -------
United States $ 3,138,253 $ 688,861
Norway 667,500 -
Other 191,688 -
----------- -----------
$ 3,997,441 $ 688,861
=========== ===========
The following table presents long-lived assets by country based on the
location of the assets:
9/30/99 9/30/98
------- -------
United States $ 1,120,324 $ 540,399
United Kingdom 279,904 47,275
----------- -----------
$ 1,400,228 $ 587,674
=========== ===========
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
Mark's results of operations, liquidity, and working capital position
have been historically impacted by sporadic sales of its principal products,
modular steel cells and IntraScan II PACS software.
Mark's modular steel cell is 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 sales fluctuations until its modular cell
technology obtains broader acceptance in the construction market. Based on the
increase in the number of projects being designed for steel cells, management
believes its cell are receiving greater market acceptance as a viable
alternative to concrete. Mark continues to promote it steel cells to the
architectural, engineering, and construction communities by making sales
presentations, participating in trade shows, conducting selected direct mail
campaigns and engaging in other marketing activities.
Mark has increased its cell marketing spending to more aggressively
pursue projects and to persuade the construction industry to increase the use of
steel cells. Mark believes this investment has been successful to date and is
necessary to achieve profitability. 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. Mark currently has bids pending
on approximately $2,000,000 in modular cell projects. Mark also expects to bid
on approximately $50,000,000 in additional cell projects, which are specified
steel only, and $20,000,000, which include steel as an equal to concrete during
the fiscal year ended June 30, 2000. 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.
For the three months ended September 30, 1999, Mark was awarded all of
the $856,440 in correctional cell projects it bid on. Mark currently has bids
pending on $1,153,845 in additional correctional cell projects through September
30, 1999.
MarkCare markets the IntraScan II PACS software as part of
comprehensive PACS proposals made by MarkCare's strategic partners. MarkCare's
principal marketing partner is Data General Corporation, a subsidiary of EMC
Corporation. In response to increased interest from its strategic partners and
prospective customers, MarkCare accelerated its development and marketing
efforts. Sales of the IntraScan II PACS software began to generate material
revenues in the fiscal year ended June 30, 1999 and management expects these
revenues to increase during fiscal 2000 although no assurances can be given in
this regard. If the IntraScan marketing plan is successful, management believes
9
<PAGE>
that the revenues will be more constant then those presently generated by
modular steel cell sales, and will reduce fluctuations in Mark's consolidated
results of operations and financial condition.
Results of Operations
The substantial majority of Mark's operating revenues for the reported
periods were derived from the sale of its modular steel cells. For the quarter
ended September 30, 1999, modular steel cells represented 76% of total operating
revenue. Management believes that the sale of cells will continue to represent a
majority of Mark's operating revenues through June 30, 2000.
Revenues from sales for the three months ended September 30, 1999,
increased 480.3% to $3,997,441 from $688,861 for the comparable period. This
increase is attributable to increases in both modular steel cell and IntraScan
II PACS software projects.
Cost of sales for the three months ended September 30, 1999, consisting
of materials, labor and fixed factory overhead expense increased by 803.6% to
$2,166,194 from $347,552 for the comparable period. Cost of sales as a
percentage of revenues was 54.1% for the quarter ended September 30, 1999 as
compared to 50.5% for the prior comparable period. This change is due to lower
margins in its modular steel cell business, which represented a larger
percentage of revenue for the quarter ended September 30, 1999 as compared to
the prior year.
General and administrative expenses for the three months ended
September 30, 1999, increased 92.6% to $675,006 from $350,443 for the comparable
period. The increase is attributable to the additional staffing in response to
sales growth and prospects in both business segments.
Marketing costs for the three months ended September 30, 1999,
increased 60.2% to $318,163 from $198,593 for the comparable period. This
increase in due to the expanded marketing efforts for its two products, modular
steel cells and IntraScan II PACS software
Development costs for the three months ended September 30, 1999 related
to IntraScan II PACS software, increased 73.6% to $275,526 from $158,743 for the
comparable period. This increase is due to management's decision to focus
working capital on IntraScan II PACS software and related items in response to
increased interest from distributors and potential customers.
10
<PAGE>
Liquidity and Capital Resources
Mark's working capital requirements result principally from staff and
management overhead, office expense and marketing efforts. Mark's working
capital requirements have historically exceeded its working capital from
operations due to sporadic sales. Accordingly, Mark has depended on and, absent
continued improvements in operations, will depend on new capital in the form of
equity or debt financing to meet its working capital deficiencies, although no
assurances can be given that such financing will be available. Mark believes its
present available working capital from existing contracts and from anticipated
contracts is sufficient to meet its operating requirements through June 30,
2000. If Mark requires additional capital, it will continue to principally look
to private sources.
Mark did not maintain any inventory at September 30, 1999 or June 30,
1999. Mark currently accounts for all materials as project costs as reflected by
the recording of Costs and estimated earnings in Excess of Billings. While Mark
presently does not have any material commitments for capital expenditures,
management believes that its working capital requirements for inventory and
other manufacturing related costs will significantly increase with increases in
product orders.
For the three months ended September 30, 1999, Mark had cash flow from
operating activities of $147,004. For the three months ended September 30, 1999,
Mark had negative cash flow from investing activities of $241,767 the majority
of which is attributable to the purchase of property and equipment. Mark has no
present intention of making any acquisition, which would have a material
negative or positive effect on cash flow.
For the three months ended September 30, 1999, financing activities
used $86,215 in cash, principally to repay short-term loans from officers on
September 1, 1999.
Cash and cash equivalents decreased from $298,167 at June 30, 1999 to
$117,189 at September 30, 1999 due to the repayment of short-term loans from
officers. Working capital increased to $1,464,098 at September 30, 1999 from
$1,032,237 at June 30, 1999 primarily due to profits recorded by Mark during the
period.
On July 1, 1999, Mark borrowed $200,000 payable on or before September
1, 1999 at an annual interest rate of 10%. The loan agreement provided that upon
failure to repay, the loan would be converted into a Preferred Stock which is
convertible into shares of Common Stock at a rate of 70% of the average closing
bid price the five trading days immediately preceding the conversion dates.
(See Part II - Item 2).
11
<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 law. These statements are based on current plans and expectations of
Mark and involve risks and uncertainties that could cause actual future
activities and results of operations to be materially different from those set
forth in the forward-looking statements. Important factors that could cause
actual results to differ include whether cell and PACS projects are awarded to
Mark and the timing of their completion, meeting current and future financial
requirements, competition and changes in PACS related technology.
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 effect on its operations will occur due to Year 2000 software
failures. To the extent modifications 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 23, 1999, Mark agreed to issue 20,000 shares of Series D
Preferred Stock ("D Preferred Stock") to one investor in exchange for a $200,000
convertible promissory note. The terms of the Series D Preferred Stock are as
follows:
Conversion Rights. Each share of D Preferred Stock is convertible, at
the option of the holder, into shares of Common Stock equal to $10.00 per share
divided by 70% of the average per share closing bid price of the Common Stock
for the five trading days immediately preceding the conversion date(s).
Redemption Rights. Mark has the option to redeem all or part of the D
Preferred Stock any time after September 30, 2000 at $10.00 per share plus
accrued dividends, if such shares are not previously converted into Common
Stock.
Voting Rights. Except as otherwise required by law, the holders of
shares of Preferred Stock have no voting rights.
Dividends. Each share of Preferred Stock receives a quarterly dividend
with an annual rate of $1.00 per share. The dividends of the Preferred Stock are
payable in cash or Common Stock, at the option of Mark.
12
<PAGE>
Liquidation Rights. In the event of any liquidation, the holders of
the Preferred Stock will share equally in any balance of Mark's assets available
for distribution to them up to $10.00 per share plus unpaid dividends, after
satisfaction of creditors and the holders of Mark's senior securities, if any.
Anti-dilution Provisions. The D Preferred Stock contains anti-dilution
provisions in the event of stock dividends, stock splits, reverse stock splits
and similar transactions.
Restriction of Acquiring in Excess of Five (5%) percent of the
Outstanding Common Stock. The D Preferred Stock include a provision prohibiting
the holder from acquiring beneficial ownership of over five (5%) percent of
Mark's Common Stock through the conversion of D Preferred Stock.
13
<PAGE>
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, 1999
None
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 12, 1999
MARK SOLUTIONS INC.
By:/s/ Michael Nafash
-----------------------
Chief Financial Officer
14
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> SEP-30-1999
<CASH> 117,189
<SECURITIES> 0
<RECEIVABLES> 4,476,594
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,127,419
<PP&E> 3,871,762
<DEPRECIATION> 2,485,978
<TOTAL-ASSETS> 8,443,900
<CURRENT-LIABILITIES> 4,663,321
<BONDS> 286,088
0
48,321
<COMMON> 56,300
<OTHER-SE> 3,114,870
<TOTAL-LIABILITY-AND-EQUITY> 8,443,900
<SALES> 3,997,441
<TOTAL-REVENUES> 3,997,441
<CGS> 2,166,194
<TOTAL-COSTS> 3,834,542
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 36,398
<INCOME-PRETAX> 132,954
<INCOME-TAX> 0
<INCOME-CONTINUING> 132,954
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 132,954
<EPS-BASIC> .02
<EPS-DILUTED> .02
</TABLE>
