-----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, NNHsKgD2mp7+UgP7myafE9CD+T5orIV0LOWAEDA40zL0QpbGG/M+7bk/D1o5765V pGma9mVvpo0nkf74eGvwUA== 0000889812-97-001066.txt : 19970502 0000889812-97-001066.hdr.sgml : 19970502 ACCESSION NUMBER: 0000889812-97-001066 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19970501 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/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-17118 FILM NUMBER: 97593468 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/A 1 AMENDMENT NO. 1 TO ANNUAL REPORT SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ---------------- FORM 10-K/A-1 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 definitive 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] Mark Solutions, Inc. ("Mark") hereby amends its Form 10-K for the year ended June 30, 1996 filed on September 27, 1997 as follows: PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. The following financial statements are amended to read in their entirety as included in this Form 10-K/A-1 (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 The Exhibit Index is amended to read in their entirety as included in this Form 10-K/A-1 (a)(3) Exhibits. Sequential Exhibit Page No.if Number Description applicable - ------- ----------- ---------- 2. a) -- 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"). 4 Sequential Exhibit Page No.if Number Description applicable - ------- ----------- ---------- b) -- Stock Purchase Agreement between Mark and Ian Baverstock, Jonathan Newth, David Payne and Joanna Tubbs dated April 5, 1996 regarding the acquisition of Simis Medical Imaging, Limited (Incorporated by reference to Exhibit 1. to Mark's Form 8-K -Event Date May 28, 1996, referred to herein as the "SMI Form 8-K") 2. c) -- Stock Purchase Agreement between Mark and Christopher Cummins and Moira Addington dated April 24, 1996 regarding the acquisition of Simis Medical Imaging, Limited (Incorporated by reference to Exhibit 2.to the "SMI Form 8- K") 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) 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) 5 Sequential Exhibit Page No.if Number Description applicable - ------- ----------- ---------- 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. e) -- Agreement between Data General Corporation and Mark dated March 18, 1996 ---------- 21. Subsidiaries of Mark 24. Power of Attorney (included on page 35) 27. Financial Data Schedule (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 6 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. April 30, 1997 By: /s/ Carl Coppola ----------------- (Carl Coppola, Chief Executive Officer and President) 7 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 these 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 - - - - - - ------------ ------------ ------------ Total Costs and Expenses 8,518,483 9,852,303 6,233,374 ------------ ------------ ------------ Operating (Loss) (5,063,868) (3,726,730) (3,050,301) ------------ ------------ ------------ 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) (3,812,635) (3,115,050) Income Tax - - - - - - 29,460 ------------ ------------ ------------ (Loss) From Continuing Operations (5,110,559) (3,812,635) (3,144,510) ------------ ------------ ------------ Discontinued Operations: Loss of Bar-Lor Subsidiaries (35,078) (277,438) (193,620) Reduction in carrying value - - - (1,100,000) (800,000) Loss on disposal of Bar-Lor Subsidiaries (69,425) - - - - - - ------------ ------------ ------------ Total Discontinued Operations (104,503) (1,377,438) (993,620) ------------ ------------ ------------ 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 Stockholders' 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 - - - - - - Net assets of discontinued segment - - - 1,377,438 993,620 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 the following estimated useful lives: Machinery and equipment 7 years Demonstration equipment 5 - 7 years Office furniture and equipment 5 - 7 years Leasehold improvements 31 - 39 years Vehicles 5 years Property held under capital lease 5 years Since January 1, 1996 the Company did not maintain a manufacturing facility and outsourced its manufacturing to third party manufacturers. As a result, the Company's manufacturing equipment, with a cost of $1,261,637, was not utilized. The accompanying financial statements do not include a charge for the depreciation of the manufacturing equipment from January 1, 1996 to June 30, 1996. 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). 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. F - 9 Note 2 - Summary of Significant Accounting Policies (Continued): 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. 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. This acquisition has been accounted for using the purchase method of accounting. 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. The following unaudited proforma information presents a summary of consolidated results of operations of the Company and the acquired business as if the acquisition had occurred July 1, 1994: June 30 ---------------------------- 1996 1995 ----------- ----------- Net Sales $ 4,034,791 $ 6,931,367 =========== =========== Net (Loss) $(5,366,966) $(5,465,884) =========== =========== Earnings Per Share $ (.42) $ (.50) =========== =========== These unaudited proforma results have been prepared for comparative purposes only. They do not purport to be indicative of the results of operations which actually would have resulted had the combination been in effect on July 1, 1994, or of future results of operations of the consolidated entities. The operations of SMI, are included in the accompanying consolidated financial statements from the date it was acquired, May 28, 1996. F - 10 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. In November 1992, the Company acquired Diversified Imaging Technology, a company which developed the Intrascan I Technology which subsequently was integrated with the Intrascan II product. As a result, 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. In 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of." SFAS No. 121 prescribes the accounting treatments for long-lived assets, identifiable intangibles and goodwill related to those assets when there are indications that the carrying values of those assets may not be recoverable. Management believes that the adoption of SFAS No. 121 in 1996 will not have a material adverse effect on the Company's results of operations or financial condition. Note 5 - Costs in Excess of Net Assets of Business Acquired: The components of costs in excess of net assets of businesses acquired as of June 30, 1996, 1995 and 1994 are as follows:
Year Ended June 30 -------------------------------------------- 1996 1995 1994 ----------- ----------- ----------- Beginning balance $ 1,295,864 $ 2,337,467 $ 2,332,648 Acquisition of Bar-Lor Subsidiaries - - - - - - 1,336,604 Acquisition of Simis Medical Imaging, Ltd. 1,049,691 - - - - - - Amortization expense for the year (535,864) (539,878) (531,785) Reduction in carrying value: Discontinued operation - - - (501,725)b (800,000) Intrascan I Technology (777,495) - - - - - - ----------- ----------- ----------- $ 1,032,196 $ 1,295,864 $ 2,337,467 =========== =========== ===========
(b) During June 30, 1995 the Company charged operations of the Bar-Lor Subsidiaries with $1,100,000 of reduction in carrying value which consisted of a reduction of costs in excess of net assets acquired of $501,725 and a reduction of the carrying value of inventory of $598,275. Note 6 - 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 - 11 Note 6 - 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, participated in a private placement by the Company and purchased 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 (the closing sales price on the date of grant) 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 (the closing sales price on the date of grant) 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 - 12 Note 6 - Related Party Transactions (Continued): In October 1994, a director participated in a private placement by the Company and purchased 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 (the closing sales price on the date of grant). 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 (the closing sales price on the date of grant) as compensation for investment banking and consulting services. In February 1995, the owner participated in a private placement by the Company and purchased 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 7 - 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 8 - 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 - 13 Note 9 - 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 10 - 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 $69,414. The exchange rate for U.K. Pounds into U.S. dollars was 1.5520 as of June 30, 1996. Note 11 - 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 - 14 Note 12 - 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 - 15 Note 12 - Stockholders' Equity (Continued): In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS No. 123). SFAS No. 123 established financial accounting and reporting standards for stock-based compensation plans and to transactions in which an entity issues its equity instruments to acquire goods and services from nonemployees. The new accounting standards prescribed by SFAS 123 are optional, and the Company may continue to account for its plans under previous accounting standards. The Company does not expect to adopt the new accounting standards, consequently, SFAS No. 123 will not have a material impact on the Company's consolidated results of operations or financial position. However, SFAS No. 123 does require that pro forma disclosures of net earnings and earnings per share must be presented as if the accounting standard had been adopted. These disclosures of SFAS No. 123 are required by the Company beginning fiscal year June 30, 1997. Note 13 - 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 $144,556, respectively. B. Capital Leases: The Company leases certain equipment under capital leases with expiration dates ranging from February 1996 through April 2000. F - 16 Note 13 - Leases (Continued): 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 =========
Note 14 - 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 exchange rate for U.K. Pounds into U.S. dollars was 1.5520 as of June 30, 1996. 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. F - 17 Note 15 - 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. Note 16 - 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. F - 18 Note 16 - Discontinued Operations (Continued): 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 ===========
Note 17 - 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. F - 19 Note 18 - 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) ----------- ----------- ----------- Total $(5,063,868) $(3,726,730) $(3,050,301) =========== =========== =========== 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 - 20 EX-27.1 2 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 3,454,615 4,022,102 8,518,483 36,201 0 10,490 (5,110,559) 0 (5,110,559) (104,503) 0 0 (5,215,062) (.41) (.41)
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