10-Q 1 a2030720z10-q.txt FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2000 OR [ ] 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: 0-24556 MKR HOLDINGS (Exact name of registrant as specified in its charter) Utah 87-0372759 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 1070 West 2300 South Salt Lake City, Utah 84119 (Address of principal executive offices) (801) 972-2100 (Registrant's telephone number, including area code) Indicate by check mark whether the 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 the registrant was required to file such reports), and (2) has been subject to such filings requirements for the past 90 days. Yes /X/ No / / Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class of Common Stock Outstanding at November 14, 2000 --------------------- -------------------------------- Common Stock, $0.01 par value 11,102,077 MKR HOLDINGS TABLE OF CONTENTS PART I - FINANCIAL INFORMATION

2 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. MKR HOLDINGS STATEMENTS OF NET ASSETS IN LIQUIDATION (Dollars in Thousands, Except Share and Per Share Amounts) (Unaudited)

MKR HOLDINGS STATEMENTS OF CHANGES IN NET ASSETS IN LIQUIDATION (Dollars in Thousands) (Unaudited)

The accompanying notes to condensed consolidated financial statements are an integral part of these condensed consolidated statements. 3 MKR HOLDINGS CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in Thousands, Except Per Share Amounts) (Unaudited)

The accompanying notes to condensed consolidated financial statements are an integral part of these condensed consolidated statements. 4 MKR HOLDINGS CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Dollars in Thousands) (Unaudited)

The accompanying notes to condensed consolidated financial statements are an integral part of these condensed consolidated statements. 5 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. INTERIM FINANCIAL STATMENTS The accompanying condensed consolidated financial statements include the accounts of MKR Holdings (the "Company"). The condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"). Certain information and footnote disclosures normally required in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to such rules and regulations. The Company is no longer engaged in the conduct of business and operates for the sole purpose of holding and subsequently liquidating its assets (which consist almost entirely of its equity interest in Marker International GmbH ("Newco")). As a result, the Company's financial statements have been prepared on a liquidation basis. Prior to November 30, 1999, MKR Holdings, then named Marker International, was a holding company which operated through its subsidiaries, Marker Deutschland GmbH, Marker USA, Inc., Marker Ltd., Marker Japan Co. Ltd., Marker Austria GmbH and Marker Canada, Ltd. The statements of changes in net assets in liquidation for the period from April 1, 2000 through September 30, 2000 is not necessarily indicative of the results for the full fiscal year. It is suggested that these condensed consolidated financial statements be read in conjunction with the financial statements and notes thereto included in the Company's most recent annual report on Form 10-K, as amended, as filed with the SEC. On November 30, 1999 (the "Closing Date"), the Company sold substantially all of its assets (including the equity securities of its subsidiaries) to Newco, a GmbH organized under the laws of Switzerland, pursuant to an asset purchase agreement (as amended by the Amendment to the Asset Purchase Agreement dated as of September 20, 1999, the "Purchase Agreement") between the Company and Newco. In exchange, Newco assumed substantially all of the liabilities of the Company and the Company received a 15% equity interest in Newco. The remaining 85% equity interest in Newco is held by CT Sports Holding AG ("CT"), a joint venture between Tecnica S.p.A. and H.D. Cleven, the principal shareholder of the Volkl Group. Pursuant to the Purchase Agreement, CT was required to contribute to Newco $15,000,000 in cash for its 85% equity interest in Newco. As a result of CT's purchase of 66.66% of Marker Canada, Ltd. in June 1999 for $1,025,501, CT's actual contribution to Newco totaled $13,974,499. In connection with the Purchase Agreement, the Company and CT entered into an operating agreement which, among other things, grants CT an option (the "Option") to purchase the Company's 15% equity interest in Newco at any time on or after November 30, 2001 at the then fair market value, subject to reduction in an amount equal to the sum of: (a) any indemnity obligations of the Company to Newco, (b) all unreimbursed advances from Newco for operating and administrative expenses (currently estimated to be approximately $300,000 per year) and costs of defending indemnifiable claims, if any, incurred by Newco, together with interest thereon, (c) all advances by Newco to the Company to pay any income tax liability, together with interest thereon, plus (d) $775,000. Thereafter, the Company will be liquidated and the net 6 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) proceeds of the exercise of the Option will be distributed to the shareholders of the Company in liquidation. In determining fair market value, all of CT's $15,000,000 transfer has been considered equity. In connection with the Purchase Agreement, the Company reached agreements-in-principle regarding the restructuring of its debt and the treatment of such debt under a plan of reorganization with substantially all of its creditors that were impaired under such plan. On August 19, 1999, the Company, DNR North America, Inc. and DNR USA, Inc. (collectively, the "Debtors") filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court"). On September 22, 1999, the Debtors filed the First Amended Joint Chapter 11 Plan of Reorganization (as amended by the Amendment to the First Amended Joint Chapter 11 Plan of Reorganization, dated as of October 25, 1999, the "Plan") and a related disclosure statement (the "Disclosure Statement"). By order dated September 22, 1999, the Bankruptcy Court approved the Disclosure Statement as containing adequate information. The Disclosure Statement and the Plan were subsequently distributed to the Debtors' creditors and shareholders for approval, which approval was subsequently obtained. On October 27, 1999, the Plan was confirmed by order of the Bankruptcy Court (the "Confirmation Order"). Pursuant to the Confirmation Order, the Bankruptcy Court approved the Plan and the Purchase Agreement on October 27, 1999. The Company did not distribute any securities in connection with the Plan. As a result of the events described above, the Company is no longer engaged in the conduct of business and operates for the sole purpose of holding and subsequently liquidating its assets (which consist almost entirely of its equity interest in Newco). The Company is required to dissolve and liquidate all of its assets no earlier than November 30, 2002, and no later than November 30, 2004. If the Option is not exercised prior to liquidation, then upon liquidation, the shareholders of the Company will receive an equity interest in Newco equal to each shareholder's pro rata share of the Company's 15% equity interest in Newco. The Company recognized a gain of $16.5 million from the sale to Newco of substantially all of the Company's assets and the assumption by Newco of certain of the Company's liabilities pursuant to the Purchase Agreement. The Company has valued and accounted for its 15% equity interest in Newco (the "Investment") based on the estimated liquidation value. Based upon the sales price of substantially all of the assets, the initial liquidation value of the Investment was approximately $1.9 million. Changes in liquidation value to date are recorded as unrealized gains or losses in each period. As of March 31, 2000, based on a report by an independent appraiser, the Investment was valued at approximately $2.8 million ($3.6 million less the $775,000 that will be deducted from the purchase price if CT exercises the Option). This appraisal of the value of the Investment will be updated going forward on at least an annual basis and the accounting for the Investment will be adjusted accordingly. The actual liquidation value of the Company's Investment, when such liquidation occurs, may differ materially from the estimated value herein recorded. In addition, the liquidation value going forward will be reduced by the amount of general and administrative expenses that have yet to be incurred by the Company. The financial statements of Newco for the year ended March 31, 2000 were filed on Form 10K/A on September 29, 2000. 7 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) INVESTMENT IN MARKER INTERNATIONAL GMBH The following consolidated condensed financial information for Marker International GmbH is unaudited and prepared in accordance with International Accounting Standards. International Accounting Standards vary in certain important respects from the accounting principles generally accepted in the United States ("US GAAP"). The following financial information has not been reconciled with US GAAP and the differences could be material. A discussion of the differences and a reconciliation between the results reported under International Accounting Standards ("IAS") and US Generally Accepted Accounting Principles ("US GAAP") is included in Footnote 34 of Notes to the Consolidated Financial Statements, As Of and for the Year Ended March 31, 2000, of Marker International GmbH filed with the SEC on FORM 10-K/A by MKR Holdings on September 29, 2000.

When the shareholders of Newco originally capitalized Newco with $15 million, for U.S. GAAP purposes, all $15 million was treated as equity. However, Swiss accounting laws require that a portion must be reflected as a Shareholder's Loan and included in total liabilities. That portion that must be so treated is equivalent to 13.3 million Euros. For purposes of determining Newco's fair market value, when the Option is exercised, if ever, by CT, the entire 13.3 million Euros Shareholder's Loan will be treated as equity. A further discussion of the Option is set forth in Note 1 herein. In connection with the sale of the Company's assets, the Company adopted the liquidation basis of accounting effective December 1, 1999. Under this basis of accounting, assets and liabilities are stated at their estimated net realizable value. The Company's financial statements prior to December 1, 1999 were, and are, presented on a going concern basis. 8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW On November 30, 1999 (the "Closing Date"), the Company sold substantially all of its assets (including the equity securities of its subsidiaries) to Marker International GmbH, a GmbH organized under the laws of Switzerland ("Newco"), pursuant to an asset purchase agreement (as amended by the Amendment to the Asset Purchase Agreement dated as of September 20, 1999, the "Purchase Agreement") between the Company and Newco. In exchange, Newco assumed substantially all of the liabilities of the Company and the Company received a 15% equity interest in Newco. The remaining 85% equity interest in Newco is held by CT Sports Holding AG ("CT"), a joint venture between Tecnica S.p.A. and H.D. Cleven, the principal shareholder of the Volkl Group. Pursuant to the Purchase Agreement, CT was required to contribute to Newco $15,000,000 in cash for its 85% equity interest in Newco. As a result of CT's purchase of 66.66% of Marker Canada, Ltd. in June 1999 for $1,025,501, CT's actual contribution to Newco totaled $13,974,499. In connection with the Purchase Agreement, the Company and CT entered into an operating agreement which, among other things, grants CT an option (the "Option") to purchase the Company's 15% equity interest in Newco at any time on or after November 30, 2001 at the then fair market value, subject to reduction in an amount equal to the sum of: (a) any indemnity obligations of the Company to Newco, (b) all unreimbursed advances from Newco for operating and administrative expenses (currently estimated to be approximately $300,000 per year) and costs of defending indemnifiable claims, if any, incurred by Newco, together with interest thereon, (c) all advances by Newco to the Company to pay any income tax liability, together with interest thereon, plus (d) $775,000. Thereafter, the Company will be liquidated and the net proceeds of the exercise of the Option will be distributed to the shareholders of the Company in liquidation. In determining fair market value, all of CT's $15,000,000 transfer has been considered equity. In connection with the Purchase Agreement, the Company reached agreements-in-principle regarding the restructuring of its debt and the treatment of such debt under a plan of reorganization with substantially all of its creditors that were impaired under the plan of reorganization. On August 19, 1999, the Company, DNR North America, Inc. and DNR USA, Inc. (collectively, the "Debtors") filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court"). On September 22, 1999, the Debtors filed the First Amended Joint Chapter 11 Plan of Reorganization (as amended by the Amendment to the First Amended Joint Chapter 11 Plan of Reorganization, dated as of October 25, 1999, the "Plan") and a related disclosure statement (the "Disclosure Statement"). By order dated September 22, 1999, the Bankruptcy Court approved the Disclosure Statement as containing adequate information. 9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED) The Disclosure Statement and the Plan were subsequently distributed to the Debtors' creditors and shareholders for approval, which approval was subsequently obtained. On October 27, 1999, the Plan was confirmed by order of the Bankruptcy Court (the "Confirmation Order"). Pursuant to the Confirmation Order, the Bankruptcy Court approved the Plan and the Purchase Agreement on October 27, 1999. The Company did not distribute any securities in connection with the Plan. As a result of the events described above, the Company is no longer engaged in the conduct of business and operates for the sole purpose of holding and subsequently liquidating its assets (which consist almost entirely of its equity interest in Newco). The Company is required to dissolve and liquidate all of its assets no earlier than November 30, 2002, and no later than November 30, 2004. If the Option is not exercised prior to liquidation, then upon liquidation, the shareholders of the Company will receive an equity interest in Newco equal to each shareholder's pro rata share of the Company's 15% equity interest in Newco. The Company recognized a gain of $16.5 million from the sale to Newco of substantially all of the Company's assets and the assumption by Newco of certain of the Company's liabilities pursuant to the Purchase Agreement. The Company has valued and accounted for its 15% equity interest in Newco (the "Investment") based on the estimated liquidation value. Based upon the sales price of substantially all of the assets, Newco's initial liquidation value of the Investment was approximately $1.9 million. Changes in liquidation value to date are recorded as unrealized gains or losses in each period. As of March 31, 2000, based on a report by an independent appraiser, the Investment was valued at approximately $2.8 million ($3.6 million less the $775,000 that will be deducted from the purchase price if CT exercises the Option). This appraisal of the value of the Investment will be updated going forward on at least an annual basis and the accounting for the Investment will be adjusted accordingly. The actual liquidation value of the Company's Investment, when such liquidation occurs, may differ materially from the estimated value recorded herein. The financial statements of Newco for the year ended March 31, 2000 were filed on Form 10K/A on September 29, 2000. RESULTS OF OPERATIONS Comparisons of operations for the three and six months ended September 30, 2000, respectively, to the corresponding periods of the prior fiscal year are not meaningful due to the consummation of the transactions contemplated in the Purchase Agreement. As discussed in Note 1 to the financial statements, the Company is no longer engaged in the conduct of business and operates for the sole purpose of holding and subsequently liquidating its assets. Since December 1, 1999, the Company's financial statements have been reported in accordance with the liquidation basis of accounting. LIQUIDITY AND CAPITAL RESOURCES The Company's primary cash needs are for its payroll, professional fees incurred in preparing the Company's monthly financial statements and in connection with its required SEC 10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED) filings and administrative expenses. The Company's sole source of working capital is monthly advances from Newco. Pursuant to the Purchase Agreement, Newco is obliged to lend up to $300,000 annually to the Company for its operations and associated expenses. This obligation extends until November 30, 2001, the second anniversary of the Closing Date. The Company currently has no commitments to fund its operations subsequent to November 30, 2001. As of September 30, 2000, the Company had received $267,000 in advances from Newco. The Company believes that $300,000 should be adequate to fund the required activities of the Company on an annual basis until November 30, 2001, absent unanticipated or extraordinary circumstances. The funds advanced from Newco to the Company will reduce the value to be received by the Company upon its liquidation. The interest rate for advances from Newco is 5%. OTHER MATTERS Pursuant to the Plan, the Company changed its name to MKR Holdings. Pursuant to the Confirmation Order, the Company amended its articles of incorporation and by-laws to satisfy the provisions of the Purchase Agreement, the Plan and the Confirmation Order. Pursuant to the Plan, as of November 30, 1999, the business and affairs of the Company have been managed by, and under the direction of, a Board of Directors, which consists of Kevin Hardy, Henry E. Tauber and Louis M. Alpern. Pursuant to NASDAQ's request that the Company should obtain a different ticker symbol due to its name change, effective August 3, 2000, the Company's ticker symbol was changed from MRKR to MKRH. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. The Company is exposed to market risk, including various interest rate and foreign currency exchange rate risks. FOREIGN CURRENCY RISK - The functional currency of Newco is the Euro. As a result, the value of the Company's Investment is subject to foreign currency fluctuations between the U.S. Dollar and the Euro which could have a material impact on the fair value of the Company's Investment. INTEREST RATE RISK - The Company no longer has any significant exposure to market risks for changes in interest rates since the Company's borrowings from Newco is at a fixed rate of 5%. 11 PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. a) EXHIBITS: 27 Financial Data Schedule. * b) REPORTS FILED ON FORM 8-K: None. ---------------------- * Filed herewith. 12 SIGNATURES Pursuant to 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 thereunto duly authorized. MKR HOLDINGS Registrant Dated: November 14, 2000 /s/ Kevin Hardy --------------------- Kevin Hardy President and Chief Financial Officer 13

MKR HOLDINGS 10-Q