-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ERYdZhMvp4AMuBynZHjLyM3QBB09ZIWDmibyZU5AsGO0DXKM7+q8xML6FIYiIqOT xNiK3BeVv6fW6Umnnol5Lw== 0000807397-98-000032.txt : 19980218 0000807397-98-000032.hdr.sgml : 19980218 ACCESSION NUMBER: 0000807397-98-000032 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980213 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: MARK SOLUTIONS INC CENTRAL INDEX KEY: 0000807397 STANDARD INDUSTRIAL CLASSIFICATION: PREFABRICATED METAL BUILDINGS & COMPONENTS [3448] IRS NUMBER: 112864481 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-17118 FILM NUMBER: 98538027 BUSINESS ADDRESS: STREET 1: 1515 BROAD ST STREET 2: PARKWAY TECHNICAL CENTER CITY: BLOOMFIELD STATE: NJ ZIP: 07003 BUSINESS PHONE: 9738930500X119 MAIL ADDRESS: STREET 1: 1515 BROAD ST STREET 2: PARKWAY TECHNICAL CENTER CITY: BLOOMFIELD STATE: NJ ZIP: 07003 FORMER COMPANY: FORMER CONFORMED NAME: SHOWCASE COSMETICS INC DATE OF NAME CHANGE: 19920703 10-Q 1 MARK SOLUTIONS, INC. 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, 1997 --------------------------------- 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:16,972,212 shares outstanding as of February 12, 1998. MARK SOLUTIONS, INC. Form 10-Q for Quarter Ended December 31, 1997 Index Part I. Financial Information Page No. Item 1. Financial Statements Consolidated Balance Sheets as of December 31, 1997 and June 30, 1997 ........ 3-4 Consolidated Statements of Operations for the Six Months and Three Months Ended December 31, 1997 and December 31, 1996 ...................... 5 Consolidated Statements of Cash Flows for the Six Months Ended December 31, 1997 and December 31, 1996 ................. 6 Notes to Consolidated Financial Statements ... 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations . 8-10 Part II. Other Information Item 2. Changes in Securities 11-12 Item 4. Submission of Matters to a Vote of Security 12-13 Holders Item 6. Exhibits and Reports on Form 8-K ............. 13 Signatures 13 2 MARK SOLUTIONS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET December 31, 1997 June 30, 1997 ----------------- -------------- Current Assets: Cash and cash equivalents $ 3,935,244 $ 422,457 Accounts receivable, less allowance of $5,500 at December 31 and June 30,1997 2,306,536 3,178,928 Inventories 1,141,231 336,287 Other current assets 122,181 230,748 ------- ------- Total Current Assets $7,505,192 $4,168,420 Property and Equipment, net 362,868 347,259 Other Assets: Cost in excess of net assets of business acquired less accumulated amortization of $332,403 and $227,433 at December 31,1997 and June 30, 1997,respectively 717,288 822,258 Other assets 82,222 94,340 ------ ------ Total Other Assets 799,510 916,598 ------- ------- Total Assets $8,667,570 $5,432,277 ========== ========== 3 MARK SOLUTIONS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET December 31, 1997 June 30, 1997 ----------------- -------------- Current Liabilities: Accounts payable $ 5,011,563 $ 1,638,288 Short-term borrowings - 435,225 Current maturities of long-term debt 8,668 448,729 Current portion of obligations under capital leases 13,018 8,276 Due to related parties 194,133 296,472 Notes payable to officer 135,163 160,000 Accrued liabilities 149,473 257,973 ----------- ----------- Total Current Liabilities $5,512,018 $3,244,963 Other Liabilities: Long-term debt excluding current maturities 1,058,567 2,312,556 Long-term portion of obligations under capital leases 33,782 27,911 ----------- ----------- Total Other Liabilities 1,092,349 2,340,467 Commitments and Contingencies - - - - - - Stockholders' Equity (Impairment): Common stock, $.01 par value,50,000,000 shares authorized, 16,972,212 and 14,779,085 shares issued and outstanding at December 31 and June 30, 1997, respectively 169,972 147,790 Additional paid-in capital 30,382,322 27,454,982 Deficit (28,489,091) (27,755,925) ----------- ----------- Total Stockholders' Equity (Impairment) 2,063,203 (153,153) --------- -------- Total Liabilities and Stockholders' Equity (Impairment) $8,667,570 $5,432,277 ========== ========== 4 MARK SOLUTIONS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS Six Months Six Months Three Months Three Months Ended Ended Ended Ended Dec. 31, 1997 Dec. 31, 1996 Dec. 31, 1997 Dec 31, 1996 ------------- ------------- ------------- ------------ Revenues: Sales $ 7,643,231 $ 1,695,207 $ 6,810,990 $ 1,385,849 Costs and Expenses: Cost of sales 5,879,900 1,358,375 4,822,726 1,116,549 Selling, general, and admin. expense 2,078,621 1,822,640 955,728 936,872 --------- --------- ------- ------- Total Costs and Expenses 7,958,521 3,181,015 5,778,454 2,053,421 --------- --------- --------- --------- Operating Income(loss) (315,290) (1,485,808) 1,032,536 (667,572) Other Income (Expenses): Interest income 846 17,146 797 7,464 Interest expense (229,193) (85,583) (32,616) (61,589) Imputed Int. on convertible debenture (160,157) (439,997) (64,064) (439,997) Bad debt expense (29,372) (616) Loss on disposal of assets - (3,120) - (1,500) -------------- ------------ ----------- ------------ (417,876) (511,554) (96,499) (495,622) -------------- ------------- ----------- ------------ Net Income(Loss) $ (733,166) $ (1,997,362) $ 936,037 (1,163,194) ============== ============= ============ ============ BASIC EARNINGS PER SHARE Income(Loss) per Share $ (0.05) (0.14) 0.06 (0.08) ============== ============== ============ ============ Weighted Average Number of Shares Outstanding 15,987,554 14,061,378 16,959,030 14,232,470 ========== ========== ========== ========== DILUTES EARNINGS PER SHARE Income (Loss) per Share $ (0.05) (0.14) 0.05 (0.08) ============ ========= ========== ========== Weighted Average Number of Shares Outstanding 15,987,554 14,061,378 18,193,375 14,232,470 ========== ========== ========== ========== 5 MARK SOLUTIONS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS Six Months Six Months Ended Ended Dec. 31, 1997 Dec. 31, 1996 ------------- ------------- Cash Flows From Operating Activities: Net (loss) $ (733,166) $ (1,997,365) Adjustments to reconcile net (loss) to net cash provided by (used for) operating activities: Depreciation and amortization 177,319 198,846 Accrued interest on debt conversion - 9,477 Loss on disposal of assets - 3,120 Imputed interest expense on convertible debt - 440,000 (Increase) decrease in assets: Restricted cash - (1,907) Accounts Receivables 872,392 (874,173) Inventory (804,944) (537,675) Other current assets 108,567 (68,320) Other assets 12,118 (34,414) Increase (decrease) in liabilities: Accounts payable 3,373,275 633,281 Due to related parties (102,339) 87,247 Accrued liabilities (108,500) (57,202) -------- ------- Net adjustments to reconcile net (loss) to net cash provided by (used for) operating activities 3,527,888 (201,720) --------- -------- Net Cash Provided by (Used for) Operating Activities 2,794,722 (2,199,085) ========= ========== Cash Flows From Investing Activities: Acquisition of property and equipment (87,958) (84,146) --------------- -------------- Net Cash (Used for) Investing Activities (87,958) (84,146) --------------- ------------- Cash Flows From Financing Activities: Proceeds from issuance of convertible debt - 2,200,000 Repayment of long term debt (444,050) - Increase(decrease) of short term borrowings (435,225) 13,086 Proceeds of equipment loans less repayments 10,613 (8,386) Repayment of notes payable officer (24,837) - Proceeds from issuance of common stock 1,701,439 105,982 Debt issue costs (1,917) (162,700) Payment of issuance costs - (21,279) ------------- -------------- Net Cash Provided by Financing Activities 806,023 2,126,703 ------------- ------------- Net Increase(Decrease) in Cash 3,512,787 (156,528) Cash and Cash Equivalents at Beginning of Period 422,457 263,922 ------------- ------------- Cash and Cash Equivalents at End of Period $ 3,935,244 $ 107,394 ============= ============= 6 Note 1 INTERIM FINANCIAL INFORMATION The consolidated balance sheet of the company as of December 31, 1997, the consolidated statements of operations for the six months and three months ended December 31, 1997 and 1996 and the consolidated statements of cash flows for the three months ended December 31, 1997 and 1996 are unaudited and have been prepared in accordance with generally accepted accounting principles for interim finanical 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, 1997 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 thereto included in the Company's Annual Report on Form 10-K for the year ended June 30, 1997. Certain reclassifications have been made to the current and prior year amounts to conform to the current period presentation. Note 2 INVENTORY Inventories consist of the following: December 31, 1997 June 30, 1997 ------------------ ------------- Raw Materials $ 1,141,231 $ 300,888 Finished Goods - 35,399 -------------------- -------------- Total $ 1,141,231 $ 336,287 ===================== ============== Note 3 Common Stock and Additional Paid-In Capital During the six months ended December 31, 1997, the Company issued 580,000 shares of common stock as a result of the exercise of warrants, receiving gross proceeds of $1,516,250. 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General Mark Solutions, Inc.'s (the "Company") results of operations, liquidity, and working capital position have been historically impacted by sporadic sales of its principal products, modular steel cells. This sales pattern is primarily the result of the construction industry's unfamiliarity with the Company's products and the emergence of competition. The Company's modular steel products represent an alternative to traditional concrete construction methods, and penetration into the construction market has met resistance typically associated with an unfamiliar product. Accordingly, the Company has been, and will continue to be, subject to significant sales fluctuations until its modular steel 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, the Company'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. The Company 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 become profitable. In addition, the Company is promoting the incorporation of its modular cell products to State prison industries to capitalize on its New York State agreement. Since January 1, 1996, the Company has reduced office staff. From January 1996 to September 1996, the Company decided not to occupy factory space, but outsourced the manufacturing of its small modular cell projects to third party manufacturers. The Company occupied new factory facilities in October 1996. The Company will continue to review its overhead and personnel expenses based on operating results and prospects. The Company is continually bidding on and soliciting joint venture opportunities regarding construction projects. The anticipated revenues from any major project, would substantially improve the Company's operating results and cash flow, although no assurances can be given that any of these projects will be awarded to the Company. On July 17, 1996, the Company was awarded a contract from the State of New York which management anticipated would generate revenues of approximately $50,000,000 over three years ending December 31, 1999. Because of an unanticipated change by New York State to exclude steel cells on a current prison project, the Company can no longer estimate the potential revenues to be generated by this contract. Through June 30, 1997, revenues from this contract were approximately $3,000,000. On August 25, 1997, the Company received an additional order of approximately $12,000,000, which is scheduled to be completed and billed by March 31, 1998. The Company currently has bids pending on approximately $5,900,000 in projects. For the six months ended December 31, 1997, the Company submitted bids on approximately $18,000,000 in projects and remains under consideration for $5,000,000 of these projects. 8 Through its subsidiaries, MarkCare Medical Systems, Inc. and MarkCare Medical Systems, Ltd. (collectively "MarkCare"), the Company continues to market its IntraScan II PACS and teleradiology systems and is attempting to form strategic alliances with other companies with related medical products. Effective March 1996, the Company entered into a master supplier agreement with Data General Corporation, a large computer hardware and systems integration provider with a client base of over 1,000 institutions, pursuant to which Data General will include the IntraScan II PACS and teleradiology software applications in proposals to healthcare institutions. Management anticipates that the sale of the IntraScan II systems will begin to generate revenues in the calendar year ending December 31, 1998, although no assurances can be given in this regard. If the IntraScan marketing plan is successful, management believes that the revenues from resulting sales will be more constant then those of the modular steel products presently and will reduce fluctuations in the Company's results of operations and financial condition. Results of Operations The substantial majority of the Company's operating revenues for the reported periods was derived from the sale of modular cells for correctional institutions. Management believes that the sale of these modular steel products will continue to represent the substantial majority of the Company's operating revenues through June 30, 1998. For the three months ended December 31, 1997 sales of the modular steel products represented 100% of total revenues. Revenues for the three months ended December 31, 1997 increased 391.0% to $6,810,990 from $1,385,849 for the comparable 1996 period. This increase is solely attributed to the previously awarded purchase order from New York State. Cost of sales for the three months ended December 31, 1997, which consists primarily of materials, labor, supplies, and fixed factory overhead expense, increased 332% to $4,822,726 from $1,116,549 for the comparable 1996 period reflecting the increase in sales. Cost of sales as a percentage of revenues was 71% for the three months ended December 31, 1997 as compared to 81% for the comparable 1996 period. This decrease is attributable to efficiencies of running such a large project. Management expects to achieve increased gross margins in its steel business due to additional operating efficiencies implemented over the last six months in the Companys new manufacturing facility. Selling, general and administrative expenses for the three months ended December 31, 1997 increased 2% to $955,728 from $936,872 for the comparable 1996. This stability is primarily attributable to the successful implementation by management of cost controls over the past twelve months. Revenues for the six months ended December 31, 1997 increased 351% to $7,643,231 from $1,695,207 for the comparable 1996 period. For the six months ended December 31, 1997, sales of the modular steel products represented 97.6% of total revenues. This increase is attributed to the progress on five previously awarded projects, including $6,866,000 on the most recent New York State purchase order. 9 Cost of sales for the six months ended December 31, 1997, increased 333% to $5,879,900 from $1,358,375 for the comparable 1996 period reflecting the increase in sales. Cost of sales as a percentage of revenues was 77% for the six months ended December 31, 1997 as compared to 80% for the comparable 1996 period. This decrease is attributable to efficiencies associated with the New York State project. Selling, general and administrative expenses for the six months ended December 31, 1997 increased 14% to $2,078,621 from $1,822,640 for the comparable 1996. This increase is primarily attributable to an increase in selling expenses related to the MarkCare products, including staff expenses, travel and promotional activities and the administrative expenses associated with the operation of its factories for the modular cells. Liquidity and Capital Resources The Company's working capital requirements result principally from staff and management overhead, office expense and marketing efforts. The Company's working capital requirements have historically exceeded its working capital from operations due to the sporadic sales of its products. Accordingly, the Company has been dependent and, absent significant 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. The Company believes its present available working capital and anticipated cash from its existing contracts is sufficient to meet its operating requirements through December 31, 1998. The Company obtained a $400,000 revolving line of credit collateralized by substantially all of its assets and has no outstanding borrowings at February 4, 1998. To the extent it requires additional capital, the Company will continue to principally look to private sources. For the six months ended December 31, 1997, the Company sold 580,000 shares of Common Stock pursuant to the exercise of warrants raising gross proceeds of $1,516,250. The Company presently has an effective registration statement relating to 763,425 shares of Common Stock issuable upon the exercise of warrants and options, the majority of which are exercise prices ranging from $ 2.00 to $ 5.00 per share. The Company will initially look to the exercise of presently outstanding warrants and options to meet working capital deficits, however, if sufficient securities are not exercised, the Company will be required to seek additional private sales of its securities, which, if available, would most likely be at discounts to the current trading price of the Company's Common Stock. The Company's inventory increased to $1,141,231 at December 31, 1997 from $336,287 at June 30, 1997 due to raw material purchases and component purchases for the increased production volume. Cash and cash equivalents increased from $422,457 at June 30, 1997 to $3,935,244 at December 31, 1997 primarily due to the collection of receivables generated from its New York State contract and the proceeds from the exercise of warrants and options. Working capital increased to $1,993,174 at December 31, 1997 from $923,457 at June 30, 1997 primarily due to profits generated and warrant and option proceeds during the six months ended December 31, 1997. 10 Forward Looking Statements Except for the historical information contained herein, 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, changes to delivery schedules for the New York State purchase order, collection risks, meeting financing requirements, ability to obtain materials and the uncertainty of sales of the IntraScan product. PART II - OTHER INFORMATION Item 2. Changes in Securities On December 4, 1997, the Companys stockholders approved an increase in the Companys authorized shares from 25,000,000 to 50,000,000 shares of Common Stock. See Item 4 of this report. The following sets forth information regarding the private placement of equity securities by the Company during the six months ended December 31, 1997: On September 3, 1997, the Company reduced the exercise price of certain outstanding warrants, which were issued to four persons for investor relations and financial banking consulting services from $5.00 per share. The exercise price of warrants to purchase 250,000 shares of Common Stock was reduced to $2.75 per share and the exercise price of warrants to purchase 150,000 shares of Common Stock was reduced to $2.50 per share. On December 4, 1997, the Company modified and issued certain warrants and options as follows: 1. The Company extended the expiration date of its publicly traded Class A warrants from December 31, 1997 to June 30, 1998. These warrants are exercisable at $3.25 per share. 2. The Company extended the expiration date of outstanding warrants to purchase 140,000 shares of Common Stock at $2.00 per share from December 31, 1997 to June 30, 1998. These warrants were previously issued to three individuals in connection with a private placement financing in 1995. 3. The Company reduced the exercise price of certain warrants to purchase 50,000 shares of Common Stock at $5.75 per share and 50,000 shares of Common Stock at $5.125, to $2.625 per share. These warrants have an expiration date in September 1998 and were previously issued to two individuals for investor relations and sales consulting services. 11 4. The Company issued three-year options to purchase 454,000 shares of Common Stock at $2.875 per share to its employees as incentive compensation. 5. The Company issued warrants to purchase 230,000 shares of Common Stock to four consultants for investment banking and legal services. The terms of the warrants is as follows: Shares Subject Exercise To Option Price Term in Years ---------- --------- ------------- 35,000 $2.875 Two 100,000 4.00 Two 75,000 3.25 Two 20,000 2.875 Three 6. The Company issued to each of its four outside directors five-year options to purchase 100,000 shares of Common Stock for serving on the Board of Directors. Options to purchase 300,000 shares are exercisable at $2.875 per share and options to purchase 100,000 are exercisable at $3.375 per share. Each of the foregoing transactions was effected in reliance on the registration exemption provided by Section 4(2) of the Securities Act of 1933 as not involving a public offering due to the limited nature of each transaction, the sophistication of certain of the recipients and the recipients' relationship with the Company. Item 4. Submission of Matters to a Vote of Security-Holders. On December 4, 1997, the Company held its Annual Meeting of Shareholders (the "Annual Meeting") at which directors were elected and the increase in authorized shares from 25,000,000 shares of Common Stock to 50,000,000 shares of Common Stock was approved. The vote for the foregoing matters was as follows: 1. Election of Directors --------------------- Except for Mr. Yitz Grossman, each of the directors was re-elected. Name Votes for Votes Against - ---- ---------- ------------- Carl Coppola 14,391,344 311,115 Richard Branca 14,391,474 310,985 Ronald E. Olszowy 14,391,424 311,035 William Westerhoff 14,385,474 316,985 Michael Nafash 14,362,918 339,541 Yitz Grossman 14,395,224 307,235 12 2. Approval of an Increase in Authorized Shares from 25,000,000 shares of --------------------------------------------------------------------------- Common Stock to 50,000,000 shares of Common Stock ------------------------------------------------- Votes For 13,525,357 Votes Against 1,069,597 Abstain 107,505 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit No. Exhibit Description - ----------- ----------------------- 27.1 Financial Data Schedule 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 12, 1998 MARK SOLUTIONS, INC. By:/s/ Michael Nafash --------------------- Chief Financial Officer 13 EX-27 2 FDS DECEMBER 31, 1997 FINANCIALS
5 3-MOS JUN-30-1997 DEC-31-1997 3,935,244 0 2,312,036 5,500 1,141,231 7,505,192 2,527,706 2,164,838 8,667,570 5,512,018 0 0 0 169,972 0 8,667,570 6,810,990 6,810,990 4,822,726 956,344 63,267 0 32,616 936,037 0 936,037 0 0 0 936,037 .06 .05
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