UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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, 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 _________________
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
---------------------------
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: 19,052,724 shares outstanding as of February 10,
1999.
<PAGE>
MARK SOLUTIONS, INC.
Form 10-Q
for
Quarter Ended December 31,1998
Index
Part I. Financial Information Page No.
Item 1. Financial Statements
Consolidated Balance Sheets as of
December 31, 1998 and June 30, 1998 . . . . . . . 3-4
Consolidated Statements of Operations
for the Six Months and Three Months Ended
December 31, 1998 and 1997 . . . . . . . . . . . 5
Consolidated Statements of Cash Flows
for the Six Months Ended December 31,
1998 and1997 . . . . . . . . . . . . . . 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 . . . . . . . 12
Item 4. Submission of Matters to a Vote of Security
Holders. . . . . . . . . . . . . . . . . . . . . . 13
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . 14
Signatures 15
2
<PAGE>
Mark Solutions, Inc. and Subsidiaries
Consolidated Balance Sheet
ASSETS
<TABLE>
<CAPTION>
December 31, 1998 June 30, 1998
------------------ -------------
Current Assets:
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 896,734 $ 564,577
Restricted cash - 1,234,005
Subscriptions receivable - 1,231,000
Accounts receivable, less allowance of
$5,500 at December 31, and June 30,1998 1,491,115 623,912
Due from officer - 102,058
Note Receivable 250,000 -
Inventories 1,058,849 112,474
Other current assets 228,199 208,377
----------- -----------
Total Current Assets 3,924,897 4,076,403
Property and equipment, net 775,055 438,612
Other Assets:
Cost in excess of net assets
of business acquired less accumulated
amortization of $542,343 and $437,373 at
December 31 and June 30, 1998,
respectively 507,348 612,318
Other assets 48,639 46,768
----------- -----------
Total Other Assets 555,987 659,086
----------- -----------
Total Assets $ 5,255,939 $ 5,174,101
=========== ===========
</TABLE>
3
<PAGE>
Mark Solutions, Inc. and Subsidiaries
Consolidated Balance Sheet
Liabilities and Stockholders' Equity
<TABLE>
<CAPTION>
December 31, 1998 June 30, 1998
------------------ -------------
Current Liabilities:
<S> <C> <C> <C> <C>
Accounts payable $ 953,098 $ 715,642
Short term borrowings 275,000 -
Current maturities of long-term debt 108,567 108,171
Current portion of obligations
under capital leases 37,048 19,418
Due to related parties 46,592 14,693
Accrued liabilities 106,521 140,262
---------- ----------
Total Current Liabilities 1,526,826 998,186
Other Liabilities:
Long-term debt excluding current maturities 1,134,667 1,029,385
Long-term portion of obligations under
capital leases 52,391 31,031
---------- ----------
Total Other Liabilities 1,187,058 1,060,416
Commitments and Contingencies - -
Temporary Equity 1,220,000
Stockholders' Equity:
Common stock, $.01 par value,
50,000,000 shares authorized,
19,296,674 shares issued and
outstanding at December 31 and
June 30, 1998, respectively 192,967 192,967
Additional paid-in capital 33,007,595 31,846,556
Deficit (30,607,805) (30,144,024)
Treasury Stock (50,702) -
---------- ----------
Total Stockholders' Equity 2,542,055 1,895,499
---------- ----------
Total Liabilities and Stockholders' Equity $5,255,939 $5,174,101
========== ==========
</TABLE>
4
<PAGE>
Mark Solutions, Inc. and Subsidiaries
Consolidated Statement of Operations
<TABLE>
<CAPTION>
Six Months Six Months Three Months Three Months
Ended Ended Ended Ended
December 31, 1998 December 31, 1997 December 31, 1998 December 31, 1997
<S> <C> <C> <C> <C>
Revenues:
Sales $ 2,936,517 $ 7,643,231 $ 2,247,656 $ 6,810,990
------------------ --------------------- ----------------- ----------------
Costs and Expenses:
Cost of sales 1,765,425 6,220,726 1,350,574 4,993,139
Selling, general, and
administrative expenses 1,548,757 1,737,795 810,967 785,315
------------------ --------------------- ----------------- ----------------
Total Costs and Expenses 3,314,182 7,958,521 2,161,541 5,778,454
------------------ --------------------- ----------------- ----------------
Operating Income(Loss) (377,665) (315,290) 86,115 1,032,536
------------------ --------------------- ----------------- ----------------
Other Income (Expenses):
Interest income 44,315 846 16,091 797
Interest expense (20,764) (229,193) (9,338) (32,616)
Imputed Interest expense on
convertible debentures (109,667) (160,157) (54,833) (64,064)
Bad debt expense - (29,372) - (616)
------------------ --------------------- ----------------- ----------------
(86,116) (417,876) (48,080) (96,499)
------------------ --------------------- ----------------- ----------------
Net Income(Loss) $ (463,781) $ (733,166) $ 38,035 $ 936,037
=================== ==================== ================= ================
Basic Earnings(Loss) Per Share $ (0.02) $ (0.05) $ 0.00 $ 0.06
=================== ==================== ================= ================
Weighted Average Number of
Shares Outstanding 19,296,674 15,987,554 19,296,674 16,959,030
=================== ==================== ================= ================
Diluted Earnings(Loss) Per Share (0.02) (0.05) 0.00 0.05
=================== ==================== ================= ================
Weighted Average Number of
Shares Outstanding 19,296,674 15,987,554 19,296,674 18,193,375
=================== ==================== ================= ================
Dividends Paid $ - $ - $ - $ -
=================== ==================== ================= ================
</TABLE>
5
<PAGE>
Mark Solutions, Inc. and Subsidiaries
Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
December 31, 1998 December 31, 1997
------------------ --------------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net (loss) $ (463,781) $( 733,166)
Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities:
Depreciation and amortization 163,811 177,319
Deferred Imputed interest on convertible debentures 109,667 160,157
(Increase) decrease in assets:
Restricted cash 1,234,005 -
Accounts Receivable (867,203) 872,392
Note receivable (250,000) -
Inventory (946,375) (804,944)
Other current assets ( 19,822) 108,567
Other assets (1,871) 12,118
Increase (decrease) in liabilities:
Accounts payable 237,456 3,373,275
Due to related parties 133,957 (102,339)
Accrued liabilities (33,741) (108,500)
Net adjustments to reconcile net (loss) to net cash
--------------- ------------
provided by operating activities (240,116) 3,688,045
Net Cash Provided by
--------------- -------------
(Used for) Operating Activities (703,897) 2,954,879
--------------- -------------
Cash Flows From Investing Activities:
Acquisition of property and equipment (395,284) (87,958)
Net Cash (Used for)
--------------- -------------
Investing Activities (395,284) (87,958)
--------------- -------------
Cash Flows From Financing Activities:
Collection of subscriptions receivable 1,231,000 -
Repayment of convertible debt - (604,207)
Increase in short term borrowings 275,000 (435,225)
Proceeds of equipment loans less repayments 35,001 10,613
Repayment of notes payable officer - (24,837)
Proceeds from issuance of common stock - 1,701,439
Debt issue costs - (1,917)
Payment of stock related costs (58,961) -
Purchase of treasury stock (50,702) -
--------------- -------------
Net Cash Provided by Financing Activities 1,431,338 645,866
--------------- -------------
Net Increase in Cash 332,157 3,512,787
Cash and Cash Equivalents at Beginning of Period 564,577 422,457
--------------- -------------
Cash and Cash Equivalents at End of Period $ 896,734 $ 3,935,244
=============== =============
</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 December 31, 1998,
the consolidated statement of operations for the six months and three
months ended December 31, 1998 and 1997 and the consolidated
statements of cash flows for the six months ended December 31, 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 if 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-KA2 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:
December 31, 1998 June 30, 1998
----------------- -------------
Raw Materials $ 153,000 $ 84,974
Work-in-progress $ 878,349 $ -
Finished Goods $ 27,500 $ 27,500
---------- ---------
Total $ 1,058,849 $ 112,474
7
<PAGE>
Mark Solutions, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
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. Diluted 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.
Note 4 TEMPORARY EQUITY
Effective January 29, 1999, Mark Solutions, Inc. completed an exchange
offering (the "Exchange") pursuant to which the investors in the June
1998 Private Placement have exchanged the equity units purchased for
$1,220,000 (which were subsequently deemed subject to rescission
rights) of convertible Preferred Stock, which are not subject to
rescission rights. Pursuant to the Exchange, the investors effectively
exchanged 1,220,000 shares of Common Stock into 122,000 shares of
convertible Preferred Stock. Each share of Preferred Stock is
convertible into Common Stock at $10.00 per share divided by the
lesser of (i) $1.00 or (ii) 75% if the average closing bid price
during the preceding five trading days. Also, pursuant to the
Exchange, investors effectively exchanged the $1,530,000 principal
amount convertible debentures into convertible Preferred Stock.
Note 5 CONVERTIBLE PREFERRED STOCK
On January 29, 1999 Mark effected an exchange placement (the "Exchange
Placement") pursuant to which investors agreed to exchange the
securities received in the Private Placement for (i) 122,000 shares of
A Preferred Stock (ii) 153,000 shares of B Preferred Stock, (iii)
warrants to purchase 1,375,000 shares of Common Stock (the "Warrants")
and (iv) an option exercisable by the investors to purchase an
additional 275,000 shares of Preferred Stock with warrants to purchase
1,375,000 shares of Common Stock (the "Preferred Stock Unit Option").
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.
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 $5,182,000 in modular
cell projects. Mark bid on $16,600,000 in correctional cell projects during the
six months ended December 31, 1998, won $8,500,000, lost $4,700,000 and remains
under consideration for $3,400,000.
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. If the IntraScan II marketing plan is
successful, management believes that the revenues from resulting sales will be
more constant than those presently generated by the modular steel products, and
will reduce fluctuations in Mark's results of operations and financial
condition.
9
<PAGE>
During the period ended December 31, 1998, Mark received four orders for its
IntraScan II software. All of the installations were substantially completed by
December 31, 1998. Mark has also received notification from its strategic
partners that they have received signed letters of intent from several
international and domestic healthcare institutions for the installation of the
IntraScan II PACS system. These installations are expected to be substantially
completed during the calendar year 1999.
Results of Operations
The substantial majority of Mark's operating revenues for the reported
periods was derived from the sale of modular cells to 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 December 31, 1998 sales of the modular
steel products represented 69.1% of total revenues.
Revenues for the three months ended December 31, 1998 decreased 67% to
$2,247,656 from $6,810,990 for the comparable 1997 period due to the lack of
business in the New York State prison industries program.
Cost of sales for the three months ended December 31, 1998, which
consists primarily of materials, labor, supplies, and fixed factory overhead
expense, decreased 73.0% to $1,350,574 from $4,993,139 for the comparable 1997
period. Cost of sales as a percentage of revenues was 60.1% for the three months
ended December 31, 1998 as compared to 73.3% for the comparable 1997 period.
This decrease is attributable to operating efficiencies implemented at Mark's
manufacturing facility over the past year, better cost management during
slowdowns in projects and higher margins on revenues at MarkCare.
Selling, general and administrative expenses for the three months
ended December 31, 1998 increased 3.2% to $810,967 from $785,315 for the
comparable 1997. This slight increase is substantially due to recruitment fees
incurred during the quarter related to personnel hiring at MarkCare.
Revenues for the six months ended December 31, 1998 decreased 61.6% to
$2,936,517 from $7,643,231 for the comparable 1997 period. This decrease is due
to the lack of business in the New York State prison industries program,
partially offset by a significant increase in revenues generated by MarkCare.
For the six months ended December 31, 1998, sales of modular steel products
represented 64.8% of total revenues.
Cost of sales for the six months ended December 31, 1998 decreased
71.6% to $1,765,425 from $6,220,726 for the comparable 1997 period, reflecting
the decrease in sales volume. Cost of sales as a percentage of revenues were
60.1% for the six months ended December 31, 1998 as compared to 81.4% for the
comparable 1997 period. This decrease is attributable to better cost management
during slowdowns in projects and higher margins on revenues at MarkCare.
Selling, general and administrative expenses for the six months ended
December 31, 1998 decreased 10.9% to $1,548,757 from $1,737,795 for the
comparable 1997 period. This decrease is attributable to cost management
implemented by Mark over the past several years, partially offset by an increase
in technical staff at MarkCare.
10
<PAGE>
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
$896,734 at December 31, 1998 primarily due to proceeds from the completion of a
private placement, offset by losses incurred during the period. Working capital
decreased to $2,398,071 at December 31, 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 December 31, 1999.
Mark's inventory increased to $1,058,849 at December 31, 1998 from
$112,474 at June 30, 1998 due to raw material purchases and component purchases
for jobs currently in production. Accounts receivable increased to $1,491,115 at
December 31, 1998, from $623,912 at June 30, 1998. Accounts payable increased to
$953,098 at December 31, 1998, from $715,642 at June 30, 1998.
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 that 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.
11
<PAGE>
PART II
OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds.
Mark effected a $2,750,000 private placement in June 1998 (the "Private
Placement"), consisting of (i) 1,220,000 shares of Common Stock (subject to
adjustments), (ii) $1,530,000 principal amount convertible debentures, (iii)
warrants to purchase 1,375,000 shares of Common Stock and (iv) an option to
purchase an additional $2,550,000 principal amount convertible debentures with
warrants to purchase 1,275,000 shares of Common Stock.
On January 29, 1999 Mark effected an exchange placement (the "Exchange
Placement") pursuant to which the investors agreed to exchange the securities
received in the Private Placement for (i) 122,000 shares of A Preferred Stock,
(ii) 153,000 shares of B Preferred Stock, (iii) warrants to purchase 1,375,000
shares of Common Stock (the "Warrants") and (iv) an option exercisable by the
investors to purchase an additional 275,000 shares of Preferred Stock with
warrants to purchase 1,375,000 shares of Common Stock (the "Preferred Stock Unit
Option"). The principal terms of the securities issued in the Exchange Placement
are set forth below.
Preferred Stock. Except for the conversion price, the terms, conditions and
preferences of the A and B Preferred Stock are identical.
Conversion Rights. Each share of A Preferred Stock is convertible, at the
option of the holder, into shares of Common Stock equal to $10.00 per share
divided by the lesser of (a) $1.00 or (b) 75% of the average per share closing
bid price of the Common Stock for the five trading days immediately preceding
the conversion date(s). Each share of B Preferred Stock is convertible, at the
option of the holder, into shares of Common Stock equal to $10.00 per share
divided by the lesser of (a) $1.50 or (b) 75% of the average per share closing
bid price of the Common Stock for the five trading days immediately preceding
the conversion date(s). The Preferred Stock will automatically convert into
Common Stock on June 30, 2000 at the then applicable conversion price.
Voting Rights. Except as otherwise required by law, the holders of shares
of Preferred Stock have four votes per share voting as a single class with the
Common Stock.
Dividends. Each share of Preferred Stock receives a quarterly dividend with
an annual rate of $0.70 per share. The dividends of the Preferred Stock are
payable in cash or Common Stock, at the option of Mark.
Liquidation and Redemption 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. The holder's of the Preferred Stock may require Mark to
redeem the Preferred Stock at a redemption price equal to $10.00 per share plus
accrued dividends in the event of a breach of the provision of the Preferred
Stock, bankruptcy, dissolution, insolvency, liquidation or similar events.
12
<PAGE>
Warrants. The Warrants consist of 1,375,000 warrants each to purchase one share
of Common Stock for $1.50 per share expiring on June 28, 2002.
Preferred Stock Unit Option. The investors also received an option to purchase
additional preferred stock units, which in the aggregate would consist of (i)
275,000 shares of Preferred Stock with terms identical to the Series B Preferred
Stock and (ii) 1,375,000 four-year warrants, each to purchase one share of
Common Stock at $1.50 per share. The Preferred Stock Unit Option is exercisable
until January 28, 2000.
Option to Purchase Units and Lock Up Agreement. Investors owning 74,000 shares
of A Preferred Stock, 148,000 Warrants and the Preferred Stock Unit Option to
purchase 74,000 units have granted Mark an option until March 26, 1999 to
repurchase such securities for $740,000. Mark has paid a nonrefundable deposit
of $222,000 which will be applied toward the exercise price.
In addition, these investors agree that until July 29, 1999 they will not (i)
convert any Preferred A Stock, (ii) convert the 111,000 shares of Preferred B
Stock that they own at less than $1.50 per share, (iii) effect or maintain,
directly or indirectly, a short position in Mark's Common Stock or (iv) exercise
all or a portion of the Preferred Stock Unit Option.
On December 28, 1998, Mark also granted two employees three-year options each to
purchase 10,000 shares of Common Stock at $1.00 per share as incentive
compensation and a five year option to purchase 100,000 shares of Common Stock
at $1.00 per share to an outside consultant for providing computer software
related services to Mark.
Each of the foregoing transactions was effected in reliance on the 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 parties' relationship
with Mark or the parties investment sophistication.
Item 4. Submission of Matters to a Vote of Security-Holders.
On December 28, 1998, Mark held its Annual Meeting of Shareholders, which
was adjourned until January 12, 1999 regarding Proposal No. 3 (the "Annual
Meeting"). At the Annual Meeting (i) directors were elected and Mark obtained
shareholder approval for (ii) the issuance of Common Stock in excess of
3,615,334 in connection with Mark's June 1998 private placement, (iii) the
creation of a new class of 5,000,000 shares of "blank check" Preferred Stock and
(iv) a one-for-four or a one-for-eight reverse stock split of Mark's issued,
outstanding and reserved shares of Common Stock to be effected at the discretion
of the Board of Directors. The vote for the foregoing matters was as follows:
13
<PAGE>
1. Election of Directors
Each of the directors was re-elected.
FOR WITHHELD
Carl Coppola 15,143,088 592,760
Richard Branca 15,169,118 566,730
Ronald E. Olszowy 15,168,518 567,330
William Westerhoff 15,161,918 573,930
Michael Nafash 15,145,618 600,230
Yitz Grossman 15,150,368 585,480
2. Issuance of Common Stock in Excess of 3,615,334 in Connection with
Mark's June 1998 Private - Placement
-----------------------------------------------------------------------
FOR AGAINST ABSTAIN
6,877,312 907,850 109,338
3. Creation of a New Class of Preferred Stock
------------------------------------------
FOR AGAINST ABSTAIN NOT VOTED
9,759,802 1,876,734 114,238 6,050,065
4. Reverse stock split of Mark's Issued, Outstanding and Reserved shares of
Common Stock at the Discretion of the Board of Directors
------------------------------------------------------------------------
FOR AGAINST ABSTAIN
13,525,357 1,069,597 107,505
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Exhibit Description
- ----------- -------------------
3(i)1 Certificate of Incorporation, as amended to date.
3(i)2 Certificate of Designation of Series "A" Preferred Stock
3(i)3 Certificate of Designation of Series "B" Preferred Stock
27.1 Financial Data Schedule
(b) Reports on Form 8-K for the Quarter ending December 31, 1998 None
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed by the undersigned thereunto
duly authorized.
Date: February 10, 1998
MARK SOLUTIONS INC.
By:/s/ Michael Nafash
----------------------
Chief Financial Officer
RESTATED
CERTIFICATE OF INCORPORATION
OF
MARK SOLUTIONS, INC.
FIRST: The name of the corporation is: Mark Solutions, Inc.
SECOND: The registered office of the corporation is to be located at
c/o Corporation Service Company, 1013 Centre Road, in the City
of Wilmington, County of New Castle, State of Delaware 19805.
The name of its registered agent at that address is
Corporation Service Company.
THIRD: The purpose of the corporation is to engage in any lawful act
or activity for which a corporation may be organized under the
General Corporation Law of Delaware.
FOURTH: The Corporation shall be authorized to issue the following shares:
Number of
Class Shares Par Value
------------- ------------ ---------
Common Stock 50,000,000 $ .01
Preferred Stock 5,000,000 $ 1.00
The Board of Directors is authorized, subject to the limitations
prescribed by law and the provisions of this Article FOURTH, to provide
for the issuance of the shares of Preferred Stock in series, and by
filing a certificate pursuant to the applicable law of the State of
Delaware, to establish from time to time the number of shares to be
included in each such series, and to fix the designation, powers,
preferences and rights of the shares of each such series and the
qualifications, limitations or restrictions thereof.
The authority of the Board of Directors with respect to each
series shall include, but not be limited to, determination of the
following:
(a) The number of shares constituting that series and the
distinctive designation of that series;
(b) The dividend rate on the shares of that series, whether
dividends shall be cumulative, and, if so, from which date or dates,
and the relative rights of priority, if any, of payment of dividends on
shares of that series;
(c) Whether that series shall have voting rights, in addition
to the voting rights provided by law, and if so, the terms of such
voting rights;
(d) Whether that series shall have conversion privileges,
and, if so, the terms and conditions of such conversion, including
provision of adjustment of the conversion rate in such events as the
Board of Directors shall determine;
(e) Whether or not the shares of that series shall be
redeemable, and if so, the terms and conditions of such redemption,
including the date or date upon which they shall be redeemable, and the
amount per share payable in case of redemption, which amount may vary
under different conditions and at different redemption dates;
(f) Whether that series will have a sinking fund for the
redemption or purchase of shares of that series, and, if so, the terms
and amount of such sinking fund;
(g) The rights of the shares of that series in the event of
voluntary or involuntary liquidation, dissolution or winding up of the
corporation, and the relative rights of priority, if any, of payment of
shares that series;
(h) Any other relative rights, preferences and limitations of
that series."
<PAGE>
FIFTH: The name and address of the incorporator are as follows:
NAME ADDRESS
---- -------
Ray A. Barr 9 East 40th Street, New York, NY 10016
SIXTH: The following provisions are inserted for the management of
the business and for the conduct of the affairs of the
corporation, and for further definition, limitation and
regulation for the powers of the corporation and of its
directors and stockholders:
(1) The number of directors of the corporation shall be such
as from time to time shall be fixed by, or in the manner
provided in the by-laws. Election of directors need not be by
ballot unless the by-laws so provide.
(2) The Board of Directors shall have power without the assent
or vote of the stockholders:
(a) To make, alter, amend, change, add to or repeal
the By-laws of the corporation; to fix and vary the
amount to be reserved for any proper purpose; to
authorize and cause to be executed mortgages and
liens upon all or any part of the property of the
corporation; to determine the use and disposition of
any surplus or net profits; and to fix the times for
the declaration and payment of dividends.
(b) To determine from time to time whether, and to
what times and places, and under what conditions the
accounts and books of the corporation (other than the
stockledger) or any of them shall be open to the
inspection of the stockholders.
(3) The directors in their discretion may submit any contract
or act for approval or ratification at any annual meeting of
the stockholders or at any meeting of the stockholders called
for the purpose of considering any such act or contract, and
any contract or act that shall be approved or be ratified by
the vote of the holders of a majority of the stock of the
corporation which is represented in person or by proxy as such
meeting and entitled to vote thereat (provided that a lawful
quorum of stockholders be there represented in person in
person or by proxy) shall be as valid and as binding upon the
corporation and upon all the stockholders as though it had
been approved or ratified by every stockholder of the
corporation, whether or not the contract or act would
otherwise be open to legal attack because of directors'
interest, or for any other reason.
(4) In addition to the powers and authorities hereinbefore or
by statute expressly conferred upon them, the directors are
hereby empowered to exercise all such powers and do all such
acts and things as may be exercised or done by the
corporation; subject, nevertheless, to the provisions of the
statutes of Delaware, of this certificate, and to any by-laws
from time to time made by the stockholders; provided, however,
that no by-law so made shall invalidate any prior act of the
directors which would have been valid if such by-law had not
been made.
<PAGE>
SEVENTH : No director shall be liable to the corporation or any of its
stockholders for monetary damages for breach of fiduciary
duty as a director, except with respect to (1) a breach of
the director's duty of loyalty to the corporation or its
stockholders, (2) acts or omissions not in good faith or
which involve intentional misconduct or knowing violation of
law, (3) liability under Section 174 of the Delaware General
Corporation Law or, (4) a transaction from which the
director derived an improper personal benefit, it being the
intention of the foregoing provision to eliminate the
liability of the corporation's directors to the corporation
or its stockholders to the fullest extent permitted by
Section 102(b)(7) of the Delaware General Corporation Law,
as amended from time to time. The corporation shall
indemnify to the fullest extent permitted by Sections
102(b)(7) and 145 of the Delaware General Corporation Law,
as amended from time to time, each person that such Sections
grant the corporation the power to indemnify.
EIGHTH: Whenever a compromise or arrangement is proposed between
this corporation and its creditors or any class of them
and/or between this corporation and its stockholders or any
class of them, any court of equitable jurisdiction within
the State of Delaware, may, on the application in a summary
way of this corporation or of any creditor or stockholder
thereof or on the application of any receiver or receivers
appointed for this corporation under the provisions of
Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or
receivers appointed for this corporation under the
provisions of Section 279 Title 8 of the Delaware Code order
a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this
corporation, as the case may be, to be summoned in such
manner as the said court directs. If a majority in number
representing three-fourths (3/4) in value of the creditors
or class of creditors, and/or of the stockholders or class
of stockholders of this corporation, as the case may be,
agree to any compromise or arrangement and to any
reorganization of this corporation as consequence of such
compromise or arrangement, the said compromise or
arrangement and the said reorganization shall, if sanctioned
by the court to which the said application as been made, be
binding on all the creditors or class of creditors, and/or
all the stockholders or class of stockholders, of this
corporation, as the case may be, and also on this
corporation.
NINTH: The corporation reserves the right to amend, alter, change or
repeal any provision contained in this certificate of
incorporation in the manner now or hereafter prescribed by
law, and all rights and powers conferred herein on
stockholders, directors, and officers are subject to this
reserved power.
IN WITNESS WHEREOF, we hereunto sign our names and affirm that the statements
made herein are true and under the penalties of perjury, this 27th day of
January 1998.
MARK SOLUTIONS, INC.
/s/ Carl Coppola
- --------------------------
Carl Coppola,
President
ATTEST:
CERTIFICATE OF DESIGNATION, NUMBER, POWERS, PREFERENCES AND
OTHER RIGHTS AND QUALIFICATIONS, LIMITATIONS, RESTRICTIONS
AND OTHER CHARACTERISTICS OF SERIES "A" PREFERRED STOCK
OF
MARK SOLUTIONS, INC.
It is hereby certified that:
1. The name of the corporation is Mark Solutions, Inc.(hereinafter called
the "corporation").
2. The certificate of incorporation, as amended, of the corporation
authorizes the issuance of 5,000,000 shares of Preferred Stock, $1.00 par value,
and expressly vests in the Board of Directors of the corporation the authority
provided therein to issue any or all of said shares in one or more series and by
resolution or resolutions, the designation, number, full or limited voting
powers, or the denial of voting powers, preferences and relative, participating,
optional, and other special rights and the qualifications, limitations,
restrictions, and other distinguishing characteristics of each series to be
issued.
3. The Board of Directors of the corporation, pursuant to the authority
expressly vested in it as aforesaid, has adopted the following resolutions
creating a Series "A" issue of Preferred Stock:
RESOLVED, that the Board of Directors hereby fixes and determines the
designation of the number of shares and the rights, preferences, privileges and
restrictions relating to the Series "A" Preferred Stock:
(a) Designation. The series of Preferred Stock created hereby shall be
designated the Series "A" Preferred Stock (the "Series A Preferred Stock").
(b) Authorized Shares. The number of shares of Series A Preferred Stock shall
be 122,000 shares.
(c) Liquidation Rights. In the event of any liquidation, dissolution or winding
up of the corporation, either voluntary or involuntary, after setting apart or
paying in full the preferential amounts due to holders of senior capital stock,
if any, the holders of Series A Preferred Stock and parity capital stock, if
any, shall be entitled to receive, prior and in preference to any distribution
of any of the assets or surplus funds of the corporation to the holders of
junior capital stock, including Common Stock, an amount equal to $10.00 per
share, plus accrued and unpaid dividends (the "Liquidation Preference"). If upon
such liquidation, dissolution or winding up of the corporation, the assets of
the corporation available for distribution to the holders of the Series A
Preferred Stock and parity capital stock, if any, shall be insufficient to
permit in full the payment of the Liquidation Preference, then all such assets
of the corporation shall be distributed ratably among the holders of the Series
A Preferred Stock and parity capital stock, if any. Neither the consolidation or
merger of the corporation nor the sale, lease or transfer by the corporation of
all or a part of its assets shall be deemed a liquidation, dissolution or
winding up of the corporation for purposes of this Section (c). For purposes of
this Section (c), the corporation's Series B Preferred Stock is deemed a "parity
capital stock".
(d) Dividends. The holders of the then outstanding Series A Preferred Stock
shall be entitled to receive a dividend, payable quarterly on the first day of
each calendar quarter commencing April 1, 1999, which accrues from the date of
issuance at an annual rate of $0.70 per share. The dividends shall be payable,
at the option of the corporation, either in cash or in shares of Common Stock,
which on the date of the dividend payment have a value equal to the dividend,
provided that dividends may be paid in Common Stock only if such shares shall
have been registered or are otherwise eligible for resale in compliance with the
Securities Act of 1933. The value of each share of Common Stock for purposes of
any dividend payment shall be equal to the average of the Closing Price [as
defined in paragraph (e)(i)] on the last five Trading Days [as defined in
paragraph (e)(i)] prior to the dividend payment date. "Common Stock" means
shares now or hereafter authorized of the class of Common Stock, $.01 par value,
of the corporation and stock of any other class into which such shares may
hereafter have been reclassified or changed.
<PAGE>
(e) Conversion Rights. Each share of Series A Preferred Stock shall be
convertible, at the option of the holder, into fully paid and nonassessable
shares of the corporation's Common Stock equal to $10.00 per share divided by
the Conversion Price (as defined in paragraph (e)(i)].
(i) Conversion Price. The Conversion Price means the lesser of (a) $1.00
or (b) 75% of the average per share closing bid price of the Common Stock during
the five Trading Days prior to such conversion. The "Closing Price" on any
Trading Day shall mean the last reported bid price of the Common Stock as
reported on The Nasdaq National Market or the Nasdaq SmallCap Market, as
applicable, on such date or, if the Common Stock is neither so listed nor so
reported, the last reported bid price of the Common Stock as quoted by a
registered broker-dealer for which such quotes are available on such date. A
"Trading Day" means (a) a day on which the Common Stock is traded on The Nasdaq
Stock Market or (b) if the Common Stock is not listed on The Nasdaq Stock Market
or any stock exchange, a day on which the Common Stock is traded in the
over-the-counter market, as reported by Nasdaq, or (c) if the Common Stock is
not quoted on the Nasdaq Stock Market, a day on which the Common Stock is quoted
in the over-the-counter market as reported by the National Quotation Bureau
Incorporated (or any similar organization or agency succeeding its functions of
reporting prices).
(ii) Conversion Procedure. The holder shall effect conversions by
surrendering the certificate(s) representing the Series A Preferred Stock to be
converted to the corporation, together a form of conversion notice satisfactory
to the corporation, which shall be irrevocable. If the holder is converting less
than all of the shares of Series A Preferred Stock represented by the
certificate tendered, the corporation shall promptly deliver to the holder a new
certificate representing the Series A Preferred Stock not converted. Not later
than four (4) trading days after the conversion date, the corporation will
deliver to the holder, or at holder's request, DWAC, (i) a certificate or
certificates, which shall be subject to restrictive legends and trading
restrictions required by law, representing the number of shares of Common Stock
being acquired upon the conversion; provided, however, that the corporation
shall not be obligated to issue such certificates until the Series A Preferred
Stock is delivered to the corporation. If the corporation does not deliver such
certificate(s) by the date required under this paragraph (e)(ii), the holder
shall be entitled by written notice to the corporation at any time on or before
receipt of such certificate(s), to rescind such conversion.
(iii) Conversion Penalty. In the event the corporation breaches its
obligation to timely deliver the Common Stock on conversion, then without
limiting holder's other rights and remedies, the corporation shall pay to the
holder an amount accruing at the rate of $5.00 per day for each such breach for
each 500 shares of Common Stock subject to the conversion, with pro rata
payments for amounts less than 500 shares.
(iv) Automatic Conversion. The Series A Preferred Stock shall on June 30,
2000 automatically convert into Common Stock at the then Conversion Price,
provided, that such conversion shall only occur if the corporation's Common
Stock is listed on the Nasdaq Stock Market on such date and the shares of Common
Stock deliverable on such conversion shall have been registered or are otherwise
eligible for resale in compliance with the Securities Act of 1933.
(v) Adjustments on Stock Splits, Dividends and Distributions. If the
corporation, at any time while any Series A Preferred Stock is outstanding, (a)
shall pay a stock dividend or otherwise make a distribution or distributions on
shares of its Common Stock payable in shares of its capital stock (whether
payable in shares of its Common Stock or of capital stock of any class), (b)
subdivide outstanding shares of Common Stock into a larger number of shares, (c)
combine outstanding shares of Common Stock into a smaller number of shares, or
(d) issue reclassification of shares of Common Stock any shares of capital stock
of the corporation, the Conversion Price shall be multiplied by a fraction of
which the numerator shall be the number of shares of Common Stock of the
corporation outstanding before such event and of which the denominator shall be
the number of shares of Common Stock outstanding after such event. Any
adjustment made pursuant to this paragraph (e)(v) shall become effective
immediately after the record date for the determination of stockholders entitled
to receive such dividend or distribution and shall become effective immediately
after the effective date in the case of a subdivision, combination or
reclassification. Whenever the Conversion Price is adjusted pursuant to this
paragraph, the corporation shall promptly mail to the Holder a notice setting
forth the Conversion Price after such adjustment and setting forth a brief
statement of the facts requiring such adjustment.
(vi) Adjustments on Reclassifications, Consolidations and Mergers. In case
of reclassification of the Common Stock, any consolidation or merger of the
corporation with or into another person, the sale or transfer of all or
substantially all of the assets of the corporation or any compulsory share
exchange pursuant to which the Common Stock is converted into other securities,
cash or property, then each holder of Series A Preferred Stock then outstanding
shall have the right thereafter to convert such Series A Preferred Stock only
into the shares of stock and other securities and property receivable upon or
deemed to be held by holders of Common Stock following such reclassification,
consolidation, merger, sale, transfer or share exchange, and the Holder shall be
entitled upon such event to receive such amount of securities or property as the
shares of the Common Stock into which such Series Preferred Stock could have
been converted immediately prior to such reclassification, consolidation,
merger, sale, transfer or share exchange would have been entitled. The terms of
any such consolidation, merger, sale, transfer or share exchange shall include
such terms so as to continue to give to the Holder the right to receive the
securities or property set forth in this paragraph (e)(vi) upon any conversion
following such consolidation, merger, sale, transfer or share exchange. This
provision shall similarly apply to successive reclassifications, consolidations,
mergers, sales, transfers or share exchanges.
(vii) Fractional Shares; Issuance Expenses. Upon a conversion of Series A
Preferred Stock, the corporation shall not be required to issue stock
certificates representing fractions of shares of Common Stock, but shall issue
that number of shares of Common Stock rounded to the nearest whole number. The
issuance of certificates for shares of Common Stock on conversion of Series A
Preferred
Stock shall be made without charge to the Holder for any documentary stamp or
similar taxes that may be payable in respect of the issue or delivery of such
certificate, provided that the corporation shall not be required to pay any tax
that may be payable in respect of any transfer involved in the issuance and
delivery of any such certificate upon conversion in a name other than that of
the Holder, and the corporation shall not be required to issue or deliver such
certificates unless or until the person or persons requesting the issuance
thereof shall have paid to the corporation the amount of such tax or shall have
established to the satisfaction of the corporation that such tax has been paid.
(viii) Limitation on Conversion. Notwithstanding anything herein to the
contrary, the holder shall not be entitled to convert the Series A Preferred
Stock to the extent that such conversion would result in the holder becoming the
"beneficial owner" of five percent (5%) or more of the outstanding Common Stock
as that term is defined in Section 13(d) of the Securities Exchange Act of 1934.
The opinion of legal counsel to the holder, in form and substance satisfactory
to the corporation and its counsel, shall prevail in all matters relating to the
determination of holder's beneficial ownership.
(f) Voting Rights. Except as otherwise expressly provided herein or as required
by law, the holders of shares of Series A Preferred Stock shall be entitled to
vote on all matters and shall be entitled to four votes per share of Series A
Preferred Stock. Except as otherwise expressly provided herein or as required by
law, the holders of the Series A Preferred Stock and the Common Stock shall vote
together and not as separate classes.
(g) Reservation of Shares of Common Stock. The corporation covenants that it
will at all times reserve and keep available out of its authorized and unissued
Common Stock solely for the purpose of issuance upon conversion of Series A
Preferred Stock as herein provided, free from preemptive rights or any other
actual contingent purchase rights of persons other than the holders of Series A
Preferred Stock, such number of shares of Common Stock as shall be issuable upon
the conversion of the aggregate principal amount of all outstanding Series A
Preferred Stock. If at any time the number of authorized but unissued shares of
Common Stock shall not be sufficient to effect the conversion of all outstanding
Series A Preferred Stock, the corporation will take such corporate action
necessary to increase its authorized shares of Common Stock to such number as
shall be sufficient for such purpose. The corporation covenants that all shares
of Common Stock that shall be so issuable shall, upon issue, be duly and validly
authorized, issued and fully paid and nonassessable.
(h) No Reissuance of Series A Preferred Stock. No shares of the Series A
Preferred Stock acquired by the corporation by reason of redemption, purchase,
conversion or otherwise shall be reissued, and all such shares shall be
cancelled, retired and eliminated from the shares of capital stock which the
corporation shall be authorized to issue.
<PAGE>
(i) Mandatory Redemption. If any "Event of Redemption" [as defined below]
occurs and so long as such Event of Redemption shall then be continuing, the
holder of Series A Preferred Stock may, in addition to such holder's other
remedies, by notice to the corporation, require the corporation to redeem the
Series A Preferred Stock at a redemption price equal to $10.00 per share plus
accrued dividends. The redemption price shall accrue interest commencing the
third day from such notice at the rate of fifteen (15%) percent per annum. Such
redemption demand may be rescinded and annulled by the holder at any time prior
to payment. No such rescission or annulment shall affect any subsequent Event of
Redemption.
An Event of Redemption shall exist, if any of the following shall occur
(whatever the reason and whether it shall be voluntary or involuntary or
affected by operation of law or pursuant to any judgment, decree or order of any
court, or any order, rule or regulation of any administrative or governmental
body):
(i) the corporation shall breach or fail to perform any provision of
the Series A Preferred Stock and such failure or breach shall not have been
remedied within 30 days after the date on which notice of such failure or breach
shall have been given;
(ii) the corporation shall commence a voluntary case under the United States
Bankruptcy Code (the "Bankruptcy Code"); or an involuntary case is commenced
against the corporation under the Bankruptcy Code and the petition is not
controverted within 30 days, or is not dismissed within 60 days, after
commencement of the case; or a "custodian" (as defined in the Bankruptcy Code)
is appointed for, or takes charge of, all or any substantial part of the
property of the corporation or the corporation commences any other proceeding
under any reorganization, arrangement, adjustment of debt, relief of debtors,
dissolution, insolvency or liquidation or similar law of any jurisdiction
whether now or hereafter in effect relating to the corporation or there is
commenced against the corporation any such proceeding which remains undismissed
for a period of 60 days; or the corporation is adjudicated insolvent or
bankrupt; or any order of relief or other order approving any such case or
proceeding is entered; or the corporation suffers any appointment of any
custodian or the like for it or any substantial part of its property which
continues undischarged or unstayed for a period of 60 days; or the corporation
makes a general assignment for the benefit of creditors; or the corporation
shall fail to pay, or shall state that it is unable to pay, or shall be unable
to pay, its debts generally as they become due; or the corporation shall call a
meeting of its creditors with a view to arranging a composition or adjustment of
its debts; or the corporation shall by any act or failure to act indicate its
consent to, approval of or acquiescence in any of the foregoing; or any
corporate or other action is taken by the corporation for the purpose of
effecting any of the foregoing.
(j) Restrictions. The corporation shall not, without the consent of a majority
in interest of the holders of the then outstanding shares of Series A Preferred
Stock, create any class of equity security which is senior to or on parity with
the Series A Preferred Stock in liquidation rights, other than in connection
with a merger and/or acquisition transaction.
and be it further
RESOLVED, that the statements contained in the foregoing resolutions creating
and designating the Series A Preferred Stock and fixing the number, voting
powers, preferences and relative, participating, optional, and other special
rights and the qualifications, limitations, restrictions, and other
distinguishing characteristics thereof, upon the effective date of such series,
be deemed to be included in and be a part of the certificate of incorporation of
the corporation pursuant to the provisions of Section 104 and 151 of the General
Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the undersigned has executed this Certificate on January 29,
1999.
Carl Coppola, President
CERTIFICATE OF DESIGNATION, NUMBER, POWERS, PREFERENCES AND
OTHER RIGHTS AND QUALIFICATIONS, LIMITATIONS, RESTRICTIONS
AND OTHER CHARACTERISTICS OF SERIES "B" PREFERRED STOCK
OF
MARK SOLUTIONS, INC.
It is hereby certified that:
1. The name of the corporation is Mark Solutions, Inc. (hereinafter called
the "corporation").
2. The certificate of incorporation, as amended, of the corporation
authorizes the issuance of 5,000,000 shares of Preferred Stock, $1.00 par value,
and expressly vests in the Board of Directors of the corporation the authority
provided therein to issue any or all of said shares in one or more series and by
resolution or resolutions, the designation, number, full or limited voting
powers, or the denial of voting powers, preferences and relative, participating,
optional, and other special rights and the qualifications, limitations,
restrictions, and other distinguishing characteristics of each series to be
issued.
3. The Board of Directors of the corporation, pursuant to the authority
expressly vested in it as aforesaid, has adopted the following resolutions
creating a Series "B" issue of Preferred Stock:
RESOLVED, that the Board of Directors hereby fixes and determines the
designation of the number of shares and the rights, preferences, privileges and
restrictions relating to the Series "B" Preferred Stock:
(a) Designation. The series of Preferred Stock created hereby shall be
designated the Series "B" Preferred Stock (the "Series B Preferred Stock").
(b) Authorized Shares. The number of shares of Series B Preferred Stock shall
be 153,000 shares.
(c) Liquidation Rights. In the event of any liquidation, dissolution or winding
up of the corporation, either voluntary or involuntary, after setting apart or
paying in full the preferential amounts due to holders of senior capital stock,
if any, the holders of Series B Preferred Stock and parity capital stock, if
any, shall be entitled to receive, prior and in preference to any distribution
of any of the assets or surplus funds of the corporation to the holders of
junior capital stock, including Common Stock, an amount equal to $10.00 per
share, plus accrued and unpaid dividends (the "Liquidation Preference"). If upon
such liquidation, dissolution or winding up of the corporation, the assets of
the corporation available for distribution to the holders of the Series B
Preferred Stock and parity capital stock, if any, shall be insufficient to
permit in full the payment of the Liquidation Preference, then all such assets
of the corporation shall be distributed ratably among the holders of the Series
B Preferred Stock and parity capital stock, if any. Neither the consolidation or
merger of the corporation nor the sale, lease or transfer by the corporation of
all or a part of its assets shall be deemed a liquidation, dissolution or
winding up of the corporation for purposes of this Section (c). For purposes of
this Section (c), the corporation's Series A Preferred Stock is deemed a "parity
capital stock".
(d) Dividends. The holders of the then outstanding Series B Preferred Stock
shall be entitled to receive a dividend, payable quarterly on the first day of
each calendar quarter commencing April 1, 1999, which accrues from the date of
issuance at an annual rate of $0.70 per share. The dividends shall be payable,
at the option of the corporation, either in cash or in shares of Common Stock,
which on the date of the dividend payment have a value equal to the dividend,
provided that dividends may be paid in Common Stock only if such shares shall
have been registered or are otherwise eligible for resale in compliance with the
Securities Act of 1933. The value of each share of Common Stock for purposes of
any dividend payment shall be equal to the average of the Closing Price [as
defined in paragraph (e)(i)] on the last five Trading Days [as defined in
paragraph (e)(i)] prior to the dividend payment date. "Common Stock" means
shares now or hereafter authorized of the class of Common Stock, $.01 par value,
of the corporation and stock of any other class into which such shares may
hereafter have been reclassified or changed.
(e) Conversion Rights. Each share of Series B Preferred Stock shall be
convertible, at the option of the holder, into fully paid and nonassessable
shares of the corporation's Common Stock equal to $10.00 per share divided by
the Conversion Price (as defined in paragraph (e)(i)].
(i) Conversion Price. The Conversion Price means the lesser of (a) $1.50
or (b) 75% of the average per share closing bid price of the Common Stock during
the five Trading Days prior to such conversion. The "Closing Price" on any
Trading Day shall mean the last reported bid price of the Common Stock as
reported on The Nasdaq National Market or the Nasdaq SmallCap Market, as
applicable, on such date or, if the Common Stock is neither so listed nor so
reported, the last reported bid price of the Common Stock as quoted by a
registered broker-dealer for which such quotes are available on such date. A
"Trading Day" means (a) a day on which the Common Stock is traded on The Nasdaq
Stock Market or (b) if the Common Stock is not listed on The Nasdaq Stock Market
or any stock exchange, a day on which the Common Stock is traded in the
over-the-counter market, as reported by Nasdaq, or (c) if the Common Stock is
not quoted on the Nasdaq Stock Market, a day on which the Common Stock is quoted
in the over-the-counter market as reported by the National Quotation Bureau
Incorporated (or any similar organization or agency succeeding its functions of
reporting prices).
(ii) Conversion Procedure. The holder shall effect conversions by
surrendering the certificate(s) representing the Series B Preferred Stock to be
converted to the corporation, together a form of conversion notice satisfactory
to the corporation, which shall be irrevocable. If the holder is converting less
than all of the shares of Series B Preferred Stock represented by the
certificate tendered, the corporation shall promptly deliver to the holder a new
certificate representing the Series B Preferred Stock not converted. Not later
than four (4) trading days after the conversion date, the corporation will
deliver to the holder, or at holder's request, DWAC, (i) a certificate or
certificates, which shall be subject to restrictive legends and trading
restrictions required by law, representing the number of shares of Common Stock
being acquired upon the conversion; provided, however, that the corporation
shall not be obligated to issue such certificates until the Series B Preferred
Stock is delivered to the corporation. If the corporation does not deliver such
certificate(s) by the date required under this paragraph (e)(ii), the holder
shall be entitled by written notice to the corporation at any time on or before
receipt of such certificate(s), to rescind such conversion.
(iii) Conversion Penalty. In the event the corporation breaches its
obligation to timely deliver the Common Stock on conversion, then without
limiting holder's other rights and remedies, the corporation shall pay to the
holder an amount accruing at the rate of $5.00 per day for each such breach for
each 500 shares of Common Stock subject to the conversion, with pro rata
payments for amounts less than 500 shares.
(iv) Automatic Conversion. The Series B Preferred Stock shall on June 30,
2000 automatically convert into Common Stock at the then Conversion Price,
provided, that such conversion shall only occur if the corporation's Common
Stock is listed on the Nasdaq Stock Market on such date and the shares of Common
Stock deliverable on such conversion shall have been registered or are otherwise
eligible for resale in compliance with the Securities Act of 1933.
(v) Adjustments on Stock Splits, Dividends and Distributions. If the
corporation, at any time while any Series B Preferred Stock is outstanding, (a)
shall pay a stock dividend or otherwise make a distribution or distributions on
shares of its Common Stock payable in shares of its capital stock (whether
payable in shares of its Common Stock or of capital stock of any class), (b)
subdivide outstanding shares of Common Stock into a larger number of shares, (c)
combine outstanding shares of Common Stock into a smaller number of shares, or
(d) issue reclassification of shares of Common Stock any shares of capital stock
of the corporation, the Conversion Price shall be multiplied by a fraction of
which the numerator shall be the number of shares of Common Stock of the
corporation outstanding before such event and of which the denominator shall be
the number of shares of Common Stock outstanding after such event. Any
adjustment made pursuant to this paragraph (e)(v) shall become effective
immediately after the record date for the determination of stockholders entitled
to receive such dividend or distribution and shall become effective immediately
after the effective date in the case of a subdivision, combination or
reclassification. Whenever the Conversion Price is adjusted pursuant to this
paragraph, the corporation shall promptly mail to the Holder a notice setting
forth the Conversion Price after such adjustment and setting forth a brief
statement of the facts requiring such adjustment.
(vi) Adjustments on Reclassifications, Consolidations and Mergers. In case
of reclassification of the Common Stock, any consolidation or merger of the
corporation with or into another person, the sale or transfer of all or
substantially all of the assets of the corporation or any compulsory share
exchange pursuant to which the Common Stock is converted into other securities,
cash or property, then each holder of Series B Preferred Stock then outstanding
shall have the right thereafter to convert such Series B Preferred Stock only
into the shares of stock and other securities and property receivable upon or
deemed to be held by holders of Common Stock following such reclassification,
consolidation, merger, sale, transfer or share exchange, and the Holder shall be
entitled upon such event to receive such amount of securities or property as the
shares of the Common Stock into which such Series Preferred Stock could have
been converted immediately prior to such reclassification, consolidation,
merger, sale, transfer or share exchange would have been entitled. The terms of
any such consolidation, merger, sale, transfer or share exchange shall include
such terms so as to continue to give to the Holder the right to receive the
securities or property set forth in this paragraph (e)(vi) upon any conversion
following such consolidation, merger, sale, transfer or share exchange. This
provision shall similarly apply to successive reclassifications, consolidations,
mergers, sales, transfers or share exchanges.
(vii) Fractional Shares; Issuance Expenses. Upon a conversion of Series B
Preferred Stock, the corporation shall not be required to issue stock
certificates representing fractions of shares of Common Stock, but shall issue
that number of shares of Common Stock rounded to the nearest whole number. The
issuance of certificates for shares of Common Stock on conversion of Series B
Preferred
Stock shall be made without charge to the Holder for any documentary stamp or
similar taxes that may be payable in respect of the issue or delivery of such
certificate, provided that the corporation shall not be required to pay any tax
that may be payable in respect of any transfer involved in the issuance and
delivery of any such certificate upon conversion in a name other than that of
the Holder, and the corporation shall not be required to issue or deliver such
certificates unless or until the person or persons requesting the issuance
thereof shall have paid to the corporation the amount of such tax or shall have
established to the satisfaction of the corporation that such tax has been paid.
(viii) Limitation on Conversion. Notwithstanding anything herein to the
contrary, the holder shall not be entitled to convert the Series B Preferred
Stock to the extent that such conversion would result in the holder becoming the
"beneficial owner" of five percent (5%) or more of the outstanding Common Stock
as that term is defined in Section 13(d) of the Securities Exchange Act of 1934.
The opinion of legal counsel to the holder, in form and substance satisfactory
to the corporation and its counsel, shall prevail in all matters relating to the
determination of holder's beneficial ownership.
(f) Voting Rights. Except as otherwise expressly provided herein or as required
by law, the holders of shares of Series B Preferred Stock shall be entitled to
vote on all matters and shall be entitled to four votes per share of Series B
Preferred Stock. Except as otherwise expressly provided herein or as required by
law, the holders of the Series B Preferred Stock and the Common Stock shall vote
together and not as separate classes.
(g) Reservation of Shares of Common Stock. The corporation covenants that it
will at all times reserve and keep available out of its authorized and unissued
Common Stock solely for the purpose of issuance upon conversion of Series B
Preferred Stock as herein provided, free from preemptive rights or any other
actual contingent purchase rights of persons other than the holders of Series B
Preferred Stock, such number of shares of Common Stock as shall be issuable upon
the conversion of the aggregate principal amount of all outstanding Series B
Preferred Stock. If at any time the number of authorized but unissued shares of
Common Stock shall not be sufficient to effect the conversion of all outstanding
Series B Preferred Stock, the corporation will take such corporate action
necessary to increase its authorized shares of Common Stock to such number as
shall be sufficient for such purpose. The corporation covenants that all shares
of Common Stock that shall be so issuable shall, upon issue, be duly and validly
authorized, issued and fully paid and nonassessable.
(h) No Reissuance of Series B Preferred Stock. No shares of the Series B
Preferred Stock acquired by the corporation by reason of redemption, purchase,
conversion or otherwise shall be reissued, and all such shares shall be
cancelled, retired and eliminated from the shares of capital stock which the
corporation shall be authorized to issue.
(i) Mandatory Redemption. If any "Event of Redemption" [as defined below]
occurs and so long as such Event of Redemption shall then be continuing, the
holder of Series B Preferred Stock may, in addition to such holder's other
remedies, by notice to the corporation, require the corporation to redeem the
Series B Preferred Stock at a redemption price equal to $10.00 per share plus
accrued dividends. The redemption price shall accrue interest commencing the
third day from such notice at the rate of fifteen (15%) percent per annum. Such
redemption demand may be rescinded and annulled by the holder at any time prior
to payment. No such rescission or annulment shall affect any subsequent Event of
Redemption.
An Event of Redemption shall exist, if any of the following shall occur
(whatever the reason and whether it shall be voluntary or involuntary or
affected by operation of law or pursuant to any judgment, decree or order of any
court, or any order, rule or regulation of any administrative or governmental
body):
(i) the corporation shall breach or fail to perform any provision of
the Series B Preferred Stock and such failure or breach shall not have been
remedied within 30 days after the date on which notice of such failure or breach
shall have been given;
(ii) the corporation shall commence a voluntary case under the United States
Bankruptcy Code (the "Bankruptcy Code"); or an involuntary case is commenced
against the corporation under the Bankruptcy Code and the petition is not
controverted within 30 days, or is not dismissed within 60 days, after
commencement of the case; or a "custodian" (as defined in the Bankruptcy Code)
is appointed for, or takes charge of, all or any substantial part of the
property of the corporation or the corporation commences any other proceeding
under any reorganization, arrangement, adjustment of debt, relief of debtors,
dissolution, insolvency or liquidation or similar law of any jurisdiction
whether now or hereafter in effect relating to the corporation or there is
commenced against the corporation any such proceeding which remains undismissed
for a period of 60 days; or the corporation is adjudicated insolvent or
bankrupt; or any order of relief or other order approving any such case or
proceeding is entered; or the corporation suffers any appointment of any
custodian or the like for it or any substantial part of its property which
continues undischarged or unstayed for a period of 60 days; or the corporation
makes a general assignment for the benefit of creditors; or the corporation
shall fail to pay, or shall state that it is unable to pay, or shall be unable
to pay, its debts generally as they become due; or the corporation shall call a
meeting of its creditors with a view to arranging a composition or adjustment of
its debts; or the corporation shall by any act or failure to act indicate its
consent to, approval of or acquiescence in any of the foregoing; or any
corporate or other action is taken by the corporation for the purpose of
effecting any of the foregoing.
(j) Restrictions. The corporation shall not, without the consent of a majority
in interest of the holders of the then outstanding shares of Series B Preferred
Stock, create any class of equity security which is senior to or on parity with
the Series B Preferred Stock in liquidation rights, other than in connection
with a merger and/or acquisition transaction.
and be it further
RESOLVED, that the statements contained in the foregoing resolutions creating
and designating the Series B Preferred Stock and fixing the number, voting
powers, preferences and relative, participating, optional, and other special
rights and the qualifications, limitations, restrictions, and other
distinguishing characteristics thereof, upon the effective date of such series,
be deemed to be included in and be a part of the certificate of incorporation of
the corporation pursuant to the provisions of Section 104 and 151 of the General
Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the undersigned has executed this Certificate on January 29,
1999.
Carl Coppola, President
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<S> <C>
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<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> DEC-31-1998
<CASH> 896,734
<SECURITIES> 0
<RECEIVABLES> 1,496,615
<ALLOWANCES> 5,500
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<DEPRECIATION> 2,269,187
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0
0
<COMMON> 192,967
<OTHER-SE> 2,349,088
<TOTAL-LIABILITY-AND-EQUITY> 5,255,939
<SALES> 2,936,517
<TOTAL-REVENUES> 2,936,517
<CGS> 1,765,425
<TOTAL-COSTS> 1,765,425
<OTHER-EXPENSES> 0
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<INTEREST-EXPENSE> 130,431
<INCOME-PRETAX> (463,781)
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<INCOME-CONTINUING> (463,781)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> (463,781)
<EPS-PRIMARY> (.02)
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