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
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SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 1999
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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.
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(Exact Name of Registrant as Specified in Its Charter)
Delaware 11-2864481
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(State or Other Jurisdiction (I.R.S. Employer of Incorporation)
Identification No.)
Parkway Technical Center
1515 Broad Street
Bloomfield, New Jersey 07003
- ------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (973) 893-0500
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Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report
Indicate by check whether registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that registrant was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date:
Common Stock, $ .01 par value: 21,708,389 shares outstanding as of May 10, 1999.
<PAGE>
MARK SOLUTIONS, INC.
Form 10-Q
for
Quarter Ended March 31,1999
Index
Part I. Financial Information Page No.
Item 1. Financial Statements
Consolidated Balance Sheets as of
March 31, 1999 and June 30, 1998 ..................... 3-4
Consolidated Statements of Operations
for the Nine Months and Three Months Ended
March 31, 1999 and 1998 .............................. 5
Consolidated Statements of Cash Flows
for the Nine Months Ended March 31,
1999 and 1998 ............................... 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 1. Legal Proceedings ........................................ 12
Item 2. Changes in Securities and Use of Proceeds ................ 13
Item 6. Exhibits and Reports on Form 8-K ......................... 14
Signatures 15
2
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<TABLE>
<CAPTION>
Mark Solutions, Inc. and Subsidiaries
Consolidated Balance Sheets
March 31, 1999 June 30, 1998
---------------- ---------------
<S> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents $ 47,210 $ 564,577
Restricted cash - 1,234,005
Subscriptions receivable - 1,231,000
Accounts receivable, less allowance of
$5,500 at March 31, 1999 and June 30,1998 2,252,884 623,912
Billings in excess of contract revenue
recognized 528,227 -
Due from officer - 102,058
Note receivable 250,000 -
Inventories 493,462 112,474
Deferred tax asset 1,200,000 -
Other current assets 97,468 208,377
----------- ----------
Total Current Assets $4,869,251 $4,076,403
Property and Equipment, net 1,199,483 438,612
Other Assets:
Cost in excess of net assets
of business acquired less accumulated
amortization of $594,828 and $437,373 at
March 31,1999 and June 30, 1998,
respectively 454,863 612,318
Other assets 79,639 46,768
----------- -----------
Total Other Assets 534,502 659,086
----------- ----------
Total Assets $6,603,236 $5,174,101
========== ==========
</TABLE>
<TABLE>
<CAPTION>
3
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Mark Solutions, Inc. and Subsidiaries
Consolidated Balance Sheets
March 31, 1999 June 30, 1998
---------------- ---------------
<S> <C> <C> <C> <C>
Current Liabilities:
Accounts payable $ 1,986,498 $ 715,642
Customer deposits 83,506 -
Short-term borrowings 425,000 -
Current maturities of long-term debt 254,112 108,171
Current portion of obligations
under capital leases 56,249 19,418
Due to related parties 10,884 14,693
Accrued liabilities 124,945 140,262
----------- -----------
Total Current Liabilities $2,941,194 $ 998,186
Other Liabilities:
Long-term debt excluding current maturities 162,388 1,029,385
Long-term portion of obligations under
capital leases 86,401 31,031
----------- -----------
Total Other Liabilities 248,789 1,060,416
Commitments and Contingencies - - - - - -
Temporary Equities - - - 1,220,000
Stockholders' Equity (Impairment):
Common stock, $.01 par value,
50,000,000 shares authorized,
19,102,724 and 19,296,674 shares
issued and outstanding at March
31, 1999 and June 30, 1998, respectively 191,028 192,967
Preferred Stock, Series "A", $10 par value
94,000 shares authorized, 94,000 and -0-
shares issued and outstanding at March 31,
1999 and June 30, 1998, respectively 940,000 -
Preferred Stock, Series "B", $10 par value,
111,000 shares authorized, 111,000 and -0-
shares issued and outstanding at March 31,
1999 and June 30, 1998, respectively. 1,110,000 -
Additional paid-in capital 31,796,325 31,846,556
Deficit (30,573,398) (30,144,024)
Treasury Stock, at cost, 70,000 shares (50,702) -
----------- -----------
Total Stockholders' Equity (Impairment) 3,413,253 1,895,499
----------- -----------
Total Liabilities and Stockholders' Equity (Impairment) $6,603,236 $5,174,101
========== ==========
</TABLE>
4
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<TABLE>
<CAPTION>
Mark Solutions, Inc. and Subsidiaries
Consolidated Statement of Operations
Nine Months Nine Months Three Months Three Months
Ended Ended Ended Ended
March 31, 1999 March 31, 1998 March 31, 1999 March 31, 1998
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenues:
Sales $ 5,573,978 $ 12,719,161 $ 2,637,461 $ 5,075,930
Costs and Expenses:
Cost of sales 4,595,966 9,256,183 2,830,541 3,376,283
Selling, general, and
administrative expenses 2,505,462 2,950,210 956,705 842,217
------------- ------------- ------------- -------------
Total Costs and Expenses 7,101,428 12,206,393 3,787,246 4,218,500
------------- ------------- ------------- -------------
Operating Income(Loss) (1,527,450) 512,768 (1,149,785) 857,430
------------- ------------- ------------- -------------
Other Income (Expenses):
Interest and dividend income 51,458 5,960 7,143 5,114
Interest expense (37,500) (250,712) (16,736) (21,519)
Loss on sale of securities (6,216) -- (6,216) --
Imputed Interest expense on
convertible debenture (109,667) (160,157) -- --
------------ ------------ ------------- -------------
(101,925) (404,909) (15,809) (16,405)
------------- ------------- ------------- -------------
Net(Loss) before provision
for income tax benefit $ (1,629,375) $ 107,859 $ (1,165,594) $ 841,025
Income tax benefit 1,200,000 -- 1,200,000 --
------------- ------------- ------------- -------------
Net (Loss) Income $ (429,375) 107,859 $ 34,406 $ 841,025
============= ============= ============= =============
Basic (loss) Earnings Per Share $ (0.02) $ 0.01 $ 0.00 $ 0.05
============= ============= ============= =============
Weighted Average Number of
Shares Outstanding - Basic 19,203,033 16,310,982 19,011,591 16,972,212
============= ============= ============= =============
Diluted (Loss) Earnings Per Share $ (0.02) $ 0.01 $ 0.00 $ 0.05
============= ============= ============= =============
Weighted Average Number of
Shares Outstanding-Diluted 19,203,033 17,471,547 22,060,176 18,132,777
============= ============= ============= ============
Dividends Paid $ -- -- -- --
============= ============= ============= ============
</TABLE>
5
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<TABLE>
<CAPTION>
Mark Solutions, Inc. and Subsidiaries
Consolidated Statement of Cash Flows
Nine Months Nine Months
Ended Ended
March 31, 1999 March 31, 1998
------------------- -------------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income(loss) $ (429,375) $ 107,859
Adjustments to reconcile net income(loss) to net cash
(used for) provided by operating activities:
Depreciation and amortization 312,819 257,950
Deferred tax benefit (1,200,000) -
Deferred Imputed interest on convertible debentures 109,667 188,199
(Increase) decrease in assets:
Restricted cash 1,234,005 -
Accounts receivables (1,628,972) (77,144)
Billing in excess of contract revenues recognized (528,227) -
Notes receivables (250,000) -
Inventory (380,988) (60,475)
Other current assets 110,909 124,562
Other assets (32,871) 19,791
Increase (decrease) in liabilities:
Accounts payable 1,270,856 (121,297)
Customer deposits 83,506 -
Due to related parties 98,249 (193,422)
Accrued liabilities (15,317) 20,466
---------------- -------------
Net adjustments to reconcile net (loss) to net
cash (used for) provided by operating activities (816,364) 158,630
---------------- ------------
Net Cash (Used for) Provided by
Operating Activities (1,245,739) 266,489
---------------- ------------
Cash Flows From Investing Activities:
Acquisition of property and equipment (508,867) (263,202)
---------------- -------------
Net Cash Used for
Investing Activities (508,867) (263,202)
---------------- -------------
Cash Flows From Financing Activities:
Collection of subscription receivables 1,231,000 -
Repayment of long-term debt - (420,277)
Increase(repayment) in short-term borrowings 425,000 (435,225)
Proceeds of equipment loans less repayments (11,223) (20,456)
Repayment of notes payable officer - (110,000)
Proceeds from issuance of common stock - 1,510,450
Deposit on stock repurchase (222,000) -
Debt issue costs (109,667) (1,917)
Payment of stock related costs (25,169) -
Purchase of treasure stock (50,702) -
---------------- -------------
Net Cash Provided by Financing Activities 1,237,239 522,575
---------------- -------------
Net Increase (Decrease) in Cash (517,367) 525,862
Cash and Cash Equivalents at Beginning of Period 564,577 422,457
---------------- -------------
Cash and Cash Equivalents at End of Period $ 47,210 $ 948,319
================ =============
</TABLE>
6
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Note 1 INTERIM FINANCIAL INFORMATION
The consolidated balance sheet of the Company as of March 31, 1999,
the consolidated statements of operations for the nine months and
three months ended March 31, 1999 and 1998 and the consolidated
statements of cash flows for the nine months ended March 31, 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,
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:
March 31, 1999 June 30, 1998
----------------- ----------------
Raw Materials $ 465,962 $ 84,974
Work-in-progress - -
Finished Goods 27,500 27,500
------------- -------------
Total $ 493,462 $ 112,474
============= =============
7
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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. Dilutive earnings per
share gives effect to stock options and warrants which are
considered to be dilutive common stock equivalents.
Note 4 TEMPORARY EQUITY
Effective January 29, 1999, the Company 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 recision rights) for convertible Preferred Stock, which are
not subject to recision rights. Pursuant to the Exchange, the
investors effectively exchanged 1,220,000 shares of Common Stock
for 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% of the
average closing bid price during the preceding five trading days.
Also, pursuant to the Exchange, investor effectively exchanged
the $1,530,000 principal amount convertible debentures into
convertible Preferred Stock.
Note 5 CONVERTIBLE PREFERRED STOCK
On January 29, 1999 the Company effected an exchange placement
(the "Exchange Placement") pursuant to which investors agreed to
exchange the securities received in the June 1998 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"). On February 8, 1999 and April 14, 1999, 21 investors in
Mark's January 1999 Exchange Placement converted a total of
98,000 shares of Series A Preferred Stock and 147,000 shares of
Series B Preferred Stock into an aggregate of 3,476,049 shares of
Common Stock.
Note 6 DEFERRED TAX ASSET
On January 1, 1999, the State of New Jersey, in conjunction with
the New Jersey Economic Development Authority, enacted a law,
which allows certain New Jersey companies to sell their income
tax credits for cash. The program allows new or expanding
technology and biotechnology businesses to sell their Unused Net
Operating Loss Carryover and Unused Research and Development Tax
Credits to corporate taxpayers in the state for at least 75% of
the value of the benefits. The Company submitted applications for
both Mark Solutions, Inc. and MarkCare Medical Systems, Inc. on
January 15, 1999 and is currently awaiting State approval.
During the quarter ended March 31, 1999, the Company recognized a
deferred tax asset of $1,220,000 related to its net operating
loss carryforwards of approximately $20,000,000.
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 product, modular steel cells and the absence of material sales of
its IntraScan II PACS system to date.
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 program.
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 $1,675,000 in modular
cell projects and expects to bid on approximately $3,000,000 in additional cell
projects through June 30, 1999. For the nine months ended March 31, 1999, Mark
was awarded $13,350,000 of the $19,675,000 in correctional cell projects it bid
on. Of the projects Mark was not awarded, $4,375,000 was awarded to other steel
manufacturers and $1,950,000 was awarded to conventional construction.
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, under 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 generate material revenues in the fiscal
year ending June 30, 2000. If the IntraScan II marketing plan is successful,
management believes these revenues will be more constant than those presently
generated by the modular steel products, and will reduce fluctuations in Mark's
9
<PAGE>
results of operations and financial condition. During the nine months ended
March 31, 1999, Mark received four orders for its IntraScan II software. All of
which were substantially completed and accepted by December 31, 1998. Mark has
recently received a purchase order from Data General for a hospital installation
of IntraScan II PACS system in Korea. Mark has also been notified by another
strategic partner, SANTAX A/S, of the awarding of a contract for one of the
largest hospitals in Scandinavia to a consortium team, which includes Mark. Mark
has also received notification from its strategic partners that they have
received signed letters of intent from two additional international and domestic
healthcare facilities 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 March 31, 1999 sales of the modular steel
products represented 98.4% of total revenues.
Revenues for the three months ended March 31, 1999 decreased 48% to
$2,637,461 from $5,075,930 for the comparable 1998 period. This decrease was due
to the absence of any large cell project, including no additional orders from
its New York State prison industries agreement, partially offset by an increase
in smaller prison cell projects.
Cost of sales for the three months ended March 31, 1999, which
consists primarily of materials, labor, supplies, and fixed factory overhead
expense, decreased 16.0% to $2,830,541 from $3,376,283 for the comparable 1998
period. Cost of sales as a percentage of revenues was 107.3% for the three
months ended March 31, 1999 as compared to 66.5% for the comparable 1998 period.
This increase reflects inefficiencies resulting from lower revenue levels and
fixed factory overhead costs associated with projects currently in progress.
Selling, general and administrative expenses for the three months
ended March 31, 1999 increased 12.0% to $956,705 from $842,217 for the
comparable 1998 period. This increase is substantially due to increased staffing
for MarkCare and related recruitment fees incurred during the quarter.
Mark recorded a $1,200,000 tax benefit for the nine months ended March
31, 1999 related to its available net operating loss carryforwards.
Revenues for the nine months ended March 31, 1999 decreased 56.2% to
$5,573,978 from $12,719,161 for the comparable 1998 period. This decrease was
due to the absence of any large cell project, including no additional orders
from its New York State prison industries agreement, partially offset by an
increase in smaller prison cell projects and a significant increase in revenues
generated by MarkCare. For the nine months ended March 31, 1999, sales of
modular steel products represented 82.9% of total revenues.
Cost of sales for the nine months ended March 31, 1999 decreased 50.3%
to $4,595,966 from $9,256,183 for the comparable 1998 period, reflecting the
decrease in sales volume. Cost of sales as a percentage of revenues was 82.4%
10
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for the nine months ended March 31, 1999 as compared to 72.8% for the comparable
1998 period. This increase reflects inefficiencies resulting from lower revenue
levels and fixed factory overhead costs associated with projects currently in
progress.
Selling, general and administrative expenses for the nine months ended
March 31, 1999 decreased 15.1% to $2,505,462 from $2,950,210 for the comparable
1998 period. This decrease is attributable to cost management implemented by
Mark over the past several years, partially offset by an increase in technical
staff of MarkCare and public relations costs and other professional fees
attributable to both business segments.
Mark recorded a $1,200,000 tax benefit for the three months ended
March 31, 1999 related to its available net operating loss carryforwards.
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. 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 decreased from $564,577 at June 30, 1998 to
$47,210 at March 31, 1999 primarily due to proceeds from the completion of a
private placement, offset by losses incurred during the period. Working capital
decreased to $1,940,462 at March 31, 1999 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 $493,462 at March 31, 1999 from $112,474
at June 30, 1998 due to raw material purchases and component purchases for jobs
currently in production. Accounts receivable increased to $2,252,884 at March
31, 1999, from $623,912 at June 30, 1998. Billings in excess of contract revenue
recognized increased to $528,227 at March 31, 1999 from $-0- at June 30, 1998
and accounts payable increased to $1,974,093 at March 31, 1999, from $715,642 at
June 30, 1998. Mark also recorded, as a current asset, a deferred tax asset of
$1,200,000 as of March 31, 1999.
Forward Looking Statements
Except for historical information, the matters discussed in this
report are forward looking statements under the Federal securities laws that
involve risks and uncertainties that could cause actual results to differ
materially from those projected. Such risks and uncertainties include, among
other things, 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.
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To the extent modifications to such systems are required, management believes
the related costs will not materially affect Mark's financial position.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
On January 18, 1999, Mark settled its lawsuit with Calumet
Construction Corporation and the County Board related to the project in Pulaski
County, Indiana. Mark received $170,000 in final payment of the project and all
parties exchanged mutual releases.
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.
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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.
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 granted Mark an option to repurchase such securities for
$740,000 (the "Option"). Mark paid a nonrefundable deposit of $222,000, credited
against the exercise price.
In addition, these investors agreed that until the earlier of July 29, 1999 or
the expiration of the Option, they would 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 March 26, 1999, the Option expired unexercised. Consequently, the investors
related lockup agreement prohibiting conversion of Preferred Stock terminated.
The investors further agreed that the $222,000 nonrefundable deposit paid by
Mark would be credited to accrued dividends on the Preferred Stock.
On February 8, 1999 and April 14, 1999, 21 investors in Mark's January 1999
Exchange Placement converted a total of 98,000 shares of Series A Preferred
Stock and 147,000 shares of Series B Preferred Stock into an aggregate of
3,476,049 shares of Common Stock.
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 investment
sophistication.
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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 March 31, 1999
Date of Report Item Reported
- -------------- -------------
April 1, 1999 5. Other events
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed by the undersigned thereunto
duly authorized.
Date: May 10, 1998
MARK SOLUTIONS INC.
By:/s/ Michael Nafash
---------------------
Chief Financial Officer
14
<PAGE>
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0
2,040,000
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