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 March 31, 1998
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, Ft. Lauderdale, FL. 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.
7,276,900 SHARES OF COMMON STOCK, OF $.0001 PAR VALUE, WERE ISSUED AT MAY 1,
1998, INCLUDING 75,000 SHARES HELD BY THE ISSUER IN TREASURY. 7,201,900
SHARES WERE OUTSTANDING AT MAY 1, 1998.
<PAGE>
CORRECTIONS SERVICES, INC. AND SUBSIDIARIES
INDEX
PART I.FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - March 31, 1998 (Unaudited) and December 31, 1997
(Audited).
Consolidated Statement of Operations - Three months ended March 31, 1998 and
1997 (Unaudited).
Consolidated Statement of Shareholders' Equity - December 31, 1994 through
March 31, 1998.
Consolidated Statement of Cash Flows - Three months ended March 31, 1998 and
1997 (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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CORRECTIONS SERVICES, INC. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
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<PAGE>
CORRECTIONS SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
March 31, December 31,
1998 1997
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 455,161 $ 464,577
Investment in marketable
trading securities - at market 887,125 974,660
Accounts receivable - trade - net
of allowance for uncollectable
accounts of $2,500 in 1998 and 1997 22,856 43,102
Accounts receivable - other 14,578 14,989
Notes receivable - Current:
Affiliate 7,396 4,818
Other 48,921 37,657
Net investment in direct financing
leases - Current 3,841 3,765
Accrued interest receivable 942 4,560
Inventory 134,198 131,911
Other 9,410 4,902
TOTAL CURRENT ASSETS 1,584,428 1,684,941
PROPERTY AND EQUIPMENT - net of
accumulated depreciation of $137,904
in 1998 and $141,201 in 1997 5,174 1,102
NOTES RECEIVABLE - Non-Current:
Affiliate 17,937 10,379
Other 95,292 55,259
NET INVESTMENT IN DIRECT FINANCING
LEASES - Non-Current 3,799 4,788
OTHER 2,169 2,169
TOTAL ASSETS $1,708,799 $1,758,638
</TABLE>
See accompanying notes to consolidated financial statements.
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CORRECTIONS SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Continued)
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
March 31, December 31,
1998 1997
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable and accrued
expenses - principally trade $ 13,006 $ 49,283
Deferred revenue 43,336 43,015
TOTAL CURRENT LIABILITIES 56,342 92,298
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock $.0001 par value;
10,000,000 shares authorized;
7,276,900 shares issued in 1998
and 1997. 7,201,900 shares
outstanding at March 31, 1998 and
7,216,900 shares outstanding
at December 31, 1997 728 728
Additional paid-in capital 2,821,667 2,821,667
Accumulated deficit (1,147,374) (1 137,022)
1,675,021 1,685,373
Less treasury stock, 75,000
shares at March 31, 1998 and
60,000 shares at December 31,
1997, at cost (22,564) (19,033)
TOTAL SHAREHOLDERS' EQUITY 1,652,457 1,666,340
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 1,708,799 $ 1,758,638
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
CORRECTIONS SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
March 31, March 31,
1998 1997
(Unaudited) (Unaudited)
<S> <C> <C>
REVENUES:
Net sales $ 17,989 $ 24,941
Lease income 525 4,050
Repair and maintenance fee income 45,877 44,537
64,391 73,528
COST AND EXPENSES:
Operating expenses (excluding
depreciation and amortization) 34,719 49,299
Depreciation and amortization 296 459
Selling, general and
administrative expense 75,539 66,051
TOTAL COSTS AND EXPENSES 110,554 115,809
(LOSS) FROM OPERATIONS (46,163) (42,281)
OTHER INCOME (EXPENSE):
Dividend and interest income 25,042 12,399
Realized and unrealized gain (loss)
on marketable trading securities 10,578 (15,067)
Other 191 14
NET (LOSS) $ (10,352) $ (44,935)
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 7,205,400 5,126,900
NET (LOSS) PER COMMON SHARE $ - $ (.01)
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
CORRECTIONS SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (Deficiency)
FROM DECEMBER 31, 1994 THROUGH MARCH 31, 1998
Common Stock
$.0001 Par Value Additional Retained
Authorized 10,000,000 Shares Paid-In Earnings Treasury
Shares Amount Capital (Deficit) Stock Total
<S> <C> <C> <C> <C> <C> <C>
Balance - December 31, 1994 5,126,900 $ 528 $ 2,095,391 $(1,089,549) $(26,650) $ 979,720
Net loss for period - - - (22,717) - (22,717)
Balance - December 31, 1995 5,126,900 528 2,095,391 (1,112,266) (26,650) 957,003
Net income for period - - - 113,003 - 113,003
Balance - December 31, 1996 5,126,900 528 2,095,391 ( 999,263) (26,650) 1,070,006
Purchase of treasury stock (522,500) - - - (94,985) (94,985)
Sale of treasury stock 462,500 - - - 75,952 75,952
Acquisition of Hi-Tech
Leasing, Inc. 2,000,000 200 736,788 - - 736,988
Acquisition of Professional
Programmers, Inc. 150,000 - (10,512) - 26,650 16,138
Net Loss for period - - - ( 137,759) - (137,759)
Balance - December 31, 1997 7,216,900 728 2,821,667 (1,137,022) (19,033) 1,666,340
Purchase of treasury stock (25,000) - - - (7,225) (7,225)
Sale of treasury stock 10,000 - - - 3,694 3,694
Net Loss for period - - - ( 10,352) - ( 10,352)
Balance - March 31, 1998 7,201,900* $ 728 $2,821,667 $(1,147,374) $ (22,564) $1,652,457
</TABLE>
* Shown on the accompanying
Balance Sheet as follows: Issued: 7,276,900
Treasury Shares: 75,000
7,201,900
See accompanying notes to consolidated financial statements.
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<PAGE>
CORRECTIONS SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Three Months Ended
March 31, March 31,
1998 1997
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) $ (10,352) $ (44,935)
Adjustments to reconcile net income
(loss) to net cash (used in)
provided by operating activities:
Depreciation and amortization 296 459
(Gain) loss on sale of marketable
securities (21,190) (35,912)
Allowance for market decline
of securities 10,612 50,979
Changes in operating assets
and liabilities:
(Increase) decrease in trade
accounts receivable 20,246 30,255
(Increase) decrease in inventory (4,290) (20,960)
(Increase) decrease in accounts
receivable - other 411 (677)
(Increase) decrease in accrued
interest receivable 3,618 -
(Increase) decrease in other assets (4,508) (4,869)
Increase (decrease) in accounts
payable and accrued expenses (36,277) (7,119)
Increase (decrease) in deferred
revenue 321 (40,905)
Purchase of marketable trading
securities (48,272) (106,279)
Proceeds from sale of marketable
trading securities 142,854 98,631
Total adjustments 63,821 (36,397)
Net cash provided by (used in)
operating activities 53,469 (81,332)
CASH FLOWS FROM INVESTING ACTIVITIES:
Advances paid on notes receivable
- affiliate (11,500) -
Advances paid on notes receivable - other (60,000) -
Principal collections of notes
receivable - affiliate 1,364 -
Principal collections of notes
receivable - other 8,703 -
Principal collections of direct financing
leases 913 -
Purchase of property and equipment (2,365) -
Net cash (used in) provided by
investing activities (62,885) -
</TABLE>
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<PAGE>
CORRECTIONS SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
Three Months Ended
March 31, March 31,
1998 1997
(Unaudited) (Unaudited)
<S> <C> <C>
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (9,416) (81,332)
CASH AND CASH EQUIVALENTS -
Beginning of period 464,577 336,678
CASH AND CASH EQUIVALENTS -
End of period $ 455,161 $ 255,346
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
CORRECTIONS SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
March 31, 1998
(Unaudited)
NOTE 1 - FAIR PRESENTATION
The balance sheet as of March 31, 1998, the statement of operations for the
three months ended March 31, 1998 and 1997, the statement of shareholders'
equity as of March 31, 1998 and the statement of cash flows for the three
months ended March 31, 1998 and 1997, 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 March 31, 1998 and for all periods
presented have been made.
The condensed financial statements as of December 31, 1997, 1996 and 1995 have
been derived from audited financial statements.
The operations for the three months ended March 31, 1998, 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, 1997, 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. All significant intercompany
accounts and transactions have been eliminated in consolidation.
NOTE 3 - EARNINGS (LOSS) PER SHARE
For the three month periods ended March 31, 1998 and 1997, per share
information was computed using the weighted average number of common shares
outstanding during the periods.
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<PAGE>
CORRECTIONS SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
March 31, 1998
(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 $887,125 at March 31, 1998, and $974,660 at December 31, 1997. The cost of
these investments is $1,217,219 and $1,294,142 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.
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<PAGE>
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.
Financial Condition. At March 31, 1998, the Company had current assets
of $1,584,428 as compared to $1,684,941 at December 31, 1997, total assets of
$1,708,799 as compared to $1,758,638 at December 31, 1997, and shareholders'
equity of $1,652,457 as compared to $1,666,340 as of December 31, 1997. The
decrease in current assets and total assets were primarily the result of the
Company's decrease in marketable trading securities. Shareholders' equity
from March 31, 1998 decreased $13,883 to $1,652,457 from $1,666,340 at
December 31, 1997. The decrease was primarily the result of the Company's
loss for the period and the purchase of treasury stock.
Liquidity. The Company had a net decrease in cash and cash equivalents
for the three months ended March 31, 1998 of $9,416, and cash and cash
equivalents at March 31, 1998 of $455,161, as compared to a decrease in cash
and cash equivalents of $81,332 and cash and cash equivalents of $255,346, for
the three months ended March 31, 1997.
The Company continues to have no fixed executory obligations.
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 credit borrowing, if needed.
Results of Operations. The Company's revenues for the period ended March
31, 1998, were derived from sales, lease income and repairs and maintenance
income.
The Company's revenues decreased $9,137 or 12% to $64,391 for the three
months ended March 31, 1998, as compared to $73,528 for the same period of
1997. The principal reason for decreased revenue was a decline in the sale of
new monitoring units.
Costs and expenses decreased $5,255 or 4.5% to $110,554 as compared to
$115,809 for the same period last year principally due to a decrease in cost
of sales. The Company realized a net loss of ($10,352) for the three months
ended March 31, 1998, as compared to
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<PAGE>
a net loss of ($44,935) for the same period last year. The decrease in net
loss was primarily due to an increase in other income.
The decrease in costs and expenses during the period ended March 31,
1998, in the amount of $5,255, as compared to costs and expenses for the same
period of 1997, was primarily attributable to a decrease in operating
expenses.
The Company knows of no unusual or infrequent events or transactions, nor
significant economic changes that have materially affected the amount of its
reported income from continuing operations.
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<PAGE>
CORRECTIONS SERVICES, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the period.
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<PAGE>
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: May 13, 1998 /s/Norman H. Becker
Norman H. Becker, President
Date: May 13, 1998
Diane Martini, Secretary/Treasurer
Date: ___________, 1998
Frank R. Bauer, Vice President
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<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
incoporated 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 455,161
<SECURITIES> 887,125
<RECEIVABLES> 101,034
<ALLOWANCES> 2,500
<INVENTORY> 134,198
<CURRENT-ASSETS> 1,584,428
<PP&E> 143,078
<DEPRECIATION> 137,904
<TOTAL-ASSETS> 1,708,799
<CURRENT-LIABILITIES> 56,342
<BONDS> 0
0
0
<COMMON> 728
<OTHER-SE> 1,674,293
<TOTAL-LIABILITY-AND-EQUITY> 1,708,799
<SALES> 17,989
<TOTAL-REVENUES> 64,391
<CGS> 34,719
<TOTAL-COSTS> 110,554
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (10,352)
<INCOME-TAX> 0
<INCOME-CONTINUING> (10,352)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,352)
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>