SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[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
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Commission file number :000-24447
MARKLAND TECHNOLOGIES, INC.
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(Exact Name of Registrant as Specified in its Charter)
1413 CHESTNUT AVENUE
HILLSIDE, NEW JERSEY 07205
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(Address of principal executive offices)
(908) 810-5632
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(Registrant's telephone number)
Florida [4813] 84-1331134
(State of Incorporation) Primary Standard Industrial IRS Employer
(Classification Code Number I.D. Number)
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $0.0001 per share
(Title of class)
Indicate by check mark whether the Registrant:(1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the past
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes [X] No [ ]
The number of shares outstanding of each of the issuer's classes of equity
as of November 14, 2001, 299,909,713 shares of Common Stock, par value $0.0001
per share; and, no shares of Preferred Convertible Stock, no par value.
MARKLAND TECHNOLOGIES, INC.
Page
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet - September 30, 2001 ........................ 2
Consolidated Statements of Operations - Three months ended
September 30, 2001 and 2000 ....................................... 3
Consolidated Statements of Cash Flows - Three months ended
September 30, 2001 and 2000 ....................................... 4
Notes to Consolidated Financial Statements............................. 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Plan of Operations........................ 5-6
Part II - Other Information
Item 2. Changes in Securities And Use of Proceeds ................... 7
Item 6. Exhibits and Reports on Form 8-K............................. 7
Signature .............................................................. 8
MARKLAND TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS QUEST NET CORP.)
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
SEPTEMBER 30, 2001
ASSETS
CURRENT ASSETS:
Cash $ 1,000
Accounts receivable, net of allowance for
doubtful account of $162,207 63,549
Inventories 800,963
Prepaid expenses 19,897
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Total Current Assets 885,409
PROPERTY AND EQUIPMENT, net 68,039
LICENSES 1,239,575
OTHER ASSETS 23,156
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$ 2,216,179
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LIABLITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable $ 581,092
Notes payable 5,084,310
Liabilities from discontinued operations 1,132,702
Accrued expenses 1,316,403
Accrued warranty 122,272
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Total Current Liabilities 8,236,779
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STOCKHOLDERS' DEFICIT:
Capital stock, $.0001 par value;
300,000,000 shares authorized;
299,909,713 shares issued and outstanding 29,990
Accumulated deficit (6,050,590)
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Total Stockholders' Deficit (6,020,600)
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$ 2,216,179
===============
See accompanying notes to consolidated financial statements.
2
MARKLAND TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS QUEST NET CORP.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three months ended September 30,
------------------------------------
2001 2000
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REVENUES $ 522,290 $ 1,726,051
COST OF SALES 328,986 1,013,931
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GROSS PROFIT 193,304 712,120
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OPERATING EXPENSES
Selling, general and administrative 497,749 820,443
Depreciation and amortization 258,213 4,300
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TOTAL OPERATING EXPENSES 755,962 824,743
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LOSS FROM OPERATIONS (562,658) (112,623)
INTEREST EXPENSE, net 141,742 2,667
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NET LOSS $ (704,400) $ (115,290)
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LOSS PER SHARE - BASIC AND DILUTED $ (0.0023) $ (0.0004)
================ ================
WEIGHTED NUMBER OF SHARES OUTSTANDING 299,909,713 299,909,713
================ ================
See accompanying notes to consolidated financial statements.
3
MARKLAND TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS QUEST NET CORP.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three months ended
September 30,
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2001 2000
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Cash flows from operating activities
Net loss $ (704,400) $ (100,407)
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Adjustments to reconcile net loss to net cash used in
operating activities
Depreciation and amortization 258,213 4,300
Changes in operating assets and liabilities:
Accounts receivable 244,866 74,892
Inventories (40,381) (354,454)
Prepaid expenses 6,020 (48,631)
Other assets - (23,156)
Accounts payable (370,207) 379,266
Accrued expenses 427,499 (32,465)
Accrued warranty expenses (443) (95,793)
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525,567 (96,041)
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Net cash used in operating activities (178,833) (196,448)
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Cash flows from investing activities
Disposal of equipment 6,265 -
Purchase of equipment - (5,483)
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Net cash used in investing activities 6,265 (5,483)
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Net increase (decrease) in cash and cash equivalents (172,568) (201,931)
Cash and cash equivalents at beginning of year 173,568 201,931
------------ ------------
Cash and cash equivalents at end of period $ 1,000 $ -
============ ============
Supplemental information Cash paid for:
Interest expense $ 141,742 $ (2,667)
Income tax expense $ 1,040 $ -
See accompanying notes to consolidated financial statements.
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MARKLAND TECHNOLOGIES, INC.
(F/K/A QUEST NET CORP.)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE A: BASIS OF PRESENTATION
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to Article 10 of Regulation S-X of the
Securities and Exchange Commission. The accompanying unaudited financial
statements reflect, in the opinion of management, all adjustments necessary to
achieve a fair statement of the financial position and results of operations of
Markland Technologies, Inc. (the "Company") for the interim periods presented.
All such adjustments are of a normal and recurring nature. These financial
statements should be read in conjunction with the financial statements and notes
thereto included in the Company's Transition Report on form 10-KSB.
GOING CONCERN MATTERS
The Company's financial statements are prepared using generally accepted
accounting principles applicable to a going concern, which contemplates the
realization of assets and liquidations of liabilities in the normal course of
business. The Company has incurred significant losses since its incorporation,
resulting in an accumulated deficit as of September 30, 2001 of approximately
$6,050,590. The Company continues to experience negative cash flows from
operations and has been dependent on continued financing from investors to
sustain its activities. There is no assurance that such financing will be
available in the future if needed. These factors raise doubt about the Company's
ability to continue as a going concern.
BASIC AND DILUTED LOSS PER SHARE
Loss per common share is computed by dividing net loss available to common
shareholders by the weighted average number of shares of common stock
outstanding for the period of time then ended. The effect of the Company's stock
options and convertible securities is excluded from the computations for the
three months ended September 30, 2001 and 2000, as it is antidilutive.
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND PLAN OF
OPERATIONS
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS
The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with the financial statements and the
related notes included in this Form 10-QSB. This quarterly report of Form 10-QSB
contains forward-looking statements based upon current expectations that involve
risks and uncertainties, such as our plans, objective, expectations and
intentions. These forward-looking statements include all statements that are not
statements of historical fact. You can identify these statements by our use of
words such as "may," "expect," "believe," "anticipate," "intend," "could,"
"estimate," "continue," "plans," or their negatives or cognates. Some of these
statements include discussions regarding our future business strategy and our
ability to generate revenue, income and cash flow. We wish to caution the reader
that all forward-looking statements contained in this Form 10-QSB are only
estimates and predictions. Our actual results could differ materially from those
anticipated as a result of risk facing us or actual events differing from the
assumptions underlying such forward looking statements. Some factors that could
affect our results include those that we discuss in this section as well as
elsewhere in this Form 10-QSB.
Readers are cautioned not to place undue reliance on any forward-looking
statements contained in this prospectus. We will not update these
forward-looking statements unless the securities laws and regulations require us
to do so.
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GENERAL
Markland Technologies, Inc., through its' wholly owned subsidiary Vidikron of
America, Inc., is engaged in the sale and marketing of high-end projection
systems and support accessories for the home theater market. The Company sells
its products through a network of distributors and representatives primarily in
the United States.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2001 AND SEPTEMBER 30, 2000
REVENUE
Net sales amounted to $522,290 for the three months ended September 30,
2001, compared to $1,726,051 for the three months ended September 30, 2000 a
decrease of $1,203,761 or 70% from the three months ended September 30, 2000.
The decrease was due to increased competition in the home theater market and the
discontinuation of several products due to obsolescence.
COSTS AND EXPENSES
Gross profit decreased by $518,816 or 73% to $193,304 for the three
months ended September 30, 2001, from $712,120 for the comparable three month
period in 2000. Gross profit as a percentage of net revenues decreased to 37%
for the three months ended September 30, 2001 from 41% for the three months
ended September 30, 2000.
Selling, general and administrative expenses decreased by $322,694 or
39% to $497,749, or 95% of net revenues, for the three months ended September
30, 2001, from $820,443 or 48% of net revenues for the same period in 2000. The
decrease was achieved by aggressive cost cutting measures undertaken by
management during the three-month period including a major reorganization of
personnel and the streamlining of operations.
Depreciation and amortization expense was $258,213 for the three months
ended September 30, 2001 compared to $4,300 for the three months ended September
30, 2000. The increase is due to the amortization of license agreements acquired
in late 2000.
Interest expense increased to $141,742 for the three months ended
September 30, 2001 compared to $2,667 for the three months ended September 30,
2000. This increase is primarily due to the increase in the principal balance of
the line of credit.
LIQUIDITY AND CAPITAL RESOURCES
From inception, the Company's revenues have been insufficient to support its
operations and as a result its continued existence is dependent upon its ability
to resolve its liquidity problems, principally by obtaining debt and/or equity
financing. The Company currently has a working capital deficiency of $7,351,370
and a Shareholders' deficit of $6,050,590 including an accumulated deficit of
$4,836,214 at September 30, 2001. Additionally, cash used in operations for the
three months ended September 30, 2001 totaled $172,568. The Company has
$1,286,746 remaining on its credit facility and based upon current operational
plans, management anticipates that these funds will be sufficient for the
remainder of the current fiscal year. Management will continue to evaluate the
need for additional debt or equity financing on an ongoing basis.
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GENERAL
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In May 2001, we completed our spin-off of GlobalBot, one of our subsidiaries.
The spin-off was effected by a stock dividend paid to each holder of record of
Markland common stock. The spin-off ratio was one share of GlobalBot common
stock for each four shares of Markland common stock owned of record on May 1,
2001. The shares were issued to our stockholders in reliance on the exemption
from registration provided by Section 4(2) of the Securities Act, as a
transaction by an issuer not involving a public offering.
On October 16, 2000, Quest Net issued to James LLC 647,500 shares of its common
stock. The shares were issued as partial settlement of a lawsuit that was filed
against Quest Net on May 5, 2000 in the United States District Court, Southern
District of New York, by James LLC. In addition to issuing the common stock, we
executed a promissory note in the principal sum of $3,500,000, maturing December
31, 2001, and bearing interest at the rate of eight percent per annum. The
shares were issued under Section 3(a)(10) of the Securities Act of 1933.
As part of our acquisition of Vidikron of America, Inc., Markland LLC,
Vidikron's sole stockholder, received ten (10) shares of our Series B
convertible preferred stock, which were convertible into approximately 85% of
the outstanding common stock of Markland Technologies, Inc. on a fully diluted
basis. On June 21, 2001, pursuant to the filing of our Amendment to the Articles
of Incorporation, we effected a 40-for-1 reverse stock split in the outstanding
shares of our common stock; concurrently, all outstanding shares of our Series B
Preferred Stock automatically converted into 254,911,356 shares of common stock,
which were issued to Markland LLC in reliance on the exemption from registration
provided by Section 4(2) of the Securities Act, as a transaction by an issuer
not involving a public offering.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
Form 8-K/A filed on July 18, 2001
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, who is duly
authorized to sign as an officer and as the principal financial officer of the
registrant.
Dated: November 16, 2001 MARKLAND TECHNOLOGIES, INC.
By: /s/ Larry Shatsoff
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Larry Shatsoff, President
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