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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: September 30, 2000
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
-------- SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number: 0-17118
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Mark Solutions, Inc.
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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
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(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
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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: 7,688,705 shares outstanding as of November 15,
2000.
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MARK SOLUTIONS, INC.
Form 10-Q
for
Quarter Ended September 30, 2000
Index
Part I. Financial Information Page No.
Item 1. Financial Statements
Consolidated Balance Sheets as of
September 30, 2000 and June 30, 2000 . . . . . . . . . 3
Consolidated Statements of Operations
for the Three Months Ended
September 30, 2000 and 1999 . . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows
for the Three Months Ended September 30,
2000 and 1999 . . . . . . . . . . . . . . . . . . . . . 5
Notes to Consolidated Financial Statements . . . . . . . 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. . . . . . 6
Part II. Other Information
Item 2. Changes in Securities and Use of Proceeds. . . . . . . . 9
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . 9
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2
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Mark Solutions, Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands)
<TABLE>
<CAPTION>
September 30, 2000 June 30, 2000
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 145 $ 1,536
Marketable securities -- 406
Note receivable 225 225
Accounts receivable 2,498 1,868
Inventories 60 60
Deferred tax asset 572 572
Prepaid expenses 131 84
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Total Current Assets 3,631 4,751
Property and equipment, net 1,168 1,254
Other Assets:
Cost in excess of net assets
of business acquired less accumulated
amortization of $910 and $857 at
September 30, 2000 and June 30, 2000,
respectively 140 193
Other assets 146 131
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Total Other Assets 286 324
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Total Assets $ 5,085 $ 6,329
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Current Liabilities:
Accounts payable 2,052 2,061
Short term borrowings 219 250
Current maturities of long-term debt -- 402
Current portion of obligations under capital leases 190 125
Notes payable to officers/stockholders 100 100
Deferred revenues 81 159
Accrued liabilities 317 282
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Total Current Liabilities 2,959 3,379
Other Liabilities:
Long-term debt excluding current maturities 70 --
Long-term portion of obligations under capital leases 20 94
Convertible notes 2,000 2,000
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Total Other Liabilities 2,090 2,094
Commitments and Contingencies -- --
Stockholders' Equity:
Common stock, $.01 par value, 50,000,000 shares
authorized, 7,688,705 and 7,142,373 shares issued
and outstanding at September 30, 2000 and June 30,
2000, respectively 71 71
Preferred stock, $1.00 par value, $10 liquidation
value; 5,000,000 shares authorized:
Series D; authorized and issued 20,000 shares;
20,000 shares outstanding at September 30,
2000 and June 30, 2000 respectively 20 20
Additional paid-in capital 36,621 36,671
Deficit (37,194) (36,305)
Accumulated other comprehensive income 569 450
Treasury stock, at cost; 17,500 shares (51) (51)
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Total Stockholders' Equity 36 856
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Total Liabilities and Stockholders' Equity $ 5,085 $ 6,329
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</TABLE>
3
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Mark Solutions, Inc. and Subsidiaries
Consolidated Statements of Operations
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
September 30, 2000 June 30, 2000
<S> <C> <C>
Revenues $ 1,062 $ 3,997
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Costs and Expenses:
Cost of sales 1,008 2,166
General, and
administrative expenses 477 675
Marketing costs 235 318
Software costs 128 275
Amortization expense 53 52
Litigation settlement -- 275
Consulting fees 18 72
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Total Costs and Expenses 1,919 3,833
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Operating Loss (857) 164
Other Income (Expenses):
Interest income 5 6
Interest expense (52) (36)
Other 15 --
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Total Other Expenses (32) (30)
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Net Income (Loss) (889) 134
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Basic Income (Loss) per Share (0.12) 0.02
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Fully Diluted Income (Loss) per Share (0.12) 0.02
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Weighted Average Number of
Basic Shares Outstanding 7,298 5,536
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Weighted Average Number of
Fully Diluted Shares Outstanding 7,298 6,499
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Dividends Paid -- --
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</TABLE>
4
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Mark Solutions, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
September 30,2000 September 30, 1999
<S> <C> <C>
Cash Flows From Operating Activities:
Net loss $ (889) $ 133
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Adjustments to reconcile net loss to net cash
(used for) operating activities:
Depreciation and amortization 139 163
Securities issued for services -- 121
(Increase) decrease in assets:
Accounts receivable (630) 268
Billing in excess of contract revenue recognized -- 293
Other current assets (47) (5)
Other assets (15) (1)
Increase (decrease) in liabilities:
Accounts payable (9) (426)
Due to related parties -- (18)
Deferred revenue (78) (656)
Accrued liabilities 35 275
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Net adjustments to reconcile net loss to
net cash provided by (used for) operating activities (605) 14
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Net Cash (Used for)
Operating Activities (1,494) 147
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Cash Flows From Investing Activities:
Acquisition of property and equipment -- (242)
Marketable securities 406 --
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Net Cash (Used for)
Investing Activities 406 (242)
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Cash Flows From Financing Activities:
Proceeds from sale of stock -- 200
Repayment of short term borrowings (31)
Repayment of equipment loans (341) (13)
Proceeds from notes payable officer -- 100
Repayment of notes payable officer -- (375)
Other 35 2
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Net Cash Provided by Financing Activities (337) (86)
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Net increase (decrease) in Cash (1,391) (181)
Cash and Cash Equivalents at Beginning of Period 1,536 298
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Cash and Cash Equivalents at End of Period $ 145 $ 117
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</TABLE>
5
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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,
IntraScan II PACS software and modular steel jail and prison cells.
Mark Solutions, Inc. ("Mark") is a Delaware corporation, which operates
its businesses through wholly owned subsidiaries and a division.
Mark markets its IntraScan II PACS software to radiology departments,
large healthcare facilities, hospitals, and outpatient imaging group practices
as part of comprehensive PACS proposals through marketing and strategic
partnering agreements with computer hardware manufacturers, systems integrators,
and radiology imaging equipment manufacturers. Mark's principal marketing
partner is Data General Corporation / EMC Corporation.
Mark designs, manufactures, and installs modular steel cells for
correctional institution construction and develops software applications under
the name "IntraScan II" for diagnostic support, picture, archiving and
communication computer systems (PACS).
Mark markets its modular steel products by responding to public bids and
by pursuing joint ventures and affiliations with other companies to solicit
design/build correctional facilities.
Mark has decided it is in its best interest to separate the two business
segments. No definitive plan has been reached to effect such a separation and
there can be no assurances that one will occur.
Results of Operations
Although the majority of revenues for the three months ended September
were derived from MarkCare Medical Systems, management believes that the sale of
cells will continue to represent a majority of Mark's operating revenues through
June 30, 2001.
Revenues from sales for the three months ended September 30, 2000,
decreased to $1,063,000 from $3,997,000 for the comparable period. This decrease
is attributable to fewer active modular steel cell projects.
Cost of sales for the three months ended September 30, 2000, consisting of
materials, labor and fixed factory overhead expense decreased to $1,008,000 from
$2,166,000 for the comparable period. Cost of sales as a percentage of revenues
was 94.8% for the three months ended September 30, 2000 as compared to 54.2% for
the prior comparable period. This increase is due to the general lack of
projects in the modular steel cell business.
General and administrative expenses for the three months ended September
30, 2000, decreased to $443,000 from $675,000 for the comparable period. The
decrease is attributable to a reduction in general overhead costs and the
reallocation of resources to marketing and development.
Marketing costs for the three months ended September 30, 2000, decreased
to $235,000 from $318,000 for the comparable period
Software costs for the three months ended September 30, 2000 related to
IntraScan II PACS, decreased to $128,000 from $275,000 for the comparable
period. Mark has stabilized its development costs and has focused working
capital on marketing its IntraScan II PACS software and related items in
response to increased interest from distributors and potential customers.
6
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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, from anticipated
contracts, and if required investments from private sources, will be sufficient
to meet its operating requirements through June 30, 2001. If Mark does require
additional capital, it will continue to principally look to private sources.
While Mark presently does not have any material commitments for capital
expenditures, management believes that its working capital requirements for
inventory and other manufacturing related costs will significantly increase with
increases in product orders.
For the three months ended September 30, 2000, Mark had negative cash flow
from operating activities of $1,460,000, most of which is attributable to the
net operating loss sustained for the period.
For the three months ended September 30, 2000, Mark had positive cash
flow from investing activities of $406,000. Mark has no present intention of
making any acquisition, which would have a material negative or positive effect
on cash flow.
For the three months ended September 30, 2000, financing activities used
$337,000 in cash, principally due to the repayment of equipment loans.
Cash and cash equivalents decreased to $145,000 at September 30, 2000 from
$1,536,000 at June 30, 2000 due primarily a loss from operations. Working
capital decreased to $707,000 at September 30, 2000 from $1,372,000 at June 30,
2000 primarily due to operating losses.
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
There were no material adverse effects to Mark's operations due to Year
2000 software failures.
7
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PART II
OTHER INFORMATION
Item 2. Changes In Securities and Use Of Proceeds
In July 2000, the Company issued an aggregate of 89,000 shares of Common
Stock to two entities as compensation for services rendered or materials
provided.
In July, August and September 2000, the Company issued an aggregate of
457,316 shares of Common Stock to one individual as satisfaction of the
remainder of a convertible promissory note.
Item 6. Exhibits and Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed by the undersigned thereunto
duly authorized.
Date: November 20, 2000
MARK SOLUTIONS INC.
By:/s/ Carl Coppola
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President and
Chief Executive Officer
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