10-K 1 b320713_10-k.txt ANNUAL REPORT SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ---------------- FORM 10-K FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended June 30, 2002 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____________ to __________________ Commission File No. 0-17118 Mark Holdings, Inc. ----------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 11-2864481 -------------------------- ----------------------- (State or other jurisdiction (I.R.S. employer identification no.) of incorporation or organization) 1135 Clifton Avenue, Clifton, New Jersey 07013 ------------------------------------------ ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (973) 773-8100 ----------------- 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 (Title of class) Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or other information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]. The aggregate market value of the 9,179,830 shares of Common Stock held by non-affiliates of the Registrant on September 27, 2002 was $372,878 based on the closing bid price of $0.04 on September 27, 2002. The number of shares of Common Stock outstanding as of September 27, 2002 was 9,714,606. DOCUMENTS INCORPORATED BY REFERENCE None 2 PART I Item 1. Current Business Mark Holdings, Inc. ("Mark" or "The Company" or "We") is a Delaware corporation, which operates its only business through a division of a wholly owned subsidiary, Mark Solutions, Inc. ("Mark Solutions"). The division is known as Mark Correctional Systems. The business consists of the design, manufacture, and installation of modular steel jail cells for correctional institution construction. We market our modular steel products by responding to public bids and by pursuing joint ventures and affiliations with other companies to solicit design/build correctional facilities. Until March 30, 2001 we also operated a subsidiary, MarkCare Medical Systems, Inc., ("MarkCare"), a company engaged in the development of software applications for medical diagnostic, archiving and communications systems (PACS). As of March 30, 2001 we completed a transaction involving the sale of substantially all of MarkCare's assets to MMSI Acquisition Corp. ("MMSI"), a newly established wholly owned subsidiary of MediSolution Ltd. ("MediSolution"), a Canadian based company engaged in offering information to the health care industry. Pursuant to the terms of an Asset and Stock Purchase Agreement, MMSI purchased substantially all of the assets of MarkCare and assumed certain specific liabilities. The sale also included all of the issued and outstanding common stock of MarkCare Medical's wholly owned United Kingdom subsidiary, MarkCare Medical Systems, Ltd. Under the terms of the Agreement, MarkCare Medical Systems Korea, Ltd., a wholly owned subsidiary, was to be liquidated. Since the sale contemplates the sale of the name "MarkCare," we formed a new wholly-owned subsidiary, Mark Technical, Inc. to act as the Seller of Mark Corrections. The total purchase price for the assets was $1,682,633, subject to certain closing adjustments. Prior to the closing, MarkCare received a $500,000 advance. At the closing, MarkCare received an additional $476,210 after adjustments. The balance of $500,000 was due on or before June 28, 2001, as evidenced by a promissory note guaranteed by MediSolution. Additionally, MarkCare received 200,000 warrants to purchase the Common Stock of MediSolution at an exercise price of $2.40 (CDN) a share. As of September 28, 2001, the bid price of MediSolution's Common Stock was $1.50 (CDN). MediSolution's Common Stock is traded on the Toronto Exchange. As additional compensation, MarkCare is to receive ten percent (10%) of all license revenues received by MMSI from certain identified projects for a period of one year from closing. Prior to the due date of the promissory note, June 28, 2001, we were advised by MMSI that they were evaluating the value of the net assets transferred and that they might be entitled to an offset against the $500,000 promissory note for differences in the valuation of the net assets. Under a 30-day standstill agreement, dated July 3, 2001, and extended through September 3, 2001, both parties agreed to take no action until supporting documentation is prepared and furnished. The Company had requested written substantiation of the claims and as of October 22, 2001 had not received such substantiation. As a result, on October 26, 2001 the Company filed a complaint for an accounting, the imposition of a constructive trust and other relief in the Superior Court of New Jersey, Chancery Division. (See "Litigation"). 3 MARK CORRECTIONAL SYSTEMS DIVISION Our sole business today consists of manufacturing and distribution modular steel jail cells through our Mark Correctional Systems Division. Modular Cells Since the initial sale of our prefabricated modular steel cells for correctional facilities in 1989, we have manufactured and sold security prison cells in 16 states including Indiana, Illinois, New York, New Jersey, Michigan, Missouri, Washington, Wisconsin, South Carolina and Minnesota as well as the Commonwealth of Puerto Rico. Revenues generated by the sale of cells to correctional facilities totaled $11,187,000 for the fiscal year ended June 30, 2002. For the year ended June 30, 2002 the following projects accounted for 77.1% of our total operating revenue: Percentage of Fiscal 2002 Project Operating Revenue ------- ----------------- MacDougall Correctional Institution 46.6% Suffield, Connecticut 320 cells Monroe County Jail Expansion 21.0% Rochester, New York 424 cells Renovation of Cellhouse "G" 9.5% Pendleton Correctional Facility Pendleton, Indiana 265 cells As of September 27, 2002 we had a backlog of $1,546,000 in modular cell orders as compared to a backlog of $6,803,000 as of September 28, 2001. Our 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 that can vary from 60 to 200 square feet. Each modular cell can be equipped with lavatory facilities, wall-mounted sleeping bunks, desk and stool, storage bins, lighting and ventilation systems; and optional components such as fixed or operable windows and hinged or sliding security doors. The cells are constructed of durable low maintenance, non-porous materials including a scratch resistant epoxy polymer finish, which results in lower ongoing maintenance and life cycle costs. The cells are acoustically and thermally insulated and are designed to provide easy connection and maintenance access to all utilities, such as ventilation systems, plumbing and electric, through a secure exterior access panel. 4 Each cell is load bearing to allow for multiple-story construction, and is manufactured to tolerances of 1/16 of an inch, resulting in efficient and faster on-site installation compared to traditional construction. Because the modular steel cell's overall dimensions and weight are less than traditional concrete cells, the project square footage requirements can be reduced and the load bearing and foundation requirements (e.g. support beams, footings and pilings) can be less extensive. These design modifications can reduce construction time, labor costs and material costs for the project. The insulated galvaneeled steel cell life cycle savings in energy cost reductions and maintenance savings are dramatically superior to concrete construction. Bid Process, Subcontracting and Bonding Requirements The substantial majority of our revenues have been from state and local government correctional projects. Consequently, we are required to prepare and submit bid proposals based on the design and specifications prepared by the supervising architectural or engineering firm. We prepare and submit a formal bid proposal, which includes price quotations and estimates, selected material options and construction time estimates. Depending on the nature of the project, we may bid directly to the owner, or provide bidding information for incorporation into the general contractor's bid. After receipt and review of all accepted bids the governmental agency awards the contract based on a number of factors including costs, reputation, completion estimates and subcontracting arrangements. In those instances where we provide bid information to a general contractor who is ultimately awarded the project, there is no guarantee that we will receive the subcontracted business. The typical time period from submission of bids to awarding of the contract to the direct bidder (whether to us or a general contractor) is 60 to 120 days. In those instances, where we are not the direct bidder, subcontracts are generally awarded within an additional 30 to 60 days. In connection with some government construction projects, we are required to provide performance and completion bonds as a condition to submission or participation in a bid. Due to our limited working capital, we have generally been unable to obtain bonds without the assistance and guarantee of third parties including our President and/or another business entity owned by an outside director. See "Item 13. Certain Relationships and Related Transactions". To date, we have not limited our bidding activity nor lost any projects due to our limited bonding capacity. However, in the event we are awarded multiple projects, the inability to obtain bonds may limit the number of additional projects we can pursue and this could have a material adverse effect on operations. Manufacturing and Assembly We manufacture and assemble our modular cells at our 74,000 square foot plant located in Jersey City, New Jersey, which is 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 our modular cells, including sheet metal, hardware, and other components are supplied primarily by regional manufacturers. In addition to the manufacture of the shell of its modular cells, we purchase, assemble, and install the ancillary components including lavatory facilities, shower facilities, desks, stools, and sleeping bunks. We believe that there are a sufficient number of national vendors to meet our raw material and component needs, and that we are not dependent upon a limited number of suppliers. In the event we determine that additional space is necessary, we believe that adequate space will be available on acceptable economic terms. 5 Marketing and Sales The market for our modular cells is primarily federal, state and local governmental agencies responsible for the construction and maintenance of correctional institutions. While our modular cell technology has other applications, such as temporary emergency housing, for the foreseeable future the correctional institutions market will represent the substantial majority of our modular business. No assurances can be given that any other markets will develop to any significant degree. We normally design prototypes of our modular cells for marketing, sales and trade show demonstrations. Our marketing and sales efforts are managed by our Executive Vice President and include in-person solicitations, direct mail campaigns and participation in industry trade shows. We presently market and sell our modular cells directly and through independent manufacturers' representatives. Our sales network consists of four (4) outside sales representatives that service all of the United States and foreign countries including Canada and Latin America. Each representative generally enters into an agreement with us, which contains certain non-disclosure restrictions and provides for payment on a commission basis. Delivery and On-Site Services We normally contract with several third-party carriers to deliver our modular cells to the project's construction site. In addition, we provide delivery and support services for our products including installation, operating instructions and subsequent inspections and testing. Regulation The modular cells 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, the modular cells are subject to the guidelines and regulations of OSHA, NIOSH and Centers for Disease Control and Prevention. Our modular cells comply with these codes and regulations in all material respects. State and Federal environmental laws regulate certain aspects of our manufacturing process. We have obtained all necessary licenses and permits and are in compliance in all material respects with applicable environmental laws. Competition 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, we compete 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. 6 With respect to those projects that incorporate modular cell specifications in its design criteria, we compete with several other steel product manufacturers who manufacture a comparable product, some of which have greater financial resources than us. In addition, a number of manufacturers, which have greater financial and marketing resources than us and which currently produce sheet metal products, could ultimately enter in to the manufacture of modular steel cells in competition with us. Although competition in the construction industry is intense, we believe we can compete for market share of correctional facility construction business by promoting the construction advantages of our technology to the architectural, engineering and construction industries. In this regard, we emphasize the potential for reduced construction time, labor costs and material costs associated with the modular steel cell as well as the life cycle cost savings. We also believe its modular cell design has advantages over other manufacturers' steel cells, which give it a competitive advantage when an architect selects the steel cell design specification. Employees As of September 27, 2002, we had two executive management employees, two plant management employees, two sales employees, two engineering employees and two office and clerical employees. We also employ 13 hourly employees in our manufacturing facility who are subject to a three-year collective bargaining agreement, which expires on November 4, 2003. We believe our relationship with our employees to be good. Copyrights, Patents and Trade Secrets We do not own any patents on our modular cells or manufacturing assembly process. However, we attempt to protect our proprietary trade secrets regarding the design and manufacture of our products through non-disclosure agreements between us, our employees and most third-party suppliers and manufacturers' representatives. Since most correctional facility projects are public bids, proprietary technology is not typically a competitive advantage. New Developments In July, 2000 and as a result of a general slowdown in correctional projects throughout the United States, our Board of Directors undertook a review of the overall past performance of the jail cell business. The Board concluded that it was in the best interests of the Company to dispose of the jail cell business and seek to acquire a new business or merge with another business. A primary factor in concluding the foregoing was the fact that over the past eleven years the Company has not been able to achieve any meaningful consistency in sales growth and as a result the Company cannot anticipate any real growth or profitability. As a result of the decision, the Board authorized management to investigate a possible sale of the business. In addition, Management also obtained an independent appraisal of the market value of the equipment and a valuation of the Mark Correctional business. Management thereafter sought potential buyers, but with little success. However, in January, 2002, Mr. Michael J. Rosenberg, an executive vice president with the Company, made an offer through his wholly-owned company Rite-Way of New Jersey to purchase the business. 7 On April 4, 2002, an Asset Purchase Agreement (the "Agreement") was entered into between Rite-Way and the Company subject to approval by the Company's shareholders. The Agreement provided that the Company shall receive $2,500,000 subject to a valuation of the net assets at the time of closing. In addition, the Agreement provided that at closing Rite-Way was entitled to retain at least $400,000 of the cash on hand and the Company was to receive a minimum of $500,000 of the remaining cash on hand up to a maximum of $1,000,000. We were also to receive an additional $500,000 of cash from Rite-Way at closing. This amount was being advanced to Rite-Way from a third party. The balance of the purchase price was to be paid by Rite-Way in 36 monthly installments, which also included interest. After the Agreement was entered into, the Company filed a preliminary proxy statement with the Securities and Exchange Commission ("SEC") which proxy statement was to be furnished to shareholders in connection with a proposed annual meeting at which shareholders would be asked to approve the sale of Mark Correctional Systems to Rite-Way as well as approval of certain other proposals. The preliminary proxy statement generated substantial comments from the Commission's Staff and by the time the Company had completed addressing those comments, the annual report on Form 10-K for the fiscal year ended June 30, 2002 was then due under Commission rules. The Asset Purchase Agreement by its terms has now automatically expired because the transaction had not closed by August 31, 2002. The parties have indicated their intention to revive the Agreement. However, we have insisted that Rite-Way obtain some additional funding to ensure that the Company would have available working capital and would be able to meet its commitments as they became due. Rite-Way has now received a written commitment for additional funding from a third party and accordingly we intend to reinstate the Agreement to sell the jail cell manufacturing business to Rite-Way subject to approval of the shareholders at an annual meeting to be held within the next two months. If the sale is approved by the shareholders and then finalized, the Company will have no operating business and it will essentially be a "shell." Management's intention is to acquire another business or merge with another company. In this regard in June 2001 the Company had preliminary talks with Globalitronix, Inc. ("Globalitronix"). That company is an Internet application service provider which licenses software to enable companies to perform self- underwritings over the Internet. Globalitronix proposed a merger, whereby it would merge into a newly established subsidiary of the Company. We loaned $330,000 to Globalitronix for working capital. Repayment of the loan in installments was to commence on July 1, 2002; however Globalitronix requested an extension until October 1, 2002. Globalitronix defaulted, but requested additional time to repay the loan. Without waiving our rights, we have agreed to extend the time for at least 30 days. Owing to the default by Globalitronix we have charged operations $330,000. See "Notes to Financial Statements." With respect to the proposed merger between the Company and Globalitronix, our directors concluded that the merger was not in the Company's best interest at that time. We are looking at other companies for a possible acquisition or merger. Management has had only very preliminary conversations with representatives from other companies. Nothing of any definitive nature has developed from these preliminary conversations. Item 2. Property Formerly, we leased our executive offices at 1515 Broad Street, Bloomfield, New Jersey until March 31, 2001. In connection with the sale of the MarkCare segment, we terminated the lease at no additional cost. Currently we maintain our executive offices at 1135 Clifton Avenue, Clifton, New Jersey 07013, on a month-to-month basis, with a monthly rent of $2,000. 8 In addition, we lease 74,000 square feet of manufacturing space in Jersey City, New Jersey pursuant to a triple net lease expiring on October 31, 2004. The lease provides for annual rental payments of $215,045 increasing to $292,901 over the term of the lease, subject to additional increases based on the consumer price index. We believe our present manufacturing and administrative facilities are sufficient for our current and anticipated needs. Item 3. Legal Proceedings As stated previously in "Current Business," we commenced legal proceedings in Superior Court of New Jersey against MMSI Acquisition Corp. and its parent, MediSolution for breach of contract and failure to pay the $500,000 which represented part of the purchase price for MarkCare. Both defendants failed to appear and a default judgment was entered. MediSolution then moved to vacate the default. We voluntarily vacated the default as requested by the defendants , since it was the opinion of New Jersey counsel that the Court would vacate the default. Subsequently we refiled the action in Superior Court, Province of Quebec, District of Montreal. The action is entitled Mark Solutions, Inc. and Mark Technical vs. MediSolution, Ltd. and MMSI Acquisition Corp. File No. 500-05--072288-028. The action seeks payment of the $500,000 note, which is in default together with interest of approximately $30,000. The defendants have counterclaimed claiming that MarkCare breached its agreement and that the status of certain accounts receivable was misrepresented. The defendants seek damages of approximately $2,500,000. The Company believes its claim for payment of the $500,000 note is meritorious. With respect to the counterclaim, the defendants raised the same issues when the note was originally due and the defendants were invited to submit proof that certain of the accounts receivable were not as represented by MarkCare. The defendants failed to do so. The Company is of the opinion that the counterclaims are without merit. At the present time the case is in its very preliminary stages with only a complaint and answer on file. It is anticipated that discovery will commence within the next two months. There are no other material legal proceedings pending. Item 4. Submission of Matters to Vote of Security Holders (a) During the fiscal year ending June 30, 2002 no matters were submitted to a vote of security holders. However, the Company intends to submit the proposed sale of the Mark Correctional Division to shareholders for their approval within the next two months. 9 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. (a) Market Information. The following table sets forth for the fiscal years ended June 30, 2000, 2001 and 2002 indicating the quarterly high and low bid prices of our Common Stock, after giving effect to the 1-for-4 reverse split effected on June 15, 1999. The Common Stock traded on the Nasdaq SmallCap Market under the symbol "MSOL" through January 18, 2001. On January 19, 2001 our common stock was delisted from the NASDAQ SmallCap Market because it traded at prices below the minimum requirements for listing on that market. The stock is now traded on the NASDAQ OTC Bulletin Board. Common Stock ------------------------------------------- High Low ---- --- 2000 1st Quarter 6.63 3.25 2nd Quarter 3.25 1.09 3rd Quarter 1.28 . 50 4th Quarter 3.25 1.09 2001 1st Quarter 1.28 .50 2nd Quarter 1.06 .06 3rd Quarter .19 .06 4th Quarter .14 .03 2002 1st Quarter .08 .02 2nd Quarter .13 .03 3rd Quarter .23 .08 4th Quarter .21 .10 Over-the-counter quotations reflect inter-dealer prices without retail mark-up, mark-down or commission and do not necessarily represent actual transactions. (b) Holders. As of September 27, 2002, there were 192 holders of record of the Common Stock. We estimate the number of beneficial holders of its Common Stock to be in excess of 580. (c) Dividends. We have never paid and do not intend to pay in the foreseeable future, cash dividends on its Common Stock. (d) Sales of Unregistered Securities. There were no sales of unregistered securities during the Fiscal Years ended June 30, 2001 and 2002. In July 2000 we issued 85,000 and 4,000 shares of Common Stock to two suppliers in settlement of outstanding debts in the amount of $76,772 and $14,755 respectively. We relied upon the private placement exemption as provided by Section 4(2) of the Securities Act of 1933. 10 Item 6. Selected Financial Data The following Selected Financial Data is 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:

Balance Sheet Data:

11 Selected Financial Data (unaudited) The following is a summary of unaudited quarterly results for the years ended June 30, 2002 and 2001

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. (All figures expressed below are in thousands) General Our results of operations, liquidity, and working capital position have been historically impacted by sporadic sales of our principal product, modular steel cells. Since the inception of our business we have not been able to achieve any consistency in revenues. Our modular steel cell is an alternative to traditional construction methods, and penetration into the construction market has met resistance typically associated with an unfamiliar product. Historically the market has been dominated by contractors utilizing concrete and other traditional materials. As such, it has been difficult for us to make any meaningful penetration into construction of correctional institutions. Accordingly, we have been, and will continue to be, subject to sales fluctuations until our modular cell technology achieve broader acceptance in the construction market. We promote our steel cells to the architectural, engineering, and construction communities by making sales presentations, participating in trade shows, conducting selected direct mail campaigns and engaging in other marketing activities. 12 We have continued to aggressively pursue steel cell projects and are attempting to persuade the construction industry to increase the use of steel cells. However, we have not achieved any meaningful success in our efforts to increase our profitability. We will continue to review our overhead and personnel expenses based on operating results and prospects. We are continually bidding on and soliciting joint venture opportunities regarding construction projects. We currently have bids pending of approximately $5,319 in modular cell projects. There can be no assurances that any of our actual bids will be accepted. We are investigating other potential projects for possible bidding. For the year ended June 30, 2002, we were awarded $8,136 of a total of $23,249 in correctional cell projects for which we submitted bids. Results of Operations All of our operating revenues for the reported periods were derived from the sale of our modular steel cells. Fiscal Year Ended June 30, 2002 ("Fiscal 2002") Compared to Fiscal Year Ended June 30, 2001 ("Fiscal 2001") Revenues from continuing operations for Fiscal 2002 increased 31.7% to $11,187 from $8,513 for Fiscal 2001. The increase is attributable to one large modular steel cell contract which we obtained in Fiscal 2002. Cost of sales from continuing operations for Fiscal 2002, consisting of materials, labor and factory overhead expense increased 42.8% to $8,170 from $5,762 for Fiscal 2001. Cost of sales as a percentage of revenues was 73.0% for Fiscal 2002 as compared to 67.7% for Fiscal 2001. For the first nine months of Fiscal 2002 we were able to control our costs. In the last quarter of Fiscal 2002 sales declined because outstanding bids were rejected. We also incurred additional labor costs to complete contracts in progress and as a result the cost of sales as a percentage of sales increased for the entire year. Selling, general and administrative expenses from continuing operations, exclusive of marketing costs for Fiscal 2002 decreased to $2,101 from $2,328 for Fiscal 2001. This decrease reflects the Company's efforts to control its costs. During Fiscal 2002 we recorded a charge to operations of $330 to reflect an impairment against loans and advances to a third party. Although we have received indications from the debtor that it intends to repay, we determine the collectibility to be doubtful. Marketing costs from continuing operations, which includes commissions and related costs for Fiscal 2002 increased 6.8% to $453 from $424 for Fiscal 2001. Although we were able to reduce our cost in certain marketing areas, such as the curtailment of travel expenses and attendance fewer trade shows, we were not able to reduce our reliance on outside sales people which resulted in higher commission expense on contracts obtained. 13 Interest expense for Fiscal 2002 was $57 compared to $231 for Fiscal 2001. The decrease in interest expense was due to a compromise agreement with a major lender and repayment of a loan due an officer. For Fiscal 2002, we were able to decrease our loss from continuing operations from $313 in Fiscal 2001 to $4 in Fiscal 2002. The primary reason for the decrease in the loss was increased revenues and our continued efforts to control selling, general, administrative and marketing costs as discussed above. During Fiscal 2002 the Company recorded a loss from the sale of MarkCare of $237. This amount includes a write down of $200 of the sales price due form MediSolution in connection with a matter now in litigation. See "Litigation." The balance of $37 represents the default by MediSolution of certain obligations assumed in the sale. The extraordinary gain on extinguishments of debt in the amount of $1,069 was the result of the compromise agreement entered into by the Company with the holder of the convertible notes payable. Fiscal Year Ended June 30, 2001 ("Fiscal 2001") Compared to Fiscal Year Ended June 30, 2000 ("Fiscal 2000") Revenues from continuing operations for Fiscal 2001 decreased 27.1% to $8,513 from $11,671 for Fiscal 2000. The decrease is attributable to fewer modular steel cell contracts in fiscal 2001. Cost of sales from continuing operations for Fiscal 2001, consisting of materials, labor and fixed factory overhead expense decreased 40.8% to $5,762 from $9,728 for Fiscal 2000. Cost of sales as a percentage of revenues was 67.7% for Fiscal 2001 as compared to 83.4% for Fiscal 2000. As a result of obtaining modular steel cell contracts at more profitable margins, cost of sales as a percentage of sales decreased for Fiscal 2001. Selling, general and administrative expenses from continuing operations, exclusive of marketing costs for Fiscal 2001 increased 12.2% to $2,426 from $2,162 for Fiscal 2000. The increase is primarily due to the recording of an accrual for compensatory time earned primarily for two senior officers. Marketing costs from continuing operations, which includes commissions and advertising costs for Fiscal 2001 decreased 37.7% to $424 from $681 for Fiscal 2000. This decrease was due to our continued focus on cost containment: curtailing both traveling and related expenses such as attendance at trade shows. In addition, we reduced our reliance on outside sales people, which resulted in a reduction of commissions. For Fiscal 2001 our loss from continuing operations was $313, a decrease of 67.3% from a loss of $956 for Fiscal 2000. The primary reason for the decrease in the loss from continuing operations was the increased profit margins on our contracts. The loss from discontinued operations net of taxes decreased 73.3% to $914 for Fiscal 2001 from $3,432 for Fiscal 2000 as a result of the sale of MarkCare's assets on March 30, 2001 and the resulting elimination of administrative and operating costs for the MarkCare segment. 14 Liquidity and Capital Resources As stated previously, we entered into an Asset Purchase Agreement on April 4, 2002. The Agreement has expired by its terms. The Company and the proposed buyer Rite-Way intend to revive the Agreement and if approved by shareholders, the Company will sell Mark Correctional which is the sole operating business. Under the terms of the Agreement, the purchase price is $2,500 subject to valuation of the net assets at time of closing. At closing we will receive a $500 down payment, cash on hand in the Mark Correctional Division of at least $500 up to a minimum of $1,000 and the balance in 36 equal monthly installments together with interest. If there is a cash shortfall at closing, we will receive a 90-day note from Rite-Way for the difference between the actual cash on hand we receive and $1,000. We shall therefore receive in total $3,500 subject to adjustment of the net book value at the time of closing. If the sale is approved by Shareholders and consummated, the Company will use the proceeds of the sale to acquire another business or enter into a business combination with another company. Accordingly, we are unable to predict what our working capital requirements will be under those circumstances. If the sale is not consummated, we will consider our options of whether to continue the business or close the business by completing our current backlog and disposing of our fixed assets in private sales and satisfying our contractual obligations. If we elect to continue the business, we will require additional capital for which we would principally look to private sources in the form of debt or equity financing. Other Matters As of June 30, 2002, we have net operating loss carry-forwards of approximately $29,350. Such carry-forwards begin to expire in the year 2018 if not previously used. The utilization of the loss carry forwards will be subject to annual limitations under Section 382 of the Internal Revenue Code. The $29,350 carry-forward is available to offset future taxable income. Since realization of the tax benefits associated with these carry-forwards is not assured, a full valuation allowance was recorded against these tax benefits as required by SFAS No. 109. Impact of Inflation and Changing Prices We have 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, We pass on increased costs by increasing our prices for products and services. Forward Looking Statements Except for the historical information contained herein, the matters discussed in this report are forward looking statements under the federal securities law. These statements are based on our current plans and expectations and involve risks and uncertainties that could cause actual future activities and results of operations to be materially different from those set forth in the forward-looking statements. Important factors that could cause actual results to differ include whether cell projects are awarded to us and the timing of their completion, meeting current and future financial requirements and competition. 15 Item 7A. Quantitative and Qualitative Disclosure about Market Risk. Not Applicable. 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. PART III Item 10. Directors and Executive Officers of the Registrant. The following table sets forth the names and ages of the members of Our Board of Directors and its executive officers. Name Age Position Carl Coppola (1) 63 Chairman of the Board, President, Chief Executive Officer Michael J. Rosenberg (2) 57 Vice President - Marketing and Sales Richard Branca (2) 54 Director Ronald E. Olszowy (2) 55 Director William Westerhoff (1)(2) 64 Director (1) Member of the Compensation Committee (2) Members of the Audit Committee - Mr. Westerhoff is a retired C.P.A. All directors hold office until our next annual meeting of shareholders 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. Carl Coppola has been a Director, President and Chief Executive Officer of Mark since 1984. For more than 30 years, Mr. Coppola has been Chief Executive Officer of Mark Lighting Fixture Co., Inc., an unaffiliated entity. 16 Michael J. Rosenberg has been Vice President - Marketing and Sales for Mark since 1990. Mr. Rosenberg is the president and sole shareholder of Rite-Way. If the sale of Mark Correctional is consummated, Mr. Rosenberg will resign his position with the Company. Richard Branca has been a Director of Mark since November 18, 1992. Since 1970 Mr. Branca has been President and Chief Executive Officer of Bergen Engineering Co., a construction company. Mr. Branca has indicated that he will not stand for re-election as a director at the next annual meeting of shareholders. Ronald E. Olszowy has been a Director of Mark 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 since November 18, 1992 and currently resides in Florida. Mr. Westerhoff has been retired since June 1992. On October 8, 2002 Mr. Westerhoff tendered his resignation, indicating to the Board that because of other commitments and the fact that he is so distant from the Company, which works as a hardship for him he decided to resign. Prior thereto, and for more than five years, Mr. Westerhoff was a partner of Sax, Macy, Fromm & Co., certified public accountants. Directors Compensation As of March 2, 2001 the fee paid to each director for attendance at Board meetings was increased to $2 from $1. Each director is also reimbursed for actual travel expenses for each meeting attended. Historically we granted stock options to directors exercisable at the closing price of the Common Stock on the date of grant. We did not grant any stock options to directors in Fiscal 2002. See "Security Ownership of Certain Beneficial Owners and Management." 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 our directors, executive officers and 10% shareholders to file with the Securities and Exchange Commission reports of ownership and changes in ownership of our equity securities including its Common Stock. Such persons are also required to furnish us with such reports. In October 2001 Mr. Branca, Mr. Coppola, Mr. Olszowy and Mr. Westerhoff each filed a Form 4 and Form 5 relating to the issuance in March 2001 of five-year options to each purchase 150,000 shares of common stock. Mr. Coppola's Forms 4 and 5 also included three-year options to purchase 50,000 shares issued in July 2000. Other than these reports, we believe all other reports required under Section 16(a) were filed on a timely basis. 17 Item 11. Executive Compensation. The following table sets forth the amount of all compensation paid to each of our named executive officers whose compensation exceeded $100,000, including its Chief Executive Officer, for our last three fiscal years.

(1) Represents accrued vacation time earned but not used. Options / SAR Grants in Fiscal Year 2002 and 2001 For the fiscal year ended June 30, 2002 we did not grant any stock options to any named executive officers. The following table sets forth individual grants of stock options to the named executive officers in the Summary Compensation Table for the fiscal year ended June 30, 2001.

(1) The potential realizable value portion of the foregoing table illustrates value that might be realized upon exercise of the options immediately prior to the expiration of their term, assuming the specified compounded rates of appreciation on the Common Stock over the term of the options. These numbers do not take into account provisions of certain options providing for termination of the option following termination of employment, non-transferability or differences in vesting periods. (2) The option exercise prices of $1.00 and $.08 per share are the closing sales prices on date of the option grants. Aggregated Option/SAR Exercises and Values for the fiscal Year Ended June 30, 2002 and 2001. 18 We did not grant any stock options during the year ended June 30, 2002. The following table reflects transactions that occurred in the fiscal year ended June 30, 2001.

Employment Agreements Pursuant to a three-year employment agreement expiring on June 30, 2000, that has been extended by action of the Board of Directors to December 31, 2002, Mr. Coppola receives an annual base salary of $200,000 and was granted three-year options to purchase 50,000 shares of Common Stock at an exercise price of $1.00, and 150,000 shares at an exercise price of $.08. 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 us. Mr. Coppola's employment is terminable by us upon 90 days written notice and provides for a two-year non-compete period to take effect upon termination. We had a three-year employment agreement with Mr. Rosenberg which expired on December 1, 2001. A renewal of the contract has not yet been formalized. At the present time Mr. Rosenberg receives a salary of $200,000. In addition, we provide Mr. Rosenberg with an automobile and maintenance and use reimbursement. Until Mr. Rosenberg signs a new agreement, his employment by us is terminable at will. Stock Option Plan Under Our 1993 Stock Option Plan (the "Option Plan"), options to purchase up to 250,000 shares of Common Stock may be granted to our key employees and officers or any of our subsidiaries. The Option Plan is designed to qualify under Section 422 of the Internal Revenue Code as an "incentive stock option" plan. We currently have 179,250 options available for grant under the Option Plan. 401(k) Plan Under our 401(k) retirement plan, we may make matching contributions in shares of Common Stock equal to each employee's cash contribution up to five percent of the employee's annual salary. The number of shares of Common Stock is calculated by dividing the amount of the matching contribution by the average per share closing price for the year. 19 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 of our Directors, each Executive Officer who is named in the Summary Compensation Table and all Executive officers and Directors as a group as of September 28, 2001. 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.

(1) Includes 15,800 shares held in trust for the benefit of three children of Mr. Coppola. Mr. Coppola disclaims beneficial ownership of these shares. Also includes 359,300 shares of Common Stock issuable pursuant to options that are presently exercisable. (2) Represents 184,300 shares of Common Stock issuable pursuant to options which are presently exercisable. (3) Includes 208,766 shares of Common Stock issuable pursuant to options that are presently exercisable. (4) Includes 25,000 shares of Common stock issuable pursuant to options which are presently exercisable. (5) Less than 1% (6) Includes 961,666 shares of Common Stock issuable pursuant to warrants or options that are presently exercisable. Item 13. Certain Relationships and Related Transactions. We purchase lighting fixtures, fabricating services and other related services from Mark Lighting Fixtures Co., Inc. ("Mark Lighting"), a company wholly owned by Carl Coppola, our President and Chief Executive Officer. For the fiscal year ended June 30, 2002, we paid Mark Lighting $107,000 for such goods and services. In the past, in connection with specific modular steel cell projects that require performance bonds, Mr. Coppola has provided third party guarantees. In October 1999, Mr. Coppola made a loan to us in the amount of $100,000. In December 2000 Mr. Coppola made an additional loan to us of $137,000 and was repaid $140,000 in April 2001. The remaining $97,000 due to Mr. Coppola was paid to him in December 2001. 20 In August 2000, we entered into an agreement with Sherleigh Associates LLC, a company affiliated with Jack Silver, who had resigned as a director of the Company. The agreement provided that Sherleigh will introduce prospective investors, lenders or purchasers to us in an effort to facilitate a sale of or an investment in the Company. In the event of a sale transaction, Sherleigh will be due a cash fee totaling 5% of the transaction value. In the event of an investment, Sherleigh was to receive a cash fee equal to 10% of the investment and an amount of common stock purchase warrants equal to 10% of common shares issued to, or derived from options or warrants issued to such investor. As of September 27, 2002 Sherleigh has been unsuccessful in its efforts and did not receive any compensation during the fiscal years ended June 30, 2002 and 2001. Sherleigh had no involvement with the offer by Rite-Way. On August 23, 2002 this agreement expired. 21 PART IV Item 14. Controls and Procedures Not applicable since Registrant's Fiscal Year ended June 30, 2002. Item 15. Exhibits, Financial Statements Schedule and Reports of Form 8-K (a)(1) Consolidated Financial Statements - Report of Independent Accountants F-1 - Consolidated Balance Sheets for June 30, 2002 and 2001 F-2 - Consolidated Statements of Operations for fiscal years ended June 30, 2002, 2001 and 2000 F-4 - Consolidated Statement of Stockholders' Equity for fiscal years ended June 30, 2002, 2001 and 2000 F-5 - Consolidated Statements of Cash Flows for fiscal years ended June 30, 2002, 2001 and 2000 F-6 - Notes to Consolidated Financial Statements F-7 - Chantrey Vellacott Report F-20 (3) Exhibits. Exhibit Number Description ------ ----------- 3. a)-- Amended and Restated Certificate of Incorporation(Incorporated by reference to Exhibit 3(i)1 to our Form 10-Q for the period ended December 31, 1998) b)-- By-laws (Incorporated by reference to Exhibit 3 b) to our Form 10-K for the fiscal year ended June 30, 1998) 4. a)-- Specimen Stock Certificate (Incorporated by reference to Exhibit 4 a) to our Form 10-K for the fiscal year ended June 30, 1998) 22 10. Material Contracts a)-- Employment Agreement between us 1. and Carl Coppola (Incorporated by reference to Exhibit 10 a) to our Form 10-K for the fiscal year ended June 30, 1997) b)-- Employment Agreement between us and Michael Rosenberg c)-- Incentive Stock Option Plan incorporated by reference to Exhibit 10(b) to our Form 10-K for the year ended June 30, 1998 d)-- Agreement between New York State and us dated July 17, 1996. (Incorporated by reference to Exhibit 10 d) to our Form 10-K for the fiscal year ended June 30, 1996) e)-- Agreement between Data General Corporation and us dated March 18, 1996 as amended on January 20, 1997. (Incorporated by reference to Exhibit 10 e) to our Form 10-K for the fiscal year ended June 30, 1996) f)-- Asset and Stock Purchase Agreement between Mark Technical, Inc. and MMSI Acquisition Corp. dated March 30, 2001. (Incorporated by reference to Exhibit 10f) to our Form 8-K) 21. Our subsidiaries Incorporated by reference to Exhibit 21 to our Form 10-K for the fiscal year ended June 30, 1998.) 23. Consents of Experts and Counsel 24. Power of Attorney (included on page 25) 23 (b) Reports on Form 8-K filed during the last quarter. Date of Report Items Reported, Financial Statements Filed -------------- ------------------------------------------ August 2, 2002 Item 5. Other Events- Disclosure of default on notes receivable in the amount of $330,000 24 POWER OF ATTORNEY Mark Holdings, Inc., and each of the undersigned do hereby appoint Carl Coppola, its or his true and lawful attorney to execute on behalf of Mark Holdings, 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 HOLDINGS, INC. October 14, 2002 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 October 14, 2002 -------------------------- President and Director (Carl Coppola) (Principal Executive Officer) /s/ Richard Branca -------------------------- (Richard Branca) Director October 14, 2002 /s/ Ronald Olszowy -------------------------- (Ronald E. Olszowy) Director October 14, 2002 25 CERTIFICATIONS I, CARL COPPOLA, certify that: 1. I have reviewed this annual report on Form 10-K of Mark Holdings, Inc.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report. 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report. Date: October 8, 2002 S/ Carl Coppola -------------------------- Carl Coppola, Chief Executive Officer I, CARL COPPOLA, certify that: 1. I have reviewed this annual report on Form 10-K of Mark Holdings, Inc.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report. 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report. Date: October 8, 2002 S/ Carl Coppola -------------------------- Carl Coppola, Principal Financial Officer 26 The undersigned hereby certifies in his capacity as an officer of Mark Holdings, Inc. (the Company) that the Annual Report of the Company on Form 10-K for the year ended June 30, 2002 fully complies with the requirements of Section 13 (a) of the Securities Exchange Act of 1934 and that information contained in such report fairly presents, in all material respects, the financial condition of the Company at the end of such year and the results of operations of the Company for such year. Date: October 8, 2002 S/ Carl Coppola -------------------------- Carl Coppola, Chief Executive Officer and Chief Financial Officer 27 Board of Directors and Shareholders Mark Holdings, Inc. and Subsidiaries Clifton, New Jersey We have audited the consolidated balance sheets of Mark Holdings, Inc. and Subsidiaries as of June 30, 2002 and 2001, and the related consolidated statements of operations, stockholders' equity and cash flows for the three years ended June 30, 2002. 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 did not audit the financial statements of MarkCare Medical Systems Limited, a wholly owned subsidiary, for the year ended June 30, 2000, which statements reflect a net loss of $2,617. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for MarkCare Medical Systems Limited, is based solely on the report of the other auditors. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the 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, based on our audits and the report of the other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Mark Holdings, Inc. and Subsidiaries as of June 30, 2002 and 2001, and the results of its operations and cash flows for the three years ended June 30, 2002, in conformity with accounting principles generally accepted in the United States of America. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company's recurring losses from operations and plans to dispose of its sole operating business raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. HOLTZ RUBENSTEIN & CO., LLP Melville, New York September 30, 2002 F-1 MARK HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share data) ASSETS June 30, -------- 2002 2001 ------ ------ CURRENT ASSETS: Cash and cash equivalents $ 156 $ 536 Notes receivable 71 613 Accounts receivable 2,028 2,969 Costs in excess of contract revenue recognized 323 427 Inventories 25 25 Deferred tax asset -- 284 Prepaid expenses 74 41 ------ ------ Total current assets 2,677 4,895 ------ ------ PROPERTY AND EQUIPMENT: Machinery and equipment 1,650 1,650 Demonstration equipment 227 227 Office furniture and equipment 292 284 Leasehold improvements 425 425 Vehicles 17 17 Property hold under capital lease 302 275 ------ ------ 2,913 2,878 Less accumulated depreciation and amortization 2,616 2,393 ------ ------ Net property and equipment 297 485 ------ ------ OTHER ASSETS 36 44 ------ ------ $3,010 $5,424 ====== ====== See notes to consolidated financial statements F-2 MARK HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (cont'd) (in thousands, except share and per share data)

See notes to consolidated financial statements F-3 MARK HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except share and per share data)

See notes to consolidated financial statements F-4 MARK HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (in thousands, except share and per share data)

See notes to consolidated financial statements F-5 MARK HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands, except share and per share data)

See notes to consolidated financial statements F-6 MARK HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THREE YEARS ENDED JUNE 30, 2002 (in thousands, except share and per share data) 1. Management Plans and Description of Business: Mark Holdings, Inc.'s (the "Company") financial statements for the year ended June 30, 2002 have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities in the normal course of business. The Company incurred losses from continuing operations of $4, $313 and $956 for the three years ended June 30, 2002. Its stockholders' equity at June 30, 2002 approximated $1,151. In addition, the Company is pursuing the sale of its sole operating business (see Note 16). If the sale is consummated, the Company will have no operating business and it will essentially be a shell. If the sale is not consummated, we will consider our options of whether to continue the business or close the business completing our current backlog and disposing of our fixed assets in private sales and satisfying our contractual obligations. If we elect to continue the business, we will require additional capital for which we would principally look to private sources in the form of debt or equity financing since our present cash flow would be inadequate to enable us to take on any significant contracts. These factors raise substantial doubt about the Company's ability to continue as a going concern. 2. Sale of Business Segment On April 6, 2001, the Company closed a transaction involving sale of assets by its majority owned subsidiary Mark Technical, Inc. ("Mark Technical"), formerly known as MarkCare Medical Systems, Inc. ("MarkCare") to MMSI Acquisitions Corp. ("MMSI"), a newly established wholly owned subsidiary of MediSolution Ltd. ("MediSolution"), a Canadian based company engaged in offering information systems to the health care industry. Pursuant to the terms of an Asset and Stock Purchase agreement, MMSI purchased substantially all of the assets of Mark Technical and assumed certain specific liabilities. The sale also included all of the issued and outstanding stock of Mark Technical's wholly owned United Kingdom subsidiary, MarkCare Medical Systems Ltd. Under the terms of the agreement, MarkCare Medical Systems Korea is to be liquidated. The total purchase price was $1,683, subject to certain closing adjustments. Prior to the closing, Mark Technical received from MMSI a $500 advance. At closing, Mark Technical received $476 after adjustments. A balance of $500 was due within 90 days of closing as evidenced by a promissory note guaranteed by MediSolution. Additionally, MarkCare received 200,000 warrants to purchase the Common Stock of MediSolution at an exercise price of $2.40 (CDN) a share. As additional compensation, MarkCare is to receive ten percent (10%) of all license revenues received by MMSI from certain projects for a period of one year from closing. Under the terms of the agreement MMSI purchased the name "MarkCare Medical Systems" and as a result MarkCare Medical Systems changed its name to Mark Technical, Inc. simultaneously with the closing. As a result of the sale, Mark Technical is no longer be operating in the medical imaging industry. F-7 Prior to the due date of the promissory note, June 30, 2001, the Company was advised by MMSI that they were evaluating the value of the net assets transferred and they might be entitled to an offset against the promissory note for differences in the valuation of the net assets. Under a 30-day standstill agreement, dated July 3, 2001, and extended through September 3, 2001, both parties agreed to take no action until supporting documentation is prepared and furnished. The Company had requested written substantiation of the claims and as of October 22, 2001 had not received such substantiation. As a result, on October 26, 2001 the Company filed a complaint for an accounting, the imposition of a constructive trust and other relief in Superior Court of New Jersey, Chancery Division. The Company has obtained, on February 26, 2002, a final judgment against MMSI and MediSolutions. Ltd., the parent company, under its corporate guarantee. MMSI has filed a motion to vacate the default judgment. A hearing is pending. As a result of the ongoing legal issues and the uncertainty of collecting the amount due under the note receivable the Company has recorded a reserve for the entire note of $500. The defendants have counterclaimed claiming that MarkCare breached its agreement and that the status of certain accounts receivable was misrepresented. The defendants seek damages of approximately $2,500. The Company believes its claim for payment of the $500 note is meritorious. With respect to the counterclaim, the defendants raised the same issues when the note was originally due and the defendants were invited to submit proof that certain of the accounts receivable were not as represented by MarkCare. The defendants failed to do so. The Company is of the opinion that the counterclaims are without merit. At the present time the case is in its very preliminary stages with only a complaint and answer on file. The Company has restated the prior financial statements of Mark Technical and Subsidiaries as discontinued operations. Revenues from this segment for the years ended June 30, 2001 and 2000 were $2,077 and $2,054. Net assets relating to this discontinued operation primarily relate to cash, accounts receivable and property and equipment. 3. Summary of Significant Accounting Policies: a. Nature of business - The Company is a Delaware corporation, which designs, manufactures, and installs modular steel cells for correctional institution construction. b. Basis of consolidation - The consolidated financial statements include the accounts of Mark Holdings, Inc. and its majority owned subsidiaries, Mark Solutions, Inc. and Mark Technical, Inc. (formerly MarkCare). c. Revenue recognition - Revenues for the modular steel products 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. 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. d. Cash equivalents - For purposes of the statements of cash flows, the Company considers all highly liquid debt instruments purchased with maturity of three months or less to be cash equivalents. F-8 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. Property and depreciation - All property and equipment items are stated at cost. Leasehold improvements are amortized under the straight-line method. Substantially all other items are depreciated under straight-line and accelerated methods. Depreciation and amortization is provided in amounts sufficient to write-off the cost of depreciable assets, less salvage value, over the following estimated useful lives: Machinery and equipment 7 years Demonstration equipment 5-7 years Office furniture and equipment 5-7 years Leasehold improvements 5-7 years Vehicles 5 years Property held under capital lease 5 years g. 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 liabilities. Deferred taxes are also recognized for operating losses that are available to offset future taxable income. h. Income (Loss) per common share - Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS No. 128"), requires dual presentation of basic and diluted EPS. Basic EPS excludes dilution and is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if stock options or convertible securities were exercised or converted into common stock. Basic and diluted income (loss) per share amounts were equivalent for the years ended June 30, 2002, 2001 and 2000. i. Stock-based compensation - The Company grants stock options to employees with an exercise price equal to or above the fair value of the shares at the date of the grant. The Company accounts for stock option grants in accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees," and, accordingly, recognizes no compensation expense for the stock option grants. j. 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. k. Reclassifications - Certain prior year amounts have been reclassified to conform with the current year presentation. l. Comprehensive income - Other comprehensive income refers to revenues, expenses, gains and losses that under generally accepted accounting principles are included in comprehensive income but are excluded from net income as these amounts are recorded directly as an adjustment to stockholders' equity. The tax benefit or expense, as well as any reclassifications related to the components of other comprehensive income were not significant. F-9 m. Concentration of risk - 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. As of June 30, 2001 and 2000, the Company's uninsured cash balances approximated $336 and $489, respectively. The Company has made loans to unrelated third parties. No collateral has been required on these loans. The Company's customer base consists principally of government agencies, or general contractors engaged by such agencies, located in the United States and Puerto Rico. The Company employs hourly employees in its manufacturing facility who are subject to a collective bargaining agreement. Revenues from two customers approximated 44% and 16% of total revenues for the year ending 2002. For the year ended 2001, revenues from two customers approximated 42%, and 26% of total revenues. Revenues from three customers approximated 32%, 25% and 21% of total revenues for 2000. n. New accounting pronouncements - In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Intangible Assets". SFAS No. 142 eliminates the amortization of goodwill, requires annual impairment testing of goodwill and introduces the concept of indefinite life intangible assets. It will be effective in the first quarter of fiscal year 2003. The new rules also prohibit the amortization of goodwill associated with business combinations that close after June 30, 2001. Also in July 2001, the FASB issued Statement No. 143, "Accounting for Asset Retirement Obligations which requires the recognition of a liability for an asset retirement obligation in the period in which it is incurred. When the liability is initially recorded, the carrying amount of the related long-lived asset is correspondingly increased. Over time, the liability is accreted to its present value and the related capitalized charges is depreciated over the useful life of the asset. Statement No. 143 is effective for fiscal years beginning after June 15, 2002. In August 2001, the FASB issued Statement No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" which is effective for fiscal periods beginning after December 15, 2001 and interim periods within those fiscal years. Statement No. 144 establishes an accounting model for impairment or disposal of long-lived assets including discontinued operations. In April 2002, the FASB issued Statement of Financial Accounting Standards No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections", which is effective for fiscal years beginning after May 15, 2002. The statement rescinds and eliminates inconsistencies in existing pronouncements. The Company is currently evaluating the impact of Statement Nos. 142, 143, and 145. The Company does not believe that these pronouncements will have a material effect on the financial statements. 4. Inventories: Inventories at June 30, 2002 and 2001 consists of raw materials to be used in the construction of jail cells. 5. Litigation: The Company is involved in legal proceedings in connection with the sale of the assets of Mark Technical (see Note 2). F-10 In August 2001, the Company settled a lawsuit, which was pending in the Delaware Circuit Court, Delaware County, Indiana, with a general contractor for $98. There are no other material legal proceedings pending. 6. Related Party Transactions: The Company purchased materials and is reimbursed for various expenses from Mark Lighting Fixtures Co., Inc. ("Mark Lighting"), an entity owned by the Company's Chief Executive Officer and Metalite, Inc. ("Metalite"), an entity owned by the brother of the Company's Chief Executive Officer. The following related party transactions are included in the accompanying financial statements:

As a result of current and prior years' transactions, the Company has net balances due to the following related parties, which will be settled in the ordinary course of business:

The Company grants non-employee directors, options for serving on the Board of Directors. On July 14, 2000 the Company issued three-year options to purchase 50,000 shares of Common Stock at $1.00, the closing price on the date of grant, to the Company's Chief Executive Officer. On March 2, 2001 the Company issued, five year options to purchase 150,000 shares of Common Stock to each of the four members of the Board of Directors, at $.08, the closing price on the date of grant. F-11 7. Long-Term Debt: Long-term debt consists of the following:

On September 26, 2001, the Company entered into a compromise agreement with the holder of the convertible notes payable in the amount of $1,880. Under the terms of the agreement, the Company will pay $1,000 in full satisfaction of the outstanding indebtedness and accrued interest. The compromise amount is payable in four (4) equal installments of $250 due upon execution of the agreement, November 30, 2001, February 28, 2002 and March 1, 2003. As of June 30, 2002 the first three payments were made on time. The balance outstanding at June 30, 2002 includes accrued interest of $18. As a result of this transaction, the Company realized an extraordinary gain of $1,069, representing the difference between the principle and accrued interest payable before the agreement and the total amount payable as a result of the agreement. d. Convertible securities The Company issued 493,000 shares of common stock to a former debenture holder in 2000 in connection with certain adjustment provisions included in the original debenture agreement. On July 1, 1999, the Company borrowed $200 under a 10% note. The note was exchanged for 20,000 shares of Series D Preferred Stock in September 1999. 8. Fair Value of Financial Instruments: The fair value of the Company's financial instruments approximates their carrying amounts. 9. Stockholders' Equity: 0 a. Reorganization of legal structure On November 4, 2001 the Company effected a change in legal structure whereby the Company became a wholly owned subsidiary of a newly formed holding company, Mark Holdings, Inc. Under the terms of the restructure, the outstanding common stock of Mark Solutions, Inc. was automatically converted on a share for share basis into the common stock of the new holding company. The purpose of the Reorganization was to put the Company in a position to be able to facilitate a merger or business combination. The business operation of the Company has not changed as a result of the Reorganization. The stockholders of Mark Solutions, Inc. now have the same rights, privileges and interests in Mark Holdings, Inc. as they previously had in Mark Solutions, Inc. immediately prior to the reorganization. F-12 b. Capitalization The Company's authorized capital consists of 50,000,000 shares of $.01 par value common stock and 4,705,000 shares of preferred stock. The Board of Directors has the authority to issue preferred stock in one or more series and to fix the rights, voting rights, and other terms. At June 30, 2002, there are 100,000 shares of Series C Preferred Stock authorized. There are no authorized shares of Series A, B, or D Preferred Shares as of June 30, 2002.There are no outstanding shares of Series C Preferred Stock as of June 30, 2002. Series C Preferred Stock is convertible, at the option of the holder, into shares of Common Stock equal to $10.00 per share dividend by of the average per share closing bid price of the Common Stock for the five trading days immediately preceding the conversion date(s). Series D Preferred Stock is convertible, at the option of the holder, into shares of Common Stock equal to $10.00 per share dividend by 70% of the average per share closing bid price of the Common Stock for the five trading days immediately preceding the conversion date(s). In the event of any liquidation, the holders of the Preferred Stock will share equally in any balance of the Company's assets available for distribution to them up to $10.00 per share plus unpaid dividends, after satisfaction of creditors and the holders of the Company's senior securities, if any. c. Exchange placement In January 1999, Mark effected an exchange placement (the "Exchange Placement") pursuant to which the investors agreed to exchange the securities received in the Private Placement (see Note 7) for (i) 122,000 shares of Series A Preferred Stock, (ii) 153,000 shares of Series B Preferred Stock, (iii) warrants to purchase 343,750 shares of common stock (the "Warrants") and (iv) an option exercisable by the investors to purchase an additional 275,000 shares of Preferred Stock with warrants to purchase 343,750 shares of common stock (the "Preferred Stock Unit Option"). The Warrants consist of 343,750 warrants each to purchase one share of Common Stock for $6.00 per share expiring on June 28, 2002. The Preferred Stock Unit Options expired in 2000. Investors owning 74,000 shares of Series A Preferred Stock, 148,000 Warrants and the Preferred Stock Unit Option to purchase 74,000 units granted Mark an option which expired March 26, 1999 to repurchase such securities for $740. Mark paid the investors a nonrefundable deposit of $222. The investors have agreed that this deposit be credited towards accrued dividends on the Preferred Stock Unit Option. F-13 c. Preferred stock conversion During the year ended June 30, 2001, investors converted 20,000 shares of Series D Preferred Stock into 387,816 shares of common stock. During the year ended June 30, 2000, investors converted 24,000 shares of Series A Preferred Stock and 6,000 shares of Series B Preferred Stock into 222,278 shares of common stock. d. Convertible securities The Company issued 493,000 shares of common stock to a former debenture holder in 2000 in connection with certain adjustment provisions included in the original debenture agreement. e. Stock option plan The Company has a Stock Option Plan which is administered by the Board of Directors. Under the terms of the Plan, options to purchase 250,000 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 employment, six months after death or one year in the case of permanent disability of the option holder. 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:

F-14 f. Stock warrants Outstanding warrants are as follows:

g. Pro forma information Pro forma information regarding net loss and loss per share, as required by SFAS No. 123, has been determined as if the Company had accounted for its employee stock options under the fair value method. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted average assumptions for fiscal 2001 and 2000: risk-free interest rate of 5.48% and 6.38%; dividend yield -0-; volatility factor related to the expected market price of the Company's common stock of .35; and weighted average expected option life of 3.0 and 3.0 years. The weighted average fair value of options granted during fiscal 2001 and 2000 were $.08 and $.70, respectively. The Company's pro forma information follows:

h. Stock for debt conversion During 2001 and 2000, vendors and other debtors converted $92 and $581 of liabilities into 89,000 and 291,800 shares of the Company's common stock. i. Private placement In January 2000, an investor notified Mark of his intention to exercise an option to purchase 20,000 shares of preferred stock each convertible into Common Stock at $10.00 per preferred share divided by 75% of the trading price and warrants to purchase 25,000 shares of Common Stock at $6.00 per share. On January 19, 2000, Mark agreed to issue 100,000 shares of Common Stock in lieu of the convertible preferred stock and also issued the warrants. 10. Short Term Borrowings: On March 3, 2000, Mark issued to two investors an aggregate of $250, 120-day principal amount convertible notes having an interest rate of 10% per annum. The investors were a director of Mark and his brother. On July 12, 2000, these notes were repaid in accordance with their terms. In connection with the loan represented by these notes, Mark issued five-year warrants to purchase 48,933 shares of Common Stock at $1.25 per share. F-15 11. Loan Impairment During 2002, the Company made loans of $330 to an unrelated third party. The loans were evidenced by Convertible Promissory Notes with interest at 8% due in amounts of $100, $100, $50 and $80 on July 1, 2002, August 6, 2002, October 1, 2002 and December 10, 2002, respectively. These notes are convertible at the option of the Company, prior to maturity, into 1% of the outstanding common stock of the maker. The loans have not been repaid, and because of the current financial condition of the debtor the Company recorded a charge to operations of $330 for the impairment of these loans as of June 30, 2002. 12. Leases: a. Facility leases The Company occupies its executive offices pursuant to a month to month lease. The Company conducts its manufacturing operations pursuant to an operating lease expiring October 31, 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, ---------- 2003 264 2004 287 2005 98 -------- Total future minimum rental payments $ 649 ======== Rent expense for the years ending June 30, 2002, 2001 and 2000 was $263, $250 and $381, respectively. The Company also leases various automobiles and small office equipment. b. Capital leases The Company leases certain equipment under capital leases with expiration dates ranging from July 2002 through November 2007. F-16 Future minimum lease payments are as follows:

Property and equipment held under capital leases at June 30, 2002 has a value, before of accumulated amortization of $246, of $302. 13. Commitments and Cohtingencies: Pursuant to employment agreements with certain key executives, which expire at various dates through December 2002, the Company granted options to acquired 487,500 shares of common stock at various exercise prices ranging from $.08 to $4.00. The Company's remaining aggregate commitment at June 30, 2002 under such contracts approximated $500. 14. Income Taxes: As of June 30, 2002, the Company has Federal net operating loss carry forwards of approximately $29,351. Such carry forwards begin to expire through 2019 if not previously used. The utilization of the loss carry forwards will be subject to annual limitations under Section 382 of the Internal Revenue Code. Since realization of the tax benefits associated with these carry forwards is not assured, a 100% valuation allowance was recorded against the related tax asset of approximately $9,368, as required by SFAS No. 109. The State of New Jersey has enacted a program that allows new or expanding emerging technology and biotechnology businesses to sell their Unused Net Operating Loss (NOL) carryover to any corporate taxpayer in the state of at least 75% of the value of the tax benefits. Upon acceptance of an application, each applicant receives $250. The remaining NOL carryover is treated in the same manner for the fiscal year ended June 30, 2002. The deferred tax asset arising from the New Jersey NOL approximated $284 at June 30, 2001. F-17 A reconciliation of the federal statutory tax rate to the Company's effective tax rate is as follows:

15. Supplemental Cash Flow Information: a. Cash paid for interest during the years ended June 30, 2002, 2001 and 2000 amounted to $237, $100 and $284, respectively. b. The Company acquired certain equipment with an aggregate cost of $27, $397 and $221 under capital lease obligations for the years ended June 30, 2002, 2000, and 1999, respectively. There were no purchases of equipment under capital lease obligations for the year ended June 30, 2001. c. During 2001 and 2000, vendors and other debtors converted $92 and $581 of liabilities into 89,000 and 291,800 shares of the Company's common stock. During 1999, $1,530 of debentures and $1,220 of securities classified as temporary equity were exchanged for shares of preferred stock, warrants and options. d. During 2000 and 1999, the Company granted outside consultants options to acquire 21,000 and 66,250 shares, respectively, of common stock at exercise prices ranging from $4.64 to $16.00. The fair value of the 1999 options was immaterial. The fair value of the 2000 options ($10) has been charged to operations in accordance with SFAS No. 123. e. The Company issued stock and/or options to various parties in consideration for services provided and settlement of liabilities in 2001 and 2000 in the amount of $92 and $171 respectively. 16. Proposed Sale Of Assets In February 2002 the Company entered into a non-binding agreement to sell substantially all of the net assets of Mark Correctional Systems ("Mark Correctional"), our modular steel cell division, to Rite-Way of New Jersey, a corporation owned by the Company's Executive Vice President. Consideration will consist of $2,500 based on an estimated book value of the assets. Any shortfall in the value of the assets will be adjusted at closing. Payment shall consist of $500 cash at closing and the balance of $2,000 payable in 36 equal monthly installments evidenced by a secured promissory note bearing interest at 8% per annum. The Company will also receive cash on hand and/ or a short-term promissory note for a total of an additional $1,000. Completion of the sale is dependent upon shareholder approval. The carrying value of the net assets of the Correctional division at June 30, 2002 consists of the following: F-18 Cash $ 156 Accounts Receivable 2,028 Costs in excess of contract revenue earned 323 Inventories 25 Prepaid expenses 32 Property and equipment, net 267 Other assets 36 Accounts payable (908) Obligations under capital leases (13) Billings in excess of contract revenues earned (89) Accrued liabilities (95) Long-term debt (20) ------- $ 1,742 ======= The Company's revenues and cost of sales and a substantial portion of its general and administrative expenses were generated by the modular steel jail cell division. F-19 MARKCARE MEDICAL SYSTEMS LIMITED Auditors' report to the members of Markcare Medical Systems Limited We have audited the financial statements on pages 5 to 12 which have been prepared under the historical cost convention and the accounting policies set out in pages 7 and 8. Respective responsibilities of directors and auditors As described on page 3, the company's directors are responsible for the preparation of financial statements. It is our responsibility to form an independent opinion, based on our audit, on those financial statements and to report our opinion to you. Basis of opinion We conducted our audit in accordance with Auditing Standards issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the company's circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. Going concern In forming our opinion we have considered the adequacy of the disclosures made in the financial statements in note 18 concerning the uncertainty of adequate financial support being made available by the parent company in the future. The financial statements have been prepared on a going concern basis. In view of the significance of this uncertainty we consider that it should be drawn to your attention but our opinion is not qualified in this respect. UK GAAP and US GAAS With respect of the information disclosed in the financial statements, we are not aware of any material differences between UK Generally Accepted Accounting Principles and US Generally Accepted Accounting Principles or between UK Auditing Standards and US Generally Accepted Auditing Standards. Opinion In our opinion the financial statements give a true and fair view of the state of the company's affairs as at 30 June 2000 and of its loss for the year then ended and have been properly prepared in accordance with the Companies Act 1985. CHANTREY VELLACOTT DFK Chartered Accountants Registered Auditors LONDON 13 October 2000 F-20 THIS PAGE INTENTIONALLY LEFT BLANK

MARK SOLUTIONS INC 10-K