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]
<PAGE>
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]
<PAGE>
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-
<PAGE>
(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-
<PAGE>
(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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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.
<TABLE>
Common Stock Class A Warrants
---------------- ----------------
High Low High Low
----- ----- ----- -----
<S> <C> <C> <C> <C>
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
</TABLE>
- -----------------------------------------------------
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-
<PAGE>
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:
<TABLE>
<CAPTION>
Fiscal Years Ended June 30
----------------------------------------------------------------------
1996 1995 1994 1993 1992
----------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
Balance Sheet Data:
At June 30
----------------------------------------------------------------------
1996 1995 1994 1993 1992
----------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
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)
</TABLE>
-16-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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:
<TABLE>
Percentage of Revenues Period to Period
Year Ended June 30 Increase (Decrease)
---------------------------------- -----------------------
1996 1995 1994 1996-1995 1995-1994
------- ------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
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)%
------ ----- ------ ----- -----
------ ----- ------ ----- -----
</TABLE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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.
<TABLE>
<CAPTION>
================================================================================================================================
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
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Carl Coppola,
President & CEO 1996 $275,000 -0- -0- -0- -0- -0- -0-
1995 $250,000 -0- -0- -0- 200,000 -0- -0-
1994 $225,000 -0- -0- -0- -0- -0- -0-
===============================================================================================================================
</TABLE>
1996 Fiscal Year End Option Values
The following table sets forth the value of options granted to the named
Executive Officers in the Summary Compensation Table above for the fiscal year
ended June 30, 1996.
Number of Securities Value of Unexercised
Underlying Unexercised in-the Money Options
Options at Fiscal Year (#) at Fiscal Year End ($)
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
(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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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
<PAGE>
(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
<PAGE>
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
<PAGE>
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
<PAGE>
Mark Solutions, Inc. and Subsidiaries
Consolidated Balance Sheets
Assets
<TABLE>
<CAPTION>
June 30, 1996 June 30, 1995
----------------------------- ---------------------------
<S> <C> <C>
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
============== =============
</TABLE>
The Accompanying Notes are an Integral Part of the Consolidated Financial
Statements.
F - 2
<PAGE>
Mark Solutions, Inc. and Subsidiaries
Consolidated Balance Sheets
Liabilities and Stockholders' Equity
<TABLE>
<CAPTION>
June 30, 1996 June 30, 1995
------------------------------- ---------------------------
<S> <C> <C> <C> <C>
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
=========== ===========
</TABLE>
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements.
F - 3
<PAGE>
Mark Solutions, Inc. and Subsidiaries
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Years Ended June 30
--------------------------------------------
1996 1995 1994
----------- ---------- ----------
<S> <C> <C> <C>
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
=========== ========== ==========
</TABLE>
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements.
F - 4
<PAGE>
Mark Solutions, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Common Stock Additional Retained Total
----------------------- Paid-In Earnings Stockholder's
Shares Amount Capital (Deficit) Equity
--------- --------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
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
========== ========= =========== ============= ============
</TABLE>
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements.
F - 5
<PAGE>
Mark Solutions, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION> Years Ended June 30
--------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
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
============ ============ ============
</TABLE>
The Accompanying Notes are an Integral Part of these Consolidated Financial
Statements.
F - 6
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
Note 5 - Related Party Transactions (Continued):
The following related party transactions are included in the Company's
operations:
<TABLE>
<CAPTION>
Year Ended June 30
-----------------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Purchases $105,512 $162,291 $ 72,684
Expense reimbursement $ 93,125 $ 48,734 $ 48,432
Consulting services $ -- $ 6,615 $103,342
</TABLE>
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:
<TABLE>
<CAPTION>
June 30
--------------------------
1996 1995
-------- --------
<S> <C> <C>
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
======== ========
</TABLE>
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
<PAGE>
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:
<TABLE>
<CAPTION> June 30
-----------------------
1996 1995
-------- --------
<S> <C> <C>
Raw materials $127,477 $112,060
Finished goods 18,828 119,230
-------- --------
Total Inventories $146,305 $231,290
======== ========
</TABLE>
Note 7 - Contract in Progress:
Costs, estimated earnings, and billings on the contract in progress is
summarized as follows:
<TABLE>
<CAPTION>
June 30
---------------------------
1996 1995
---------- ----------
<S> <C> <C>
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
========== ==========
</TABLE>
F - 12
<PAGE>
Note 8 - Other Current Assets:
The other current assets consist of:
<TABLE>
<CAPTION>
June 30
------------------------
1996 1995
-------- -------
<S> <C> <C>
Prepaid expenses $ 97,755 $60,357
Loans and exchanges 35,570 20,256
-------- -------
Total $133,325 $80,613
======== =======
</TABLE>
Note 9 - Long-Term Debt:
A. Long-term debt consist of the following:
<TABLE>
<CAPTION> June 30
---------------------
1996 1995
------ ------
<S> <C> <C>
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
====== ======
</TABLE>
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:
<TABLE>
<CAPTION>
June 30
-------------------------
1996 1995
-------- --------
<S> <C> <C>
Salaries $166,190 $206,651
Other 156,950 59,909
-------- --------
Total $323,140 $266,560
-------- --------
</TABLE>
F - 13
<PAGE>
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:
<TABLE>
<CAPTION>
June 30
----------------------------------
1996 1995 1994
----------- ----------- -------
<S> <C> <C> <C>
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-
</TABLE>
Stock Warrants:
Outstanding warrants are as follows:
<TABLE>
<CAPTION>
June 30
--------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
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
</TABLE>
The above warrants are currently exercisable into 3,933,880 shares of the
Company's common stock.
F - 14
<PAGE>
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
<PAGE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
June 30
October 13, -----------------------------
1995 1995 1994
---------- ---------- ---------
<S> <C> <C> <C>
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
=========
</TABLE>
F - 17
<PAGE>
Note 16 - Supplemental Cash Flow Information:
A. Cash paid during the year:
<TABLE>
<CAPTION>
Year Ended June 30
--------------------------------------
1996 1995 1994
-------- -------- -------
<S> <C> <C> <C>
Interest $ 9,581 $ 12.615 $ 91,254
======== ======== ========
Income taxes $ - - - $ - - - $ 29,460
======== ======== ========
</TABLE>
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:
<TABLE>
<CAPTION>
June 30
-------------------------------------------------
1996 1995 1994
------------ ----------- ----------
<S> <C> <C> <C>
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
============ =========== ===========
</TABLE>
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
<PAGE>
EXHIBIT 10 d)
<PAGE>
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>
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>
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>
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>
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>
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>
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>
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>
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>
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>
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>
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>
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>
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>
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>
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>
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.
* * * * *
<PAGE>
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
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
consolidated financial statements and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 263,922
<SECURITIES> 0
<RECEIVABLES> 904,596
<ALLOWANCES> 0
<INVENTORY> 146,305
<CURRENT-ASSETS> 1,629,929
<PP&E> 2,315,919
<DEPRECIATION> 1,939,415
<TOTAL-ASSETS> 3,083,763
<CURRENT-LIABILITIES> 954,065
<BONDS> 0
0
0
<COMMON> 135,762
<OTHER-SE> 1,943,639
<TOTAL-LIABILITY-AND-EQUITY> 3,083,763
<SALES> 3,454,615
<TOTAL-REVENUES> 3,478,415
<CGS> 4,022,102
<TOTAL-COSTS> 8,518,483
<OTHER-EXPENSES> 60,001
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,490
<INCOME-PRETAX> (5,110,559)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,110,559)
<DISCONTINUED> (104,503)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,215,062)
<EPS-PRIMARY> (.41)
<EPS-DILUTED> (.41)
</TABLE>
