-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IWkxUG/vBZSPAHbSEGKNsMBGw5cTByzMtvjBzXaqSnGyz8KpaBlYtTz0Dzanb5vo 9GEPL0Aa1waNxRxrKGO6/g== 0000889812-96-001380.txt : 19960930 0000889812-96-001380.hdr.sgml : 19960930 ACCESSION NUMBER: 0000889812-96-001380 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960927 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: MARK SOLUTIONS INC CENTRAL INDEX KEY: 0000807397 STANDARD INDUSTRIAL CLASSIFICATION: PREFABRICATED METAL BUILDINGS & COMPONENTS [3448] IRS NUMBER: 112684481 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-17118 FILM NUMBER: 96636027 BUSINESS ADDRESS: STREET 1: 1515 BROAD ST STREET 2: PARKWAY TECHNICAL CENTER CITY: BLOOMFIELD STATE: NJ ZIP: 07003 BUSINESS PHONE: 2013688118 MAIL ADDRESS: STREET 1: 1515 BROAD ST STREET 2: PARKWAY TECHNICAL CENTER CITY: BLOOMFIELD STATE: NJ ZIP: 07003 FORMER COMPANY: FORMER CONFORMED NAME: SHOWCASE COSMETICS INC DATE OF NAME CHANGE: 19920703 10-K 1 ANNUAL REPORT SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 -------------- FORM 10-K FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Mark One) [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended June 30, 1996 ------------------------------------------------------ OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from to ------------------- --------------------- Commission File No. 0-17118 Mark Solutions, Inc. - ------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 112864481 - --------------------------------------- ------------------------ State or other jurisdiction (I.R.S. employer of incorporation or organization) identification no.) Parkway Technical Center 1515 Broad Street, Bloomfield, New Jersey 07607 - --------------------------------------------------------- ------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (201) 893-0500 ------------------------------ Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered ------------------- ----------------------------------------- NONE - ------------------------------- ------------------------------------------ Securities registered pursuant to Section 12(g) of the Act: Common Stock, $ .01 par value Class A Common Stock Purchase Warrants - ------------------------------------------------------------------------------ (Title of class) [Cover Page 1 of 2 Pages] 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 filing requirements for the past 90 days. Yes X No. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in difinitive proxy or other information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]. The aggregate market value of the 10,645,297 shares of Common Stock held by non-affiliates of the Registrant on September 24, 1996 was $ 61,210,457 based on the closing sales price of $ 5-3/4 on September 24, 1996. The number of shares of Common Stock outstanding as of September 24, 1996 was 13,472,463. DOCUMENTS INCORPORATED BY REFERENCE None [Cover Page 2 of 2 Pages] PART I Item 1. Business (a) General Development of Business. Mark Solutions, Inc. ("Mark") is a Delaware corporation which operates its various businesses through wholly-owned subsidiaries and a division. Mark is engaged in the design, manufacture, assembly and/or distribution of (i) modular steel cells for housing of the general prison population as well as for use as infectious disease isolation units for correctional institutions and health care facilities, (ii) a treatment booth for communicable diseases and (iii) diagnostic support and archiving computer systems marketed under the name "IntraScan". In its marketing of modular steel products, Marek responds to public bids and pursues joint ventures and affiliations with other companies to solicit design, build and/or operate correctional facilities projects both domestically and internationally. Mark succeeded to the businesses of Mark Correctional Systems, Inc. ("MCS") and Showcase Cosmetics, Inc. under a reorganization consummated on November 10, 1993 (the "Reorganization") pursuant to an Agreement and Plan of Reorganization dated December 23, 1992, as amended. On October 10, 1995, Mark sold its Bar-Lor Cosmetics business to Alan R. Steiner, president of the cosmetics subsidiaries, for $ 100,000 in cash. The sale was consummated pursuant to a stock purchase agreement whereby Mr. Steiner purchased all of the outstanding shares of three Mark subsidiaries, Bar-Lor cosmetics, Ltd., Bar-Lor West, Inc. And Bar-Lor South, Inc. On May 28, 1996, Mark acquired all of the capital stock of Simis Medical Imaging, Limited, a privately held British company ("SMI"), for $ 1,250,000 payable in Common Stock of Mark. At the initial closing, Mark issued an aggregate of 108,696 shares of Common Stock representing $ 625,000 of the purchase price. The balance of the purchase price will be paid in Common Stock on November 28, 1996 and the number of shares to be issued will be calculated by dividing $ 625,000 by the closing sales price on November 25, 1996; provided, however, the maximum number of shares to be issued by Mark is 1,000,000. In addition, Christopher Cummins, one of the former shareholders of SMI, has entered into a three-year employment agreement with SMI which provides for, among other things, (i) an annual salary of U.K. Pounds 60,000 in the initial year with U.K. Pound 5,000 increases in the succeeding two years and (ii) an annual bonus equal to 10% of the post tax profits of SMI. SMI is the developer of the IntraScan II software which Mark had been marketing under an exclusive dealer agreement covering North and South America. Mark was incorporated under the laws of the State of Delaware on September 29, 1986 under the name "Showcase Cosmetics, Inc." -3- (b) Financial Information about Industry Segments The following table sets forth information regarding Mark's industry segments and classes of products. Prior to the fiscal year ended June 30, 1994, Mark derived substantially all of its revenues from the sale of its modular steel cell products. Accordingly, no financial information about industry segments is presented for prior periods. Information regarding discontinued cosmetics operations, which were sold in October 1995, is excluded. Fiscal Year Ended June 30, -------------------------- 1996 1995 1994 ----------- --------- -------- Sales to unaffiliated customers: Mark Correctional Systems: Modular Cells ........... $ 3,256,574 $ 5,949,490 $2,839,052 ----------- ----------- ---------- MarkCare Medical Systems: IntraScan ............... 41,946 15,000 137,512 Treatment Booths ........ 156,095 161,083 206,509 ----------- ---------- ------- 198,041 176,083 344,021 ----------- ---------- ------- 3,454,615 6,125,573 3,183,073 =========== ========== =========== Operating Loss: Mark Correctional Systems ... $(4,508,406) ( 3,055,631) (2,368,708) MarkCare Medical Systems ... ( 555,462) ( 671,099) (681,593) Identifiable Assets: Mark Correctional Systems ..... $ 1,317,620 3,505,086 3,533,195 MarkCare Medical Systems ...... 1,766,143 268,795 340,238 -4- (c) Narrative Description of Business Products and Services Mark Correctional Systems Division Mark operates its modular steel cell and infectious disease isolation unit business through its division, Mark Correctional Systems. Modular Cells. Since the initial sale of its prefabricated modular steel cells for housing the general prison population in 1989, Mark has manufactured and sold 1,208 of its security prison cells for use in correctional institutions in 12 states including New York, New Jersey, Michigan, Missouri, Washington and Wisconsin. Revenues generated by the sale of cells to correctional facilities aggregated $ 3,090,663 or 89.5 % of Mark's total operating revenues for the fiscal year ended June 30, 1996. These revenues are primarily attributable to a 616 cell project for the State Prison of Southern Michigan in Jackson, Michigan which generated approximately $ 6,600,000 in revenue during the period of March 1995 through June 30, 1996. In addition, Mark has other uncompleted contracts for its modular cells aggregating $ 2,619,362. Other than as described above, Mark currently has no significant orders for the modular cells. Effective March 15, 1996, Mark received a three-year agreement from the State of New York to be the exclusive supplier of modular steel prison cells and shower facilities. Pursuant to the agreement, Mark will provide complete, partially complete and/or components of modular units and support services to Corcraft (Department of Corrections-Division of Industries) for sale to State and local governments. The agreement has a stated estimate of 2,455 cells over the three years; however no minimum volume is guaranteed and purchase orders are to be issued for specific projects. The State of New York reserves the right to renegotiate the stated contract prices or solicit third party bids for any single order of 700 or more cells. At its option, New York State may license the manufacture of the entire cell and will not be obligated to pay additional licensing fees after (i) Mark receives total payments of $ 15,000,000 under the agreement, (ii) the total number of cells manufactured under the license exceeds 1,000 or (iii) the fifth anniversary date of the agreement. Mark's modular cell is a prefabricated, installation-ready, lightweight steel structure which is manufactured according to the construction and security specifications of each correctional institution project in sizes from 60 to 200 square feet. Each modular cell can be equipped with lavatory facilities; wall- mounted sleeping accommodations; desk and stool; lighting and ventilation -5- systems; and optional components such as fixed or operable windows and hinged or sliding security doors. Each modular cell is constructed of durable low maintenance, non- porous materials including a scratch resistant epoxy polymer finish and is acoustically and thermally insulated. The modular cell's lightweight construction requires less extensive and costly foundation work than a traditional (e.g. concrete) cell, and is designed with a self-contained exterior access panel which allows for simple ventilation, plumbing and electrical connections. Each cell is load-bearing to allow for multiple-story construction, and is manufactured to tolerances of 1/16 of an inch, which results in more efficient and faster on-site installation. Infectious Disease Isolation Units. Mark initially adapted its modular cell design to the manufacturing of infectious disease isolation units in 1992 for a court-ordered project at a New York City correctional institution on Rikers Island. Mark focuses its infectious disease isolation units marketing efforts toward correctional institutions and healthcare facilities. In addition to the modular cell features, the infectious disease isolation units are equipped with shower facilities and a protective anteroom for healthcare providers and other individuals coming in contact with the occupant. To prevent the escape of contaminated air, each unit is equipped with a negative pressure ventilation system which safely discharges the air externally. Mark's epoxy polymer finish also allows for more effective bacteriological cleansing of the unit. Infectious disease isolation units are designed and manufactured according to the specific requirements of the project, including security requirements of correctional institutions. In addition, the units are subject to the guidelines and regulations of OSHA, NIOSH, the Centers for Disease Control and Prevention and applicable building codes including specific health guidelines which were established to provide effective treatment of the patient and the safety of medical providers including negative pressure requirements, filtration standards and air flow systems. -6- MarkCare Medical Systems, Inc. Mark operates its healthcare products business through MarkCare Medical Systems, Inc., a wholly-owned Maryland subsidiary. Treatment Booths. Mark publicly introduced its first prototype general use treatment booth in August 1992. After design modifications were made to broaden its treatment capabilities, Mark began manufacturing operations in December 1992. Mark sold 14 treatment booths in the fiscal year ended June 30, 1996 and focuses its marketing efforts on healthcare facilities. Mark has obtained FDA approval of the treatment booth as a "class III medical device". See "Regulation." The treatment booth is a single occupancy 70 cubic foot chamber used in the observation and treatment of patients with communicable diseases such as tuberculosis. The booth is designed to isolate patients in order to protect healthcare workers during sputum induction and to improve the efficacy of the dispensing of aerosolized drugs. In addition to incorporating the structural elements and low maintenance material of its modular cell technology, Mark equips the treatment booth with an air filtration system designed to provide for up to 450 air changes per hour through a laminar flow design which is monitored by a meter and alarm. The filtering process circulates air through a HEPA filter which collects 99.97% of all airborne particles including germs and medicines. The filtered air is then exposed to ultra-violet light for additional decontamination and is discharged externally. Mark also offers service agreements for its treatment booths. Mark has established safety and operational standards for its treatment booths based on recommendations from board certified hygienists and other medical professionals. Certification of booths is conducted by one of three independent laboratories for compliance with Mark's internal standards and manufacturers specifications. IntraScan I. Mark introduced IntraScan I at the Radiologist Society of North America exposition in December 1992. IntraScan I is marketed to radiologists, gynecologists, urologists and small independent medical practices. The IntraScan I system is a computer-based diagnostic support product for use with all ultrasound equipment. IntraScan I is an archiving and image enhancing system which enables medical technicians to manipulate ultrasound images by enlarging and rotating images, as well as improving their clarity, sharpness and resolution. This results in improved diagnostic capabilities as compared to the images produced by ultrasound equipment alone. The information archiving applications of IntraScan I can be networked, -7- allowing effective storage and transmission of information quickly between physicians and healthcare facilities through computer modems. The IntraScan I system consists of software programs protected by U.S. copyrights and standard hardware computer equipment as to which Mark has no proprietary interests. The computer hardware is comparable to a personal computer in size and user operation and interfaces with the IntraScan I software applications. The IntraScan I system is marketed on a limited basis as a separate product, however its technology is integrated and marketed in conjunction with the IntraScan II system. IntraScan II. From 1993 to May 1996, Mark marketed the IntraScan II "filmless" picture, archiving and communications system (PACS) under an exclusive software dealer agreement with SMI covering North and South America. On May 28, 1996, Mark acquired all of the capital stock of SMI for $ 1,250,000 payable in Common Stock of Mark. See Item 1(a)- "General Development of Business". IntraScan II is marketed to radiology departments, large healthcare facilities, hospitals and outpatient imaging group practices. IntraScan II is a computer-based image, archival and retrieval system that interfaces with medical imaging devices and can store and recall images from imaging modalities including x-ray, computed tomography (CAT Scan), computed radiography, nuclear medicine, ultra sound and magnetic resonance imaging (MRI). While Mark is aware of similar systems in various stages of development, management believes the IntraScan II is the only system which is designed to be platform independent allowing the software to operate with most computer hardware and operating systems. IntraScan II has a high resolution display capability (512 X 512 to 2000 X 2500 pixels). The high resolution allows medical providers to make diagnoses from computer digital images without the need for radiographic film. This capability eliminates the processing time for film development allowing faster diagnoses and significantly reduces the costs related to film development and patient record storage. The IntraScan II system allows image manipulation similar to the IntraScan I system, including simulation of the multi-image view box which allows side-by-side comparisons of images from different modalities (e.g. x-ray and CAT Scan). In addition, the IntraScan II system allows for networking between departments within a healthcare facility or between institutions at different locations by communication networks. This networking capability coupled with the high resolution allows efficient and instant transfer of diagnostic quality images for consultation and transportation of patient records. -8- The IntraScan II system consists of software programs protected by British common law copyrights and standard hardware computer equipment as to which Mark has no proprietary interests. Effective March 18, 1996, Mark entered into a nonexclusive Master Supplier Agreement with Data General Corporation ("Data General") pursuant to which Mark has agreed to provide IntraScan II software and related services to Data General to be incorporated into PACS sales proposals and bids to healthcare facilities. The products and services to be provided by Mark will be negotiated between Mark and Data General on a project by project basis. While no assurances can be given, Mark believes that the sale of the IntraScan systems, particularly IntraScan II, will generate material revenues in the fiscal year ending June 30, 1997. Manufacturing and Assembly. Beginning October 1996, Mark will manufacture and assemble its modular cells, infectious disease isolation units and treatment booths at its 74,000 square foot plant located in Jersey City, New Jersey, which will be equipped with a fully automated computer driven design and tooling system. This system allows for more precise tolerances and faster production output. The raw materials for Mark's products, including sheet metal, hardware and other components are supplied primarily by local manufacturers. In addition to the manufacture of the shell of its products, Mark purchases, assembles and installs the ancillary components including lavatory facilities, shower facilities, desks, stools and sleeping bunks. Management believes that there are a sufficient number of national vendors to meet its raw material and component needs, and that Mark is not dependent upon a limited number of suppliers. With respect to the assembly of the IntraScan systems, Mark's primary responsibility will be the loading of software programs on to standard hardware equipment, minimal hardware modifications and networking. Mark is able to conduct its IntraScan assembly and modifications activities at the offices of SMI and its executive offices. In the event Mark determines that additional space is necessary based on orders, management believes that adequate space will be available on acceptable economic terms. Delivery and On-Site Services. Mark contracts with several third-party carriers to deliver the modular cells and infectious disease isolation units to the construction site. In addition, Mark provides delivery and support services for its products including installation assistance, operating instructions and subsequent inspections and testing. Mark also offers certification and maintenance services through long-term agreements, or on an as requested basis. -9- Marketing and Sales Modular Cells and Infectious Disease Isolation Units. The market for Mark's modular cell and infectious disease isolation units is primarily Federal, state and local governmental agencies responsible for the construction and maintenance of correctional institutions. While Mark is exploring the application of its technology to other industries such as temporary emergency housing and modular medical facilities, management believes in the foreseeable future that the correctional institutions market will represent a significant part (approximately 90%) of its modular products business. No assurances can be given that any other markets will develop to any significant degree. Mark designs prototypes of its modular cells and infectious disease isolation units for marketing, sales and trade show demonstrations. Mark's marketing and sales efforts are managed by its Vice President of Sales and Marketing and include in-person solicitations, direct mail campaigns and participation in industry trade shows. Mark presently markets and sells its modular cells and infectious disease isolation units directly and through independent manufacturers' representatives. Mark's network consists of 25 representatives servicing 42 states and 11 foreign countries including Canada, Mexico, Italy, South Africa, Russia and Argentina. Minimal sales have been generated to date. Each representative generally enters into an agreement with Mark which contains certain non-disclosure restrictions and provides for payment on a commission basis. Treatment Booths and the IntraScan Systems. The marketing and sales efforts related to treatment booths are conducted by Mark's internal sales personnel. The IntraScan systems are primarily marketed by Mark personnel jointly with Data General's marketing efforts. The IntraScan systems may also be distributed through the development of a national sales representative network. Sales efforts, which are managed by its Vice President of Sales and Marketing, include participation in trade shows, print advertising in medical trade publications, direct mail advertising programs and the use of demonstration videos. Bid Process, Subcontract Contract and Bonding Requirements Mark has derived the substantial majority of its revenues from state and local government correctional projects and is consequently required to prepare and submit bid proposals based on the design and specifications prepared by the supervising architectural or engineering firm. Mark prepares and submits a formal bid proposal which includes price quotations and estimates, selected material options and construction time estimates. -10- Depending on the nature of the project, Mark itself may bid, or provide bidding data regarding Mark's products to a firm which is bidding to become the general contractor for the project. In the latter case, the Mark data is incorporated in the bid made by the prospective general contractor. After receipt and review of all accepted bids the governmental agency awards the contract based on numerous factors including costs, reputation, completion estimates and subcontracting arrangements. In those instances where Mark is not the direct bidder but provides bid information to a general contractor who is ultimately awarded the project, there is no guarantee that Mark will receive the subcontract business. The typical time period from submission of bids to awarding of the contract to the direct bidder (whether Mark or a general contractor) is 60 to 120 days. In those instances where Mark is not the direct bidder, subcontracts are generally awarded within an additional 60 to 120 days. In connection with some government construction projects, Mark is required to provide performance and completion bonds as a condition to submission or participation in a bid. Due to Mark's financial condition, it has generally been unable to obtain bonds without the assistance and guarantee of third parties including Mark's President and/or another business entity owned by an outside director. See "Item 13.-Certain Relationships and Related Transactions". To date Mark has not limited its bidding activity nor lost any projects due to its limited bonding capacity. However, as Mark is awarded multiple projects, the inability to obtain bonds may limit the number of additional projects Mark can pursue and would have a material adverse effect on operations. Regulation Mark modular cells and infectious disease isolation units are subject to various state building codes including BOCA, UBC, the Southern Building Codes and criteria established by the American National Standards Institute. In addition, these products are subject to the guidelines and regulations of OSHA, NIOSH and Centers for Disease Control and Prevention. The modular cells and infectious disease isolation units comply with such codes and regulations in all material respects. Mark's treatment booth is a "class III medical device" and IntraScan I and IntraScan II are "class II medical devices" as classified by the Federal Food and Drug Administration ("FDA") and are subject to the premarket notification and approval process. Accordingly the products are regulated by The Federal Food, Drug and Cosmetic Act and The Safe Medical Devices Act of 1990 regarding the (i) effectiveness and safety of the product, (ii) condition of -11- the manufacturing facilities and procedures and (iii) labeling of devices. Mark has received FDA approval for the treatment booth and the IntraScan systems authorizing commercial distribution. Certain aspects of Mark's manufacturing process are regulated by state and Federal environmental laws. Mark has obtained all necessary licenses and permits in this regard and is in compliance in all material respects with applicable environmental laws. Competition Modular Cells and Infectious Disease Isolation Units. The construction industry in general and the governmental construction industry in particular are highly competitive. Due to the use of concrete and other traditional construction methods in the substantial majority (approximately 90%) of correctional facility construction, Mark competes for market share with a number of major construction companies. Such competition is not with respect to any particular project, but in persuading the purchasing agency to utilize steel cell construction rather than traditional methods. With respect to those projects which incorporate modular cell specifications in its design criteria, Mark competes with several other steel product manufacturers, some of which have greater financial resources than Mark. In addition, a number of manufacturers which have greater financial and marketing resources than Mark, and which currently produce sheet metal products, could ultimately manufacture modular cell and infectious disease isolation units in competition with Mark. Although competition in the construction industry is intense, Mark believes it can compete for market share of correctional facility construction business by promoting the viability and acceptance of its technology to the architectural, engineering and construction industries. In this regard management emphasizes the uniqueness of its modular cell design which can be manufactured and installed more efficiently than traditional construction alternatives by virtue of lower labor and construction costs and shorter installation time. Similarly, management believes that the cost-effective design, operating costs and performance of its infectious disease units and treatment booths will allow Mark to compete in the healthcare market, but there can be no assurances in this regard. IntraScan Systems. With regard to IntraScan II, other companies, which are larger and better established than Mark, provide PAC systems for radiology departments, including several "filmless" systems. Mark believes it can compete against the larger companies based on its platform independent format which allows the software to operate with most computer hardware and operating systems. -12- Employees At September 24, 1996 Mark had three management employees, four sales employees, six engineering employees and four office and clerical employees. Mark intends to hire approximately 40 hourly employees, primarily in its manufacturing facilities in October 1996. Mark's hourly employees are unionized and are subject to a collective bargaining agreement between Mark which expires on August 31, 1998. Management believes its employee relations to be good. At September 24, 1996, SMI had one executive employee and eight clerical/software development employees. Trademark, Patents and Trade Secrets Mark owns the "MARK" trademark, which is registered in the U.S. Patent and Trademark Office. Mark owns a patent on certain aspects of its treatment booth expiring in 2014. Mark does not presently own any patents on its modular cells, infectious disease isolation units or manufacturing assembly process. However, Mark attempts to protect its proprietary trade secrets regarding the design and manufacture of its products through non-disclosure agreements between Mark its employees and most third-party suppliers and manufactur-ers' representatives. Mark owns two United States copyrights on the software applications of the IntraScan I system. The IntraScan II software programs are protected by British common law copyright. In addition, Mark owns a United States copyright regarding the IntraScan II software. Mark has applied for patents on several aspects of the IntraScan II system. -13- Item 2. Property Mark leases its executive offices at 1515 Broad Street, Bloomfield, New Jersey 07003, which consist of 6,500 square feet of space. Mark's lease expires on December 31, 1998 and provides for monthly rent of $ 7,200. In addition, Mark leases 74,000 square feet of manufacturing space in Jersey City, New Jersey pursuant to a triple net lease expiring on November 15, 2004 at an annual rental of $ 174,240 for the initial five years. The rent for the remaining three years is subject to increases based on the consumer price index at that time. SMI leases its offices, which consist of 1,750 square feet of space on a month to month basis at a monthly rent of $ 3,750. Management believes its present manufacturing facilities and additional available facilities are sufficient for Mark's current and anticipated needs. Item 3. Legal Proceedings In January 1994 Mark was served with a summons and complaint filed in the Supreme Court of New York State, Westchester County (JTF Management Associates, Ltd. and Joel Fishman v. Mark Correctional Systems, Inc. and Mark Lighting Index No. 93-22722). Plaintiffs allege damages for commissions in the sum of $10 million based upon breach of sales and consulting agreements regarding modular steel cells. Due to the absence of any sales generated by plaintiff, Mark believes the suit is totally without merit, both in terms of the facts of the case and the damages alleged, and is defending the action vigorously. Plaintiff Mark has answered and counterclaimed for $ 2,200,000 in damages based upon fraud and misrepresentations by plaintiffs. Discovery in this matter is substantially complete and the parties are awaiting a trial date expected to be scheduled in November 1996. Item 4. Submission of Matters to a Vote of Security-Holders Not Applicable -14- PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. (a) Market Information. The following table sets forth for the calendar quarters indicated the high and low bid prices of Mark's Common Stock and Class A Warrants. The Common Stock trades on the NASDAQ system, Small Cap market. The Class A Warrants trade in the over-the-counter market bulletin board and pink sheets. Common Stock Class A Warrants ---------------- ---------------- High Low High Low ----- ----- ----- ----- 1994 - ---- 1st Quarter 9 3-3/4 3/8 3/8 2nd Quarter 6 3 3/8 3/8 3rd Quarter 4-3/8 3-1/4 3/8 3/8 4th Quarter 3-7/8 2-1/2 3/8 3/8 1995 - ---- 1st Quarter 4-1/8 2 3/8 3/8 2nd Quarter 5-1/2 3-1/4 3/8 3/8 3rd Quarter 8-7/8 5-1/4 3-5/8 1-7/8 4th Quarter 8 5-1/4 4 2-1/2 1996 - ---- 1st Quarter 8-1/4 5-1/2 3-1/2 3-1/4 2nd Quarter 8-3/8 5-1/4 3-5/8 1-7/8 3rd Quarter (thru September 24) 6 5 2-1/4 1-1/8
- ----------------------------------------------------- Over-the-counter quotations reflect inter-dealer prices without retail mark-up, mark-down or commission and do not necessarily represent actual transactions. Trading in Mark's Class A Warrants is sporadic and insignificant. (b) Holders. As of September 24, 1996, there were 168 holders of record of the Common Stock and one holder of record of the Class A Warrants. There are 18 market makers in the Common Stock. (c) Dividends. Mark has never paid and does not intend to pay in the foreseeable future, cash dividends on its Common Stock. -15- Item 6. Selected Financial Data The following Selected Financial Data are based upon financial statements appearing elsewhere herein and such information should be read in conjunction with such financial statements and notes thereto. Income Statement Data:
Fiscal Years Ended June 30 ---------------------------------------------------------------------- 1996 1995 1994 1993 1992 ----------- ----------- ---------- ----------- ----------- Revenues $ 3,454,615 $ 6,125,573 $3,183,073 $ 5,309,660 $ 3,894,602 ----------- ----------- ---------- ----------- ----------- Costs and Expenses: Costs of Sales 4,022,102 5,975,973 2,370,971 3,742,371 3,010,765 Selling, general and administrative 3,718,886 3,872,392 3,592,081 2,334,159 1,271,725 Research and development -- 3,938 270,322 558,118 -- Reduction of carrying value of assets 777,495 1,100,000 800,000 -- -- ----------- ---------- ----------- ------------ ----------- Total Costs and Expenses 8,518,483 10,952,303 7,033,374 6,634,648 4,282,490 ----------- ---------- ----------- ------------ ----------- Operating Income (Loss) (5,063,868) (4,826,730) (3,850,301) (1,324,988) (387,888) Net Other Income (Expense) (46,691) (85,905) (64,749) (262,209) (135,691) Income Tax -- -- (29,460) -- -- ----------- ----------- ---------- ----------- ----------- (Loss) From Continuing Operations (5,110,559) (4,912,635) (3,944,510) (1,587,197) (523,579) (Loss) From Discontinued Operations (104,503) (277,438) (193,620) -- -- ----------- ----------- ----------- ------------ ----------- Net Income (Loss) $(5,215,062) $(5,190,073) $(4,138,130) $(1,587,197) $ (523,579) =========== =========== =========== ============ =========== Earnings (Loss) per Share: $ (.41) $ (.48) $ (.47) $ (.18) $ (.06) Weighted Average Shares Outstanding 12,732,022 10,726,204 8,802,543 8,710,975 8,710,975
Balance Sheet Data: At June 30 ---------------------------------------------------------------------- 1996 1995 1994 1993 1992 ----------- ----------- ---------- ----------- ----------- Working Capital (Deficit) $ 675,864 $ (48,112) $ 216,635 $ 379,484 $ 629,424 Net Property and Equipment 376,504 318,491 369,939 503,112 473,111 Total Assets 3,083,763 3,978,383 4,953,651 4,460,174 2,096,427 Current Liabilities 954,065 2,169,657 909,693 938,603 958,065 Other Liabilities 50,297 19,665 8,313 16,377 2,194,591 Stockholders' Equity (Impairment) 2,079,401 1,789,061 4,035,645 3,505,194 (1,056,229)
-16- Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. General Mark's results of operations, liquidity, and working capital position have been acutely affected by sporadic sales of its principal products, modular steel cells and infectious disease isolation units. This sales pattern is primarily the result of the construction industry's unfamiliarity with Mark's products and the emergence of competition. Mark's products represent an alternative to traditional construction methods, and penetration into the construction market has met resistance typically associated with a new, unfamiliar product. Accordingly, Mark has been and will continue to be subject to significant sales fluctuations until its modular cell technology receives greater acceptance in the construction market, which management believes will occur as new projects are awarded and completed. In an attempt to achieve greater acceptance in the architectural, engineering and construction communities, Mark's internal sales and engineering personnel and its nationwide network of independent sales representatives conduct sales presentations and participate in trade shows and other promotional activities. Mark has expanded its marketing efforts to more aggressively pursue domestic and international joint venture and design/build development opportunities to obtain projects and improve its results of operations in efforts to return to profitability. Since January 1, 1996, Mark has reduced factory and office staff. In addition, from January 1, 1996 until September 1996, Mark decided not to occupy factory space, but outsourced the manufacturing of its small modular cell projects to third party manufacturers, including related parties, in order to minimize losses and maintain the continuity of manufacturing products until significant orders were obtained. Management believed there was not sufficient work to justify the cost and expense of renting, maintaining and operating such space. To the extent practicable, Mark will further reduce overhead and personnel expenses and review its options regarding the sale or suspension of some of its products lines if its is unable to improve its operating results or prospects. Mark is continually bidding on and soliciting joint venture opportunities regarding construction projects. The anticipated revenues from any of these projects, would substantially improve Mark's operating results and cash flow, although no assurances can be given that any of these projects will be awarded to Mark. On July 17, 1996, Mark was awarded a contract from the State of New -17- York which management anticipates will generate revenues of approximately $50,000,000 over three years. In addition to the New York State agreement, for the fiscal year ended June 30, 1996, Mark submitted bids on approximately $44,613,000 in projects of which $2,702,403 were awarded to Mark. Mark continues to be under consideration for approximately $4,490,000 of the remaining projects. Since July 1, 1996, Mark has submitted bids on approximately $12,623,000 in projects. Mark continues to be under consideration for approximately $12,100,000 of these remaining projects. Mark continues to market its IntraScan medical image systems and is analyzing the benefits of alliances with other companies with related products. Consistent with this marketing approach, Mark has entered into a software supplier agreement with Data General Corporation, a large computer hardware and integration provider, pursuant to which Data General may include the IntraScan II PACS software program in proposals to healthcare institutions. Management anticipates that the sale of the IntraScan system products, primarily IntraScan II, will begin to generate revenues in the calendar year ending December 31, 1997, although no assurances can be given in this regard. If the IntraScan marketing plan is successful, management believes that the revenues from resulting sales will be more constant then those of the modular steel products presently and will reduce fluctuations in Mark's results of operations and financial condition. On October 13, 1995, Mark disposed of its cosmetics business, Bar-Lor Cosmetics. Accordingly, the following discussion addresses only the continuing operations. The following table sets forth Mark's segmented results of operations of continuing operations for the fiscal year ended June 30, 1996. Mark Correctional Systems MarkCare Medical Total ----------------- --------------- ----- Revenues $3,256,574 $198,041 $3,454,615 Costs of Sales 3,888,497 133,605 4,022,102 Selling, General and Administrative 3,116,478 602,908 3,718,886 Reduction of Carrying Value of Assets 777,495 - - - 777,495 Operating Loss (4,525,896) (537,972) (5,063,868) -18- Results of Operations Substantially all of Mark's operating revenues for the reported periods were derived from the sale of its modular cells for correctional institutions. Management believes that the sale of these modular steel products will continue to represent substantially all of the Mark's operating revenues through March 31, 1997. The following table sets forth for the periods indicated the percentages which certain items bear to revenues and the percentage increases (decrease) from period to period: Percentage of Revenues Period to Period Year Ended June 30 Increase (Decrease) ---------------------------------- ----------------------- 1996 1995 1994 1996-1995 1995-1994 ------- ------- -------- --------- --------- Revenues 100.0% 100.0% 100.0% (43.6)% 92.4% Costs of Sales 116.4 97.5 74.5 (32.7) 152.0 Selling, general and administrative 107.7 63.2 112.8 (4.0) 7.8 Research and development -- -- 8.5 -- (98.5) Reduction of carrying value of assets 22.5 17.9 25.1 (29.3) -- ------ ----- ------ ----- ----- Operating Income (Loss) (146.6) (78.8) (121.0) (4.9) (25.3) Net Other Income (Expense) (1.4) (1.4) (2.0) (45.6) (32.7) Income Tax -- -- .9 -- 100.0 ------ ----- ------ ----- ----- (Loss) From Continuing Operations (147.9) (80.2) (123.9) 4.0 (24.5) (Loss) From Discontinued Operations (3.0) (4.5) (6.0) (62.3) (43.3) ------ ----- ------ ----- ----- Net Income (Loss) (151.0)% (84.7)% (129.9)% (.5)% (25.4)% ------ ----- ------ ----- ----- ------ ----- ------ ----- -----
Fiscal Year Ended June 30, 1996 Compared to Fiscal Year Ended June 30, 1995 Revenues for the fiscal year ended June 30, 1996 decreased 43.6% to $3,454,615 from $6,125,573 for the comparable 1995 period. This decrease is attributed to the continued sporadic sales of its modular steel cell products as discussed in "General". Mark's Jackson, Michigan project represented approximately 89.5% of the 1996 fiscal year revenues. Cost of sales for the fiscal year ended June 30, 1996 which consists primarily of materials, labor, supplies, and fixed factory overhead expense, decreased 32.7% to $4,022,102 from $5,975,973 for the comparable 1995 period due to the decrease in sales. Cost of sales as a percentage of revenues was 116.4% for the year ended June 30, 1996 as compared to 97.5% for the comparable 1995 period. This increase was the result of lower gross profit margins on construction contracts, costs associated with maintaining factory operations absent anticipated sales levels and losses incurred in connection with the outsourcing of projects for the six months ended -19- June 30, 1996. Fixed factory overhead expenses for the fiscal year ended June 30, 1996 such as rent, real estate taxes, depreciation and repairs and maintenance decreased 45.0% to $155,987 from $355,109 for the comparable 1995 period. This decrease is primarily attributed to the elimination of factory rent and related taxes and the suspension of depreciation on idle factory equipment since January 1, 1996. Selling, general and administrative expenses for the fiscal year ended June 30, 1996 decreased 4.0% to $3,718,886 from $3,872,392 for the comparable 1995. Markincurred increased prom otional and travel expenses during the six month period ended December 31, 1995, which were offset by the reduction of office staff since January 1, 1996. Mark also wrote down the remaining value of the assets related to the IntraScan I acquisition which was $777,495 of which $518,366, was originally schedule to be amortized in fiscal 1997 and $259,129 in 1998. Net losses from discontinued operations for fiscal 1996 was $104,503 or 2.3% of Mark's total net loss. Fiscal Year Ended June 30, 1995 Compared to Fiscal Year Ended June 30, 1994 Revenues for the fiscal year ended June 30, 1995 increased 92.4% to $6,125,573 from $3,183,073 for fiscal 1994. These results are primarily attributable to revenues of $4,328,000 from the Jackson, Michigan project. Cost of sales for the fiscal year ended June 30, 1995, which consists primarily of materials, labor, supplies and fixed overhead expenses increased 152.0% to $5,975,973 from $2,370,971 for fiscal 1994. Cost of sales as a percentage of revenues was 97.5% for the year ended June 30, 1995 as compared to 74.5% for the comparable 1994 period. This increase was the result of lower gross profit margins on construction contracts and costs associated with maintaining factory operations absent anticipated sales levels. Fixed overhead expense such as rent, depreciation, repairs and maintenance remained relatively constant in the fiscal year ended June 30, 1995 as compared to fiscal 1994. Selling, general and administrative expenses for the fiscal year ended June 30, 1995 increased 7.8% to $3,872,392 from $3,592,081 for fiscal 1994. This increase is primarily attributable to salaries and related costs associated with the hiring of additional management and engineering personnel and an increase in consulting fees to $451,728 from $160,166 in fiscal 1994. Research and development expenses decreased from $270,322 for the fiscal year ended June 30, 1994 to $3,938 for the fiscal year ended June 30, 1995. Research and development expenses (which were -20- associated primarily with design modifications of modular steel cell panels and IntraScan II software development) decreased as Mark completed the substantial majority of the design research and development of its existing products and is proceeding with its marketing and sales efforts. Mark also wrote down the remaining $1,100,000 value of the assets related to its discontinued cosmetics operations. Net losses from discontinued operations for fiscal 1995 was $277,438 or 5.3% of Mark's total net loss. Liquidity and Capital Resources Mark's working capital requirements result principally from office expense, staff and management overhead and marketing efforts. Mark's working capital requirements have historically exceed its working capital from operations due to the sporadic sales of its products. Accordingly, Mark has been dependent and, absent significant improvements in operations, will continue to be dependent on the infusion of new capital in the form of equity or debt financing. Mark expects to meet its working capital requirements from these sources through July 30, 1997. Mark has been unable to secure bank financing and, to the extent it requires additional capital, will continue to principally look to private sources. Mark's working capital deficits have been met through the private placement of its securities. For the year ended June 30, 1996, Mark sold 1,636,664 shares of Common Stock pursuant to the exercise of warrants, resulting in gross proceeds of $4,263,626. On August 23, 1996, Mark sold $2,200,000 principal amount 7% convertible debentures due August 22, 1998 (the "Debentures"). The Debentures are convertible into shares of Common Stock at a conversion price which is the lesser of (i) $5-3/16 or (ii) 80% of the average closing bid price on the five trading days immediately preceding the date (s) of conversion. Interest on the Debentures is payable in cash or Common Stock at Mark's option. Absent improved operating results, Mark will be dependent on the private placement of its securities for its working capital requirements and no assurance can be given that these efforts will be successful. Mark presently has an effective registration statement relating to 3,368,880 shares of Common Stock issuable upon the exercise of warrants and options, the majority of which are exercise prices ranging from $2.00 to $5.00 per share. Mark will initially look to -21- the exercise of presently outstanding warrants and options to meet working capital deficits, however, if sufficient securities are not exercised, Mark will be required to seek additional private sales of its securities, which, if available, would most likely be at discounts to the current trading price of Mark's Common Stock. Mark's inventory decreased to $146,305 at June 30, 1996 from $594,383 at June 30, 1995 as Mark reduced storage of raw materials due to lower sales levels. While Mark presented does not have any material commitments for capital expenditures, management believes that is working capital requirements for inventory and other manufacturing related costs will significantly increase with any increase in product orders. For the fiscal year ended June 30, 1996, Mark had negative cash flow from operating activities of $4,187,039 which is attributable to the sporadic sale of its products and the resulting losses. For the fiscal year ended June 30, 1996, Mark had positive cash flow from investing activities of $61,049 which is attributable to proceeds from the disposition of the cosmetic business offset by purchases of property and equipment. Mark has no present intention to make any acquisition which would have a material negative or positive effect on cash flow. For fiscal 1996, principal financing activities consisted of (i) the sale of shares of Common Stock which provided cash to Mark of approximately $4,250,000 net of costs and (ii) $29,283 of required principal payments on equipment notes. Cash and cash equivalents increased from $116,704 at June 30, 1995 to $263,922 at June 30, 1996 primarily due to proceeds from exercise of warrants. Working capital, increased from ($48,112) at June 30, 1995 to $675,864 at June 30, 1996 due primarily to the application of the proceeds from the exercise of warrants to reduce accounts payable. Other Matters As of June 30, 1996, Mark had net operating loss carryforwards of approximately $16,000,000. Such carryforwards begin to expire in the year 2009 if not previously used. The 16,000,000 carryforward is comprised of approximately $14,000,000 which is available to offset taxable income in the tax year ending June 30, 1997. The remaining carryforward is restricted as to utilization under Section 382 of the Internal Revenue Code. Since realization of the tax benefits associated with these carryforwards is not assured, a full valuation allowance was recorded against these tax benefits as required by SFAS No. 109. -22- Impact of Inflation and Changing Prices Mark has been affected by inflation through increased costs of materials and supplies, increased salaries and benefits and increased general and administrative expenses; however, unless limited by competitive or other factors Mark passes on increased costs by increasing its prices for products and services. Item 8. Financial Statements and Supplementary Data. The Financial Statements and Supplementary Data to be provided pursuant to this Item are included under Item 14 of this Report. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. Not Applicable. -23- PART III Item 10. Directors And Executive Officers of the Registrant. The following table sets forth the names and ages of the members of Mark's Board of Directors and its executive officers. Name Age Position - ---- --- -------- Carl C. Coppola(1) 56 Chairman of the Board, President, Chief Executive Officer; Chief Financial Officer Frederick M. Bolio 31 Vice President- Engineering and Manufacturing Michael J. Rosenberg 52 Vice President-Sales and Marketing Richard Branca(2) 48 Director Ronald E. Olszowy 50 Director William Westerhoff(1) 58 Director Michael Nafash(2) 35 Director - --------------------- (1) Member of the Compensation Committee (2) Member of the Audit Committee All directors hold office until the next annual meeting of shareholders of Mark (currently expected to be held during December 1996) and until their successors are elected and qualified. Officers hold office until the first meeting of directors following the annual meeting of shareholders and until their successors are elected and qualified, subject to earlier removal by the Board of Directors. -24- Carl C. Coppola has been a Director, President and Chief Executive Officer of Mark since November 10, 1993. Prior thereto and since 1984, Mr. Coppola served in the identical capacities for MCS, Mark's predecessor company. For more than 30 years, Mr. Coppola has been President and Chief Executive Officer of Mark Lighting Fixture Co., Inc., an unaffiliated entity. Frederick M. Bolio has been Vice President-Engineering and Manufacturing of Mark since June 23, 1994 and prior thereto was Engineering Manager of Mark since December 1991. From 1988 to November 1991 Mr. Bolio was Senior Engineer at Marino Industries Corp., a manufacturer of lightweight steel building products and components. Michael J. Rosenberg has been Vice President- Sales and Marketing of Mark and MCS since 1990. Richard Branca has been a Director of Mark and MCS since November 18, 1992. Since 1970 Mr. Branca has been President and Chief Executive Officer of Bergen Engineering Co., a construction company. Ronald E. Olszowy has been a Director of Mark and MCS since November 18, 1992. Since 1966, Mr. Olszowy has been President and Chief Executive Officer of Nationwide Bail Bonds, which provides bail, performance and fidelity bonds. Mr. Olszowy has also been President of Interstate Insurance Agency since 1980. William Westerhoff has been a Director of Mark and MCS since November 18, 1992. Mr. Westerhoff has been retired since June 1992. Prior thereto and for more than five years Mr. Westerhoff was, a partner of Sax, Macy, Fromm & Co., certified public accountants. Michael Nafash has been a Director of Mark since December 18, 1995. Mr. Nafash is Chairman of the Board, President and Chief Executive Officer of Evolutions, Inc. (OTC), an environmental oriented apparel company since February 1994. From June 1992 to June 1996, Mr. Nafash was employed by Pure Tech International, Inc. (NASDAQ/NMS:PURT), a plastics and metal recycling company, including as Chief Financial Officer from October 1993 to March 1995. Prior thereto, Mr. Nafash was a certified public accountant with Michaels, Nafash & Georgallas and Weidenbaum Ryder & Co. -25- Directors' Compensation Directors have not received any cash compensation for serving as directors or on committees but have and will continue to be reimbursed for travel expenses incurred in attending meetings. In lieu of the cash compensation customarily paid to nonemployee directors, Mark has established a policy of granting stock options to directors exercisable at the bid price of the Common Stock on the date of grant. Except for Michael Nafash, who was granted two-year options to purchase 25,000 shares of Common Stock at $ 5.375 per share on November 15, 1995, no director received options in fiscal 1996. Future compensation policies will be reviewed annually based upon Mark's financial condition and results of operations. On September 19, 1996, each of the outside directors received five-year options to purchase 30,000 shares of Common Stock at $ 5.75 per share, the fair market value on the date of grant. Compliance with Section 16(a) of the Securities Exchange Act of 1934 Section 16 (a) of the Securities Exchange Act of 1934, as amended, requires Mark's directors, executive officers and 10% shareholders to file with the Securities and Exchange Commission reports of ownership and changes in ownership of Mark's equity securities including its Common Stock. Such persons are also required to furnish Mark with such reports. To Mark's knowledge during the fiscal year ended June 30, 1996, all Section 16(a) filing requirements were satisfied except that Frederick Bolio, Vice President-Engineering and Manufacturing, did not timely file a Form 4 in connection with the sale of Common Stock in July 1995. A Form 4 for the foregoing transaction has since been filed. -26- Item 11. Executive Compensation. Summary Compensation Table The following table sets forth the amount of all compensation paid to Mark's Chief Executive Officer for the last three fiscal years ended June 30. No other executive officer received annual compensation in excess of $ 100,000.
================================================================================================================================ Long Term Compensation Annual Compensation Awards/Payouts ================================================================================================================================ Name and Year Salary ($) Bonus ($) Other Annual Restricted Options/ LTIP All other Principal Position Compensation Stock Awards $ SARs # Payouts $ Compensation - -------------------------------------------------------------------------------------------------------------------------------- Carl Coppola, President & CEO 1996 $275,000 -0- -0- -0- -0- -0- -0- 1995 $250,000 -0- -0- -0- 200,000 -0- -0- 1994 $225,000 -0- -0- -0- -0- -0- -0- ===============================================================================================================================
1996 Fiscal Year End Option Values The following table sets forth the value of options granted to the named Executive Officers in the Summary Compensation Table above for the fiscal year ended June 30, 1996. Number of Securities Value of Unexercised Underlying Unexercised in-the Money Options Options at Fiscal Year (#) at Fiscal Year End ($) Name Exercisable/Unexercisable Exercisable/Unexercisable - ---- -------------------------- ------------------------- Carl Coppola 200,000 / 0 $750,000 (1) - ----------------------- (1) Based upon a closing sales price of $ 5-3/4 per share of Common Stock on September 24, 1996. -27- Employment Agreements Pursuant to an employment agreement expiring on March 17, 1997, Mr. Coppola received a base salary of $275,000 for fiscal 1996 and will receive a base salary of $ 300,000 in fiscal 1997. In addition Mr. Coppola is entitled to reimbursement of expenses not to exceed $15,000 annually and is provided with an automobile and maintenance and use reimbursement by Mark. In the event Mr. Coppola's employment is terminated by Mark other than for cause, Mr. Coppola will receive a lump sum payment of approximately three times his average annual salary for the preceding five years. The agreement also provides for a three year non-compete period to take effect upon the termination of Mr. Coppola's employment. Stock Option Plan Under Mark's 1993 Stock Option Plan (the "Option Plan"), options to purchase up to 1,000,000 shares of Common Stock may be granted to key employees and officers of Mark or any of its subsidiaries. The Option Plan is designed to qualify under Section 422 of the Internal Revenue Code as an "incentive stock option" plan. As of September 24, 1996 options to purchase 366,000 shares of Common Stock have been awarded and remain outstanding under the Option Plan. To date options to purchase 80,000 shares of Common Stock have been exercised. -28- Item 12. Security Ownership of Certain Beneficial Owners and Management. The following table sets forth certain information with respect to each beneficial owner of 5% or more of the Common Stock, each Director of Mark, each Executive Officer of Mark who is named in the Summary Compensation Table and all Executive Officers and Directors as a group as of September 24, 1996. The persons named in the table have sole voting and investment power with respect to all shares of Common Stock owned by them, unless otherwise noted. Number of % of Shares Shares Owned Outstanding ------------ ----------- Carl C. Coppola c/o Mark Solutions, Inc. 1515 Broad Street Bloomfield, NJ 07003 1,948,000(1) 14.3% Joseph Salvani 1 Duran Avenue Ridgewood, NJ 07450 1,159,956(2) 8.6 Walter Grossman 277 North Avenue Westport, CT 06880 862,713(3) 6.5 William Westerhoff 85,000(4) (5) Richard Branca 335,000(6) 2.2 Ronald E. Olszowy 135,000(4) (5) Michael Nafash 73,150(7) (5) All Executive Officers and Directors as a group (7 persons) 2,772,622(8) 19.5% -29- (1) Includes 64,800 shares held in trust for the benefit of children of Mr. Coppola. Mr. Coppola disclaims beneficial ownership of these shares. Also includes 200,000 shares of Common Stock issuable upon exercise of warrants which are presently exercisable. (2) Includes 150,000 shares of Common Stock issuable upon exercise of warrants which are presently exercisable. (3) Includes 112,000 shares held in trust for the benefit of two children of Mr. Grossman. Mr. Grossman disclaims beneficial ownership of these shares. (4) Represents or includes 85,000 shares of Common Stock issuable pursuant to options which are presently exercisable. (5) Less than 1% (6) Includes 235,000 warrants shares of Common Stock issuable pursuant to options and warrants which are presently exercisable. (7) Includes 17,150 shares of Common Stock owned by Evolutions, Inc., of which Mr. Nafash is Chairman, President and Chief Executive Officer. Mr. Nafash disclaims beneficial ownership of these shares. Includes 55,000 shares of Common Stock issuable upon exercise of warrants which are presently exercisable. (8) Includes 810,572 shares of Common Stock issuable upon exercise of warrants or options which are presently exercisable. -30- Item 13. Certain Relationships and Related Transactions. Mark purchases lighting fixtures, fabricating services and other related services from Mark Lighting Fixture Co., Inc. ("Mark Lighting"), a company wholly owned by Carl Coppola, President and Chief Executive Officer of Mark. For the fiscal year ended June 30, 1996, Mark paid Mark Lighting $ 160,294 for such goods and services. Mark purchased goods and fabricating services from Metalite, Inc. ("Metalite"), a company wholly owned by Carl Coppola's brother. For the fiscal year ended June 30, 1996, Mark paid Metalite $ 13,510 for such goods and services. In connection with Mark's Jackson, Michigan modular cell project, Bergen Engineering Co. ("Bergen Engineering"), a company owned by Mr. Branca, agreed to obtain the necessary construction bonds through its bonding company. Bergen Engineering was required to guarantee the completion of the project by Mark and the bond was obtained on November 7, 1995. As compensation for providing this guarantee, Bergen Engineering will receive five percent of the gross proceeds from the project and received two-year warrants to purchase 150,000 shares of Common Stock at $ 2.625 per share. Mark's President, Carl Coppola, has agreed to provide third party guarantees to the extent necessary to assist Mark in obtaining performance and completion bonds. Mr. Coppola and Mark will determine on a project by project basis the advisability and terms of providing such third party guarantees. In the event Mr. Coppola acts as guarantor under any bonds, Mark's intention is to compensate Mr. Coppola, the extent of which will be based on the facts and circumstances of the relevant project and bond. On November 15, 1995, Mark granted two-year options to purchase 25,000 shares of Common Stock at $ 5.375 per share to Michael Nafash in consideration of Mr. Nafash agreeing to serve on the Board of Directors. Management believes that each of the foregoing transactions are on terms no less favorable to Mark than could be obtained from unaffiliated third parties. -31- PART IV Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K. (a)(1) Consolidated Financial Statements - Report of Independent Accountants......................... F-1 - Consolidated Balance Sheets for June 30, 1996 and 1995................................... F-2 - Consolidated Statements of Operations for fiscal years ended June 30, 1996, 1995 and 1994...... F-4 - Consolidated Statements of Stockholders Equity for fiscal years ended June 30, 1996, 1995 and 1994.......... F-5 - Consolidated Statement of Cash Flows for fiscal years ended June 30, 1996, 1995 and 1994....................... F-6 - Notes to Consolidated Financial Statements................ F-7 (3) Exhibits. Sequential Exhibit Page No.if Number Description applicable - ------- ----------- ---------- 2. Agreement and Plan of Reorganization dated December 23, 1992, as amended, between Mark, Showcase Cosmetics, Inc. and Mark Acquisition Corp. (Incorporated by reference to Exhibit I to Mark's Proxy Statement/Prospectus, under its former name "Showcase Cosmetics, Inc., dated October 8, 1993 to Form S-4 Registration Statement [File No. 33-61176], referred to herein as "Mark's Form S-4"). 3. a) -- Certificate of Incorporation, as amended (Incorporated by reference to Exhibit 3.a) to Mark's Form 10-K for the fiscal year ended June 30, 1994) -32- Mark's Form 10-K for the fiscal year ended June 30, 1994) Sequential Exhibit Page No.if Number Description applicable 3. b) -- By-laws (Incorporated by reference to Showcase Exhibit 3 b) to Mark's Form S-4) 4. a) -- Specimen Stock Certificate (Incorporated by reference to Mark Exhibit 4 a) to Mark's Form S-4) b) -- Form of Warrant Certificate (Incorporated by reference to Mark Exhibit 4 b) to Mark's Form S-4) 10. Material Contracts a) -- Employment Agreement between Mark and Carl Coppola (Incorporated by reference to Mark Exhibit 10 b) to Mark's Form S-4) b) -- Incentive Stock Option Plan (Incorporated by reference to Exhibit IV to Mark's Form S-4) c) -- Agreement between the State Prison of Southern Michigan and Mark dated September 20, 1994. (Incorporated by reference to Exhibit 10 h) to Mark's Form S-1) d) -- Agreement between New York State and Mark dated July 17, 1996. 21. Subsidiaries of Mark 24. Power of Attorney (included on page 35) 27. Financial Data Schedule 33 (b) Reports on Form 8-K. The following reports on Form 8-K have been filed by Mark during the quarter ended June 30, 1996: Date of Report Items Reported, Financial Statements Filed ------------------------------------ - -------------- May 28, 1996 Item 2. Acquisition or Disposition of Assets Financial Statements of Simis Medical Imaging, Ltd. ("SMI") for the years ended December 31, 1995 and 1994 Financial Statements of SMI for the period ended March 31, 1996 Pro Forma Financial Information of Mark and SMI 34 POWER OF ATTORNEY Mark Solutions, Inc., and each of the undersigned do hereby appoint Carl Coppola, its or his true and lawful attorney to execute on behalf of Mark Solutions, Inc. and the undersigned any and all amendments to this Report and to file the same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. MARK SOLUTIONS, INC. September 26, 1996 By: /s/ Carl Coppola (Carl Coppola, Chief Executive Officer and President) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the persons on behalf of the Registrant and in the capacities and on the date indicated: Signature Title Date /s/ Carl Coppola Chief Executive Officer September 26, 1996 (Carl Coppola) President and Director (Principal Executive Officer and Principal Financial and Accounting Officer) /s/ Richard Branca Director September 26, 1996 (Richard Branca) /s/ Ronald Olszowy Director September 26, 1996 (Ronald E. Olszowy) /s/ William Westerhoff Director September 26, 1996 (William Westerhoff) /s/Michael Nafash Director September 26, 1996 (Michael Nafash) 35 Report of Independent Certified Public Accountants To the Board of Directors and Stockholders of Mark Solutions, Inc. and Subsidiaries: We have audited the accompanying consolidated balance sheets of Mark Solutions, Inc. and Subsidiaries (a Delaware Corporation) as of June 30, 1996 and 1995, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the years in the three year period ended June 30, 1996. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Mark Solutions, Inc. and Subsidiaries as of June 30, 1996 and 1995, and the results of its operations and cash flows for each of the years in the three year period ended June 30, 1996 in conformity with generally accepted accounting principles. Sax Macy Fromm & Co., PC Certified Public Accountants Clifton, New Jersey September 12, 1996, except for Note 1, as to which the date is September 19, 1996 F-1 Mark Solutions, Inc. and Subsidiaries Consolidated Balance Sheets Assets
June 30, 1996 June 30, 1995 ----------------------------- --------------------------- Current Assets: Cash and cash equivalents $ 263,922 $ 116,704 Restricted cash 181,781 359,250 Accounts receivable, less allowances of $5,500 in 1996 and $5,500 in 1995 904,596 1,267,203 Costs and estimated earnings in excess of billings on contract in progress -- 66,485 Inventories 146,305 231,290 Other current assets 133,325 80,613 ------------ ------------ Total Current Assets $ 1,629,929 $ 2,121,545 Property and Equipment: Machinery and equipment 1,472,528 1,263,563 Demonstration equipment 395,419 337,319 Office furniture and equipment 324,006 188,873 Leasehold improvements 14,254 95,830 Vehicles 68,783 38,882 Property held under capital lease 40,929 56,325 ------------ ------------ Total 2,315,919 1,980,792 Less: Accumulated depreciation and amortization 1,939,415 1,662,301 ------------ ------------ Net Property and Equipment 376,504 318,491 Other Assets: Costs in excess of net assets of businesses acquired, less accumulated amortization of $17,495 in 1996 and $1,295,966 in 1995 1,032,196 1,295,864 Net assets of discontinued segment - - - 204,503 Other assets 45,134 37,980 Total Other Assets ------------- 1,077,330 ---------- 1,538,347 ------------- ------------- Total Assets $ 3,083,763 $ 3,978,383 ============== =============
The Accompanying Notes are an Integral Part of the Consolidated Financial Statements. F - 2 Mark Solutions, Inc. and Subsidiaries Consolidated Balance Sheets Liabilities and Stockholders' Equity
June 30, 1996 June 30, 1995 ------------------------------- --------------------------- Current Liabilities: Accounts payable $ 499,254 $ 1,672,222 Current maturities of long-term debt 80,558 3,932 Current portion of obligations under capital leases 5,921 20,020 Due to related parties 45,194 206,923 Accrued liabilities 323,138 266,560 ---------- ----------- Total Current Liabilities $ 954,065 $ 2,169,657 Other Liabilities: Long-term debt excluding current maturities 19,989 4,382 Long-term portion of obligations under capital leases 30,308 15,283 ---------- ----------- Total Other Liabilities 50,297 19,665 Commitments and Contingencies -- -- Stockholders' Equity: Common stock, $.01 par value, 25,000,000 shares authorized, 13,576,315 and 11,734,801 shares issued and outstanding at June 30, 1996 and 1995, respectively 135,762 117,347 Additional paid-in capital 24,260,299 18,773,312 Retained earnings (deficit) (22,316,660) (17,101,598) ----------- ----------- Total Stockholders' Equity 2,079,401 1,789,061 --------- --------- Total Liabilities and Stockholders' Equity $ 3,083,763 $ 3,978,383 =========== ===========
The Accompanying Notes are an Integral Part of these Consolidated Financial Statements. F - 3 Mark Solutions, Inc. and Subsidiaries Consolidated Statements of Operations
Years Ended June 30 -------------------------------------------- 1996 1995 1994 ----------- ---------- ---------- Revenues $ 3,454,615 $ 6,125,573 $ 3,183,073 Costs and Expenses: Cost of sales 4,022,102 5,975,973 2,370,971 Selling, general, and administrative expenses 3,718,886 3,872,392 3,592,081 Research and development -- 3,938 270,322 Reduction in carrying value of assets 777,495 1,100,000 800,000 ----------- ---------- ---------- Total Costs and Expenses 8,518,483 10,952,303 7,033,374 ----------- ---------- ---------- Operating (Loss) (5,063,868) (4,826,730) (3,850,301) ----------- ---------- ---------- Other Income (Expenses): Interest income 23,800 17,430 5,175 Interest expense (10,490) (103,335) (69,924) Loss on disposal of property and equipment (60,001) -- -- ----------- ---------- ---------- Net Other (Expenses) (46,691) (85,905) (64,749) ----------- ---------- ---------- (Loss) Before Income Tax (5,110,559) (4,912,635) (3,915,050) Income Tax -- -- 29,460 ----------- ---------- ---------- (Loss) From Continuing Operations (5,110,559) (4,912,635) (3,944,510) ----------- ---------- ---------- Discontinued Operations: Loss of Bar-Lor Subsidiaries (35,078) (277,438) (193,620) Loss on disposal of Bar-Lor Subsidiaries (69,425) -- -- ----------- ---------- ---------- Total Discontinued Operations (104,503) (277,438) (193,620) ----------- ---------- ---------- Net (Loss) $ (5,215,062) $ (5,190,073) $ (4,138,130) =========== ========== ========== (Loss) per Share $ (.41) $ (.48) $ (.47) =========== ========== ========== Weighted Average Number of Shares Outstanding 12,732,022 10,726,204 8,802,543 =========== ========== ========== Dividends Paid $ 0 $ 0 $ 0 =========== ========== ==========
The Accompanying Notes are an Integral Part of these Consolidated Financial Statements. F - 4 Mark Solutions, Inc. and Subsidiaries Consolidated Statements of Stockholders' Equity
Common Stock Additional Retained Total ----------------------- Paid-In Earnings Stockholder's Shares Amount Capital (Deficit) Equity --------- --------- ----------- ------------ ----------- Balances June 30, 1993 8,322,870 $ 83,230 $ 11,195,359 $ (7,773,395) $ 3,505,194 Net effect of November 10, 1993 Reorganization 347,139 3,470 2,057,600 -- 2,061,070 Issuance of stock through private placements 1,079,768 10,797 2,932,388 -- 2,943,185 Commissions and related fees -- -- (335,674) -- (335,674) Net loss for the year ended June 30, 1995 -- -- -- (4,138,130) (4,138,130) ---------- --------- ------------ ------------ ----------- Balances June 30, 1994 9,749,777 97,497 15,849,673 (11,911,525) 4,035,645 Issuance of stock through private placements 1,985,024 19,850 3,252,672 -- 3,272,522 Commissions and related fees -- -- (329,033) -- (329,033) Net loss for the year ended June 30, 1995 -- -- -- (5,190,073) (5,190,073) ---------- --------- ------------ ------------ ----------- Balances June 30, 1995 11,734,801 117,347 18,773,312 (17,101,598) 1,789,061 Acquisition of Simis Medical Imaging, Limited on May 28, 1996 204,850 2,048 1,247,952 -- 1,250,000 Issuance of stock through private placements 1,636,664 16,367 4,247,210 -- 4,263,577 Commissions and related fees -- -- (8,175) -- (8,175) Net loss for the year ended June 30, 1996 -- -- -- (5,215,062) (5,215,062) ---------- --------- ------------ ------------- ----------- Balances June 30, 1996 13,576,315 $ 135,762 $ 24,260,299 $(22,316,660) $ 2,079,401 ========== ========= =========== ============= ============
The Accompanying Notes are an Integral Part of these Consolidated Financial Statements. F - 5 Mark Solutions, Inc. and Subsidiaries Consolidated Statements of Cash Flows
Years Ended June 30 -------------------------------------------- 1996 1995 1994 ------------ ------------ ------------ Cash Flows From Operating Activities: Net (loss) $(5,215,062) $(5,190,073) $(4,138,130) Adjustments to reconcile net (loss) to net cash (used for) operating activities: Depreciation and amortization 637,169 654,155 701,624 Loss from discontinued operations 104,503 - - - - - - Reduction in carrying value of assets 777,495 1,100,000 800,000 Net assets of discontinued segment - - - 277,438 193,620 Value of warrants issued for services - - - - - - 2,000 Loss on disposition of property and equipment 60,001 - - - - - - (Increase) decrease in assets: Restricted cash 177,469 (359,250) - - - Accounts receivable 666,445 (895,127) 9,101 Costs and estimated earnings in excess of billings on contract in progress 66,485 (66,485) - - - Inventories 3,334 402,174 (219,553) Other current assets (16,032) 418 (45,169) Other assets (7,153) 1,718 (3,871) Increase (decrease) in liabilities: Accounts payable (1,336,488) 976,164 200,690 Due to related parties (161,763) 30,408 94,332 Accrued liabilities 56,558 237,501 (106,285) ------------ ------------ ------------ Net adjustments to reconcile net (loss) to net cash (used for) operating activities 1,028,023 2,359,114 1,626,489 ------------ ------------ ------------ Net Cash (Used for) Operating Activities (4,187,039) (2,830,959) (2,511,641) ------------ ------------ ------------ Cash Flows From Investing Activities: Additions to property and equipment (51,451) (6,500) (36,666) Proceeds from disposition of segment 100,000 - - - - - - Proceeds from sale of assets 12,500 - - - - - - ------------ ------------ ------------ Net Cash Provided by (Used for) Investing Activities 61,049 (6,500) (36,666) ------------ ------------ ------------ Cash Flows From Financing Activities: Proceeds from related party notes payable - - - - - - 1,530,000 Repayment of related party notes payable - - - - - - (1,530,000) Repayment of notes payable for equipment and vehicles (29,283) (29,085) (185,714) Borrowings on line of credit 38,668 - - - - - - Advances from officers and stockholders - - - 400,000 - - - Repayment of advances from officers and stockholders - - - (400,000) - - - Payment of offering costs and commissions (8,175) (329,033) (258,080) Payment of registration costs - - - - - - (361,316) Proceeds from issuance of common stock 4,263,577 3,272,524 2,943,185 Cash acquired in business combination 8,421 - - - - - - ------------ ------------ ------------ Net Cash Provided by Financing Activities 4,273,208 2,914,406 2,138,075 ------------ ------------ ------------ Net Increase (Decrease) in Cash and Cash Equivalents 147,218 76,947 (410,232) Cash and Cash Equivalents at Beginning of Year 116,704 39,757 449,989 ------------ ------------ ------------ Cash and Cash Equivalents at End of Year $ 263,922 $ 116,704 $ 39,757 ============ ============ ============
The Accompanying Notes are an Integral Part of these Consolidated Financial Statements. F - 6 Mark Solutions, Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 1 - Management Plans and Subsequent Events: Mark Solutions, Inc.'s (the Company) modular cell products represent an alternative to traditional construction methods, and penetration into the construction market has met resistance typically associated with a new, unfamiliar product. Accordingly, the Company has been and will continue to be subject to significant sales fluctuations until its modular cell technology receives greater acceptance in the construction market, which management believes will occur as new projects are awarded and completed. In May 1996, the Company acquired Simis Medical Imaging, Limited, the entity which developed the IntraScan II software, to more effectively control the development and marketing strategy. In addition, the Company has entered into a software supplier agreement with Data General Corporation, a large computer hardware and integration provider, pursuant to which Data General will include the IntraScan II PACS software program in proposals to health care institutions. Although no assurances can be given, management believes that these actions will improve the effectiveness of its marketing plan and will enable the Company to generate revenues. The Company's working capital requirements have historically exceeded its working capital from operations. Accordingly, the Company has been dependent, and absent significant improvements in operations, will continue to be dependent on the infusion of new capital in the form of equity or debt financing. From July 1, 1995 through September 19, 1996, the Company sold 1,636,664 shares of Common Stock pursuant to the exercise of warrants, resulting in gross proceeds of $4,263,626. In addition, on August 23, 1996, the Company sold $2,200,000 principal amount 7% convertible debentures due August 22, 1998. The Company has an effective registration statement relating to 3,368,880 shares of Common Stock issuable upon the exercise of warrants and options. The Company will initially look to the exercise of presently outstanding warrants and options to meet working capital deficits, however if sufficient securities are not exercised, the Company will consider additional private sales of its securities. On July 17, 1996, the Company was awarded a contract from the State of New York which management anticipates will generate revenues of approximately $50,000,000 over the three year period ending December 31, 1999, although there is no minimum or maximum contract amount. Management believes that the additional exposure resulting from the completion of the Jackson, Michigan project and the projects generated from the New York State contract will be beneficial in the Company's market penetration efforts. In addition to the New York State agreement, as of September 19, 1996 the Company has uncompleted modular cell contracts of $2,619,362. Furthermore, the Company has outstanding bids for five modular cell projects aggregating approximately $ 4,490,000 and is scheduled to bid on 19 modular cell projects aggregating approximately $40,400,000 through December 31, 1996, although no assurances can be given that any of these projects will be awarded to the Company. The Company believes the existing modular cell contracts, presently available working capital, projected modular cell contracts and other financial developments will result in improved operating results and generate sufficient working capital through fiscal 1997. F - 7 Note 2 - Summary of Significant Accounting Policies: A. Nature of Business - The Company is a Delaware corporation which operates its various businesses through wholly-owned subsidiaries and a division. The Company is engaged in the design, manufacture, assembly and/or distribution of (i) modular steel cells for housing of the general prison population as well as for use as infectious disease isolation units for correctional institutions and health care facilities, (ii) a self- contained treatment booth for communicable diseases, and (iii) diagnostic support and archiving computer systems marketed under the name "IntraScan". B. Basis of Consolidation - The consolidated financial statements include the accounts of Mark Solutions, Inc. and all of its wholly owned Subsidiaries, MarkCare Medical Systems, Inc., and Simis Medical Imaging, Limited. The operations of Simis Medical Imaging, Limited are included in the accompanying consolidated financial statements from the date it was acquired, May 28, 1996. C. Revenue Recognition - Revenues are recorded at the time services are performed or when products are shipped except for manufacturing contracts which are recorded on the percentage-of-completion method which measures the percentage of costs incurred over the estimated total costs for each contract. This method is used because management considers incurred costs to be the best available measure of progress on these contracts. Contract costs include all direct material and labor costs and those indirect costs related to contract performance. Selling, general and administrative costs are charged to expense as incurred. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. The Company provides an allowance for bad debts and returns based upon its historical experience. The allowance for bad debts is charged as a general and administrative expense. D. Cash Equivalents - For purposes of the statements of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. E. Inventories - Inventories are valued at the lower of cost or market on a first-in, first-out basis. The Company evaluates the levels of inventory based on historical movement and current projections of usage of the inventory. If this evaluation indicates obsolescence and or slow movement, the Company would record a reduction in the carrying value by the amount the cost basis exceeded the estimated net realizable value of the inventory. F - 8 Note 2 - Summary of Significant Accounting Policies (Continued): F. Property and Depreciation - All property and equipment items are stated at cost. Leasehold improvements are amortized under the straight-line method. Substantially all other items are depreciated under straight line and accelerated methods. Depreciation and amortization is provided in amounts sufficient to write-off the cost of depreciable assets, less salvage value, over their estimated useful lives. G. Costs in Excess of Net Assets of Businesses Acquired - In connection with the acquisition of MarkCare Medical Systems, Inc. and Simis Medical Imaging, Limited (see Note 3), the excess acquisition cost over the fair value of net assets of businesses acquired is being amortized using the straight-line method over five years. The Company periodically reviews the carrying amounts of costs in excess of net assets of businesses acquired. If events or changes in circumstances indicate that the amount of the net assets may not be recoverable, based on information available to the Company at that time, including current and projected cash flows, an appropriate adjustment is charged to operations (see Note 4). Amortization expense charged to operations for the years ending June 30, 1996, 1995, and 1994 was $535,863, $539,879, and $531,783, respectively. H. Income Taxes - Deferred income taxes are recognized for tax consequences of "temporary differences" by applying enacted statutory tax rates, applicable to future years, to differences between the financial reporting and the tax basis of existing assets and liability. Deferred taxes are also recognized for operating losses that are available to offset future taxable income. I. Loss Per Share of Common Stock - Loss per share is based on the weighted average number of shares of common stock outstanding during each year. Outstanding stock options and warrants are not included in the computation since such items are anti-dilutive. Loss per share for periods prior to the reorganization (see Note 3) have been restated to reflect the number of shares received. A single presentation of loss per share is shown on the accompanying financial statements since there is no difference between the primary and fully diluted computations. J. Research and Development Expenses - Research and development expenses consist of expenditures for research conducted by the Company and payments made under contracts with consultants. All research and development costs are expensed as incurred. K. Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of expenses during the report period. The estimates involve judgments with respect to, among other things, various future factors which are difficult to predict and are beyond the control of the Company. Therefore, actual amounts could differ from these estimates. F - 9 Note 2 - Summary of Significant Accounting Policies (Continued): L. Reclassifications - Certain prior year amounts have been reclassified to conform with the current year's presentation. Note 3 - Acquisition: On May 28, 1996, the Company acquired all of the capital stock of Simis Medical Imaging, Limited, a privately held British company (SMI) for $1,250,000 payable in the Company's common stock. SMI is the developer of the IntraScan II system which the Company has been marketing under an exclusive dealer agreement covering North and South America. The common stock will be issued pursuant to Regulation S promulgated under the Securities Act of 1933. The consideration paid by the Company was established through arms-length negotiations between the Company and the SMI shareholders and was based on the potential revenues management believes SMI and the related IntraScan II system sales will generate. At the initial closing, the Company issued an aggregate of 108,696 shares of common stock representing $625,000 of the purchase price. The balance of the purchase price will be paid in common stock on November 28, 1996 and the number of shares to be issued will be calculated by dividing $625,000 by the closing sales price of the common stock on November 25, 1996; provided, however, the maximum number of shares to be issued by the Company is 1,000,000. The June 30, 1996 consolidated financial statements reflect the balance of the purchase price at the market value of the Company's common stock at June 30, 1996. The number of shares issued will be adjusted for any fluctuation in the market price. Note 4 - Reduction in Carrying Value of Assets: As discussed in Note 3, the Company acquired the stock of SMI, the developer of the Intrascan II system. In connection with this acquisition, the Company has determined to focus its marketing efforts on the Intrascan II technology. As a result of this decision, during the fourth quarter the Company charged operations with approximately $777,000 to write off the excess net assets of businesses acquired as resulting from its acquisition of the Intrascan I technology. Note 5 - Related Party Transactions: The Company purchases materials and is reimbursed for various expenses from Mark Lighting Fixture Co., Inc. (Mark Lighting), an entity owned by the Company's president, and Metalite, Inc. (Metalite), an entity owned by the brother of the Company's president. In addition, the Company has engaged the consulting service of Laborstat, Inc. (Laborstat), an entity owned by the Company's president. F - 10 Note 5 - Related Party Transactions (Continued): The following related party transactions are included in the Company's operations:
Year Ended June 30 ----------------------------------------- 1996 1995 1994 -------- -------- -------- Purchases $105,512 $162,291 $ 72,684 Expense reimbursement $ 93,125 $ 48,734 $ 48,432 Consulting services $ -- $ 6,615 $103,342
As a result of current and prior years' transactions, the Company has net balances due to (from) the following related parties which will be settled in the ordinary course of business:
June 30 -------------------------- 1996 1995 -------- -------- Mark Lighting Fixture Co., Inc. $(16,225) $ 64,461 Metalite, Inc. (27,078) 687 Laborstat, Inc. (1,505) 52,095 Brookehill Equities -- 45,000 Other shareholders 90,002 44,680 -------- -------- Due to Related Parties $ 45,194 $206,923 ======== ========
The Company utilizes the underwriting and financial consulting services of Brookehill Equities (Brookehill), a company affiliated with a shareholder of the Company. For the years ended June 30, 1996, 1995 and 1994 fees paid to Brookehill were $-0-, $321,683, and $142,680, respectively. In February 1995 this shareholder, purchased from the Company 91,071 units for $3.50 per unit. Each unit consists of two shares of common stock and one two-year warrant to purchase an additional share of common stock for $2.00. On January 16, 1995 the Company received $400,000 and issued 10% promissory notes payable to its chief executive officer with principal and interest due on March 31, 1995. These notes were secured by a first priority security interest in the Company's assets. As further consideration for the promissory notes, the Company issued warrants to purchase 200,000 shares of the Company's common stock at $2.50 per share with the warrants expiring on January 20, 1997. On February 23, 1995, these promissory notes were repaid with interest. A member of the Company's Board of Directors provided bonding services for the Company's Michigan contract. As consideration for these services, the Director's company, Bergen Engineering, Co. received a 5% commission on the gross revenue of the contract and warrants to purchase 150,000 shares of the Company's common stock at $2.625 per share with the warrants expiring on November 3, 1996. As of June 30, 1996 and 1995, fees paid to Bergen Engineering Co., were $120,061 and $213,076, respectively. F - 11 Note 5 - Related Party Transactions (Continued): In October 1994, a director of the Company, purchased from the Company 50,000 shares of common stock for an aggregate of $131,250, subject to adjustment based upon subsequent private placements. Based on sale of units in January and February 1995 the director received an additional 15,000 shares of common stock. On April 26, 1995, each of the Company's non-employee directors were granted two-year options to purchase 25,000 shares of common stock at $3.25 per share. In addition, on November 15, 1995 a recently elected director was granted two-year options to purchase 25,000 of common stock at $5.375 per share On May 9, 1994, Salvani Investments, Inc., a company owned by a shareholder of the Company, was granted warrants to purchase 150,000 shares of common stock at a purchase price of $5.00 per share as compensation for investment banking and consulting services. In February 1995, the owner purchased from the Company 91,071 units for $3.50 per unit. Each unit consists of two shares of common stock and one two-year warrant to purchase an additional share of common stock for $2.00. Note 6 - Inventories: Inventories consist of the following:
June 30 ----------------------- 1996 1995 -------- -------- Raw materials $127,477 $112,060 Finished goods 18,828 119,230 -------- -------- Total Inventories $146,305 $231,290 ======== ========
Note 7 - Contract in Progress: Costs, estimated earnings, and billings on the contract in progress is summarized as follows:
June 30 --------------------------- 1996 1995 ---------- ---------- Cost incurred on uncompleted contract $ -- $4,125,591 Estimated earnings -- 202,410 ---------- ---------- Total -- 4,328,001 Less: Billings to date -- 4,261,516 ---------- ---------- Cost and estimated earnings in excess of billings on contract in progress $ -- $ 66,485 ========== ==========
F - 12 Note 8 - Other Current Assets: The other current assets consist of:
June 30 ------------------------ 1996 1995 -------- ------- Prepaid expenses $ 97,755 $60,357 Loans and exchanges 35,570 20,256 -------- ------- Total $133,325 $80,613 ======== =======
Note 9 - Long-Term Debt: A. Long-term debt consist of the following:
June 30 --------------------- 1996 1995 ------ ------ Note payable, due in monthly installments of $387, including interest at 10.9%; due June 1997; secured by a vehicle $4,383 $8,314 Less: Current Portion 4,383 3,932 ------ ------ Long-term debt excluding current portion $ -- $4,382 ====== ======
B. Line of Credit - SMI has available a U.K. Pound 70,000 line of credit agreement for working capital requirements. The line is collateralized by the personal residence of SMI's managing director. Outstanding borrowing accrue interest at 10.5%. In connection with the acquisition of SMI, the Company has agreed to negotiate with the lender to remove the managing director's personal liability under this credit facility. Outstanding borrowings as of June 30, 1996 were U.K. Pound 69,414. Note 10 - Accrued Liabilities: The accrued liabilities consist of:
June 30 ------------------------- 1996 1995 -------- -------- Salaries $166,190 $206,651 Other 156,950 59,909 -------- -------- Total $323,140 $266,560 -------- --------
F - 13 Note 11 - Stockholders' Equity: 1993 Stock Option Plan: On November 10, 1993 the Company adopted a Stock Option Plan. The Plan is administered and terms of option grants are established by the Board of Directors. Under the terms of the plan, options to purchase 1,000,000 shares of common stock may be granted to key employees. Options become exercisable as determined by the Board of Directors and expire over terms not exceeding ten years from the date of grant, three months after termination of employment, six months after death or one year in the case of permanent disability of the optionee. The option price for all shares granted under the Plan is equal to the fair market value of the common stock at the date of grant, as determined by the Board of Directors, except in the case of a ten percent shareholder where the option price shall not be less than 110% of the fair market value at the date of grant. The following information relates to shares under option and shares available for grant under the Plan:
June 30 ---------------------------------- 1996 1995 1994 ----------- ----------- ------- Outstanding at beginning of year 523,000 367,500 -- Granted -- 200,500 367,500 Cancelled (76,000) (45,000) -- Exercised (80,000) -- -- ----------- ----------- ------- Outstanding at end of year 367,000 523,000 367,500 =========== =========== ======= Available for issuance under the Plan 432,500 432,500 632,500 Per Share prices of outstanding options $3.25-$4.00 $3.25-$4.00 $4.00 Shares subject to exercisable option 367,000 523,000 -0-
Stock Warrants: Outstanding warrants are as follows:
June 30 -------------------------------------- 1996 1995 1994 ------------ ------------ ------------ Warrants outstanding at beginning of year 4,848,859 3,147,838 1,452,118 Issued during the year 615,000 1,702,021 2,240,666 Exercised (1,456,979) (1,000) (408,875) Expired (73,000) -- (136,071) ------------ ------------ ------------ Warrants Outstanding at End of Year 3,933,880 4,848,859 3,147,838 ============ ============ ============ Exercise Price $2.00-$15.00 $1.00-$15.00 $1.00-$15.00
The above warrants are currently exercisable into 3,933,880 shares of the Company's common stock. F - 14 Note 12 - Leases: A. Facility Leases: The Company occupies its offices pursuant to a lease expiring in December 1998. Beginning October 1, 1996, the Company will conduct its manufacturing operations pursuant to an operating lease expiring November 15, 2004. Under the terms of these leases, the Company is obligated to pay maintenance, insurance, and its allocable share of real estate taxes. Future minimum rental payments under these operating leases are as follows: Year Ended June 30 ------------------ 1997 $ 216,805 1998 260,365 1999 217,302 2000 174,240 2001 and thereafter 217,800 ----------- $ 1,086,512 =========== Rent expense for the years ending June 30, 1996, 1995, and 1994, was $205,586, $179,976, and $44,556, respectively. B. Capital Leases: The Company leases certain equipment under capital leases with expiration dates ranging from February 1996 through April 2000. Future minimum lease payments are as follows: Year Ended June 30 ------------------ 1997 $ 13,857 1998 13,857 1999 13,857 2000 12,823 2001 2,551 -------- Total future minimum lease payments 56,945 Less: Amount representing interest 20,716 -------- Present value of net future minimum lease payments 36,229 Less: Current portion of obligations under capital leases 5,921 -------- Long-term portion of obligations under capital leases $ 30,308 ======== F - 15 Note 13 - Commitments and Contingencies: The Company has entered into an employment agreement with its chief executive officer which expires on March 18, 1997. In connection with the acquisition of SMI (see Note 3), a former shareholder of SMI has entered into a three-year employment agreement with SMI which provides (i) an annual salary of U.K. Pounds 60,000 in the initial year with U.K. Pounds 5,000 increases in the succeeding two years and (ii) an amount bonus equal to 10% of the post tax profits of SMI. The remaining aggregate commitment for future salaries as of June 30, 1996, excluding bonuses, is approximately $539,000. The Company maintains cash balances at several financial institutions located in New Jersey. Accounts at each institution are insured by the Federal Deposit Insurance Corporation up to $100,000. As of June 30, 1996 and 1995, the Company's uninsured cash balances totalled $417,000 and $672,000, respectively. The Company has restricted cash of $181,781 and $359,250 at June 30, 1996 and 1995, respectively, to support open letters of credit and certain contract commitments. These restrictions will lapse within the current period. In January 1995, the Company and Mark Lighting, as co-defendants, were served with a summons and complaint filed in the Supreme Court of New York State, Westchester County. Plaintiffs allege damages in the sum of $10,000,000 based upon breach of sales and consulting agreements regarding modular steel cells. The Company believes the suit is totally without merit, both in terms of the facts of the case and the damages alleged, and is defending the action vigorously. The Company has answered and counterclaimed for $2,200,000 in damages based upon fraud and misrepresentations, by plaintiffs. Discovery in this case has been completed and the case has been placed on the trial calendar. The ultimate outcome of the litigation cannot presently be determined. Accordingly, no provision for any loss that may result from the resolution of this matter has been made in the accompanying financial statements. Note 14 - Income Taxes: As of June 30, 1996, the Company has Federal net operating loss carryforwards of approximately $16,000,000. Such carryforwards begin to expire in 2009 if not previously used. The $16,000,000 carryforward is comprised of approximately $14,000,000 which is available for utilization in the tax year ending June 30, 1997. The remaining $2,000,000 carryforward is restricted as to utilization subject to the provisions of Internal Revenue Code Section 382. Since realization of the tax benefits associated with these carryforwards is not assured, a full valuation allowance was recorded against these tax benefits as required by SFAS No. 109. F - 16 Note 15 - Discontinued Operations: On November 10, 1993, Showcase Cosmetics, Inc. (Showcase), the parent company of the Bar-Lor Subsidiaries, and the Company consummated a Reorganization (the "Reorganization") pursuant to a Plan of Reorganization dated December 23, 1992, as amended. Pursuant to the Reorganization, Showcase acquired all of the assets, subject to substantially all of the liabilities of the Company for 8,363,836 shares of common stock which represented 96% of the outstanding shares of common stock of Showcase. The Reorganization was, in substance, an acquisition of Showcase by the Company, as the control of Showcase transferred from the management of Showcase to the management of the Company. The Reorganization was accounted for using the purchase method of accounting. The purchase price of $2,613,292 plus expenses associated with the transaction exceeded the net assets acquired, resulting in $1,336,604 which was assigned to costs in excess of net assets of businesses acquired. The Company charged operations with $1,100,000 and $800,000 as a reduction in the segments carrying value of its assets in the quarters ended June 30, 1995 and 1994, respectively. On October 13, 1995, the Company disposed of the Bar-Lor Subsidiaries, whose principal services were the packaging and distribution of cosmetics products. The assets of the segment sold consist primarily of cash, accounts receivable, inventories, and machinery and equipment. Operating results of the segment for the period July 1, 1994 through October 13, 1995 are shown separately in the accompanying consolidated statements of operations. The consolidated statements of operations for June 30, 1995 and 1994 have been restated and the operating results of the segment are shown separately. Revenues of the segment for the period July 1, 1995 through October 13, 1995 and for the years ended June 30, 1995 and 1994 were $166,989, $917,934, and $812,374, respectively. These amounts are not included in the accompanying consolidated statements of operations. Assets and liabilities of the segment disposed of consisted of the following:
June 30 October 13, ----------------------------- 1995 1995 1994 ---------- ---------- --------- Cash $ 16,513 $ 50,580 $ 64,207 Accounts receivable, net 6,291 (10,485) 76,270 Inventories 346,104 363,093 1,083,118 Other current assets 11,434 5,251 62,798 Machinery and equipment, net 29,335 33,499 67,140 Other 17,880 17,880 24,864 --------- -------- --------- 427,557 459,818 1,378,397 --------- -------- --------- Accounts payable 234,145 239,199 259,616 Accrued expenses 8,987 16,116 38,563 Notes payable 15,000 - - - - - - --------- --------- --------- 258,132 255,315 298,179 --------- --------- ----------- Net Assets of Discontinued Segment 169,425 $ 204,503 $ 1,080,218 Less: Loss on disposition of segment 69,425 ========= =========== --------- Net Proceeds From Disposition of Segment $ 100,000 =========
F - 17 Note 16 - Supplemental Cash Flow Information: A. Cash paid during the year:
Year Ended June 30 -------------------------------------- 1996 1995 1994 -------- -------- ------- Interest $ 9,581 $ 12.615 $ 91,254 ======== ======== ======== Income taxes $ - - - $ - - - $ 29,460 ======== ======== ========
B. During the year ending June 30, 1995 the Company acquired certain equipment with an aggregate cost of $56,325 under capital lease obligations. Note 17 - Segment Information: The Company's two industry segments are the design and manufacture of modular steel prison cells for the corrections industry and the distribution of treatment booths and IntraScan Systems to the medical industry. The following is a summary of selected consolidated financial information for the Company's industry segments:
June 30 ------------------------------------------------- 1996 1995 1994 ------------ ----------- ---------- Revenues: Modular steel products $ 3,256,574 $ 5,949,490 $ 2,938,051 Medical products 198,041 176,083 245,022 ------------ ----------- ------------ Total $ 3,454,615 $ 6,125,573 $ 3,183,073 ============ ============ ============ Operating Loss: Modular steel products $ (4,508,406) $ (3,055,631) $ (2,368,708) Medical products (555,462) (671,099) (681,593) Reduction in carrying value - - - (1,100,000) (800,000) ------------ ------------ ----------- Total $ (5,063,868) $ (4,826,730) $ (3,850,301) ============ ============ =========== Identifiable Assets: Modular steel products $ 1,317,620 $ 3,505,085 $ 3,533,195 Medical products 1,766,143 268,795 340,238 Discontinued operation - - - 204,503 1,080,218 ------------ ----------- ----------- Total $ 3,083,763 $ 3,978,383 $ 4,953,651 ============ =========== ===========
For the year ended June 30, 1996, one customer accounted for 70% of total revenues. Revenues from one customer accounted for 60% of total revenues during the year ended June 30, 1995. For the year ended June 30, 1994, one customer accounted for 71% of total revenues. As of June 30, 1996, one customer accounted for 34% of trade receivables. F - 18 EX-10.D 2 AGREEMENT BETWEEN NEW YORK STATE AND MARK SOLUTIONS, INC. DATED JULY 17, 1996 EXHIBIT 10 d) PAGE 1 STATE OF NEW YORK - EXECUTIVE DEPARTMENT OFFICE OF GENERAL SERVICES STANDARDS AND PURCHASE GROUP 37TH FLOOR, CORNING TOWER BUILDING GOVERNOR NELSON A. ROCKEFELLER EMPIRE STATE PLAZA ALBANY, NY 12242 NOTICE OF CONTRACT AWARD GROUP NUMBER AND COMMODITY: 33830 - MODULAR STEEL DETENTION CELLS & STRUCTURES (Corr. Services - Div. of Ind.) CONTRACT PERIOD: March 15, 1996 to March 14, 1999 NOTICE OF CONTRACT AWARD for INVITATION FOR BIDS NUMBER: 2328-CI BIDS OPENED: January 22, 1996 PURCHASE REQUEST NO.: 5533-T-CI SPECIFICATION REFERENCE: As Incorporated in the Invitation For Bids and Purchasing Memorandums dated December 27, 1995, January 2, 8, 12 and 16, 1996 DATE ISSUED: July 17, 1996 ADDRESS INQUIRIES TO: STATE AGENCIES ONLY Ron Wachenheim 518-474-1557 - -------------------------------------------------------------------------------- CONTRACT # CONTRACTOR & ADDRESS & MFR. TELEPHONE # FED. ID # - ---------- --------------------------- ----------- --------- P050313 MARK SOLUTIONS, INC. 201/893-0500 112864481 SB 1515 Broad St. Carl Coppola Bloomfield, NJ 07003 FAX No. 201/893-0013 Cash Discount, If Shown, Should be Given Special Attention. INVOICES MUST BE SENT DIRECTLY TO THE ORDERING AGENCY FOR PAYMENT. AGENCIES SHOULD NOTIFY THE DIVISION OF PURCHASING PROMPTLY IF THE CONTRACTOR FAILS TO MEET THE DELIVERY TERMS OF THIS CONTRACT. DELIVERED ITEMS WHICH DO NOT COMPLY WITH THE SPECIFICATIONS OR ARE OTHERWISE UNSATISFACTORY TO THE AGENCY SHOULD ALSO BE REPORTED TO THE DIVISION OF PURCHASING. FOR TAX FREE TRANSACTIONS UNDER THE INTERNAL REVENUE CODE, THE NEW YORK STATE REGISTRATION NUMBER IS 1714740026K16. NOTE TO AGENCIES: The letters SB listed under the Contract Number indicate the contractor is a self-identified small business. Additionally, the letters "MBE" and "WBE" indicate the contractor is a certified Minority-owned Business Enterprise and/or Woman-owned Business Enterprise, respectively. PAGE 2 PRICE: Prices are firm for the contract period. Prices include contractor services for Corcraft, Stormville, NY involving Initial Development, Start- up and Long Term Support responsibilities as detailed herein. Prices are in the following format: Lot I- Phase I: F.O.B. destination truck delivery to and off-loading at any point in New York State for completed units with all contractor supplied furniture, fixtures and associated hardware, etc. installed including contractor's installation of specified Corcraft furnished items. See Corcraft Supplied Equipment & Furniture clause herein. Price includes supply and delivery to each facility two (2) copies of an operation and maintenance manual covering furnished configurations. *Lot II- Phase IIa F.O.B. Green Haven Correctional Facility, Division of Industries, Stormville, NY, truck delivery of completed units but without installation of contractor supplied furniture, fixtures and associated hardware. All specified contractor furniture, fixtures and associated furnishings to be delivered with corresponding structures and supplied in separate, appropriately marked packages. When ordered, back-wall window or door shall be factory installed by the contractor. *Lot III- Phase IIb F.O.B. Green Haven Correctional Facility, Division of Industries, Stormville, NY, truck delivery of individual piece parts and contractor supplied furniture, fixtures, and associated hardware composing a completed structure less Corcraft supplied furniture, fixtures and associated hardware identified under Phase I and IIa. The Bill of Materials includes as individual line items all contractor's commercially obtained furniture, fixtures and associated products needed for a completed cell or shower cell. The gate slider mechanism is included in the related Bill of Materials. Individual piece parts are cut-to-size, punched, formed but not welded or painted. Under this Phase, contractor supplied furniture, fixtures and associated hardware to be delivered in separate, appropriately marked packages. LOT IV - Contractor collaborative services as required and establishment of license fee payments as described herein. *SPECIAL Notes for Lots II & III: Delivery to Green Haven C.F., Stormville, NY is "restricted," being allowed between 8:30 a.m to 10:30 a.m. and 12:30 p.m. to 2:30 p.m. and must be made Monday through Friday only, excluding holidays. Contractor must notify Stormville at 914/226-8583, forty-eight (48) hours prior to delivery. NOTE TO ALL CONTRACT USERS: The terms and conditions of the solicitation which apply to the award appear at the end of this document. We strongly advise all contract users to familiarize themselves with all terms and conditions before issuing a purchase order. PAGE 3 CONTRACTOR NOTE: The description of the following Lots and Items is understood to be as per bid documents, General Information requirements, complete as per referenced Detailed Specifications, Attachment #1 drawings and as modified by Purchasing Memorandums dated January 2, 8, 12 and 16, 1996. LOT I - Phase I, F.O.B. destination truck delivery to and off-loading, completed units and associated structurals any point in NYS. Completed units include manufacturer's factory installation of Corcraft provided sliding woven wire mesh door, shower benches, stool, desk, locker and bed with ladder. When ordered, the rear wall window or door shall be factory installed prior to delivery. Note Well: Special Delivery requirements for initial units regarding Southport C.F. Estimated Item Quantity/ Unit No. Description Each Price ---- ----------- --------- ----- 1. *Double Inmate Cell, Left-hand Dwg. A-5. Model IC-LH 50 $11,191.00 2. Same as Item 1 but with backwall window. 10 11,283.00 3. *Same as Item 1 but Right-hand, Dwg. A-6. Model IC-RH 50 11,191.00 4. Same as Item 3 but with backwall window. 10 11,283.00 5. Double Inmate Cell with Shower, Left-hand with exterior door with security glazing, Dwg. A-7. Model IC-LH-SH 120 15,932.00 6. Same as Item 5 but Right-hand, with exterior door with security glazing, Dwg. A-8. Model IC-RH-SH 120 15,932.00 7. Disabled Access Cell, Left-hand, Dwg. A-9. Model DAIC-LH 5 11,476.00 8. Same as Item 7 but backwall with window. 20 11,586.00 * As part of the Southport project contractor will provide units having factory installed Corcraft provided single bunk and 2' x 1' - 6" desk in lieu of specified bed and desk. PAGE 4 LOT I: (Cont'd) Estimated Item Quantity/ Unit No. Description Each Price - ---- ---------------------- --------- ------- 9. Same as Item 7 but Right-hand, Dwg. A-10. Model DAIC-RH 5 $11,476.00 10. Same as Item 9 but backwall with window. 20 11,586.00 11. Disabled Access cell with Shower, left-hand, Dwg. A-11. Model DAIS-LH 5 15,900.00 12. Same as Item 11 but Right-hand, Dwg. A-12. Model DAIS-RH 10 15,900.00 13. Seven Person Shower Unit, Left- hand, Dwg. A-13. Model 7IS-LH 15 20,210.00 14. Same as Item 13 but Right-hand, Dwg. A-14. Model 7IS-RH 15 20,210.00 15. Frame Extender, height to vary as ordered within range of a. 3'6" to 4': 80 511.00 b. 4' plus to 4'6": 80 517.00 16. Pre-cast cell floor with 8'6" walkway. 145 1,200.00 17. Pre-cast Seven Person shower structure floor, right-hand or left-hand application as ordered. 15 950.00 18. Diamond floor plate, 11 ga., for mechanical space, top of Southport structures, to cover full structure length & width. 90 809.00 LOT II - Phase IIa, F.O.B. truck delivery to Green Haven C.F., Stormville, NY and off-loading of completed structures and associated structurals, less installation of contractor supplied and separately packaged, furniture, fixtures and associated hardware. When ordered, the rear wall window or door shall be factory installed prior to delivery. 1. Double Inmate Cell, Left- hand, Dwg. A-5. Model IC-LH 85 $10,497.00 2. Same as Item 1 but with backwall window. 45 10,590.00 PAGE 5 LOT II: (Cont'd) Estimated Item Quantity/ Unit No. Description Each Price - ---- ------------------------- --------- ------- 3. Same as Item 1 but Right-hand, Dwg. A-6. Model IC-RH 85 $10,497.00 4. Same as Item 3 but with backwall window. 45 10,590.00 5. Double Inmate Cell with Shower, Left-hand with exterior door with security glazing, Dwg. A-7. Model IC-LH-SH 130 15,143.00 6. Same as Item 5 but Right-hand with exterior door with security glazing, Dwg. A-8. Model IC-RH-SH 130 15,143.00 7. Disabled Access Cell, Left-hand Dwg. A-9. Model DAIC-LH 25 10,809.00 8. Same as Item 7 but backwall with window. 10 10,919.00 9. Same as Item 7 but Right-hand Dwg. A-10. Model DAIC-RH 25 10,809.00 10. Same as Item 9 but backwall with window. 10 10,919.00 11. Disabled Access Cell with Shower, Left-hand, Dwg. A-11. Model DAIS-LH 10 15,110.00 12. Same as Item 11 but Right-hand, Dwg. A-12. Model DAIS-RH 20 15,110.00 13. Seven Person Shower Unit, Left- hand, Dwg. A-13. Model 7IS-LH 25 19,520.00 14. Same as Item 13 but Right-hand Dwg. A-14. Model 7IS-RH 25 19,520.00 15. Frame Extender, height to vary as ordered within range of: a. 3'6" to 4': 170 466.00 b. 4' plus to 4'6" 170 473.00 16. Pre-cast cell floor with 8'6" walkway. 300 1,200.00 PAGE 6 LOT II: (Cont'd) 17. Pre-cast Seven Person shower structure floor right-hand or left- hand application as ordered. 25 950.00 LOT III: Phase IIb, F.O.B. truck delivery to Green Haven C.F., Stormville, NY of individual piece parts, cut-to-size, punched, stamped but not welded or painted and contractor's commercially obtained furniture, fixtures and associated products that compose a completed structure less Corcraft supplied furniture, fixtures and associated hardware identified under Phase I and IIa. This Lot allows the maximum practical application of Corcraft value added processing. Composite structure price tendered for each Item (Items 1-14) is supported by an accompanying Bill of Materials showing each individual piece part with corresponding unit price and quantity, all extended (price x quantity) with grand total equaling the respective Item unit price (Items 1-15). The Bill of Materials includes, as individual line items, all contractor's commercially obtained furniture, fixtures and associated products which are needed for a completed cell or shower cell. Commercial products are to be package separately and properly marked for ready identification. Estimated Item Quantity *Unit No. Description Each Price - ---- --------------- --------- ----- 1. Double Inmate Cell, Left-hand Dwg A-5. Model IC-LH 165 $ 8,042.43 2. Same as Item 1 but with backwall window. 85 8,228.67 3. Same as Item 1 but Right-hand, Dwg. A-6. Model IC-RH 165 8,042.43 4. Same as Item 3 but with backwall window. 85 8,228.67 5. Double Inmate Cell with Shower, Left-hand with exterior door with security glazing, Dwg A-7. Model IC-LH-SH 260 12,082.51 6. Same as Item 5 but Right-hand with exterior door with security glazing, Dwg. A-8. Model IC-RH-SH 260 12,082.51 7. Disabled Access Cell, Left-hand, Dwg. A-9. Model DAIC-LH 50 8,408.98 *Unit Prices subject to equilvant reduction should ensuing events disclose applicable configuration Bill of Materials be found to contain excess value such as overstated component quantity or component over designed (e.g. stainless steel wherein galvanized material is required or heavier than required gauge has been utilized). No increase to a configuration price will be allowed should like but opposite anomalies be disclosed. Such events will be handled by contractor supplying compliant components in required quantities on a no charge basis. PAGE 7 LOT III: (Cont'd) Estimated Item Quantity *Unit No. Description Each Price - ---- ------------------ --------- ----- 8. Same as Item 7 but backwall with window. 20 $ 8,668.48 9. Same as Item 7 but Right-hand Dwg. A-10. Model DAIC-RH 50 8,408.98 10. Same as Item 9 but backwall with window. 20 8,668.48 11. Disabled Access Cell with Shower, Left-hand, Dwg. A-11. Model DAIS-LH 20 12,212.90 12. Same as Item 11 but Right-hand, Dwg. A-12. Model DAIS-RH 40 12,212.90 13. Seven Person Shower Unit, Left- hand, Dwg. A-13. Model 7IS-LH 50 14,667.53 14. Same as Item 13 but Right- hand, Dwg. A-14. Model 7IS-RH 50 14,667.53 15. Frame Extender, height to vary as ordered within range of a. 3'6" to 4'6": 330 414.00 b. 4' plus to 4'6": 330 417.00 16. Pre-cast cell floor with 8'6" walkway. 600 1,200.00 17. Pre-cast Seven Person shower structure floor - Right-hand or Left-hand application as ordered. 50 950.00 PAGE 8 LOT IV: Estimated Description Quantity --------------- --------- 1. Manufacturer Field Advisor services as called for herein to be provided at location where directed. Working day to equal 7 hours, time in transit to or from work location not to be included as work day. 100 days $500.00 per day 2. Manufacturer's In-house services for various functions including but not necessarily limited to, computer aided designing, engineering study, drafting, creation of manufacturing instructions, etc., in support of or enabling application of changes, alterations, redesigns as provided herein. 1000 Hours $ 60.00 per hour 3. License Fee as provided herein: A per qualifying unit fee due contractor upon Corcraft election and manufacture of contract cells, shower cells or such units as may be developed during the contract in collaboration with the contractor to meet unforeseen client needs. The percentage fee rates for each of the cumulative quantity ranges are as follows: Range/Units ----------- 1-100 6.5% 101-200 4 201-300 3 301-400 2 401-500 2 501-600 2 601-700 2 701-800 2 801-900 2 901-1000 2 The net configuration of the LOT III, Items 1-14 for application of the license fee is as follows: Item Value ---- ----- 1 $3,937.09 2 4,123.33 3 3,937.09 4 4,123.33 5 3,892.89 6 3,892.89 7 3,857.80 8 4,117.30 9 3,857.80 10 4,117.30 11 3,816.95 12 3,816.95 13 8,511.44 14 8,511.44 PAGE 9 LOT IV: (Cont'd) Price Additional Maintenance Item Prices 1. Manual Release Cabinets: (Complete with electrical and mechanical controls). $2,443.50 each 2. Electric Door Motors w/Drive Unit 1,415.00 each 3. Door Limit Switches: 37.50 each 4. Lifting Handles for Track Box Removable: $ 68.00 each 5. Special Head socket Wrench: T25 Torx Bits 4.61 each T20 Torx Bits 4.61 each T30 Torx Bits 4.61 each T27 Torx Bits 4.61 each 3/16 Hex Bits 4.00 each 7/32 Hex Bits 4.00 each 1/4 Spanner Bits 4.00 each REQUEST FOR CHANGE: Any request by the agency or contractor regarding changes in any part of the contract must be made in writing to the Office of General Services, Division of Purchasing, prior to effectuation. CONTRACT PAYMENTS: Payments cannot be processed by State facilities until the contract items have been delivered in satisfactory condition. Payment will be based on any invoice used in the supplier's normal course of business, however, such invoice must contain sufficient data including but not limited to Contract No., description of material, quantity, unit and price per unit as well as Federal Identification Number. State facilities are required to forward properly completed vouchers to the Office of the State Comptroller for audit and payment. All facilities are urged to process every completed voucher expeditiously giving particular attention to those involving cash discounts. If the contract terms indicate political subdivisions and others authorized by law are allowed to participate, they are required to make payments directly to the contractor. Prior to processing such payment the contractor may be required to complete the ordering non-State agency's own voucher form. NOTE TO CONTRACTOR: This Notice of Award is not an order. Do not take any action under this contract except on the basis of a purchase order from the agency. The Agency contact person is Ross Hotaling, who can be reached at (518) 436-6321 Ext. 245. PAGE 10 PUBLIC OFFICERS LAW: All contractors and contractor employees must be aware of and comply with the requirements of the New York State Public Officers Law, all other appropriate provisions of New York State Law and all resultant codes, rules and regulations from State laws establishing the standards for business and professional activities of State employees and governing the conduct of employees of firms, associations and corporations in business with the State. In signing the bid, each contractor has guaranteed knowledge and full compliance with those provisions for this and any other dealings, transactions, sales, contracts, services, offers, relationships, etc. involving the State and/or State employees. Failure to comply with those provisions may result in disqualification from the bidding process and in other civil or criminal proceedings as required by law. CONTRACT SCOPE/OVERVIEW: The State of New York on behalf of the Department of Corrections and the Division of Industries (Corcraft) has established this contract for the purchase of subject commodities, based on the terms and conditions stated in the referenced documents. The agreement covers three distinct Phases (Phase I, Phase IIa & Phase IIb) of contractor performance with respect to manufacturing and supplying various modular cells, showers, pre-cast floor, frame extensions, including contractor supplied furniture, fixtures and associated hardware and other specified and related services. The contract covers supplying finished structures and related items and furnishings to NYS sites as ordered and the same structures, in less completed state, with related items and furnishings to the Division of Industries, Stormville, NY. The Division of Industries under the Corcraft label markets products to State and local governments under the authority of New York State Correction and Finance Laws. Under these statutes, State and local governments are required to purchase products available from Corcraft. Sales of products to other than government customers are limited to certain charitable and/or not-for-profit organizations. Sales to governmental entities throughout the United States are allowed; however, sales to the private sector are not allowed. Under the contract it is the State's intention, as its exclusive option, to have Corcraft develop, as soon as possible, a capability to manufacture and assemble individual piece parts and commercially obtained products into complete units; thus, purchases are expected to move from Phase I (complete structures) to Phase IIa (semi-completed) to Phase IIb (individual piece parts and commercial products). However, purchases may occur concurrently throughout the contract period under any or all Phases. Corcraft purchases under Phase IIa or IIb will be for the creation of finished modular units to be sold under the Corcraft label. It shall be expressly understood, materials and all other contract covered parts, components, fixtures, furniture, and associated hardware, etc. may, at the State's exclusive option, once the contract guaranteed level of total purchases stated herein has been reached, and without other limitation, purchase said items from others. See Guaranteed Minimum Contract Volume clause herein. PAGE 11 CONTRACT SCOPE/OVERVIEW: (Cont'd) Further, within the contract timeframe, it is expressly understood it is the State's desire to become independent of purchasing the physical material of the contract in its production of cells, shower cells and supporting members for Correction Department needs and the needs of its clients. In this regard, the State may, utilizing the contractor's design and associated technical skills at contract rates, institute such changes in materials and structure design of cells, shower cells and supporting members as may develop to meet unforeseen requirements of the Correction Department and its clients. Payment for cells, shower cells and supporting members built and sold by Corcraft based on contract covered design, or designs developed under this contract utilizing the aforesaid collaborative services, and containing less than specified percentage value of contract purchased individual piece part material, shall be due contractor per license clause herein. CORCRAFT SUPPLIED EQUIPMENT & FURNITURE: All materials, equipment, furniture, fixtures and associated mounting covered under referenced specifications and drawings to be provided by the contractor and where required, factory installed, or delivered in separate packages with the following exceptions to be the responsibility of Corcraft: 1. Sliding woven rod mesh door (slider mechanism to be provided by contractor) 2. Wall mounted desks and stools 3. Wall mounted bunk bed with ladder 4. Wall mounted wooden shower benches 5. Wall mounted locker For mounting particulars for the above products, see accompanying Attachment #1, Corcraft Mounting Drawings #6219 thru #6230 or latest update thereof. MINIMUM ORDER: Lot I - Minimum order for each (single) destination is any combination of three (3) cells or shower cells of the specified configurations. Minimum order for other configurations developed during the contract in conjunction with the contractor shall be as per mutual agreement. LOT II - Minimum order for each (single) destination is any combination of three (3) cells or shower cells of the specified configurations. Minimum order for other configurations developed during the contract in conjunction with the contractor shall be as per mutual agreement. Lot III - Minimum order is any combination of covered parts, equipment, materials, components, furniture, fixtures, etc. having a total contract value of $2,000.00. LOT IV - Minimum order for daily rate is one day and for hourly rate, one hour. Licensing is applicable at a rate per qualifying unit. ESTIMATED QUANTITIES & CONTRACT FULFILLMENT: Quantities listed are estimated only. The contract is for the quantities as actually ordered during the contract period, however, the contract will be considered fulfilled with respect to further orders, either upon the contract's termination per the period, or upon the State's placement of orders which represent a total value of 150% of the total estimated contract value. Orders for quantities beyond this level placed during the contract period may be allowed provided contractor agrees to their acceptance. PAGE 12 RESERVATION: The State, however, reserves the right on any unanticipated additional requirements of substantial quantities - a single order for any combination of 700 cells and shower cells - to negotiate lower pricing, or to advertise for bids as deemed to be in the best interest of the State at the discretion of the Commissioner. DELIVERY: TIME IS OF THE ESSENCE. Guaranteed delivery under each Lot is as shown below stated as calendar days after receipt of purchase order. NOTE WELL: It is expressly understood with respect to the first order placed under Lot I the count of guaranteed days starts with contractor's receipt of approved shop drawings. The first Lot I order will be for the Southport project. Lot I, Phase I - Delivery to be completed within 90 days. Note Well: An existing project requires delivery of 81 various structures for the Southport C.F. project, as per specific structure configurations schedule shown herein. The first four (4) cells will be delivered to Stormville, NY, the balance, seventy-seven (77) cells will be delivered to Southport C.F., at Elmira, NY. Lot II, Phase IIa - Delivery to be within 60 days. Lot III, Phase IIb - Delivery to be within 30 days. Delivery will be made in accordance with instructions on purchase order from the issuing agency. PAYMENTS OF INTEREST: The payment of interest on certain payments due and owed by a State agency may be made in accordance with the criteria established by Chapter 153, Laws of 1984 (Article 11A of New York State Finance Law) and the Comptroller's Bulletin No. A-91. PURCHASE ORDERS: Purchase orders are effective and binding upon the contractor when placed in the mail addressed to the contractor at the address shown herein. PAGE 13 PACKAGING: All products to be packaged to prevent damage in shipment and storage, including, where appropriate, a factory applied protective and weatherproof covering. Containers to be clearly labeled for ready identification including but not necessarily limited to part number, quantity and description. KEYS: Ship all prison lock keys direct from manufacturer, via registered mail, restricted delivery, return receipt requested, to: LOT I LOT II & III Deputy Superintendent for Administration Industrial Superintendent-Corcraft (Name of Facility) Correctional Facility Green Haven Correctional Facility (Address and Zip Code of Facility) Stormville, NY 12582-0010 SCHEDULE OF ANTICIPATED REQUIREMENTS INCLUDING FIRM REQUIREMENTS FOR EXISTING SOUTHPORT PROJECT: Schedule of anticipated - not Lot specific - requirements, including firm Lot I requirements for existing Southport Project. Cell Model 455 cells 1st year 1000 2nd 1000 3rd Designation Designated Projects year year - ----------- ------------------- -------- -------- Two (2) Southport 201 Bed As As As C.F. Dormitorys Required Required Required --------- ---------- -------- -------- -------- IC-LH-SH (Dwg. A-7) 38 * o ---- 10 IC-RH-SH (Dwg. A-8) 37 * o ---- 10 7IS-LH (Dwg. A-13) 2 o ---- 10 7IS-RH (Dwg. A-14) 1 o ---- 10 IC-LH (single bunk & 2'x 1'6" desk)(Dwg.A-5) 1 o ---- -- See estimated IC-RH (single bunk & quantities as shown 2'x1'6" desk)(Dwg.A-6) 1 o ---- -- in Lot II & III IC-LH-SH (Dwg. A-7) ---- 98 ** 10 IC-RH-SH (Dwg. A-8) ---- 98 ** 10 DAIC-LH (Dwg. A-9) ---- 4 10 DAIC-RH (Dwg. A-10) 1 o 6 10 DAIS-LH (Dwg. A-11) ---- ---- 5 DAIS-RH (Dwg. A-12) ---- 2 5 * Lot I - two cells of each configuration to be shipped to Division of Industries at Green Haven C.F. with bunks, sliding woven rod mesh door, desks, stools and locker to be installed by Div. of Industries, subsequent shipment, by State, to Southport C.F. ** To include 26 units with pre-cast floors for 2nd story construction. o All cells to include 11 ga. diamond floor plate on top of cell for full length and width of cell, and no shackle openings required on cell doors. - See Lot I, Item 18. LIQUIDATED DAMAGES: In the event of a delay or default in any delivery, providing such delay or default is not directly attributable to a material fault of the ordering agency, the agency is entitled to and shall assess against the contractor as PAGE 14 liquidated damages and not by way of penalty a sum calculated as follows: $100.00 dollars per day per cell or shower cell to compensate for delay, and other losses, detriments and inconveniences attendant upon such delay from the end of the grace period commencing from the time delivery was due under the contract. A grace period of seven (7) calendar days commencing on and including the contract date for delivery to be extended to the contractor prior to the assessment of such liquidated damages. Notice is hereby repeated to the contractor that despite the extensions of the grace period herein specified - TIME IS OF THE ESSENCE IN REGARD TO DELIVERY. DELAY IN DELIVERY BEYOND THE RESPECTIVE GUARANTEE DELIVERY PERIOD MAY ALSO CONSTITUTE GROUNDS FOR THE STATE TO TERMINATE FOR ITS CAUSE AND CONVENIENCE THE CONTRACT AT NO EXPENSE OR COST TO THE STATE AT THE STATE'S SOLE OPTION AND DISCRETION. Liquidated damages, if assessed, will be deducted from the purchase order price for each shipment delivered against such purchase order. CONTRACTOR'S SERVICES TO THE DIVISION OF CORRECTIONAL SERVICES, DIVISION OF INDUSTRIES - CORCRAFT: As an essential element of this project, contractor will provide, as a basic no separate charge responsibility under this contract, a Manufacturer Field Advisor for a minimum of 60 working days (7 hour days, totaling 420 hours) to assist the Division of Industries in developing its skills and resources for the purposes and activities listed herein. As requested, these services shall be performed at the Green Haven Correctional Facility, Stormville, NY. Working hours and days will not include time in transit to or from Beacon, NY. Should any dispute develop concerning service time credit, the burden of proof will rest with the contractor. 1. Initial Development: a. Evaluate possible assembly sites. b. Assist in leasing of necessary equipment. c. Assist in the development of the production/installation procedures. d. Provide possible layouts of the assembly area. e. Assist in developing work scopes, production schedules and sequencing. 2. Start Up: a. Provide shop manufacturing drawings, and engineering assistance for the selected manufacturing location. b. Train the inmate assembly crews. c. Develop a Quality Assurance program to help Division of Industries to achieve self-certifying capacity. PAGE 15 CONTRACTOR'S SERVICES TO THE DIVISION OF CORRECTIONAL SERVICES, DIVISION OF INDUSTRIES - CORCRAFT: (Cont'd) 3. Long Term Support: a. Support the NYS Department of Correctional Services efforts to market this product as a long term enterprise. b. Consult on the maintenance of The Quality Assurance and Certification program. COLLABORATIVE CONTRACTOR SERVICES TO BE AVAILABLE: During the contract it is anticipated client needs will require modification of covered configurations that constitute changes in placement of furniture, fixtures and hardwares, or the deletion or addition of like products not specifically covered. Further, changes may be more drastic, including but not limited to, upscaling and/or downscaling overall structure dimensions, introducing alternative structural materials and others which require major redesign(s). In pursuing these adjustments, alterations or redesign, it is the Division of Industries' right to involve the contractor, at the respective contract service rate herein , to study, recommend, design, provide production directions and guidance, create shop and manufacturing drawings, aid the securing of required certifications and any other such collaborative service needed to achieve client satisfaction. Contractor services to be available appropriately for both on-site and in-house application. Time charged for such services will not include time assigned employee is in transit to or from said assignment. Whether to an in-NYS or out-of-NYS assignment location, associated travel expenses including meals, mileage and lodging will be reimbursed for only actual, necessary and reasonable costs as per prevailing allowances of the Comptroller of New York State. Consistent with the preceding, on-site installation instruction for units supplied under Lot I or as produced by Corcraft including units of other designs developed in collaboration with the contractor, are available at the respective contract service rate per day and provided by a Manufacturer Field Advisor. GUARANTEE: Contractor guarantees that the material offered is new or re-manufactured to meet new specifications. Every unit delivered is guaranteed against faulty material and workmanship for a period of one (1) year which includes furnishings, fixtures and like items purchased from others for installation in the modular structure. With respect to the structure and related members, such as the frame extender and pre-cast floor panels, designed, manufactured, installed or assembled by the manufacturer, the fully assembled unit is guaranteed for two (2) years against faulty operation. Factory applied finish is guaranteed two (2) years with respect to chipping, cracking, peeling or blistering. If, during this period, such faults develop, the unit or part affected is to be replaced without any cost to the State. PRICE LIST FOR MAINTENANCE ITEMS NOT OTHERWISE AVAILABLE IN LOT III BILL OF MATERIALS: Above are available as a price additional feature at the prices shown herein. MOCK-UP: Within 30 days after the contract is awarded, deliver and install at Green Haven C.F., Stormville, NY, 2 cell units, Cell Model Designation IC-LH-SH for lower unit, and Cell Model Designation IC-LH with window for second tier of a two-tier stacked assembly. Provide a complete assembly with plumbing fixtures and sliding door track assembly including the pre-cast concrete floors. Upon completion of each phase, the assembly will be inspected by all parties concerned. When approved, the mock-up will be used to establish the standard of quality and performance by which the work will be judged. Contractor shall provide protection from the weather and maintain the mock-up at the site for a minimum of six months after contract completion. The mock-up will involve no cost to the State. LICENSE PAYMENT: Upon Corcraft's election to manufacture cells, shower cells and structural support members covered under Lot III or as may be eventually covered per collaboration with the contractor, but, without incorporating a minimum 25% of the contractor's designed and tendered individual piece parts priced per Lot III values, a per unit license payment will be made to the contractor. The amount of this unit payment is a function of the total value of the PAGE 16 contractor's designed and tendered individual piece price parts contents for the given unit, stated fee percentage and the then prevailing cumulative quantity level of qualifying Corcraft production. Corcraft is responsible for maintaining and reporting upon its production of qualifying units for the purpose of affecting this licensing fee. No further license liability will exist once any one of the following events occurs: 1. Total contract payments have reached $15,000,000.00. 2. The total number of cell and shower cells, of whatever design or configuration, has been manufactured by Corcraft and qualifies for a license fee, reaches 1000. 3. Five years have lapsed since contract creation and all related valid contractor claims for payment have been satisfied. PAGE 17 CONTRACTOR'S NOTES: 1. Contractor shall furnish the agency with written acknowledgment of the shipping date at least two weeks prior to shipment. Failure to comply may be cause for the initiation of contract default proceedings. 2. If shipment will not be made within the guaranteed delivery time; the contractor is required to notify the agency in writing at least two weeks prior to the latest date of the original delivery obligation. This notification must include the reasons for the delay and the latest date the material will be shipped. Should the delay be intolerable to the using agency appropriate contract default proceedings will be initiated. Failure to supply timely written notification of delay may be cause for default proceedings. All correspondence for the aforementioned two points shall be directed to: Department of Correctional Services Div. of Industries 550 Broadway Menands, NY 12204 ATTN: Ross Hotaling 3. In the event contract default proceedings are initiated as stated in 2. above, immediate open market purchases may be initiated to provide those material amounts required to prevent production interruption at the receiving facility. * * * * * EX-21 3 SUBSIDIARIES OF MARK SOLUTIONS EXHIBIT 21 SUBSIDIARIES OF MARK SOLUTIONS, INC. Name of Subsidiary Jurisdiction of Organization - ----------------------------- ---------------------------- MarkCare Medical Systems, Inc. Maryland Simis Medical Imaging, Limited United Kingdom-England EX-27 4 FINANCIAL DATA SCHEDULE
5 The schedule contains summary financial information extracted from the consolidated financial statements and is qualified in its entirety by reference to such financial statements. YEAR JUN-30-1996 JUN-30-1996 263,922 0 904,596 0 146,305 1,629,929 2,315,919 1,939,415 3,083,763 954,065 0 0 0 135,762 1,943,639 3,083,763 3,454,615 3,478,415 4,022,102 8,518,483 60,001 0 10,490 (5,110,559) 0 (5,110,559) (104,503) 0 0 (5,215,062) (.41) (.41)
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