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: March 31, 2002.
[ ] 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)
49 QUINNIPIAC AVENUE, UNIT H
NORTH HAVEN, CONNECTICUT 06473
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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 April 30, 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 - March 31, 2002 ........................... 2
Consolidated Statements of Operations - Three months and nine months ended
March 31, 2002 and 2001 .......................................... 3
Consolidated Statements of Cash Flows - Nine months ended March 31, 2002
and 2001 ......................................................... 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 5. Other Information .. ........................................ 7
Item 6. Exhibits and Reports on Form 8-K............................. 7
Signature .............................................................. 8
MARKLAND TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
MARCH 31, 2002
ASSETS
CURRENT ASSETS:
Cash $ 57,016
Accounts receivable, net of allowance for
doubtful accounts of $168,855 32,921
Inventories 475,342
Prepaid expenses 56,385
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Total Current Assets 621,664
PROPERTY AND EQUIPMENT 66,287
LICENSES 737,075
OTHER ASSETS 23,156
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$ 1,448,182
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LIABLITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable $ 1,198,892
Secured line of credit 4,166,264
Notes payable 1,340,294
Liabilities from discontinued operations 306,400
Accrued expenses 958,454
Accrued warranty 139,281
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Total Current Liabilities 8,109,585
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STOCKHOLDERS' DEFICIT:
Capital stock, $.0001 par value;
500,000,000 shares authorized;
299,909,713 shares issued and outstanding 29,990
Additional paid-in capital 871,302
Accumulated deficit (7,562,695)
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Total Stockholders' Deficit (6,661,403)
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$ 1,448,182
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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 Nine months ended
March 31, March 31,
------------------------------- ----------------------
2002 2001 2002 2001
------------- ------------ ---------- ----------
REVENUES $ 496,235 $ 988,899 $ 1,706,197 $ 7,716,475
COST OF SALES 452,072 648,494 1,271,787 5,030,460
----------- ------------ ----------- -----------
GROSS PROFIT 44,163 340,405 434,410 2,686,015
----------- ------------ ----------- -----------
OPERATING EXPENSES
Selling, general and
administrative 485,271 619,988 1,577,658 3,389,840
Depreciation and amortization 257,689 57,817 773,117 80,943
----------- ------------ ----------- -----------
TOTAL OPERATING EXPENSES 742,960 677,805 2,350,775 3,470,783
----------- ------------ ----------- -----------
LOSS FROM OPERATIONS (698,797) (337,400) (1,916,365) (784,768)
OTHER EXPENSES, net
Interest expense 107,470 80,666 402,903 399,159
Other expense (income) (100,356) 14,981 (102,765) 166,650
----------- ------------ ----------- -----------
TOTAL OTHER EXPENSES, net 7,114 95,647 300,138 565,809
----------- ------------ ----------- -----------
NET LOSS $ (705,911) $ (433,047) $(2,216,503)$(1,350,577)
=========== ============ =========== ===========
LOSS PER SHARE - BASIC AND DILUTED $ (0.0024) $ (0.0014) $ (0.0074)$ (0.0045)
=========== ============ =========== ===========
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)
Nine months ended
March 31,
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2002 2001
------------ ------------
Cash flows from operating activities
Net loss $(2,216,503) $(1,350,577)
------------ ------------
Adjustments to reconcile net loss to net cash used in
operating activities
Depreciation and amortization 773,117 80,943
Changes in operating assets and liabilities:
Accounts receivable 319,085 230,845
Inventories 241,648 496,539
Prepaid expenses (30,467) (72,020)
Other assets - (15,983)
Accounts payable 247,594 (417,602)
Liabilities from discontinued operations (1,838,603) -
Accrued expenses 756,472 (230,476)
Accrued warranty expenses 16,566 (265,076)
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485,412 (192,830)
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Net cash used in operating activities (1,731,091) (1,543,407)
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Cash flows from investing activities
Purchase of equipment (4,387) (11,187)
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Net cash used in investing activities (4,387) (11,187)
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Cash flows from financing activities
Secured line of credit 747,625 1,235,746
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Net cash provided by financing activities 747,625 1,235,746
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Net increase (decrease) in cash and cash equivalents (987,853) (318,848)
Cash and cash equivalents at beginning of year 173,567 201,933
------------ ------------
Cash and cash equivalents at end of period $ (814,286) $ (116,915)
============ ============
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 March 31, 2002 of approximately
$7,562,695. 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 considerable 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 nine months ended March 31, 2002 and 2001, 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
NINE MONTHS ENDED MARCH 31, 2002 AND MARCH 31, 2001
REVENUE
Net sales amounted to $1,706,197 for the nine months ended March 31, 2002,
compared to $7,716,475 for the nine months ended March 31, 2001 a decrease of
$6,010,278 or 78%. 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. In addition, Vidikron was unable to
introduce new products into the marketplace during this time period.
COSTS AND EXPENSES
Gross profit decreased by $2,251,605 or 84% to $434,410 for the nine
months ended March 31, 2002, from $2,686,015 for the comparable nine month
period in 2001. The decrease was due to current economic conditions and market
competition. Additionally, Vidikron undertook a program to sell off a large
portion of its B-stock (previously used or cosmetic defects) inventory at a
discount which lowered its profit margin on those items. Gross profit as a
percentage of net revenues decreased to 25% for the nine months ended March 31,
2002 from 35% for the nine months ended March 31, 2001.
Selling, general and administrative expenses decreased by $1,812,182 or
53% to $1,577,658 for the nine months ended March 31, 2002, from $3,389,840 for
the same period in 2001. The decrease was achieved by aggressive cost cutting
measures undertaken by management during the nine-month period including a
reorganization and significant reduction of personnel.
Depreciation and amortization expense was $773,117 for the nine months
ended March 31, 2002 compared to $80,943 for the nine months ended March 31,
2001. The increase is due to the amortization of license agreements acquired in
late 2000.
Interest expense increased to $402,903 for the nine months ended March
31, 2002 compared to $399,159 for the nine months ended March 31, 2001. This
increase in interest expense is primarily due to additional financing from the
secured 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 $7,487,921
and a Shareholders' deficit of $6,661,403 including an accumulated deficit of
$7,562,695 at March 31, 2002. Additionally, cash used in operations for the nine
months ended March 31, 2002 totaled $1,731,091. 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 and is
not a certainty. Management will continue to evaluate the need for additional
debt or equity financing on an ongoing basis. There is no guarantee that
management will be able to secure such financing.
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GENERAL
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
In August 2001, we discontinued the operations of CWTel, and made arrangements
for the distribution of its assets in connection with its dissolution. On
November 13, 2001, CWTel filed for chapter 7 bankruptcy. The bankruptcy
proceeding was concluded on March 11, 2002 and is reflected in an adjustment to
liabilities from discontinued operations of $826,302 which was credited to
additional paid-in capital.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
REPORTS on Form 8-K:
None.
(a) Exhibits
Exhibit Description
None.
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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: May 14, 2002 MARKLAND TECHNOLOGIES, INC.
By: /s/ Larry Shatsoff
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Larry Shatsoff, President
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