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, 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 OCTOBER
29, 1998, INCLUDING 1,309,925 SHARES HELD BY THE ISSUER IN TREASURY.
5,966,975 SHARES WERE OUTSTANDING AT OCTOBER 29, 1998.
<PAGE>
CORRECTIONS SERVICES, INC. AND SUBSIDIARY
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - September 30, 1998
(Unaudited) and December 31, 1997 (Audited).
Consolidated Statement of Operations - Three months and
nine months ended September 30, 1998 and 1997
(Unaudited).
Consolidated Statement of Shareholders' Equity - December
31, 1994 through September 30, 1998.
Consolidated Statement of Cash Flows - Nine months ended
September 30, 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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<PAGE>
CORRECTIONS SERVICES, INC. AND SUBSIDIARY
PART I - FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
-3-
<PAGE>
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 185,618 $ 464,577
Investment in marketable
trading securities - at market 692,113 974,660
Accounts receivable - trade - net
of allowance for uncollectable
accounts of $2,500 in 1997 - 43,102
Accounts receivable - other 24,198 14,989
Notes receivable - Current:
Affiliate - 4,818
Other 50,000 37,657
Net investment in direct financing
leases - Current - 3,765
Accrued interest receivable - 4,560
Inventory - 131,911
Other 6,648 4,902
TOTAL CURRENT ASSETS 958,577 1,684,941
PROPERTY AND EQUIPMENT - net of
accumulated depreciation of $57,792
in 1998 and $141,201 in 1997 224 1,102
NOTES RECEIVABLE - Non-Current:
Affiliate - 10,379
Other - 55,259
NET INVESTMENT IN DIRECT FINANCING
LEASES - Non-Current - 4,788
OTHER 1,671 2,169
TOTAL ASSETS $ 960,472 $1,758,638
</TABLE>
See accompanying notes to consolidated financial statements.
-4(a)-
<PAGE>
CORRECTIONS SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Continued)
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
September 30, December 31,
1998 1997
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable and accrued
expenses - principally trade $ 22,165 $ 49,283
Deferred revenue - 43,015
TOTAL CURRENT LIABILITIES 22,165 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. 5,966,975 shares
outstanding at September 30, 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 (1,311,393) (1,137,022)
1,511,002 1,685,373
Less treasury stock, 1,309,925
shares at September 30, 1998 and
60,000 shares at December 31,
1997, at cost (572,695) (19,033)
TOTAL SHAREHOLDERS' EQUITY 938,307 1,666,340
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 960,472 $ 1,758,638
</TABLE>
See accompanying notes to consolidated financial statements.
-4(b)-
<PAGE>
CORRECTIONS SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUES:
Net sales $ 55,407 $ 40,694 $ 89,689 $ 113,741
Lease income 2,887 - 6,825 7,065
Repair and maintenance fee income 29,056 38,076 124,907 125,761
87,350 78,770 221,421 246,567
COST AND EXPENSES:
Operating expenses (excluding
depreciation and amortization) 54,724 43,981 125,055 147,046
Depreciation and amortization 474 460 1,501 1,380
Selling, general and
administrative expense 43,503 92,104 194,708 221,257
TOTAL COSTS AND EXPENSES 98,701 136,545 321,264 369,683
(LOSS) FROM OPERATIONS (11,351) (57,775) (99,843) (123,116)
OTHER INCOME (EXPENSE)
Interest and dividend income (5,812) 24,141 45,154 48,525
Realized and unrealized gain (loss)
on marketable securities (18,457) (65,304) (51,495) (70,537)
Other (307) 158 48 185
Equity in loss of subsidiaries (49,833) - (49,833) -
Loss on sale of electronic monitoring
business (18,402) - (18,402) -
NET (LOSS) $ (104,162) $ (98,780) $ (174,371) $ (144,943)
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 6,799,370 6,541,791 7,086,524 5,603,640
NET (LOSS) PER COMMON SHARE $ (.02) $ (.02) $ (.02) $ (.03)
</TABLE>
* Reclassified from comparative purposes
See accompanying notes to consolidated financial statements
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<PAGE>
CORRECTIONS SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (Deficiency)
FROM DECEMBER 31, 1994 THROUGH SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
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
Proceeds from disposition
of subsidiary (1,309,925) - - - (572,695) (572,695)
Sale of treasury stock 60,000 - - - 19,033 19,033
Net Loss for period - - - (174,371) - (174,371)
Balance -
September 30, 1998 5,966,975* $ 728 $2,821,667 $(1,311,393) $(572,695) $ 938,307
</TABLE>
* Shown on the accompanying
Balance Sheet as follows: Issued: 7,276,900
Treasury Shares: 1,309,925
5,966,975
See accompanying notes to consolidated financial statements.
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<PAGE>
CORRECTIONS SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
Nine Months Ended
September 30, September 30,
1998 1997
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) $ (174,371) $ (144,943)
Adjustments to reconcile net income
(loss) to net cash (used in)
provided by operating activities:
Depreciation and amortization 1,501 1,380
Equity in (earnings) or loss of
unconsolidated subsidiaries 49,833 -
(Gain) loss on sale of marketable
securities (14,929) (39,445)
Allowance for market decline
of securities 66,424 109,982
Loss on sale of electronic
monitoring business 18,402 -
Changes in operating assets
and liabilities:
(Increase) decrease in trade
accounts receivable 31,137 26,854
(Increase) decrease in inventory 29,559 2,075
(Increase) decrease in accounts
receivable - other (13,522) 16,385
(Increase) decrease in accrued
interest receivable 2,280 (1,824)
(Increase) decrease in other assets (1,741) (2,002)
Increase (decrease) in accounts
payable and accrued expenses (11,024) (3,623)
Increase (decrease) in deferred
revenue (7,865) (18,705)
Purchase of marketable trading
securities (172,515) (223,593)
Proceeds from sale of marketable
trading securities 119,082 309,966
Total adjustments 96,622 177,450
Net cash provided by (used in)
operating activities (77,749) 32,507
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of subsidiary 3,378 -
Advances paid on notes receivable - other (50,000) (43,958)
Principal collections of notes
receivable - affiliate - 752
Principal collections of notes
receivable - other - 16,204
</TABLE>
-7(a)-
<PAGE>
CORRECTIONS SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
Nine Months Ended
September 30, September 30,
1998 1997
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM INVESTING
ACTIVITIES (Cont'd):
Principal collections of direct
financing leases $ - $ 586
Purchase of property and equipment (2,365) -
Proceeds from sale of electronic
monitoring business 63,000 -
Net cash (used in) provided by
investing activities 14,013 (26,416)
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of subsidiary (16,153) -
Purchase of treasury stock (199,070) -
Sale of treasury stock - 16,138
Issuance of common stock - 197,645
Net cash provided by (used in)
financing activities (215,223) 213,783
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (278,959) 219,874
CASH AND CASH EQUIVALENTS -
Beginning of period 464,577 336,678
CASH AND CASH EQUIVALENTS -
End of period $ 185,618 $ 556,552
See accompanying notes to consolidated financial statements.
-7(b)-
<PAGE>
CORRECTIONS SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
September 30, 1998
(Unaudited)
NOTE 1 - FAIR PRESENTATION
The balance sheet as of September 30, 1998, the statement of operations
for the three months and nine month ended September 30, 1998 and 1997,
the statement of shareholders' equity as of September 30, 1998 and the
statement of cash flows for the nine months ended September 30, 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 September 30, 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 nine months ended September 30, 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 subsidiary, Corrections Systems International, Inc.
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, 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 SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
September 30, 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 $692,113 at September 30, 1998, and $974,660 at
December 31, 1997. The cost of these investments is $1,086,889 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 - OTHER MATTERS
On August 19, 1998, effective August 31, 1998, the Company acquired
1,309,925 shares of its own Common Stock from certain officers and major
shareholders of the Company in exchange for all of the stock of the
wholly-owned subsidiary, Hi-Tech Leasing, Inc.
On August 31, 1998, a privately-held entity controlled by the Company's
principal shareholder and his wife, who is also an officer and director
of the Company, acquired Professional Programmers, Inc. ("PPI") for a
purchase price in the amount of $3,000. In completing the second stage
of this transaction, PPI acquired all of the assets of the Company used
and useful in the operation of its electronic monitoring business as
presently constituted for cash in the total amount of $63,000.
The activity of the former subsidiaries is included in the financial
statements through August 31, 1998.
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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 September 30, 1998, the Company had current
assets of $958,577 as compared to $1,684,941 at December 31, 1997, total assets
of $960,472 as compared to $1,758,638 at December 31, 1997, and shareholders'
equity of $938,307 as compared to $1,666,340 as of December 31, 1997. The
decrease in current assets, total assets and shareholders' equity was primarily
the result of the Company's sale of its wholly-owned subsidiaries, Hi-Tech
Leasing, Inc. and Professional Programmers, Inc., and the sale of its
electronic monitoring business on August 31, 1998. Upon completion of those
transactions, the Company had, and now has, no commercial operations.
Liquidity. The Company had a net decrease in cash and cash equivalents
for the nine months ended September 30, 1998 of $278,959, and cash and cash
equivalents at September 30, 1998 of $185,618, as compared to an increase in
cash and cash equivalents of $219,874 and cash and cash equivalents of
$556,552, for the nine months ended September 30, 1997.
The Company continues to have no fixed executory obligations.
Capital Resources. The Company has no 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.
Results of Operations. The Company's revenues for the period ended
September 30, 1998, were derived from sales, lease income and repairs and
maintenance income.
The Company's revenues decreased $25,146, or approximately 10%, to
$221,421 for the nine months ended September 30, 1998, as compared to
$246,567 for the same period of 1997 with a decline in the sale of new
monitoring units. The Company's revenues increased $8,580, or
approximately 10%, to $87,350 for the three months ended September 30,
1998, as compared to $78,770 for the same period of 1997 due to a
comparative increase in new monitoring unit sales.
Costs and expenses decreased $48,419 or approximately 13% to $321,264 for
the nine months ended September 30, 1998, as compared to $369,683 for the same
period last year due principally to a decrease in operating and selling,
general and administrative expenses.
-10-
<PAGE>
The Company sustained a net loss of $174,371 for the nine months ended
September 30, 1998, as compared to a net loss of $144,943 for the same period
last year. The increased net loss was primarily due to a decrease in the sale
of new units, the sale of its electronic monitoring business on August 31,
1998, and the increase in loss of the equity in its previously owned
subsidiaries, Hi-Tech Leasing, Inc. and Professional Programmers, Inc.
Costs and expenses decreased $37,844, or approximately 28%, to $98,701 for
the three months ended September 30, 1998, as compared to $136,545 for the same
period last year, principally due to a decrease in selling and general and
administrative expenses. The Company realized a net loss of $104,162 for the
three months ended September 30, 1998, as compared to a net loss of $98,780 for
the same period last year. The increase in net loss was largely due to the
sale of its electronic monitoring business on August 31, 1998, and the increase
in loss of the equity in its previously owned subsidiaries, Hi-Tech Leasing,
Inc. and Professional Programmers, Inc.
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<PAGE>
CORRECTIONS SERVICES, INC. AND SUBSIDIARY
PART II - OTHER INFORMATION
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
The Registrant filed two (2) Current Reports on Form 8-K during this
reporting period on the following dates:
August 19, 1998
August 31, 1998
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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: October 30, 1998 BY:/s/Norman H. Becker
Norman H. Becker, President
Date: October 30, 1998 By:/s/Diane Martini
Diane Martini, Secretary/Treasurer
Date: October , 1998 By:
Frank R. Bauer, Vice President
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</TABLE>
<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 the 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-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 185,618
<SECURITIES> 692,113
<RECEIVABLES> 74,198
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 958,577
<PP&E> 58,016
<DEPRECIATION> 57,792
<TOTAL-ASSETS> 960,472
<CURRENT-LIABILITIES> 22,165
<BONDS> 0
0
0
<COMMON> 728
<OTHER-SE> 1,510,274
<TOTAL-LIABILITY-AND-EQUITY> 960,472
<SALES> 89,689
<TOTAL-REVENUES> 221,421
<CGS> 125,055
<TOTAL-COSTS> 321,264
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (174,371)
<INCOME-TAX> 0
<INCOME-CONTINUING> (174,371)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (174,371)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
