SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[XX] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
33-02035-A
(Commission File Number)
CORRECTIONS SERVICES, INC.
(Exact name of Registrant as specified in its charter)
Florida 59-2508470
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification
Number)
3040 East Commercial Boulevard
Fort Lauderdale, Florida 33308
(Address of Principal Executive Offices)
(954) 772-2297
(Registrant's Telephone Number)
None
(Former Name, Former Address and former Fiscal Year,
if changed since last report)
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
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
YES NO
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the Issuer's classes of
common stock, as of the latest practicable date.
5,276,900 SHARES OF COMMON STOCK, OF $.0001 PAR VALUE, WERE ISSUED AT NOVEMBER
10, 1997, INCLUDING 25,000 SHARES HELD BY THE ISSUER IN TREASURY. 5,126,900
SHARES WERE OUTSTANDING AT NOVEMBER 10, 1997.
<PAGE>
CORRECTIONS SERVICES, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - September 30, 1997 (Unaudited) and December 31,
1996 (Audited).
Consolidated Statement of Operations - Three months and Nine months ended
September 30, 1997 and 1996 (Unaudited).
Consolidated Statement of Shareholders' Equity - December 31, 1993 through
September 30, 1997.
Consolidated Statement of Cash Flows - Nine months ended September 30, 1997
and 1996 (Unaudited).
Notes to Consolidated Financial Statements.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
PART II. OTHER INFORMATION
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
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<PAGE>
CORRECTIONS SERVICES, INC. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
-3-
<PAGE>
CORRECTIONS SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 556,552 $ 336,678
Investment in marketable
trading securities - at
market 925,679 660,769
Accounts receivable - trade - net
of allowance for uncollectable
accounts of $2,500 in 1997 and 1996 35,856 62,710
Accounts receivable - other 33,165 7,701
Notes receivable - Current:
Affiliate 4,722 -
Other 30,105 -
Net investment in direct financing
leases - Current 3,691 -
Accrued interest receivable 1,824 -
Inventory 125,180 127,255
Other 6,751 4,804
TOTAL CURRENT ASSETS 1,723,525 1,199,917
PROPERTY AND EQUIPMENT - net of
accumulated depreciation of $140,742
in 1997 and $135,442 in 1996 1,561 2,941
NOTES RECEIVABLE - Non-Current:
Affiliate 11,620 -
Other 40,089 -
NET INVESTMENT IN DIRECT FINANCING
LEASES - Non-Current 5,758 -
Other 2,293 2,238
TOTAL ASSETS $1,784,846 $1,205,096
</TABLE>
See accompanying notes to consolidated financial statements.
-4(a)-
<PAGE>
CORRECTIONS SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Continued)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable and accrued
expenses - principally trade $ 57,237 $ 60,860
Deferred revenue 55,525 74,230
TOTAL CURRENT LIABILITIES 112,762 135,090
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock $.0001 par value;
10,000,000 shares authorized;
issued 7,276,900 shares at
September 30, 1997 & 5,276,900
shares at December 31, 1996.
Outstanding 7,251,900 shares
at September 30, 1997 & 5,126,900
shares at December 31, 1996. 728 528
Additional paid-in capital 2,821,667 2,095,391
Accumulated deficit ( 1,144,206) ( 999,263)
1,678,189 1,096,656
Less treasury stock, 25,000
shares at September 30, 1997 and
150,000 shares at December 31,
1996 ( 6,105) ( 26,650)
TOTAL SHAREHOLDERS' EQUITY 1,672,084 1,070,006
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 1,784,846 $ 1,205,096
</TABLE>
See accompanying notes to consolidated financial statements.
-4(b)-
<PAGE>
CORRECTIONS SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUES:
Net sales $ 40,694 $ 50,412 $ 113,741 $ 195,312
Lease income - 34,133 7,065 68,267
Repair and maintenance
fee income 38,076 39,990 125,761 134,930
78,770 124,535 246,567 398,509
COST AND EXPENSES:
Cost of sales (excluding
depreciation and
amortization) 43,981 47,563 147,046 154,412
Depreciation & amortization 460 577 1,380 2,102
Selling, general and
administrative expense 92,104 63,079 221,257 212,909
TOTAL OPERATING EXPENSES 136,545 111,219 369,683 369,423
INCOME (LOSS) FROM OPERATIONS (57,775) 13,316 (123,116) 29,086
OTHER INCOME (EXPENSE)
Interest and
dividend income 24,141 11,069 48,525 30,394
Realized and unrealized
gain (loss) on
marketable securities ( 65,304) ( 10,566) (70,537) 138,060
Direct finance lease income 132 - 132 -
Other 26 25 53 75
NET INCOME (LOSS) $( 98,780) $ 13,844 $( 144,943) $ 197,615
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES OUTSTANDING 6,541,791 5,126,900 5,603,640 5,126,900
NET INCOME (LOSS)
PER COMMON SHARE $( .02) $ - $( .03) $ .04
</TABLE>
See accompanying notes to consolidated financial statements
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<PAGE>
CORRECTIONS SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (Deficiency)
FROM DECEMBER 31, 1993 THROUGH SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
Common Stock
$.0001 Par Value
Authorized Addt'l Retained
10,000,000 Shares Paid-In Earnings Treasury
Shares Amount Capital (Deficit) Stock Total
<S> <C> <C> <C> <C> <C> <C>
Balance - 12/31/93 5,201,900 $ 528 $ 2,095,391 $(1,150,961) $( 7,900) $ 937,058
Net Income for period -- -- -- 61,412 -- 61,412
Purchase of Treasury
Shares (75,000) -- -- -- (18,750) (18,750)
Balance - 12/31/94 5,126,900 528 2,095,391 (1,089,549) (26,650) 979,720
Net Loss for period -- -- -- (22,717) -- (22,717)
Balance - 12/31/95 5,126,900 528 2,095,391 (1,112,266) (26,650) 957,003
Net Income for period -- -- -- 113,003 -- 113,003
Balance - 12/31/96 5,126,900 528 2,095,391 ( 999,263) (26,650) 1,070,006
Acquisition of Hi-Tech
Leasing, Inc. 2,000,000 200 736,788 -- -- 736,988
Shares issued re:
acquisition of Prof. 150,000 --- ( 10,512) -- 26,650 16,138
Programmers, Inc.
</TABLE>
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<PAGE>
CORRECTIONS SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (Deficiency)
FROM DECEMBER 31, 1993 THROUGH SEPTEMBER 30, 1997
Contd..
<TABLE>
<CAPTION>
Common Stock
$.0001 Par Value
Authorized Addt'l Retained
10,000,000 Shares Paid-In Earnings Treasury
Shares Amount Capital (Deficit) Stock Total
<S> <C> <C> <C> <C> <C> <C>
Acquisition of Treasury
Shares ( 25,000) -- -- -- ( 6,105) ( 6,105)
Net Loss for period -- -- -- ( 144,943) -- ( 144,943)
Balance - 09/30/97 7,251,900* $ 728 $2,821,667 $(1,144,206) $ ( 6,105) $ 1,672,084
* Shown on the accompanying Balance Sheet as follows: Issued: 7,276,900
Treasury Shares: ( 25,000)
7,251,900
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
CORRECTIONS SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
Nine Months Ended
September 30, September 30,
1997 1996
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Profit <Loss> $( 144,943) $ 197,615
Adjustments to reconcile net income
<loss> to net cash (used in)
provided by operating activities:
Depreciation and amortization 1,380 2,102
(Gain) Loss on sale of marketable
securities ( 39,445) ( 140,345)
Allowance for market decline
of securities 109,982 2,285
Purchase of marketable trading
securities ( 223,593) ( 538,736)
Proceeds from sale of marketable
trading securities 309,966 603,894
Changes in operating assets
and liabilities:
(Increase) decrease in trade
accounts receivable 26,854 37,467
(Increase) decrease in inventory 2,075 524
(Increase) decrease in accounts
receivable - other 16,385 ( 208)
(Increase) in accrued interest receivable ( 1,824) -
(Increase) decrease in other assets ( 2,002) ( 2,015)
Increase (decrease) in accounts
payable and accrued expenses ( 3,623) ( 17,398)
Increase (decrease) in deferred
revenue ( 18,705) ( 23,566)
Total adjustments 177,450 ( 75,996)
Net cash provided by (used in)
operating activities 32,507 121,619
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment -- ( 868)
Principal collections of notes
receivable - affiliate 752 -
Principal collections of notes
receivable - other 16,204 -
Advances paid on notes receivable - other ( 43,958) -
Principal collections of direct financing
leases 586 -
Net cash (used in) provided by
investing activities ( 26,416) ( 868)
</TABLE>
-8(a)-
<PAGE>
CORRECTIONS SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Contd..
<TABLE>
<CAPTION>
Nine Months Ended
September 30, September 30,
1997 1996
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of treasury stock $ 16,138 $ -
Issuance of Common Stock 197,645 -
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 213,783 -
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 219,874 120,751
CASH AND CASH EQUIVALENTS -
Beginning of period 336,678 261,385
CASH AND CASH EQUIVALENTS -
End of period $ 556,552 $ 382,136
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
-8(b)-
<PAGE>
CORRECTIONS SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
September 30, 1997
(Unaudited)
NOTE 1 - FAIR PRESENTATION
The balance sheet as of September 30, 1997, the statement of operations for
the three months and nine months ended September 30, 1997 and 1996, the
statement of shareholders' equity as of September 30, 1997 and the statement
of cash flows for the three months ended September 30, 1997 and 1996, have
been prepared by the Company without audit. In the opinion of management, all
adjustments (which include only normal recurring accruals) necessary to
present fairly the financial position and results of operations at September
30, 1997 and for all periods presented have been made.
The condensed financial statements as of December 31, 1996, 1995 and 1994 have
been derived from audited financial statements.
The operations for the nine months ended September 30, 1997, are not
necessarily indicative of the results of operations to be expected for the
Company's fiscal year.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that these
condensed financial statements be read in conjunction with the consolidated
financial statements and notes thereto as of December 31, 1996, and for the
year then ended.
NOTE 2 - BASIS OF PRESENTATION
The accompanying financial statements include accounts of the Company and its
wholly-owned subsidiaries, Corrections Systems International, Inc., Hi-Tech
Leasing, Inc. and Professional Programmers, Inc. from their respective dates
of acquisition. All significant intercompany accounts and transactions have
been eliminated in consolidation.
NOTE 3 - EARNINGS (LOSS) PER SHARE
For the nine month periods ended September 30, 1997 and 1996, per share
information was computed using the weighted average number of common shares
outstanding during the periods.
-9-
<PAGE>
CORRECTIONS SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
September 30, 1997
(Unaudited)
NOTE 4 - INVESTMENT IN MARKETABLE EQUITY SECURITIES
Marketable trading securities are stated at market value at the balance sheet
date. Market values of investments in marketable trading securities amounts
to $925,679 at September 30, 1997, and $660,769 at December 31, 1996. The
cost of these investments is $1,240,318 and $958,234 respectively. Unrealized
gains and losses resulting from fluctuations in the market price of the
related trading securities are currently reflected in the statement of
operations under the caption "Realized (unrealized) gain (loss) on marketable
trading securities".
NOTE 5 - INCOME TAXES
The Company does not provide for any income taxes since it has net operating
losses to offset any provision for income taxes. The Company has fully reserved
for the benefit of the net operating loss carryforwards.
NOTE 6 - DIRECT FINANCING LEASES
The net investment in direct financing leases consists of the gross amount of
the lease, net of deferred interest and allowance for doubtful accounts.
NOTE 7 - OTHER INFORMATION & SUPPLEMENTAL CASH FLOW DISCLOSURES
On July 28, 1997, the Company entered into a Capital Stock Purchase Agreement
pursuant to which it acquired all of the issued and outstanding stock of
Hi-Tech Leasing, Inc. which was a wholly owned subsidiary of Vanderbilt Square
Corp. in exchange for 2,000,000 shares of the Company's authorized but
previously unissued restricted common stock, with a fair value of $731,000.
The transaction was treated as a purchase, and operations of the acquired
company will be included in the operations of the Company from the date of
acquisition. On September 30, 1997, the Company acquired all the issued and
outstanding stock of Professional Programmers, Inc. in exchange for 150,000
shares of the Company's treasury stock. Fair value of the assets received
amounted to $16,138.
-10-
<PAGE>
CORRECTIONS SERVICES, INC. AND SUBSIDIARIES
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The analysis of the Company's financial condition, liquidity, capital
resources and results of operations should be viewed in conjunction with the
accompanying financial statements, including the notes thereto.
(a) Financial Condition. At September 30, 1997, the Company had current
assets of $1,723,525 as compared to $1,199,917 at December 31, 1996, total
assets of $1,784,846 as compared to $1,205,096 at December 31, 1996, current
liabilities of $112,726 as compared to $135,090 at December 31, 1996 and a
current net worth of $1,672,084 as compared to $1,070,006 at December 31,
1996. The change in net worth was attributable to the net profit incurred for
the nine months ended September 30, 1997 and the acquisition of Hi-Tech
Leasing, Inc. and Professional Programmers, Inc.
(a)(1) Liquidity. During the six (6) months ended September 30, 1997,
the Company had an increase in cash and cash equivalents of $219,784 due
principally to the net profit incurred for the period and the acquisition of
Hi-Tech Leasing, Inc. and Professional Programmers, Inc.
The Company's operating expenses have continued in this reporting period,
at what the Company believes to be a minimal level. The Company has no
present commitments that are reasonably likely to result in its liquidity
increasing or decreasing in any material way. In addition, the Registrant
knows of no trend, additional demand, event or uncertainties that will result
in, or that are reasonably likely to result in, its liquidity increasing or
decreasing in any material way. The Company continues to have no fixed
executory obligations.
(a)(2) Capital Resources. The Company has no present material
commitments for additional capital expenditures. The Company has no
outstanding credit lines or loan commitments in place and has no immediate
need for additional financial credit. There can be no assurance however, that
it will be able to secure additional financing, if needed, or that if
available, on terms acceptable to the Company.
(a)(3) Results of Operations. The Company's revenues for the nine (9)
months ending September 30, 1997 were $246,567 as compared to $398,509 for the
nine (9) month period ended September 30, 1996. The reduction in revenues was
due to a decline in sales of new units and decreased lease income. Revenues
for the three (3) months ended September 30, 1997 were $78,770 as
compared to
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<PAGE>
CORRECTIONS SERVICES, INC. AND SUBSIDIARIES
$124,535 for the same period in 1996. The principal reason for the decrease
was a decrease in the sale of new units and decreased lease income.
Costs and expenses for the nine(9) months ended September 30, 1997,
amounted to $369,683, as compared to $369,423 for the period ended September
30, 1996. Costs and expenses increased slightly in comparison to the
comparable nine (9) month period in 1996, primarily due to increased selling,
general and administrative expenses. Costs and expenses for the three (3)
months ended September 30, 1997 were $136,545 as compared to $111,219 for the
same period in 1996. The principal reason for the decrease in costs and
expenses was an increase in selling, general and administrative expenses.
The Company realized a net loss of ($144,943) for the nine (9) month
period ended September 30, 1997 as compared to a net profit of $197,615 for
the nine (9) month period ended September 30, 1996. The decrease was
primarily due to a decrease in realized and unrealized gain on marketable
trading securities and a decline in the sale of new units. The Company
realized a net loss of ($98,780) for the three (3) month period ended
September 30, 1997 as compared to a net profit of $13,844 for the three (3)
month period ended September 30, 1996. The decrease was primarily due to a
decrease in realized and unrealized gain on marketable securities, a decline
in the sale of new units and decreased lease income.
The Registrant knows of no trends or uncertainties, or other items, that
had, or that the Company reasonably expects will have, a materially favorable
or unfavorable impact on revenues or income from future operations, if any.
Moreover, Registrant knows of no events that will cause a material change in
the relationship between its costs and revenues.
-12-
<PAGE>
CORRECTIONS SERVICES, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
(b) The Registrant filed a Current Report on Form 8-K during this
reporting period. On July 28, 1997, the Registrant filed a Current
Report on Form 8-K.
-13-
<PAGE>
CORRECTIONS SERVICES, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CORRECTIONS SERVICES, INC.
Date: November 14, 1997 /s/Norman H. Becker
Norman H. Becker, President
Date: November 14, 1997 /s/Diane Martini
Diane Martini, Secretary/Treasurer
Date: November __, 1997
Frank R. Bauer, Vice President
-14-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Balance
Sheet, Statement of Operations, Statements of Cash Flows and Notes thereto
incorporated in Part I, Item 1. of this Form 10-Q and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 556,552
<SECURITIES> 925,679
<RECEIVABLES> 111,863
<ALLOWANCES> 2,500
<INVENTORY> 125,180
<CURRENT-ASSETS> 1,723,525
<PP&E> 142,303
<DEPRECIATION> 140,742
<TOTAL-ASSETS> 1,784,846
<CURRENT-LIABILITIES> 112,762
<BONDS> 0
0
0
<COMMON> 728
<OTHER-SE> 1,677,461
<TOTAL-LIABILITY-AND-EQUITY> 1,784,846
<SALES> 113,741
<TOTAL-REVENUES> 246,567
<CGS> 147,046
<TOTAL-COSTS> 369,683
<OTHER-EXPENSES> 70,537
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (144,943)
<INCOME-TAX> 0
<INCOME-CONTINUING> (144,943)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (144,943)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
