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: December 31, 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 January 31, 2002, 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 - December 31, 2001 ........................ 2
Consolidated Statements of Operations - Three months and six months ended
December 31, 2001 and 2000 ....................................... 3
Consolidated Statements of Cash Flows - Three months and six months ended
December 31, 2001 and 2000 ....................................... 4
Notes to Consolidated Financial Statements............................. 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Plan of Operations........................ 5-7
Part II - Other Information
Item 2. Changes in Securities And Use of Proceeds ................... 7
Item 4. Submission of Matters to a Vote of Security Holders ......... 7
Item 5. Other Information .. ........................................ 7
Item 6. Exhibits and Reports on Form 8-K............................. 8
Signature .............................................................. 8
MARKLAND TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
DECEMBER 31, 2001
ASSETS
CURRENT ASSETS:
Cash $ 25,796
Accounts receivable, net of allowance for
doubtful accounts of $173,591 135,455
Inventories 764,611
Prepaid expenses 22,836
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Total Current Assets 948,698
PROPERTY AND EQUIPMENT 69,718
LICENSES 988,325
OTHER ASSETS 23,156
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$ 2,029,897
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LIABLITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable $ 851,060
Secured line of credit 4,090,616
Notes payable 1,314,367
Liabilities from discontinued operations 1,132,702
Accrued expenses 1,286,379
Accrued warranty 136,567
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Total Current Liabilities 8,811,691
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STOCKHOLDERS' DEFICIT:
Capital stock, $.0001 par value;
500,000,000 shares authorized;
299,909,713 shares issued and outstanding 29,990
Additional paid-in capital 45,000
Accumulated deficit (6,856,784)
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Total Stockholders' Deficit (6,781,794)
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$ 2,029,897
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See accompanying notes to consolidated financial statements.
2
MARKLAND TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three months ended Six months ended
December 31, December 31,
------------------------------- ----------------------
2001 2000 2001 2000
------------- ------------ ---------- ----------
REVENUES $ 687,671 $ 1,733,875 $ 1,209,962 $ 3,459,926
COST OF SALES 490,729 1,162,686 819,715 2,176,617
----------- ------------ ----------- -----------
GROSS PROFIT 196,942 571,189 390,247 1,283,309
----------- ------------ ----------- -----------
OPERATING EXPENSES
Selling, general and
administrative 595,439 717,493 1,094,227 1,537,935
Depreciation and amortization 257,215 9,138 515,428 13,438
----------- ------------ ----------- -----------
TOTAL OPERATING EXPENSES 852,654 726,631 1,609,655 1,551,373
----------- ------------ ----------- -----------
LOSS FROM OPERATIONS (655,712) (155,442) (1,219,408) (268,064)
OTHER EXPENSES, net
Interest expense 150,483 318,493 250,433 318,493
Other expense (income) - 151,724 (4,249) 149,058
----------- ------------ ----------- -----------
TOTAL OTHER EXPENSES, net 150,483 470,217 246,184 467,551
----------- ------------ ----------- -----------
NET LOSS $ (806,195) $ (625,659) $(1,465,592)$ (735,615)
=========== ============ =========== ===========
LOSS PER SHARE - BASIC AND DILUTED $ (0.0027) $ (0.0021) $ (0.0049)$ (0.0025)
=========== ============ =========== ===========
WEIGHTED NUMBER OF
SHARES OUTSTANDING 299,909,713 299,909,713 299,909,713 299,909,713
=========== ============ =========== ===========
See accompanying notes to consolidated financial statements.
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MARKLAND TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six months ended
December 31,
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2001 2000
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Cash flows from operating activities
Net loss $(1,465,592) $ (735,615)
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Adjustments to reconcile net loss to net cash used in
operating activities
Depreciation and amortization 515,428 13,438
Changes in operating assets and liabilities:
Accounts receivable 172,960 66,918
Inventories (4,029) 308,200
Prepaid expenses 3,082 (169,240)
Other assets - (23,156)
Accounts payable (100,239) 67,727
Liabilities from discontinued operations (1,012,301) -
Accrued expenses 1,334,830 (223,479)
Accrued warranty expenses 13,852 (247,331)
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923,583 206,923
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Net cash used in operating activities (542,009) (942,538)
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Cash flows from investing activities
Purchase of equipment (1,379) (41,091)
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Net cash used in investing activities (1,379) (41,091)
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Cash flows from financing activities
Secured line of credit 395,617 781,696
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Net cash provided by financing activities 395,617 781,696
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Net increase (decrease) in cash and cash equivalents (147,771) (201,933)
Cash and cash equivalents at beginning of year 173,567 201,933
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Cash and cash equivalents at end of period $ 25,796 $ -
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See accompanying notes to consolidated financial statements.
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MARKLAND TECHNOLOGIES, INC.
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/A, filed with
the Securities and Exchange Commission on November 27, 2001.
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 December 31, 2001 of approximately
$6,856,784. 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 and six months ended December 31, 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 on 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.
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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.
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
SIX MONTHS ENDED DECEMBER 31, 2001 AND DECEMBER 31, 2000
REVENUE
Net sales amounted to $1,209,962 for the six months ended December 31,
2001, compared to $3,459,926 for the six months ended December 31, 2000 a
decrease of $2,249,964 or 65%. The decrease was due to increased competition in
the home theater market, the discontinuation of several products due to
obsolescence as well as the negative economic effects on the high-end home
theater market following the events of September 11, 2001.
COSTS AND EXPENSES
Gross profit decreased by $893,062 or 70% to $390,247 for the six
months ended December 31, 2001, from $1,283,309 for the comparable six month
period in 2000. The decrease was due to current economic conditions and market
competition. Gross profit as a percentage of net revenues decreased to 32% for
the six months ended December 31, 2001 from 37% for the six months ended
December 31, 2000.
Selling, general and administrative expenses decreased by $443,708 or
29% to $1,094,227 for the six months ended December 31, 2001, from $1,537,935
for the same period in 2000. The decrease was achieved by aggressive cost
cutting measures undertaken by management during the six-month period including
a major reorganization of personnel and the streamlining of operations.
Depreciation and amortization expense was $515,428 for the six months
ended December 31, 2001 compared to $13,438 for the six months ended December
31, 2000. The increase is due to the amortization of license agreements acquired
in late 2000.
Interest expense decreased to $250,433 for the six months ended
December 31, 2001 compared to $318,493 for the six months ended December 31,
2000. This decrease in interest expense is primarily due to the partial
conversion of a promissory note into equity by the holder.
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 $7,862,993
and a Shareholders' deficit of $6,781,794 including an accumulated deficit of
$6,856,784 at December 31, 2001. Additionally, cash used in operations for the
six months ended December 31, 2001 totaled $542,009. The Company has $1,073,746
remaining on its credit facility. Based upon current operational plans and the
continued availability of the credit facility, management anticipates that these
funds, to the extent that they may be drawn upon, will be sufficient for the
remainder of the current fiscal year. The ability of management to continue to
draw down on the credit facility is at the sole discretion of the lenders.
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
On December 31, 2001, we executed a promissory note to James LLC to replace the
promissory note that matured on December 31, 2001. The new note, with a
principal sum of $1,314,367, matures December 31, 2002 and bears interest at the
rate of eight percent per annum.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On November 29, 2001, the Annual Meeting of shareholders for the fiscal
year ending June 30, 2001 was held. The shareholders of record on October 14,
2001 voted via proxy or in person on the following proposals:
o The election of Lawrence Shatsoff and David E. Danovitch to the Board
of Directors for a term of one year;
o The adoption of our 2001 Stock Incentive Plan;
o The ratification of Feldman Sherb & Co., P.C. as our independent
accountants for our fiscal year ended June 30,2001 and our fiscal year
ending June 30, 2002; and
o The approval of an amendment to our articles of incorporation, as
amended, to increase the number of shares or our common stock, $0.0001
par value per shares, authorized for issuance from 300,000,000 to
500,000,000.
All four proposals were approved and ratified by the shareholders.
ITEM 5. OTHER INFORMATION
In August 2001, we discontinued the operations of CWTel, and have made
arrangements for the distribution of its assets in connection with its
dissolution. On November 13, 2001, CWTel filed for chapter 7 bankruptcy. We
anticipate the bankruptcy proceedings to be completed during the second calendar
quarter of 2002.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
REPORTS on Form 8-K:
Current Report on Form 8-K/A filed on October 12, 2001 with the Securities and
Exchange Commission.
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(a) Exhibits
Exhibit Description
10.3 Restated Promissory Note as of December 31, 2001 by
and between Markland Technologies, Inc. and James
LLC (1)
(1) Filed within
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant has duly 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: February 12, 2002 MARKLAND TECHNOLOGIES, INC.
By: /s/ Larry Shatsoff
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Larry Shatsoff, President
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