UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- ----- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: December 31, 1999
--------------------------
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- ----- SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to ___________
Commission File Number: 0-17118
-----------------------------
Mark Solutions, Inc.
--------------------
(Exact Name of Registrant as Specified in Its Charter)
Delaware 11-2864481
-------- ----------
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation) Identification No.)
Parkway Technical Center
1515 Broad Street
Bloomfield, New Jersey 07003
- ------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (973) 893-0500
------------------------
Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report
Indicate by check whether registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that registrant was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes X No
---- ----
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date:
Common Stock, $ .01 par value: 6,338,623 shares outstanding as of February 14,
2000. The registrant is obligated to issue up to an additional 269,500 shares of
Common Stock, which have not been issued due to prohibitions on beneficial
ownership.
<PAGE>
MARK SOLUTIONS, INC.
Form 10-Q
for
Quarter Ended December 31,1999
Index
Part I. Financial Information Page No.
Item 1. Financial Statements
Consolidated Balance Sheets as of
December 31, 1999 and June 30, 1999. . . 3-4
Consolidated Statements of Operations
for the Six Months and Three Months Ended
December 31, 1999 and 1998 . . . . . . . . 5
Consolidated Statements of Cash Flows
for the Three Months Ended December 31,
1999 and 1998 . . . . . . . . . . . 6
Notes to Consolidated Financial Statements . . . 7
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 6. Exhibits and Reports on Form 8-K . . . . . . . . 14
Signatures 15
2
<PAGE>
<TABLE>
<CAPTION>
Mark Solutions, Inc. and Subsidiaries
Consolidated Balance Sheet
Assets
December 31, 1999 June 30, 1999
------------------ -------------
<S> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents $ 403,751 $ 298,167
Note receivable 250,000 250,000
Account receivable 4,356,187 4,744,459
Costs and estimated earnings in excess of
billings on uncompleted contracts 993,689 1,006,955
Inventory 510,597 --
Deferred tax asset 548,477 500,000
Prepaid expenses 71,501 64,706
---------- ----------
Total Current Assets 7,134,202 6,864,287
Property and equipment, net 1,536,451 1,224,110
Other Assets:
Cost in excess of net assets
of business acquired less accumulated
amortization of $752,283 and $647,313 at
December 31 and June 30, 1999,
respectively 297,408 402,378
Deferred tax asset -- 500,000
Other assets 85,623 79,939
--------- ----------
Total Other Assets 383,031 982,317
---------- -----------
Total Assets $9,053,684 $9,070,714
========== ===========
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Mark Solutions, Inc. and Subsidiaries
Consolidated Balance Sheet
Liabilities and Stockholders' Equity
December 31, 1999 June 30, 1999
------------------ -------------------
<S> <C> <C> <C> <C>
Current Liabilities:
Accounts payable $ 3,726,637 $ 3,617,608
Short-term loans 217,075 --
Current maturities of long-term debt 551,485 365,000
Current portion of obligations under capital leases 115,333 87,292
Due to related parties 55,027 177,977
Notes payable to officers/stockholders 200,000 375,000
Deferred revenues -- 655,874
Litigation settlement 525,000 300,000
Accrued liabilities 87,715 253,299
----------- -----------
Total Current Liabilities 5,478,272 5,832,050
Other Liabilities:
Long-term debt excluding current maturities 55,647 369,961
Long-term portion of obligations under capital leases 138,867 135,017
----------- -----------
Total Other Liabilities 194,514 504,978
Commitments and Contingencies -- --
Stockholders' Equity:
Common stock, $.01 par value, 50,000,000
shares authorized, 5,861,675 and 5,525,296
shares issued and outstanding at December 31,
and June 30, 1999, respectively 58,617 55,253
Preferred stock, $1.00 par value, $10 liquidation
value; 5,000,000 shares authorized:
Series A; authorized and issued 122,000 shares;
-0- and 24,000 outstanding at December
31, 1999 and June 30, 1999 respectively -- 24,000
Series B; authorized and issued 153,000
shares; -0- and 6,000 outstanding at
December 31, 1999 and June 30, 1999
respectively 6,000 6,000
Series D; authorized and issued 20,000 shares;
20,000 and -0- outstanding at December
31, 1999 and June 30, 1999 respectively 20,000 -
Additional paid-in capital 34,902,976 34,432,927
Deficit (31,732,993) (31,916,792)
Accumulated other comprehensive income 183,000 183,000
Treasury stock, at cost; 17,500 shares at
December 31 and June 30, 1999 (50,702) (50,702)
----------- -----------
Total Stockholders' Equity 3,380,898 2,733,686
Total Liabilities and Stockholders' Equity $9,053,684 $9,070,714
========== ==========
</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, 1999 December 31, 1998 December 31, 1999 December 31, 1998
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Revenues:
Sales $ 8,546,702 $ 2,936,517 $ 4,549,261 $ 2,247,656
------------------ --------------------- ----------------- ----------------
Costs and Expenses:
Cost of sales 5,014,878 1,147,847 2,848,684 800,295
General, and
administrative expenses 1,400,064 945,225 725,058 594,782
Marketing costs 750,588 417,919 432,425 219,326
Software costs 707,970 550,279 432,444 391,536
Amortization expense 104,970 104,970 52,485 52,485
Litigation settlement 275,000 2,000 - -
Consulting Fees 161,087 145,942 88,919 103,117
------------------ --------------------- ----------------- ----------------
Total Costs and Expenses 8,414,557 3,314,182 4,580,015 2,161,541
------------------ --------------------- ----------------- ----------------
Operating Income(Loss) 132,145 (377,665) (30,754) 86,115
------------------ --------------------- ----------------- ----------------
Other Income (Expenses):
Interest income 21,074 44,315 14,621 16,091
Interest expense (119,420) (20,764) (83,022) (9,338)
Imputed Interest expense on
convertible debentures - (109,667) - (54,833)
------------------ --------------------- ----------------- ----------------
(98,346) (86,116) (68,401) (48,080)
------------------ --------------------- ----------------- ----------------
Income before Income Tax Benefit $ 33,799 $ (463,781) $ (99,155) $ 38,035
Income Tax Benefit 150,000 - 150,000 -
------------------ --------------------- ---------------- ----------------
Net Income(Loss) $ 183,799 $ (463,781) $ 50,845 $ 38,035
=================== ==================== ================ ================
Basic Earnings(Loss) Per Share $ 0.03 $ (0.10) $ 0.01 $ 0.01
=================== ==================== ================= ================
Fully Dilutes Income(Loss)Per Share $ 0.03 $ (0.10) $ 0.01 $ 0.01
=================== ==================== ================= ================
Weighted Average Number of
Basic Shares Outstanding 5,617,207 4,824,169 5,680,914 4,824,169
=================== ==================== ================= ================
Weighted Average Number of
Fully Diluted Shares Outstanding 6,769,737 4,824,169 6,833,444 4,824,169
=================== ==================== ================= ================
Dividends Paid $ - $ - $ - $ -
=================== ==================== ================= ================
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Mark Solutions, Inc. and Subsidiaries
Consolidated Statements of Operations
Six Months Six Months
Ended Ended
December 31, 1999 December 31, 1998
------------------ -------------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income(loss) $ 183,799 $ (463,781)
Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities:
Depreciation and amortization 260,171 163,811
Deferred Imputed interest on convertible debentures - 109,667
Securities issued for services 203,652 -
Deferred tax asset 451,523 -
(Increase) decrease in assets:
Restricted cash - 1,234,005
Accounts Receivable 388,272 (867,203)
Notes Receivable - (250,000)
Inventory (510,597) (946,375)
Billing in excess of contract revenue recognized 13,266 -
Other current assets (6,795) (19,822)
Other assets (5,684) (1,871)
Increase (decrease) in liabilities:
Accounts payable 109,029 237,456
Due to related parties (122,950) 133,957
Deferred revenue (655,874) -
Litigation settlement payable 225,000 -
Accrued liabilities (165,584) (33,741)
Net adjustments to reconcile net income(loss) to
----------- ----------
net cash provided by (used for)operating activities 183,429 (240,116)
Net Cash Provided by (Used for)
----------- ----------
Operating Activities 367,228 (703,897)
----------- ----------
Cash Flows From Investing Activities:
Acquisition of property and equipment (467,542) (395,284)
Net Cash (Used for)
----------- ----------
Investing Activities (467,542) (395,284)
----------- ----------
Cash Flows From Financing Activities:
Collection of subscriptions receivable - 1,231,000
Proceeds from sale of Stock 260,000 -
Increase in short-term borrowings 217,075 275,000
Proceeds of equipment loans less repayments (95,938) 35,001
Repayment of notes payable officer (175,000) -
Proceeds from notes payable officer - -
Refund of stock related costs (239) (58,961)
Purchase of treasury stock - (50,702)
----------- ----------
Net Cash Provided by Financing Activities 205,898 1,431,338
----------- ----------
Net increase in Cash 105,584 332,157
Cash and Cash Equivalents at Beginning of Period 298,167 564,577
----------- ----------
Cash and Cash Equivalents at End of Period $ 403,751 $ 896,734
=========== ==========
</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, 1999, the
consolidated statement of operations for the six months and three months
ended December 31, 1999 and 1998 and the consolidated statements of cash
flows for the six months ended December 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, 1999 balance sheet
data is derived from the audited consolidated financial statements. The
attached financial statements should be read in connection with the
consolidated financial statements and notes hereto included in the
Company's Annual Report on Form 10-K for the year ended June 30, 1999.
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, 1999 June 30, 1999
----------------- -------------
Work In Progress $ 510,597 $ -
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. Earnings per share have been retroactively restated to reflect
FASB No. 128 for all prior periods presented.
7
<PAGE>
Mark Solutions, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 4 SEGMENT INFORMATION
The company's two industry segments are modular steel cells for the
corrections industry and software applications for the medical industry.
The following is a summary of selected consolidated financial information
for the Company's industry segments:
<TABLE>
<CAPTION>
Modular
Steel Medical Intersegment
Products Products Charges Total
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Six Months Ended December 31, 1999
Revenues $ 7,249,459 $ 1,297,243 $ - $ 8,546,702
Interest income 335,340 8,158 (322,424) 21,074
Interest expense 115,439 326,405 (322,424) 119,420
Depreciation and amortization 101,640 53,561 104,970 260,171
Segment pre-tax profit 1,333,744 (1,044,975) (104,970) 183,799
Segment assets 17,308,642 1,415,134 (9,670,092) 9,053,684
Capital expenditures 142,111 325,431 - 467,542
Six Months Ended Decemebr 31, 1998
Revenues $ 2,028,415 $ 908,102 $ - $ 2,936,517
Interest income 240,935 816 (197,436) 44,315
Interest expense 126,063 201,804 (197,436) 130,431
Depreciation and amortization 21,794 44,194 104,970 170,958
Segment pre-tax profit 452,492 (785,068) (127,897) (460,473)
Segment assets 11,552,036 970,379 (7,047,144) 5,475,271
Capital expenditures 395,284 - - 395,284
</TABLE>
The following table presents revenues by country based on the location of
the use of the product or service:
12/31/99 12/31/98
-------- --------
United States $ 7,405,372 $ 2,378,415
Norway 667,500 -
Other 473,830 558,102
----------- -----------
$ 8,546,702 $ 2,936,517
=========== ===========
The following table presents long-lived assets by country based on the
location of the assets:
12/31/99 12/31/98
-------- --------
United States $ 1,018,032 $ 667,750
United Kingdom 518,418 107,305
----------- -----------
$ 1,536,450 $ 775,055
=========== ===========
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
Mark's results of operations, liquidity, and working capital position have
been historically impacted by sporadic sales of its principal products, modular
steel cells and IntraScan II PACS software.
Mark's modular steel cell is an alternative to traditional construction
methods, and penetration into the construction market has met resistance
typically associated with an unfamiliar product. Accordingly, Mark has been, and
will continue to be, subject to sales fluctuations until its modular cell
technology obtains broader acceptance in the construction market. Based on the
increase in the number of projects being designed for steel cells, management
believes its cell are receiving greater market acceptance as a viable
alternative to concrete. Mark continues to promote it steel cells to the
architectural, engineering, and construction communities by making sales
presentations, participating in trade shows, conducting selected direct mail
campaigns and engaging in other marketing activities.
Mark has increased its cell marketing spending to more aggressively pursue
projects and to persuade the construction industry to increase the use of steel
cells. Mark believes this investment has been successful to date and is
necessary to achieve profitability. Mark will continue to review its overhead
and personnel expenses based on operating results and prospects.
Mark is continually bidding on and soliciting joint venture opportunities
regarding construction projects. Through its fiscal year ended June 30, 2000
Mark expects to bid on approximately $20,000,000 in cell projects which are
specified steel only, and $12,000,000, which include steel as an equal to
concrete. Revenues from any major project would substantially improve Mark's
operating results and cash flow, although no assurances can be given that any of
these projects will be awarded to Mark.
For the six months ended December 31, 1999, Mark was awarded $4,812,340 of
the $4,915,321 in correctional cell projects it bid on and remains under
consideration for the balance of the projects.
MarkCare markets the IntraScan II PACS software as part of comprehensive
PACS proposals made by MarkCare's strategic partners. MarkCare's principal
marketing partner is Data General Corporation, a subsidiary of EMC Corporation.
In response to increased interest from its strategic partners and prospective
customers, MarkCare accelerated its development and marketing efforts. Sales of
the IntraScan II PACS software began to generate material revenues in the fiscal
year ended June 30, 1999 and management expects these revenues to increase
during fiscal 2000 although no assurances can be given in this regard. If the
IntraScan marketing plan is successful, management believes that the revenues
9
<PAGE>
will be more constant then those presently generated by modular steel cell
sales, and will reduce fluctuations in Mark's consolidated results of operations
and financial condition.
Results of Operations
The substantial majority of Mark's operating revenues for the reported
periods were derived from the sale of its modular steel cells. For the three
months ended December 31, 1999, modular steel cells represented 92.6% of total
operating revenue. Management believes that the sale of cells will continue to
represent a majority of Mark's operating revenues through June 30, 2000.
Revenues from sales for the three months ended December 31, 1999, increased
102.4% to $4,549,261 from $2,247,656 for the comparable period. This increase is
attributable to increases in modular steel cell projects.
Cost of sales for the three months ended December 31, 1999, consisting of
materials, labor and fixed factory overhead expense increased by 256% to
$2,848,684 from $800,295 for the comparable period. Cost of sales as a
percentage of revenues was 62.6% for the three months ended December 31, 1999 as
compared to 35.6% for the prior comparable period. This change is due to lower
margins in its modular steel cell business, which represented a larger
percentage of revenue for the three months ended December 31, 1999 as compared
to the prior year.
General and administrative expenses for the three months ended December 31,
1999, increased 21.9% to $725,058 from $594,782 for the comparable period. The
increase is attributable to the additional staffing in response to sales growth
and prospects in both business segments.
Marketing costs for the three months ended December 31, 1999, increased
97.2% to $432,425 from $219,326 for the comparable period. This increase in due
to the expanded marketing efforts for its two products, modular steel cells and
IntraScan II PACS software.
Software costs for the three months ended December 31, 1999 related to
IntraScan II PACS, increased 10.4% to $432,444 from $391,536 for the comparable
period as Management focused working capital on IntraScan II PACS software and
related items in response to increased interest from distributors and potential
customers.
Revenues from sales for the six months ended December 31, 1999, increased
191% to $8,546,702 from $2,936,517 for the comparable period. This increase is
attributable to increases in both modular steel cell and IntraScan II PACS
software projects. For the six months ended December 31, 1999, modular steel
cells represented 84.8% of total operating revenue.
10
<PAGE>
Cost of sales for the six months ended December 31, 1999, consisting of
materials, labor and fixed factory overhead expense increased by 336.8% to
$5,014,878 from $1,147,847 for the comparable period. Cost of sales as a
percentage of revenues was 58.7% for the three months ended December 31, 1999 as
compared to 39.1% for the prior comparable period. This change is due to lower
margins in its modular steel cell business, which represented a larger
percentage of revenue for the three months ended December 31, 1999 as compared
to the prior year.
General and administrative expenses for the six months ended December 31,
1999, increased 48.1% to $1,400,064 from $945,225 for the comparable period. The
increase is attributable to the additional staffing in response to sales growth
and prospects in both business segments.
Marketing costs for the six months ended December 31, 1999, increased 79.6%
to $750,588 from $417,919 for the comparable period. This increase in due to the
expanded marketing efforts for its two products, modular steel cells and
IntraScan II PACS software.
Software costs for the six months ended December 31, 1999 related to
IntraScan II PACS, increased 28.7% to $707,970 from $550,279 for the comparable
period as Management focused working capital on IntraScan II PACS software and
related items in response to increased interest from distributors and potential
customers.
Liquidity and Capital Resources
Mark's working capital requirements result principally from staff and
management overhead, office expense and marketing efforts. Mark's working
capital requirements have historically exceeded its working capital from
operations due to sporadic sales. Accordingly, Mark has depended on and, absent
continued improvements in operations, will depend on new capital in the form of
equity or debt financing to meet its working capital deficiencies, although no
assurances can be given that such financing will be available. Mark believes its
present available working capital from existing contracts and from anticipated
contracts is sufficient to meet its operating requirements through June 30,
2000. If Mark requires additional capital, it will continue to principally look
to private sources.
Marks inventory increased to $510,597 at December 31, 1999 from $-0- at
June 30, 1999. While Mark presently does not have any material commitments for
capital expenditures, management believes that its working capital requirements
for inventory and other manufacturing related costs will significantly increase
with increases in product orders.
11
<PAGE>
For the six months ended December 31, 1999, Mark had cash flow from
operating activities of $367,228.
For the six months ended December 31, 1999, Mark had negative cash flow
from investing activities of $467,542, all of which is attributable to the
purchase of property and equipment. Mark has no present intention of making any
acquisition, which would have a material negative or positive effect on cash
flow.
For the six months ended December 31, 1999, financing activities provided
$205,898 in cash, principally due to the proceeds from stock sales and an
increase in short-term borrowing.
Cash and cash equivalents increased from $298,167 at June 30, 1999 to
$403,751 at December 31, 1999 due to proceeds from stock sales and an increase
in short-term borrowings. Working capital increased to $1,655,930 at December
31, 1999 from $1,032,237 at June 30, 1999 primarily due to profits recorded by
Mark during the period and the recognition of unearned revenue recorded at June
30, 1999.
Forward Looking Statements
Except for the historical information contained herein, the matters
discussed in this report are forward looking statements under the federal
securities law. These statements are based on current plans and expectations of
Mark and involve risks and uncertainties that could cause actual future
activities and results of operations to be materially different from those set
forth in the forward-looking statements. Important factors that could cause
actual results to differ include whether cell and PACS projects are awarded to
Mark and the timing of their completion, meeting current and future financial
requirements, competition and changes in PACS related technology.
Year 2000 Disclosure
After an evaluation and analysis of its operations, including its financial
and operational computer systems applications, Mark has concluded no material
adverse effect on its operations will occur due to Year 2000 software failures.
To the extent modifications are required, management believes the related costs
will not materially affect Mark's financial position.
12
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
On December 29, 1999, Mark settled its arbitration action with Demien
Construction Company related to a modular cell project in Missouri. Pursuant to
the settlement, Mark agreed to pay $275,000, payable in shares of Common Stock,
and the parties exchanged mutual releases.
Item 2. Changes in Securities and Use of Proceeds
On October 19, 1999, each of the six members of the Board of Directors was
granted five-year options to purchase 9,300 shares of Common Stock at $1.28125
per share.
On October 19, 1999, Carl Coppola was granted three-year options to
purchase 100,000 shares of Common Stock at $1.28125 per share in connection with
his on-going employment.
On October 19, 1999, two consultants were granted three-year warrants to
purchase an aggregate of 21,000 shares of Common Stock at $1.28125 per share.
On November 9, 1999, Mark granted to six employees, three-year
nonqualified options to purchase an aggregate of 29,000 shares of Common Stock
at $1.28125 per share.
Each of the foregoing transactions was effected in reliance on the
registration exemption provided by Section4(2) of the Securities Act as not
involving a public offering due to the limited nature of the offering and the
individuals' relationship with Mark.
13
<PAGE>
Item 4. Submission of Matters to a Vote of Security-Holders.
On December 17, 1999, Mark held its Annual Meeting of Shareholders (the
"Annual Meeting"). At the Annual Meeting six directors were elected. The vote
for the foregoing matters was as follows:
1. Election of Directors
Each of the directors was re-elected.
FOR WITHHELD
---------- --------
Carl Coppola 4,875,380 63,411
Richard Branca 4,879,642 59,149
Ronald E. Olszowy 4,879,002 59,789
William Westerhoff 4,877,727 61,064
Michael Nafash 4,876,827 61,964
Yitz Grossman 4,879,229 59,562
Item 5. Other Information.
On November 11, 1999, Mark retained Sherleigh Associates LLC ("Sherleigh")
to provide financial and investor related services to MarkCare Medical Systems,
Inc. ("MarkCare") under a one-year consulting agreement. Pursuant to the
agreement, Sherleigh purchased five percent of MarkCare for $60,000 and was
issued a warrant, exercisable until May 10, 2000 for $1.00 to purchase
additional shares of MarkCare to insure that Sherleigh beneficially owns five
percent of MarkCare on a fully diluted basis. Under certain circumstances
MarkCare has the right to repurchase the shares and warrant for $160,000.
Sherleigh will also receive a monthly fee of $1,000 under the agreement.
Item 6. Exhibits and Reports on Form 8-K
1. Consulting Agreement between MarkCare Medical Systems, Inc. and
Sherleigh Associates LLC dated November 11, 1999.
(a) Exhibits
Exhibit No. Exhibit Description
- ----------- -------------------
27.1 Financial Data Schedule
(b) Reports on Form 8-K for the Quarter ending December 31,
1999 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 14, 2000
MARK SOLUTIONS INC.
By:/s/ Michael Nafash
--------------------------
Chief Financial Officer
15
<PAGE>
SHERLEIGH ASSOCIATES LLC
660 MADISON AVENUE
NEW YORK, NEW YORK 10021
CONSULTING AGREEMENT
November 11, 1999
MarkCare Medical Systems, Inc.
Attn: Carl Coppola, President
1515 Broad Street
Bloomfield, New Jersey 07003
Dear Mr. Coppola:
This letter will confirm our agreement (the "Agreement") pursuant to which
Sherleigh Associates LLC (the "Consultant"), has been retained to serve as a
management consultant and advisor to MarkCare Medical Systems, Inc. (the
"Company") and/or its subsidiaries or affiliates for a period of twelve (12)
months commencing on the date hereof unless extended by mutual written consent
of the parties hereto. The undersigned hereby agrees to the following terms and
conditions:
1. Duties of Consultant. The Consultant shall, at the request of the
Company, upon reasonable notice, render the following services:
(i) assist the Company in the presentation of an in-depth business
plan suitable for presentation to potential investors,
underwriters, strategic partners and lenders. We have agreed
that the basic components of the business plan will consist of
the following:
(a) Overview of the Company and PACS.
(b) Description of the capabilities of the Company PACS.
(c) Strategic market analysis: trends and opportunities,
domestic and international.
(d) Value proposition to the PACS' buyer including case
studies and/or testimonials.
(e) Competitive analysis of the Company PACS versus Agfa,
Kodak etc.
(f) Financial projections and capitalization.
(ii) introduce the Company to prospective underwriters, auditors
and legal counsel.
(iii) provide financial guidance on issues of budgeting,
compensation and financial structure.
(iv) assist the Company in developing sources of interim financing
should interim financing be deemed required.
<PAGE>
(v) develop together with the Company an investor relations
program, including the hiring of an investor relations firm.
(vi) provide advice and guidance regarding an employee option and
warrant program.
(vii) provide assistance and guidance regarding a possible spin-off
of the Company from its parent company.
(viii)provide advice and guidance regarding prospective appointments
to the Board of Directors of the Company.
2. Compensation. As compensation for the services which have previously
been rendered by the Consultant on behalf of the Company with regard to the
formulation of preliminary business concepts and in consideration of the
Consultant's commitment to enter into this Agreement, the Company shall pay to
the Consultant a monthly fee of $1,000 for each month during the term hereof.
3. Issuance of Stock and Warrant.
3.1 The Company, on the execution of this Agreement, shall sell to the
Consultant the following shares and warrant in consideration of a cash purchase
price of $60,000:
(i) such number of shares of the Company's common stock (the
"Initial Shares") which shall equal (following the issuance of
such shares to the Consultant) 5% of all the issued and
outstanding capital stock of the Company on a fully diluted
basis(1); and
(ii) a common stock purchase warrant ("Warrant") to purchase, for an
aggregate purchase price of $1.00:
(a) such number of shares of the Company's common stock
("Warrant Shares") as shall equal, when added to the Initial
Shares, 5% of the Issued and outstanding capital stock of the
Company on a fully diluted basis(1), immediately following the
Company's initial round of financing (as defined herein); and
(b) 5% of the number of the Company's shares or (shares
underlying exercise of) warrants issued to any strategic
partners, employees consultants or affiliates.
- - --------------------
(1) Fully diluted basis shall mean all shares of the Company issued and
outstanding after taking into account (a) the exercise of all outstanding
warrants (including for purposes of section 3.1(b) the exercise of the Warrant),
options and convertible securities which are exercisable or convertible into the
Company's capital stock; and (b) any stock issued in exchange for, or
capitalization of the Company's debt to its parent company.
2
<PAGE>
3.2 The Company's initial round of financing shall mean the number of
shares issued in consideration of the first $2,000,000 raised by the Company
following the issuance of the Initial Shares. The Warrant shall have a term of
six months commencing on the date hereof.
3.3 The Company shall have the option (the "Option") to buy back the
Initial Shares, the Warrant and/or any Warrant Shares, from the Consultant for a
purchase price of $160,000 provided such Option may only be exercised in the
event the Company has not, within six months from the date hereof, completed the
sale of equity and/or obtained financing (as defined herein) in a minimum amount
of $1,000,000. Notwithstanding the foregoing, the Option may not be exercised if
the Company, within a period of six months from the date hereof, has rejected an
offer to purchase equity or provide financing based upon a pre money valuation
of the Company of not less than $7,000,000(2). For purposes of this section, the
term "financing" shall mean either a loan fully or partially convertible into
equity (at a conversion rate based upon a pre money valuation of not less than
$7,000,000), and/or a loan which requires the issuance of warrants to the lender
(exercisable at a price based upon a pre money valuation of not less than
$7,000,000). The Option may be exercised by written notice to the Consultant and
by delivery of the aforesaid Option purchase price during the option exercise
period which shall commence six months from the date hereof and shall end nine
months from the date hereof.
3.4 The Consultant shall have two demand and unlimited piggyback
registration rights with respect to the Initial Shares, the Warrant and the
Warrant Shares.
4. Covenants. As further consideration to the Consultant for its
execution of this Agreement, the Company, and its parent company, Mark
Solutions, Inc. ("MSI") covenant and agree as follows:
(i) MSI shall either subordinate all outstanding indebtedness owed
by the Company to MSI to any initial round of financing (as
that term is defined in Section 3.2) or capitalize such debt;
(ii) For the term of this Agreement, Consultant shall have the right
to designate one member of the Board of Directors of MSI and
one member of the Company's Board of Directors (or to designate
a representative to attend all meetings of such boards as an
observer);
(iii)The Board of Directors of the Company shall initially consist
of one director designated by the Consultant, Carl Coppola, Leo
Futerman and two directors designated by MSI.
5. Expenses. The Company shall reimburse the Consultant for all of its
reasonable and pre-approved travel and other out-of-pocket expenses
incurred in connection with its engagement hereunder.
- - --------------------
(2) Such valuation shall be based upon an assumption that all debt of the
Company to its parent company (and/or other inter company debt) has been
capitalized.
3
<PAGE>
6. Relationship. Nothing herein shall constitute Consultant as an
employee or agent of the Company, except to such extent as might hereinafter be
agreed upon for a particular purpose. Except as might hereinafter be expressly
agreed, Consultant shall not have the authority to obligate or commit the
Company in any manner whatsoever.
7. Confidentiality. Except in the course of the performance of its
duties hereunder, Consultant agrees that it shall not disclose any trade
secrets, know-how, or other proprietary information not in the public domain
learned as a result of Consultant's services to the Company unless and until
such information become generally known or unless compelled to do so pursuant to
subpoena or court order.
8. Information; Notice of Events. The Company recognizes and confirms
that the Consultant will be using information provided by or on behalf of the
Company in connection with the performance of its duties under this Agreement,
and that the Consultant does not assume any responsibility for and may rely
upon, without independent verification, the accuracy and completeness of any
such information. The Company hereby warrants that any information relating to
the Company that is furnished to the Consultant by or on behalf of the Company
will be fair, accurate and complete and will not contain any material omissions
or misstatements of fact.
9. Indemnity. The Company shall indemnify the Consultant from liability
it may incur in connection with the performance of its duties hereunder to the
extent that such liability is a result of false information provided to the
Consultant by the Company.
10. Assignment. The Agreement shall not be assignable by any party
(except to successors to all or substantially all of the business of either
party) for any reason whatsoever without the prior written consent of the other
party, which consent may be arbitrarily withheld by the party whose consent is
required.
11. Governing Law; Submission to Jurisdiction. This Agreement shall be
deemed to be a contract made under the laws of the State of New York and for all
purposes shall be construed in accordance with the laws of said State. The
Company and Consultant hereby irrevocably and unconditionally consent to submit
to the exclusive jurisdiction of the courts of the State of New York and of the
United States of America located in the State of New York, City of New York, for
any action, suits or proceedings arising out of or relating to this letter and
the transactions contemplated hereby (and agree not to commence any actions,
suits or proceeding relating thereto except in such courts, and further agree
that service of process for any action, suit or proceeding brought against the
Company or the Consultant, as the case may be, in any such court. The Company
and Consultant also hereby irrevocably and unconditionally waive any objection
to the laying of venue of any action, suit or proceeding arising out of this
letter or the transactions contemplated hereby, in the courts of the State of
New York or the United States of America located in the State of New York,
County of New York and hereby further irrevocably and unconditionally waive, and
agree not to plead a claim in any such court that any such action, suit or
proceeding brought in any such court has been brought in an inconvenient forum.
4
<PAGE>
12. Miscellaneous. This letter (a) incorporates the entire understanding
of the parties with respect to the subject matter hereof and supersedes all
previous agreements should they exist with respect thereto, whether written or
oral, (b) may not be amended, modified or waived except in a writing executed by
the Company and the Consultant and their respective successors and assigns. This
letter may be executed in any number of counterparts and by the different
parties hereto in separate counterparts, each of which when so executed and
delivered shall be deemed to be an original for all purposes, but all such
counterparts together shall constitute but one and the same instrument. Delivery
of an executed counterpart of this letter by facsimile shall be equally
effective as delivery of an executed original counterpart of this letter.
Please confirm that the foregoing is in accordance with your understanding
and agreement with the Consultant by signing and returning to us a copy of this
letter, which shall become our binding agreement upon our receipt.
We are delighted to accept this engagement and look forward to working with
you on this assignment.
Very truly yours,
SHERLEIGH ASSOCIATES LLC
By: /s/ Jack Silver
---------------------
Name: Jack Silver
Title: President
AGREED AND ACCEPTED AS OF
THE DATE FIRST ABOVE WRITTEN:
MARKCARE MEDICAL SYSTEMS, INC.
By: /s/ Carl Coppola
-----------------------------
Name: Carl Coppola
Title: PRES & CEO
AS TO SECTION 4
MARK SOLUTIONS, INC.
By: /s/ Carl Coppola
-----------------------------
PRES & CEO
5
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