10-Q 1 b314660_10q.txt QUARTERLY REPORT 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: September 30, 2001 -------------------- 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.) 1135 Clifton Avenue Clifton, New Jersey 07013 -------------------------------------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, Including Area Code: (973) 773-8100 --------------------- 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: 9,714,606 shares outstanding as of November 9, 2001. MARK SOLUTIONS, INC. Form 10-Q for Quarter Ended September 30, 2001 Index

~~March~~Page ~~31,~~Part ~~2001~~I ~~June~~Financial ~~30,~~Information ~~2000~~Item ~~---------------------~~1. ~~---------------------------~~Financial ~~Current~~Statements ~~Assets:~~Consolidated ~~Cash~~Balance ~~and~~Sheets ~~cash~~as ~~equivalents~~of $September ~~33 $ 1~~30,~~138~~ ~~Marketable~~2001 ~~securities~~and --June ~~406 Notes receivable 1~~30,~~120~~ ~~225~~2001.......................................................... ~~Accounts receivable~~ 3~~,213~~ ~~1,647~~Consolidated ~~Inventories~~Statements ~~60 60 Deferred tax asset 284 506 Net assets~~ of ~~discontinued~~Operations ~~segment~~for --the ~~227~~Three ~~Prepaid~~Months ~~expenses~~Ended 34September ~~22 -------- -------- Total Current Assets 4~~30,~~744~~ ~~4,231~~2001 ~~Property~~ and ~~equipment,~~2000........................................ ~~net~~4 ~~571~~Consolidated ~~790~~Statements ~~Other Assets: Cost in excess~~ of ~~net~~Cash ~~assets~~Flows offor ~~business~~the ~~acquired~~Three ~~less~~Months ~~accumulated~~Ended ~~amortization~~September ~~of $857 at June~~ 30, ~~2000~~2001 --and ~~193~~2000........................................ ~~Other assets 90 90 -------- -------- Total Other Assets 90 283 ------ ------- Total Assets $~~5~~,405~~ ~~$5,304~~Notes ~~======~~to ~~=======~~Consolidated ~~Current~~Financial ~~Liabilities:~~Statements...................................................... ~~Accounts~~6 ~~payable~~Item $ 2~~,117~~. $Management's ~~1,765~~Discussion ~~Short~~and ~~term~~Analysis ~~borrowings -- 250 Current maturities~~ of ~~long-term~~Financial ~~debt~~Condition............................................................................. 7--8 ~~402~~Part ~~Current~~II ~~portion of obligations under capital leases 61 94 Notes payable to officers/stockholders 237 100 Accrued liabilities 319 214 -------- -------- Total Current Liabilities 2,734 2,825~~ Other ~~Liabilities:~~Information ~~Long-term~~Item ~~portion~~1. ofLegal ~~obligations~~Proceedings................................................................................. ~~under~~9 ~~capital~~Item ~~leases 70 73 Convertible notes 1,900~~ 2~~,000~~ ~~--------~~Changes ~~--------~~in ~~Total~~Securities ~~Other Liabilities 1,970 2,073 Commitments~~ and ~~Contingencies~~Use --of --Proceeds......................................................... ~~Stockholders'~~9 ~~Equity:~~Item ~~Common stock, $~~3.01 ~~par~~Defaults ~~value,~~Upon ~~50,000,000~~Senior ~~shares~~Securities................................................................... ~~authorized,~~ 9~~,285,686~~ ~~and~~Item ~~7,142,373~~4. ~~shares~~Submission ~~issued~~of ~~and~~Matters ~~outstanding~~to ata ~~March~~Vote ~~31,~~of ~~2001~~Security ~~and June 30, 2000, respectively 90 71 Preferred stock, $1~~Holders.00.............................................. ~~par~~9 ~~value,~~Item ~~$10 liquidation value;~~ 5~~,000,000~~. ~~shares~~Other ~~authorized:~~Information................................................................................. ~~Series~~9 D;Item ~~authorized~~6. Exhibits and ~~issued~~Reports ~~20,000~~on ~~shares;~~Form ~~20,000 shares outstanding at June 30, 2000~~ 8--K.................................................................. 209 ~~Additional~~Signatures.................................................................................................. paid-in capital 36,713 36,671 Deficit (36,051) (36,305) Treasury stock, at cost; 17,500 shares (51) (51) -------- -------- Total Stockholders' Equity 701 406 ------ ------ Total Liabilities and Stockholders' Equity $5,405 $5,304 ====== ======10

MARK SOLUTIONS, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (in thousands)

~~Nine~~September ~~Months Ended Nine Months Ended Three Months Ended Three Months Ended March 31~~30, 2001 ~~March~~June 3130, ~~2000 March 31,~~ 2001 ~~March 31, 2000~~ -------------- -~~-------------~~ -------------- -~~-------------~~ ~~Revenues~~ASSETS $(Unaudited) ~~4,356~~CURRENT $ASSETS: ~~10,309~~Cash $and ~~2,913~~cash equivalents $ ~~3,059~~815 ~~-----------~~$ ~~-----------~~536 ~~-----------~~Notes ~~-----------~~receivable ~~Costs~~842 ~~and~~613 ~~Expenses:~~Accounts ~~Cost~~receivable ~~of sales~~ 2,~~928~~461 82,~~364~~969 ~~1,808~~Cost ~~3,705~~in ~~General,~~excess ~~and~~of ~~administrative~~contract ~~expenses~~revenue ~~1,145~~earned ~~1,147~~91 ~~408~~427 ~~637~~Inventories ~~Marketing~~25 ~~costs~~25 ~~319~~Deferred ~~485~~tax 36asset ~~(47)~~284 ~~Software~~284 ~~costs~~Prepaid --expenses --43 --41 -- ~~Amortization expense 158 157 53 52 Litigation settlement~~ -- ~~275~~ -- -- ~~Consulting fees 22~~ -- ~~11 (161)~~ -----~~------~~ ----------- ----~~-------~~ ~~-----------~~ Total ~~Costs~~Current ~~and~~Assets ~~Expenses~~ 4,~~572~~561 ~~10,428 2,316~~ 4,~~186~~895 ----------- ----~~-------~~ ----------- ----~~-------~~ ~~Operating~~PROPERTY ~~Loss~~AND ~~(216)~~EQUIPMENTS, ~~(119)~~NET: ~~597~~430 ~~(1,127)~~485 OTHER ASSETS 44 44 ----------- ----~~-------~~ ----------- ----~~-------~~ ~~Other~~Total ~~Income~~Assets ~~(Expenses):~~$ ~~Interest~~5,035 ~~income~~$ 145,424 75=============== 8=============== 66LIABILITIES ~~Interest~~AND ~~expense~~STOCKHOLDERS' ~~(249)~~EQUITY ~~(160)~~CURRENT ~~(140)~~LIABILITIES: ~~(45)~~Accounts ~~Other~~payable --$ ~~109~~550 $ 1,566 Current portion of long--term ~~105~~debt 466 750 Current portion of obligations under capital leases 58 74 Billings in excess of contract revenue earned 671 500 Notes payable to officers/stockholders 97 97 Accrued liabilities 1,023 979 ----------- ----~~-------~~ ----------- ----~~-------~~ Total ~~Other~~Current ~~Expenses~~Liabilities ~~(235)~~2,865 243,966 ~~(132) 126~~ ----------- ----~~-------~~ ----------- ----~~-------~~ ~~Income~~OTHER ~~(Loss)~~LIABILITIES: ~~from~~Long-term ~~Continuing~~portion ~~Operations~~of ~~(451)~~obligations ~~(95)~~under ~~465~~capital ~~(1,001)~~leases ~~Discontinued~~3 ~~Operations:~~5 ~~Income~~Long-term ~~from~~debt ~~sale~~250 ~~of discontinued segment 2,204~~ -- ~~2,204~~Convertible notes -- ~~Loss from operations of discontinued segment (~~1,~~499)~~130 ~~(1,655) (663) (933)~~ ----------- ----~~-------~~ ----------- ----~~-------~~ ~~Net~~Total ~~Income~~Other ~~(Loss)~~Liabilities $253 ~~254 $ (~~1,~~750)~~135 $ 2,006 $ (1,934) =========== =========== =========== =========== Basic Income (Loss) per Share Income (loss) per share from continuing operations $ (0.06) $ (0.02) $ 0.06 $ (0.16) Income from sale of discontinued segment 0.28 -- ~~0.27~~ -- ~~Loss from operations of discontinued segment (0.19) (0.28) (0.08) (0.15)~~ ----------- ----------- ----~~-------~~ ~~-----------~~COMMITMENTS ~~Income~~AND ~~(loss)~~CONTINGENCIES ~~per~~STOCKHOLDERS' ~~share~~EQUITY: $Common ~~0.03~~stock, $ (0.~~30)~~01 $par ~~0.25~~value, $50,000,000 ~~(0.31)~~shares ~~===========~~authorized, ~~===========~~9,714,606 ~~===========~~shares ~~===========~~issued ~~Fully~~and ~~Diluted~~outstanding ~~Income~~at ~~(Loss)~~September ~~per~~30, ~~Share~~2001 ~~Income~~and ~~(loss)~~June ~~per~~30, ~~share~~2001 ~~from~~97 ~~continuing~~97 ~~operations~~Preferred $stock, ~~(0.06)~~ $ (01.~~02)~~00 $par ~~0.06~~value, $10 ~~(0.16)~~liquidation ~~Income~~value; ~~from~~4,705,000 ~~sale~~shares ofauthorized: ~~discontinued~~Additional ~~segment~~paid-in ~~0.28~~capital --36,881 ~~0.27~~36,881 --Deficit ~~Loss~~(35,010) ~~from~~(36,604) ~~operations~~Treasury ofstock, ~~discontinued~~at ~~segment~~cost; ~~(0.19)~~17,500 ~~(0.28)~~shares (~~0.08~~51) (~~0.15~~51) --------------- --------------- Total Stockholders' Equity 1,917 323 --------------- --------------- ~~Income~~Total ~~(loss)~~Liabilities ~~per~~and ~~share~~Stockholders' $Equity ~~0.03~~ $ ~~(0.30) $ 0.25 $ (0.31) =========== =========== =========== =========== Weighted Average Number of Basic Shares Outstanding 7,865,630~~ 5,~~835,964~~035 ~~8,029,595~~$ ~~6,307,144 =========== =========== =========== =========== Weighted Average Number of Fully Diluted Shares Outstanding 7,865,630~~ 5,~~835,964~~424 ~~8,029,595 6,307,144~~ =========== ====~~=======~~ =========== ====~~======= Dividends Paid $ -- $ -- $ -- $ -- =========== =========== =========== ===========~~

3 MARK SOLUTIONS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (in thousands)

~~Nine~~Three Months Ended ~~Nine~~Three Months Ended ~~March~~September 3130, 2001 ~~March~~September 3130, 2000 ------------------ ------------------ ~~Cash~~Revenues ~~Flows From Operating Activities: Net income (loss)~~ $ ~~254~~3,292 $ ~~(1,750)~~199 ~~Adjustments to reconcile net loss to net cash provided by (used for) operating activities: Depreciation and amortization 461 454 Securities issued for services~~ -- ~~235 Securities issued for litigation settlement~~ -- ~~250 Deferred tax asset 222 452 Adjustment of net assets of business acquired 35~~ -- ~~Gain on sale of discontinued segment (2,204)~~ -- ~~Net Assets of discontinued segment 278~~ -- ~~(Increase) decrease in assets: Accounts receivable (1,566) 391 Inventory~~ -- --- ~~Billing in excess of contract revenue recognized~~ -- ~~554 Other current assets (12) 32 Other assets~~ -- ~~(11) Increase (decrease) in liabilities: Accounts payable 330 (840) Due to related parties~~ -- ~~(143) Deferred revenue~~ -- ~~(656) Litigation settlement payable~~ ------- ~~(50)~~Costs ~~Accrued~~and ~~liabilities~~Expenses: ~~127~~Cost ~~(86)~~of ~~Net~~sales ~~adjustments~~2,163 to584 ~~reconcile~~General ~~net~~and ~~income~~administrative ~~(loss)~~expenses to625 350 --------------- --------------- ~~net~~Total ~~cash~~Costs ~~provided~~and byExpenses ~~(used for) operating activities (~~2,~~329)~~788 ~~582~~934 --------------- --------------- ~~Net~~Operating ~~Cash~~Income (~~Used for~~Loss) ~~Operating~~504 ~~Activities~~ (~~2,075~~735) ~~(1,168)~~ --------------- --------------- ~~Cash~~Other ~~Flows~~Income ~~From Investing Activities~~(Expenses): ~~Acquisition~~Interest ofincome ~~property~~8 ~~and~~5 ~~equipment~~Interest expense (8439) (~~478~~52) ~~Repayment of note receivable 81 25 Proceeds from sale of discontinued segment 1,177~~ -- ~~Marketable securities 406~~ -- ----------- --------------- ~~Net~~Total ~~Cash~~Other ~~Provided~~Expenses by (~~Used for~~31) ~~Investing Activities 1,580~~ (~~453~~47) --------------- --------------- ~~Cash~~Income ~~Flows~~(Loss) ~~From~~from ~~Financing~~Continuing ~~Activities~~Operations before extraordinary gain 473 (782) Discontinued Operations: ~~Proceeds~~Loss from ~~sale~~operations of ~~stock~~discontinued segment -- ~~260~~(107) ~~Proceeds~~Extraordinary ~~from~~gain ~~warrant~~on ~~conversions~~extinguishment of debt 1,~~024~~121 ~~Repayment~~-- of--------------- ~~short~~--------------- ~~term~~Net ~~borrowings~~Income (~~250~~Loss) ~~Repayment~~$ of1,594 ~~equipment~~$ ~~loans~~(889) =============== =============== Basic Income (~~438~~Loss) per Share Income (~~227~~loss) ~~Proceeds~~per share from ~~notes~~continuing ~~payable~~operations ~~officer~~$ ~~137~~0.05 --$ ~~Repayment~~(0.11) ofLoss ~~notes~~from ~~payable~~operations ~~officer~~of discontinued segment -- (~~175~~0.01) ~~Proceeds~~Extraordinary ~~from~~gain ~~convertible~~on ~~debentures~~extinguishment --of ~~950~~debt ~~Other~~0.11 ~~(59)~~-- ~~(6)~~ --------------- --------------- ~~Net~~Income ~~Cash~~(loss) ~~Provided~~per byshare $ 0.16 $ (~~Used~~0.12) ~~for~~=============== =============== Fully Diluted Income (Loss) ~~Financing~~per ~~Activities~~Share Income (~~610~~loss) ~~1,826~~per ~~-----------~~share ~~-----------~~from ~~Net~~continuing ~~increase~~operations ~~(decrease)~~$ in0.05 ~~Cash~~$ (~~1,105~~0.11) ~~205~~Loss ~~Cash~~from ~~and~~operations ~~Cash~~of ~~Equivalents~~discontinued atsegment ~~Beginning~~-- (0.01) Extraordinary gain on extinguishment of ~~Period~~debt ~~1,138~~0.11 ~~298~~-- --------------- --------------- ~~Cash~~Income ~~and~~(loss) ~~Cash~~per ~~Equivalents~~share at$ ~~End~~0.16 $ (0.12) =============== =============== Weighted Average Number of ~~Period~~Basic Shares Outstanding 9,697,106 7,297,723 =============== =============== Weighted Average Number of Fully Diluted Shares Outstanding 9,697,106 7,297,723 =============== =============== Dividends Paid $ 33-- $ ~~503~~-- =============== ===============

4 MARK SOLUTIONS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (in thousands)

5 MARK SOLUTIONS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 INTERIM FINANCIAL INFORMATION The consolidated balance sheet of the Company as of September 30, 2001, the consolidated statements of operations and cash flows for the three months ended September 30, 2001 and 2000 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 included 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, 2001 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, 2001. Certain reclassifications have been made to the current and prior years amounts to conform to the current period presentation. Note 2 COMMON STOCK AND ADDITIONAL PAID-IN-CAPITAL Basic earnings (loss) per common share is computed by dividing the net earning 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 equivalents. Note 3 CONVERTIBLE NOTES PAYABLE In September 2001, the Company entered into a compromise agreement with the holder of the convertible notes payable in the amount of $1,880,000. Under the terms of the agreement the Company will pay $1,000,000 in full satisfaction of the outstanding indebtedness and accrued interest. The compromise amount is payable in four (4) equal installments of $250,000 due upon the execution of the agreement, November 30, 2001, February 28, 2002 and March 1, 2003. The initial payment was made in September 2001. As a result of this transaction the Company realized a gain of $1,121,000 from the extinguishment of debt. Note 4 INCOME TAXES The company has a federal net operating loss carry forward of approximately $30,000,000 available to offset future taxable income. Accordingly, as of September 30, 2001, the Company was not required to record an income tax provision. Note 5 NOTES RECEIVABLE The Company has recorded as Notes Receivable, $250,000 of Convertible Promissory Notes with interest at 8% due in amounts of $100,000, $100,000 and $50,000 on July 1, 2002, August 6, 2002 and October 1, 2003, respectively. These notes are convertible at the option of the Company, prior to maturity, into 1% of the outstanding common stock of the maker. 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations Revenues from continuing operations, for the three months ended September 30, 2001, increased to $3,292,000 from $199,000 for the comparable period. This increase is attributable to more modular steel cell projects. Cost of sales, from continuing operations, for the three months ended September 30, 2001, consisting of materials, labor and fixed factory overhead expense increased to $2,163,000 from $584,000 for the comparable period. Cost of sales as a percentage of revenues was 65.7% for the three months ended September 30, 2001 as compared to 293.5% for the prior comparable period. The dollar amount increase is also due to the increase in the number of active projects in the modular steel cell business. General and administrative expenses, from continuing operations for the three months ended September 30, 2001, increased to $625,000 from $350,000 for the comparable period primarily due to increased payroll expenses in 2001. Liquidity and Capital Resources Our working capital requirements result principally from staff and management overhead, office expense and marketing efforts. Our working capital requirements have historically exceeded our working capital from operations due to sporadic sales. With the sale of the MarkCare subsidiary in March of 2001 we have increased our efforts to obtain new modular steel cell contracts with more favorable margins and are concentrating on obtaining these contracts on a more continuous basis. We believe our present available working capital from existing and anticipated contracts and, if required, investments from private sources, will be sufficient to meet our operating requirements through June 30, 2002. For the three months ended September 30, 2001, we had a positive cash flow from operating activities of $793,000, which is primarily attributable to the net operating profit for the period. For the three months ended September 30, 2000 operating activities utilized $1,113,000 of cash primarily as a result of an operating loss. For the three months ended September 30, 2001, we utilized $246,000 of cash for investing activities. For the same period in 2000 we generated cash in the amount of $406,000 as a result of the sale of marketable securities. For the three months ended September 30, 2001 and 2000, financing activities used $268,000 and $411,000 in cash, principally due to the repayment of convertible debt, equipment loans and long-term debt. Cash and cash equivalents increased to $815,000 at September 30, 2001 from $536,000 at June 30, 2001 due primarily our operating profit. Working capital increased to $1,696,000 at September 30, 2001 from $929,000 at June 30, 2001 primarily due the compromise agreement reached with the holder of convertible notes payable and operating profits for the period. 7 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 the Company 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 projects are awarded to us, and the timing of their completion, meeting current and future financial requirements and competition. 8 PART II OTHER INFORMATION Item 1. Legal Proceedings On June 28, 2001, the Company was scheduled to receive payment of the $500,000 promissory note for the sale of the assets of the MarkCare Medical Systems segment from MMSI Acquisition Corp. ("MMSI"). Prior to the due date of the promissory note, we were advised by MMSI that they were evaluating the value of the net assets transferred and that they might be entitled to an offset against the promissory note for differences in the valuation of the net assets. Under a 30-day standstill agreement, dated July 3, 2001, and extended through September 3, 2001, both parties agreed to take no action until supporting documentation is prepared. The Company requested written substantiation of the claims and as of October 22, 2001 had not received such substantiation. As a result, on October 26, 2001 the Company filed a complaint for an accounting, the imposition of a constructive trust and other relief in the Superior Court of New Jersey, Chancery Division, for Essex County. The defendant, MMSI, has 30 days to file its answer. Item 2. Changes In Securities and Use Of Proceeds None. Item 3. Defaults Upon Senior Securities None. Item 4. Submission of Matters to a Vote of Security Holders None. Item 5. Other Information None. Item 6. Exhibits and Reports on Form 8-K On October 3, 2001 the Company filed a Report on Form 8-K detailing the Compromise Agreement of Outstanding debt. 9 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 9, 2001 MARK SOLUTIONS INC. By: /s/ Carl Coppola ------------------------- President and Chief Executive Officer 10

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