-----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, A47PtM/p+UzVMuy7d3rGLChaRicFbn6HBD3ttOoIHcXn4qUMOXsslNH/6xYjkvob zfSKq6lnVxABGvVnMtUYcg== 0000807397-99-000017.txt : 19990517 0000807397-99-000017.hdr.sgml : 19990517 ACCESSION NUMBER: 0000807397-99-000017 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990514 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: 333-72099 FILM NUMBER: 99623854 BUSINESS ADDRESS: STREET 1: 1515 BROAD ST STREET 2: PARKWAY TECHNICAL CENTER CITY: BLOOMFIELD STATE: NJ ZIP: 07003 BUSINESS PHONE: 9738930500 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: March 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: 21,708,389 shares outstanding as of May 10, 1999. 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
Mark Solutions, Inc. and Subsidiaries Consolidated Balance Sheets March 31, 1999 June 30, 1998 ---------------- --------------- 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 ========== ==========
3 Mark Solutions, Inc. and Subsidiaries Consolidated Balance Sheets March 31, 1999 June 30, 1998 ---------------- --------------- 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 ========== ==========
4
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 -------------- -------------- -------------- -------------- 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 $ -- -- -- -- ============= ============= ============= ============
5
Mark Solutions, Inc. and Subsidiaries Consolidated Statement of Cash Flows Nine Months Nine Months Ended Ended March 31, 1999 March 31, 1998 ------------------- ------------------- 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 ================ =============
6 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 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 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 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 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. 11 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. 12 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. 13 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 EX-27 2 FDS 27.1
5 9-MOS JUN-30-1999 MAR-31-1999 47,210 0 2,258,384 5,500 493,462 4,869,251 3,563,486 2,364,003 6,603,236 2,941,194 248,789 0 2,040,000 191,028 1,172,726 6,603,236 5,573,978 5,573,978 4,595,966 7,101,428 0 0 147,167 (1,629,375) 0 (1,629,375) 0 1,220,000 0 (429,375) (.02) (.02)
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