SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1999
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 No.)
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)
Securities registered pursuant to Section 12(b) of the Act
None None
(Title of Each Class) (Name of Each Exchange
on which Registered)
Securities registered pursuant to Section 12(g) of the Act
None None
(Title of Each Class) (Name of Each Exchange
on which Registered)
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 [ ]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of March 17, 2000, was approximately $1,400,000.
The number of shares of Common Stock, $.0001 par value, of the Registrant
issued as of March 17, 2000, was 7,586,825 shares. Of that total 6,276,900
shares are outstanding. The Company has 1,309,925 shares in treasury.
<PAGE>
PART I
------
ITEM 1. BUSINESS
Background
- ----------
Corrections Services, Inc. (the "Company") was incorporated in
the State of Florida in 1984. The Company was organized for the
purpose of developing and marketing a house arrest program to
relieve the need for incarceration in a jail or similar facility.
The Company was commercially active in that area until mid-1998.
Since August 31, 1998 the Registrant has had no remaining
commercial operations, intending to conserve its assets while
seeking one or more opportunities for merger, acquisition or
suitable commercial enterprise.
Physicians Acceptance Corporation
- ---------------------------------
On February 8, 1999, the Company acquired 15% of the issued
and outstanding capital stock of Physicians Acceptance Corporation
for cash in the amount of $150,000. At the time of the
acquisition, the Company intended to pursue acquisition of all of
the ownership interest in Physicians Acceptance Corporation ("PAC")
following due inquiry and investigation toward that end,
particularly with respect to the details of the business and
intended business of PAC and its financial history, current
condition and commercial outlook.
After extensive discussion, it became apparent that the paths
envisioned by respective managements were divergent and that the
original mutual view of the Company's acquisition of Physicians
Acceptance Corporation as a wholly owned subsidiary was not
appropriate for either company.
The Company's intent to acquire PAC as a wholly owned
subsidiary had not been reduced to a definitive agreement. After
the Registrant's purchase of fifteen (15%) percent of the PAC
capital stock, the Company concluded that further pursuit of the
acquisition was not advisable. The Company proposed recission of
the stock purchase, PAC was agreeable, and terms for its
repurchase of the 15% ownership interest from the Company were
negotiated and agreed to on May 10, 1999.
Pursuant to the recission agreement, Physicians Acceptance
Corporation repurchased the PAC capital stock acquired by the
Company on July 1, 1999. The repurchase price was the same
$150,000 paid by the Registrant to PAC on or about February 8,1999.
PAC was not able to pay the full purchase price on or before July
1, 1999, and, pursuant to the recission agreement, it entered into
<PAGE> 2
a promissory note ("Note") for the full amount payable on or before
June 30, 2000, bearing interest payable monthly at the rate of
eight percent (8%) per annum. Upon acceptance of the note, the
Company's purchase of capital stock of Physicians Acceptance
Corporation was fully rescinded. The unpaid balance of the Note,
$150,000, plus accrued interest in the amount of $5,031 was fully
reserved at December 31, 1999.
Physicians Acceptance Corporation was formed to arrange
patient financing for elective surgical and non-surgical
procedures. Physicians Acceptance Corporation perceives that an
increase in percentage of healthcare industry reimbursement is
comprised of patient payments or partial payments, especially for
elective medical procedures. Upon inquiry and investigation for
the purpose of establishing parameters for a definitive acquisition
agreement, the Company came to view the business and proposed
business of Physicians Acceptance Corporation as unsuited to the
Company's view of appropriate lines of business in which it would
be well advised to engage.
Truck Farm, Inc.
- ----------------
On March 3, 2000, the Registrant entered into a Letter of
Intent to acquire all of the assets and operations of Truck Farm,
Inc., a closely-held South Carolina corporation with principal
offices in Georgetown, South Carolina. Pursuant to the terms of
the Letter of Intent, during the course of mutual due diligence by
the Registrant and by Truck Farm, Inc., the Registrant will
determine to acquire either all of the issued and outstanding
capital stock of Truck Farm, Inc. or all of its assets in a
transaction in which the business operations of Truck Farm, Inc.
will become the business operations of the Registrant upon
completion of the acquisition transaction. It is contemplated by
both companies that the Registrant's Board of Directors will be
comprised in whole or in majority part of the Directors of Truck
Farm, Inc. and that the Registrant will change its name to reflect
its new commercial operations.
The intended acquisition transaction contemplates an exchange
of Truck Farm common stock or assets in exchange for restricted
Common Stock of Corrections Services, Inc. upon terms and
conditions to be determined following the completion of both
companies' due diligence, a process which is anticipated to take
approximately ninety days from the date of the Letter of Intent.
While there can be no assurance that such due diligence will not
uncover one or more insurmountable obstacles to completion of the
intended acquisition transaction, the Registrant anticipates that
it will be able to develop and enter into a definitive merger or
asset purchase agreement, as the case may be, upon completion of
<PAGE> 3
the mutual due diligence efforts.
The Registrant is informed that Truck Farm, Inc. was
incorporated in the state of South Carolina on August 15, 1995.
Since its inception, Truck Farm, Inc. has operated and currently
operates a sales and service business catering to 4x4 and street
truck owners for engines, equipment and accessories from a brick
and mortar location in Georgetown, South Carolina and from its
Internet facilities known as TruckFarm.com. While it may not be
ultimately possible to do so, Truck Farm, Inc. anticipates multi-
state expansion and expects to add 4x4 and street truck vehicle
sales and service operations to its current sales and service of
engines, equipment and accessories.
The Registrant and Truck Farm, Inc. are presently engaged in
their respective due diligence. The Company expects to enter into
a definitive agreement of merger or purchase of assets, as the case
may be, upon completion of those efforts. There can of course be
no assurance that one or more insurmountable obstacles to the
companies' present intention in the contemplated transaction will
not arise and preclude the Company from entering into a definitive
agreement, or from implementing the terms of the definitive
agreement in the near term.
Employees
- ---------
Mr. Norman H. Becker and Mr. Frank R. Bauer, are officers of
the Company each of whom currently devotes approximately ten (10%)
percent of their time to its activities. Ms. Diane Martini, an
officer of the Company, currently devotes approximately eighty
(80%) percent of her time to its activities. The Company has no
other full-time employees See Part III., Item 10, Directors and
Executive Officers of the Registrant.
ITEM 2. PROPERTIES
The Company occupies its principal office space on a month-to-
month basis at a rental and administrative charge of $2,600 per
month ($31,200 per annum).
ITEM 3. LEGAL PROCEEDINGS
The Company is not now a party to any litigation or, to its
knowledge, threatened litigation.
<PAGE> 4
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the Company's security
holders during the fourth quarter of fiscal 1999, through
solicitation of proxies or otherwise.
PART II
-------
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The following table sets forth the range of bid and asked
prices for the Company's Common Stock on the Over-The-Counter
Market for the period indicated, as reported by the National
Quotation Bureau, Inc. The Common Stock is traded on the
electronic bulletin board under the symbol CRSE. The figures shown
represent inter-dealer quotations without retail mark-up, mark-down
or commission and may not necessarily represent actual
transactions.
<TABLE>
<CAPTION>
COMMON STOCK
------------
Period Bid Price Asked Price
- ------ --------- -----------
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
First Quarter, 1998 $0.35 $0.25 $0.40 $0.30
Second Quarter, 1998 $0.40 $0.30 $0.45 $0.32
Third Quarter, 1998 $0.45 $0.35 $0.50 $0.40
Fourth Quarter, 1998 $0.375 $0.30 $0.42 $0.37
First Quarter, 1999 $0.35 $0.25 $0.40 $0.30
Second Quarter, 1999 $0.40 $0.30 $0.45 $0.32
Third Quarter, 1999 $0.48 $0.37 $0.52 $0.44
Fourth Quarter, 1999 $0.50 $0.35 $0.55 $0.45
January 1, through
March 17, 2000 $0.60 $0.50 $0.81 $0.70
</TABLE>
(b) Holders. As of March 15, 2000, the approximate number of
recordholders of Common Stock of the Registrant was 975.
The Company is unable to determine the actual number of
beneficial holders of its Common Stock at March 17, 2000 due to
Common Stock held for stockholders "in street name", but estimates
the current total to be approximately 1150.
(c) Dividends. Registrant has paid no dividends since inception
and does not now anticipate paying cash dividends in the
foreseeable future. See Item 7.(a) Financial Condition.
<PAGE> 5
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Summary of Statement of Operations:
- -----------------------------------
As of As of As of As of As of
12/31/99 12/31/98 12/31/97 12/31/96 12/31/95
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenue ($ 23,657) $ 37,838 $ 960 $ 93,404 ($ 8,205)
Oper. Exp. $ 333,775 $ 253,611 $ 314,452 $ 290,426 243,456
Net Income (Loss) ($ 357,432) ($ 152,362)($ 137,759) $ 113,003 ($ 22,717)
Weighted No. of
shs. outstanding 7,563,050 6,804,336 5,936,893 5,126,900 5,126,900
Net Income (Loss)
per sh. Common
Stk. outstanding ($ .05) ($ .02)($ .02) $ .02 ($ .004)
(See Note A-Notes
to Fin. Stmts.)
</TABLE>
<TABLE>
<CAPTION>
Summary Balance Sheet Information:
- ----------------------------------
As of As of As of As of As of
12/31/99 12/31/98 12/31/97 12/31/96 12/31/95
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Total Assets $ 666,273 $ 945,319 $1,758,638 $1,205,096 $1,087,236
Total Current $ 1,390 $ 2,035 $ 92,298 $ 135,090 $ 120,382
Liabilities
Tot. Current Assets $ 664,602 $ 943,446 $1,684,941 $1,199,917 $1,079,708
Stkholders' Equity $ 664,883 $ 943,284 $1,666,340 $1,070,006 $ 957,003
Cash Dividends $ -0- $ -0- $ -0- $ -0- $ -0-
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
(a) Financial Condition. As of December 31, 1999 the Company
had current assets of $664,602 compared to $943,446 at December 31,
1998, total assets of $666,273 compared to $945,319 at December 31,
1998 and shareholders equity of $664,883 as compared to $943,284 at
December 31, 1998. The decrease in current assets, total assets
and shareholders' equity was primarily the result of the operating
loss incurred during the year ended December 31, 1999 resulting
from the Companies lack of commercial operations with continuing
operating expenses.
Liquidity. The Company had a net decrease in cash and cash
equivalents for the year ended December 31, 1999 of $51,534, and
cash and cash equivalents at the end of the year of $22,059 as
<PAGE> 6
compared to a decrease in cash and cash equivalents of $390,984,
and cash and cash equivalents of $73,593 for the year ended
December 31, 1998. See Part II, Item 8., Financial Statements and
Supplementary Data.
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 commitments in place and no
immediate need for additional financial credit. There can be no
assurance that it will be able to secure additional credit
borrowing, if needed.
Results of Operations. The Company's revenues for the fiscal
period ended December 31, 1999, were derived principally from
investment activities.
The Company's revenues decreased $61,495 to ($23,657) for the
fiscal year ended December 31, 1999, as compared to $37,838 for the
same period of 1998. The principal reason for decreased revenue
was an increase in the loss on marketable securities, and a
decrease in interest and dividend income.
Operating expenses increased $80,164 to $333,775 as compared
to $253,611 for the same period last year, principally due to the
issuance of common stock for services. The Company realized a net
loss of ($357,432) for the fiscal year ended December 31, 1999, as
compared to a net loss of ($152,362) for the same period last year.
The increase in net loss was primarily due to an increase in
realized and unrealized loss on marketable securities, and the
increased 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 for the year ended December 31, 1999.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See financial statements and supplementary data attached as
Exhibit 1.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
<PAGE> 7
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a)(b) Identification of Directors and Executive Officers
--------------------------------------------------
Name Age Offices Held
- ---- --- ------------
Norman H. Becker 62 President/Director
Frank Bauer 55 Vice President/Director
Diane Martini 52 Secretary/Treasurer/Director
Eugene M. Kennedy 62 Director
Robert B. Yeakle 59 Director
(1)(e) Business Experience.
--------------------
Norman H. Becker has been a director of the Company since July
1, 1987. On January 15, 1993, Mr. Becker was appointed the
Company's President. Since January, 1985, Mr. Becker has also been
self-employed in the practice of public accounting in Hollywood,
Florida. Mr. Becker is a graduate of City College of New York
(Bernard Baruch School of Business) and is a member of a number of
professional accounting associations including the American
Institute of Certified Public Accountants, the Florida Institute of
Certified Public Accountants and the Dade Chapter of Florida
Institute of Certified Public Accountants.
Frank R. Bauer has been an Officer and a director of the
Company since February 15, 1988 and its Vice President since
January 4, 1993 through September, 1996. Mr. Bauer was also
President and Chief Executive Officer of Specialty Device
Installers, Inc., a privately held Florida corporation engaged in
outside plant utility and construction contracting. In September
of 1996 Specialty Device Installers, Inc. was acquired by Guardian
International, Inc. Mr. Bauer is presently a manager at Guardian
International, Inc. Mr. Bauer holds the Bachelor of Business
Administration Degree from Stetson University in Deland, Florida.
Diane Martini has been Secretary/Treasurer and a director of
the Company since January 12, 1993. Ms. Martini is also President
and Chief Executive Officer of Financial Communications, Inc., a
privately held Florida public relations and business consulting
firm. Ms. Martini is married to the Company's principal
shareholder, Ronald A. Martini. See Part IV., Item 12.
<PAGE> 8
Eugene M. Kennedy has been a director of the Company since
March 15, 1989. Mr. Kennedy has also been the Company's legal
counsel since September, 1985. Mr. Kennedy operates his own
private law practice in Fort Lauderdale, Florida. He holds the
Bachelor of Science Degree in Physics from the City University of
New York, has attended the Masters in Business Administration
Program at Adelphi University, in Garden City, New York, and holds
the Juris Doctor Degree from the University of Miami School of Law
in Coral Gables, Florida.
Robert B. Yeakle resigned as an officer of the Company on May
1, 1992. Until that point, he was the Company's President and a
Director and had been since June 22, 1989. Mr. Yeakle continues as
a member of the Company's Board. In January, 1988 Mr. Yeakle
retired from Alexander Proudfoot & Company in West Palm Beach,
Florida, having spent the prior 21 years in various executive
management positions within the Proudfoot organization, to manage
his personal investments. Alexander Proudfoot & Co. is a publicly
held management consulting company traded on the London Stock
Exchange. Mr. Yeakle is currently Vice President, Sales Marketing,
a founder and current shareholder of RMC, Inc., a consulting
company. Mr. Yeakle attended the School of Engineering at Rutgers
University in New Brunswick, New Jersey.
ITEM 11. EXECUTIVE COMPENSATION
Compensation
- ------------
Messrs. Norman H. Becker and Frank Bauer devote approximately
10% of their time, respectively, to the Company's affairs. Ms.
Diane Martini currently devotes approximately 80% of her time to
the Company's affairs. There are no employment agreements in
effect or presently contemplated. There was no compensation
received by Executive Officers of the Company during the year ended
December 31, 1999.
<PAGE> 9
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
SUMMARY COMPENSATION TABLE
- ------------------------------------------------------------------------------------------------------------------
Annual Compensation Long-Term Compensation
--------------------------------------- --------------------------
Awards Payouts
----------------------
Name and Other Restricted All
Principal Annual Stock Options/ LTIP Other
Position Year Salary Bonus(2) Compensation Awards SARS Payouts Compensation
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Norman H. Becker 1998 $ -0- -- -- -- -- -- --
President (1) 1999 $ -0- -- -- -- -- -- --
(since 1/15/93)
Frank Bauer (1) 1998 $ -0- -- -- -- -- -- --
Vice-President 1999 $ -0- -- -- -- -- -- --
President
Diane Martini 1998 $27,000 -- -- -- -- -- --
Secretary/ 1999 $ -0- -- -- -- -- -- $ 12,750
Treasurer (2)
(since 01/12/93)
All Executive 1998 $27,000 -- -- -- -- -- --
Officers & Former 1999 $ -0- -- -- -- -- -- $ 12,750
Executive Officers
as a Group (3)
Persons (1)(2)
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Mr. Becker received a total of $23,537 in accounting fees from
the Company during 1999.
(2) Diane Martini received $12,750 in stock for services rendered
during the year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
(b) Security of Ownership of Management
-----------------------------------
<TABLE>
<CAPTION>
Name of Amount and Nature Percent
Title of Beneficial of Beneficial of
Class Owner Ownership Class(1)
- -------- ---------- ----------------- --------
<S> <C> <C> <C>
Common Stock Diane Martini (2) 135,000 Shares 2.2%
Common Stock Norman H. Becker 341,725 Shares 5.4%
Common Stock Frank R. Bauer 131,500 Shares 2.1%
Common Stock Eugene M. Kennedy 81,000 Shares 1.3%
</TABLE>
<PAGE> 10
Contd..
<TABLE>
<CAPTION>
Name of Amount and Nature Percent
Title of Beneficial of Beneficial of
Class Owner Ownership Class(1)
- -------- ---------- ----------------- --------
<S> <C> <C> <C>
Common Stock Ronald A. Martini (2) 640,806 Shares 10.2%
Common Stock Robert B. Yeakle 300,000 Shares 4.8%
Common Stock Corp. Invest. Assoc.(2) 870,000 Shares 13.7%
Common Stock All Officers and
Directors as a Group
(5 persons) 989,225 Shares 15.8%
- ------------------------------------------------------------------------------------------------------------------
(1) Based upon 6,276,900 shares outstanding at March 20, 2000.
(2) While Ronald A. Martini disclaims beneficial ownership of the
shares of Common Stock owned by Diane Martini and Corporate
Investment Associates, they may be deemed controlled by him.
When aggregated, Mr. Martini may be deemed in control of
1,645,806 shares of the Company's Common Stock, or 26.2% of
the Class.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with Management and Others
- ---------------------------------------
The Company paid a total of $67,550 to various affiliates of
the Company's principal shareholder, Ronald A. Martini, in the
nature of consulting fees, rentals and office and administrative
services. See "Financial Statements - Notes to Consolidated
Financial Statements, Note G".
Certain Business Relationships
- ------------------------------
During the year ended December 31, 1999, the Company paid its
director, Eugene M. Kennedy, $12,828 in legal fees and costs
reimbursement in connection with legal services rendered to the
Company by his law firm.
In addition, the Company paid its President and director,
Norman H. Becker accounting fees of $23,537.
<PAGE> 11
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS
ON FORM 8-K
Financial Statements:
Report of Independent Certified Public Accountant.
Consolidated Balance Sheet - December 31, 1999 and
December 31, 1998.
Consolidated Statement of Operations - Three Years Ended
December 31, 1999.
Consolidated Statement of Shareholders' Equity - Three
Years Ended December 31, 1999.
Consolidated Statement of Cash Flows - Three Years Ended
December 31, 1999.
Notes to Consolidated Financial Statements.
2. Schedules:
All other financial statements not listed have been
omitted since the required information is included in the
financial statements or the notes thereto, or is not
applicable or required.
Exhibits:
Articles of Incorporation and By-Laws:
Articles of Incorporation and By-Laws incorporated by
reference to the filing of the original registration
statement on Form S-18.
<PAGE> 12
Instruments defining the rights of security holders,
including indentures:
Not applicable.
Voting Trust Agreement:
Not applicable.
Material Contracts:
Not applicable.
Statement Re: Computation of per share income (loss):
See Note "A"., Notes to Consolidated Financial Statements
and Statement of Operations Three Years Ended December
31, 1999.
Statements RE: Computation of Ratios:
Not applicable.
Annual Report to Security Holders, Form 10-Q or quarterly
report to security holders:
Not applicable.
Letter re: Change in accounting principles:
Not applicable.
Previously unfiled documents:
Not applicable.
Other Documents or Statements to Security Holders:
Not applicable.
Subsidiaries of the Registrant:
Corrections Services International, Inc.
Published report regarding matters submitted to vote of
Security Holders:
Not applicable.
<PAGE> 13
Consents of experts and counsel:
Not applicable.
Power of Attorney:
Not applicable.
Additional Exhibits:
There were no current reports on Form 8-K filed by the
Registrant during the fourth quarter of 1999.
On March 3, 2000, the Registrant filed a Current Report
on Form 8-K dated February 15, 2000 and reporting the
Registrant's change of certifying auditors.
On March 9, 2000, the Registrant filed a Current Report
on Form 8-K dated March 3, 2000, reporting that the
Registrant had entered into a Letter of Intent to acquire
all of the assets and operations of Truck Farm, Inc., a
closely-held South Carolina corporation. See Part I.,
Item 1. Business, Truck Farm, Inc.
<PAGE> 14
SIGNATURES
----------
Pursuant to the requirements of the Securities and Exchange
Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized,
in the City of Fort Lauderdale, State of Florida, on the 28 day
of March, 2000.
CORRECTIONS SERVICES, INC.
BY:/s/Norman Becker
Norman H. Becker, President
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the Registrant in the capacities and on the dates
indicated.
Signatures Title Date
(i) Principal Executive Officer President March 28, 2000
/s/Norman Becker
Norman H. Becker
(ii) Principal Financial and Secretary March 28, 2000
Accounting Officer
/s/Diane Martini
Diane Martini
(iii) A Majority of the Board of
Directors
/s/Frank Bauer Director March 28, 2000
Frank Bauer
/s/Norman Becker Director March 28, 2000
Norman H. Becker
Director March __, 2000
Eugene M. Kennedy
/s/Robert Yeakle Director March 28, 2000
Robert B. Yeakle
</TABLE>
CORRECTIONS SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
<PAGE>
CONTENTS
--------
PAGE
----
INDEPENDENT AUDITOR'S REPORT . . . . . . . . . . . . . . . . . . . . . . 1
CONSOLIDATED BALANCE SHEETS. . . . . . . . . . . . . . . . . . . . . . . 2
CONSOLIDATED STATEMENTS OF OPERATIONS. . . . . . . . . . . . . . . . . . 3
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY. . . . . . . . . . . . . 4
CONSOLIDATED STATEMENTS OF CASH FLOWS. . . . . . . . . . . . . . . . . . 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS . . . . . . . . . . . . .6 - 11
<PAGE>
BAUM & COMPANY, P.A.
- -----------------------------------------------------------------------------
Certified Public Accountants
Board of Directors
Corrections Services, Inc. and Subsidiary
Fort Lauderdale, Florida
INDEPENDENT AUDITOR'S REPORT
----------------------------
I have audited the accompanying consolidated balance sheets of Corrections
Services, Inc. and Subsidiary as of December 31, 1999 and 1998, and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the three years ended December 31, 1999. These
consolidated financial statements are the responsibility of the Company's
management. My responsibility is to express an opinion on these consolidated
financial statements based on my audits.
I conducted my audits in accordance with generally accepted auditing
standards. Those standards require that I 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
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall consolidated financial statement presentation.
I believe that my audits provide a reasonable basis for my opinion.
In my opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Corrections Services, Inc. and Subsidiary as of December 31, 1999 and 1998,
and the results of its consolidated operations and its consolidated cash
flows for the three years ended December 31, 1999, in conformity with
generally accepted accounting principles.
/s/Baum & Company, P.A.
February 20,2000
1515 University Drive - Suite 209 - Coral Springs, Florida 33071
Tel: 954-752-1712 - 1-888-CPA-3770 - Fax: 94-752-7041 - E-mail: jbaumcpa.com
<PAGE> F-1
CORRECTIONS SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
ASSETS
1999 1998
--------- ---------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 22,059 $ 73,593
Investment in marketable securities 523,479 771,283
Accounts receivable - affiliate 12,500 -
Dividends receivable 8,475 28,223
Note receivable 95,000 65,000
Other 3,089 5,347
--------- ---------
Total Current Assets 664,602 943,446
--------- ---------
PROPERTY AND EQUIPMENT - 202
--------- ---------
OTHER ASSETS
Security Deposits 1,671 1,671
--------- ---------
$ 666,273 $ 945,319
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
-2(a)-
<PAGE> F-2
CORRECTIONS SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
1999 1998
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable and
accrued expenses $ 1,390 $ 2,035
------------ ------------
Total Current Liabilities 1,390 2,035
------------ ------------
SHAREHOLDERS' EQUITY
Common stock $.0001 par value;
10,000,000 shares authorized;
7,586,825 and 7,276,900 shares issued
in 1999 and 1998 respectively and
6,276,900 and 5,966,975 shares outstanding
in 1999 and 1998 759 728
Additional paid-in capital 2,900,667 2,821,667
Accumulated deficit (1,646,816) (1,289,384)
------------ ------------
1,254,610 1,533,011
Less treasury stock, 1,309,925 shares
at December 31, 1999 and 1998, at cost (589,727) (589,727)
------------ ------------
Total shareholders' equity 664,883 943,284
------------ ------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 666,273 $ 945,319
============ ============
</TABLE>
-2(b)-
<PAGE> F-3
CORRECTIONS SERVICES, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE YEARS ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
1999 1998* 1997*
---------- ----------- -----------
<S> <C> <C> <C>
REVENUES:
Interest and Divends $ 58,874 $ 88,825 $ 72,934
Realized and unrealized
gains(losses) in marketable
securities (95,031) (50,987) (71,974)
Consulting fees 12,500 - -
---------- ----------- -----------
(23,657) 37,838 960
OPERATING EXPENSES:
General and administrative 333,775 253,611 314,452
---------- ----------- -----------
(LOSS) FROM OPERATIONS (357,432) (215,773) (313,492)
---------- ----------- -----------
OTHER INCOME (EXPENSE):
Loss on sale of electronic
monitoring business - (18,402) -
Income from discontinued
operations - 81,813 175,733
---------- ----------- -----------
- 63,411 175,733
---------- ----------- -----------
NET LOSS $ (357,432) $ (152,362) $ (137,759)
========== =========== ===========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 7,563,050 6,804,336 5,936,893
========== =========== ===========
BASIC INCOME (LOSS)PER
COMMON SHARE:
Continuing operations $ (.05) $ (.02) $ (.05)
Discontinued operations - - .03
---------- ----------- -----------
Net income (loss) $ (.05) $ (.02) $ (.02)
========== =========== ===========
</TABLE>
*Reclassified for comparative purposes.
See accompanying notes to consolidated financial statements.
-3-
<PAGE> F-4
CORRECTIONS SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
THREE YEARS ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
Common Stock
$.0001 Par Value Additional
Authorized 10,000,000 Shares Paid-In Accumulated Treasury
Shares Amount Capital (Deficit) Stock Total
--------- -------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance - December 31, 1996 5,126,900 528 2,095,391 (999,263) (26,650) 1,070,006
Purchase of treasury shares (522,500) - - - (94,985) (94,985)
Sale of treasury shares 462,500 - - - 75,952 75,952
Acquisition of:
Hi-Tech Leasing 2,000,000 200 736,788 - - 736,988
Professional
Programmers, Inc. 150,000 - (10,512) - 26,650 16,138
Net loss for the 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) - - - (589,727) (589,727)
Sale of treasury shares 60,000 - - - 19,033 19,033
Net loss for the period - - - (152,362) - (152,362)
--------- ------- ---------- ---------- --------- ----------
Balance - December 31, 1998 5,966,975* 728 2,821,667 (1,289,384) (589,727) 943,284
Issuance of common stock
For services 309,925 31 79,000 - - 79,031
Net loss for the period - - ( 357,432) - (357,432)
--------- ------- ----------- ------------ ---------- ----------
Balance - December 31, 1999 6,276,900 759 $ 2,900,667 $(1,646,816) $ (589,727) $ 664,883
* Shown on the accompanying
Balance Sheet as follows:
Issued: 7,586,825
Treasury shares (1,309,925)
----------
6,276,900
==========
</TABLE>
See accompanying notes to consolidated financial statements.
-4-
<PAGE> F-5
CORRECTIONS SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE YEARS ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
1999 1998 1997
---------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss) $ (357,432) $ (152,362) $ (137,759)
---------- ----------- -----------
Adjustments to reconcile
net income (loss) to net cash
(used in) provided by
operating activities:
Depreciation - 1,523 1,962
Provisions for doubtful accounts 155,031
Equity in loss of
sold subsidiaries - 32,801 -
(Gain) loss on sale of marketable
securities 24,681 (28,192) (60,781)
Allowance for market decline
of securities 70,350 64,898 132,755
Loss on sale of electronic
monitoring business - 18,402 -
Change in operating assets
and liabilities (net of
business sold):
(Increase) decrease in
trade accounts receivable 7,248 31,137 19,608
Decrease (increase) in inventories - 29,559 (4,656)
(Increase) Decrease in accounts
receivable - other - (17,547) 15,811
(Increase) Decrease in other assets (2,773) 1,840 (4,712)
(Decrease) increase in accounts
payable and accrued expenses (645) (31,154) (11,577)
Increase (decrease) in
deferred revenue - (7,865) (31,215)
Purchase of marketable securities (214,677) (269,115) (360,240)
Proceeds from sale of
marketable securities 367,652 151,301 402,017
---------- ----------- -----------
Total adjustments 406,867 (22,412) 98,972
---------- ----------- -----------
Net cash provided by (used in)
operating activities 49,435 (174,774) (38,787)
---------- ----------- -----------
</TABLE>
Continued on next page
-5(a)-
<PAGE> F-6
CORRECTIONS SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE YEARS ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(Continued)
1999 1998 1997
---------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM INVESTING
ACTIVITIES:
Advances on notes
receivable - affiliate $ (30,000) $ (95,000) $ -
Advances on notes
receivable - other (150,000) - (78,958)
Principal collection of
notes receivable - affiliate - 30,000 1,897
Principal collection of
notes receivable - other - - 28,482
Principal collection of direct
financing leases - - 1,482
Purchase of property and equipment - (2,365) -
Proceeds from sale of subsidiary - 3,378 -
Proceeds from sale of electronic
monitoring business - 63,000 -
---------- ----------- -----------
Net cash (used in)
financing activities (180,000) (987) (47,097)
---------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of treasury stock - - 16,138
Issuance of common stock 79,031 - 197,645
Purchase of treasury stock - (199,070) -
Sale of subsidiary - (16,153) -
---------- ----------- -----------
Net cash provided by (used in)
financing activities 79,031 (215,223) 213,783
---------- ----------- -----------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS (51,534) (390,984) 127,899
CASH AND CASH EQUIVALENTS -
Beginning of year 73,593 464,577 336,678
---------- ----------- -----------
End of year $ 22,059 $ 73,593 $ 464,577
---------- ----------- -----------
See accompanying notes to consolidated financial statements.
-5(b)-
<PAGE> F-7
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Capitalization - Corrections Services, Inc.
(the "Company") was incorporated under the laws of the State
of Florida on September 14, 1984. The Company's articles of
incorporation originally provided for the issuance of 100
shares of common stock, with a par value of $5 per share.
On November 13, 1985, the authorized number of shares was
increased to 10,000,000 shares, with a par value of $.0001
per share. In that connection, the 100 shares of common
stock outstanding prior to that date were exchanged for
2,115,000 shares.
General - On August 31, 1998, the Company sold its interest
in its electronic monitoring business and is presently
seeking merger opportunities.
Principles of Consolidation - The consolidated financial
statements include the accounts of the Company, and its
wholly-owned subsidiaries, Corrections Systems
International, Inc., Professional Programmers, Inc. and Hi-
Tech Leasing, Inc. from the date of their acquisition.
Professional Programmers, Inc. and Hi-Tech Leasing, Inc. are
included through the date of their disposition. All
significant intercompany accounts and transactions have been
eliminated.
Cash and Cash Equivalents - For purposes of the balance
sheet and statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of
three months or less to be cash equivalents.
Investment in Marketable Securities - The Company's
investment in marketable securities consists of trading
securities which are carried at market value in the
accompanying balance sheets. Unrealized gains and losses
resulting from fluctuations in market price are reflected in
the statement of operations.
Property and Equipment - Property and equipment is recorded
at cost. Depreciation is computed using the straight-line
method over the five year estimated useful lives of the
assets.
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 and
disclosure of contingent assets and liabilities at the date
of the financial statement and the reported amounts of
revenues and expenses during the reporting period. Actual
results could differ from those estimates.
-6-
<PAGE> F-8
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Earnings (Loss) per Share - In 1997, the financial
accounting standards board issued SFAS No. 128, earnings per
share. Basic earnings (loss) per share is computed by
dividing income (loss) available to common shareholders by
the weighted average number of common shares outstanding for
the year.
Income Taxes - Deferred taxes are provided on the liability
method whereby deferred tax assets are recognized for
operating loss carryforwards. Deferred tax assets are
reduced by a valuation allowance, when, in the opinion of
management, it is more likely than not that some portion or
all of the deferred tax asset will not be realized.
NOTE B - PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
1999 1998
-------- --------
Office furniture and equipment 39,315 54,846
Less: accumulated depreciation 39,315 54,644
-------- --------
$ - $ 202
======== ========
NOTE C - NOTE RECEIVABLE - RELATED PARTIES
Notes Receivable Affiliates consists of the following:
1999 1998
-------- --------
10% Unsecured Note. Due on
demand to a company related
by common officers and
shareholders $ 20,000 $ 20,000
10% Unsecured Note. Due on
demand from the company who
acquired the home monitoring
business of the Company. The
companies are also affiliated
by common officers and
shareholders 45,000 45,000
-7-
<PAGE> F-9
NOTE C - NOTE RECEIVABLE - AFFILIATE (Cont'd)
1999 1998
--------- ---------
8% Note Receivable. Due from
an individual who is an officer
and director of the Company. 30,000 -
--------- ---------
$ 95,000 $ 65,000
========= =========
Interest earned on notes amount to $7,623 in 1999 and $2,193 in
1998.
NOTE D - INCOME TAXES
Components of deferred tax benefits are as follows:
Current Tax Asset
-----------------
Provision for doubtful accounts 31,000
Allowance for market decline
of equity securities $ 95,000
----------
Total Current Tax Benefit 126,000
----------
Non-Current Tax Asset
Tax loss carry forward $ 322,000
----------
Total Non-current Benefit 322,000
----------
Total Current and
Noncurrent Tax Benefit 448,000
Valuation Allowance (448,000)
----------
Net Deferred Tax Assets $ -
==========
At December 31, 1999, management is unable to predict
profitable operations for the Company in the future.
Accordingly, a 100% valuation allowance has been provided.
At December 31, 1999, the Company had available net
operating loss carryforwards, for tax reporting purposes, of
approximately $1,100,000 expiring through 2114.
- 8 -
<PAGE> F-10
NOTE E - RELATED PARTY TRANSACTIONS
Professional and Consulting Fees - the Company paid
officers, directors, shareholders and affiliates
professional and consulting fees amounting to $72,715 in
1999, $71,296 in 1998, and $96,277 in 1997.
Office Expense - Office expenses were paid to shareholders
and/or entities affiliated through common officers,
directors and shareholders amounting to $22,950 in 1999,
$20,400 in 1998, and $10,200 in 1997.
Rent Expense - Rentals paid to entities having officers,
directors and shareholders in common with the Company
amounted to $21,000 in 1999, $31,800 in 1998 and $21,000 in
1997.
NOTE F - INVESTMENTS IN MARKETABLE EQUITY SECURITIES
At December 31, 1999, the Company's investment in marketable
equity securities consisted entirely of trading securities
as follows:
Market
Cost Value
----------- ----------
December 31, 1999 $ 987,080 $ 523,479
----------- ----------
December 31, 1998 $ 1,164,533 $ 771,283
----------- ----------
Unrealized losses on market values amounted to $463,601 at
1999, $393,250 at 1998, and $132,755 at 1997.
NOTE G - CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company
to concentrations of credit risk consist principally of
temporary cash investments, investments in marketable
securities and accounts receivable. The Company places its
cash investments and investments in marketable securities
with high quality institutions and limits the amount of
credit exposure to any one institution or investee.
NOTE H - FAIR VALUE OF FINANCIAL INSTRUMENTS
The following summarizes the major methods and assumptions
used in estimating the fair values of financial instruments:
Cash and Cash Equivalent - The carrying amount approximates
fair value due to the liquidity of these financial
instruments.
Investments - The fair value of investments are based upon
quoted market prices for those investments.
- 9 -
<PAGE> F-11
NOTE I - INVESTMENT IN WHOLLY-OWNED SUBSIDIARIES
On July 28, 1997 the Company issued 2,000,000 shares of
authorized but previously unissued restricted common stock
to a former affiliate, Vanderbilt Square Corp.
("Vanderbilt") in exchange for Hi-Tech Leasing, Inc., a 100%
owned subsidiary of Vanderbilt. Fair value of the common
shares issued approximated the net assets acquired.
On August 31, 1998, the Company sold its interest in Hi-Tech
Leasing, Inc. to certain shareholders for 1,309,925 shares
of the Company's restricted common stock. The Company
valued the stock received at $.45 per share, which
approximated market value.
The Company's earnings and cash flows include the operation
of Hi-Tech Leasing, Inc. through the date of sale, August
31, 1998.
On September 30, 1997, the Company acquired 100% ownership
of Professional Programmers, Inc. ("PPI"), an inactive
subsidiary of Vanderbilt, in settlement of a receivable of
$16,152. On August 31, 1998, the Company sold Professional
Programmers Inc. to principal shareholders for $3,378 cash.
The Company's earnings and cash flows include the operation
of Professional Programmers, Inc. through the date of sale,
August 31, 1998.
Supplemental Cash Flow Information - The Company received
common stock with a fair value of $731,000 in exchange for
its investment in Hi-Tech Leasing, Inc.
NOTE J - DISCONTINUED OPERATIONS
On August 31, 1998, the Company sold its electronic
monitoring business to PPI for a cash payment of $63,000.
The sale resulted in a loss of $18,402.
Revenues applicable to discontinued operations were:
1998 $ 221,421
---------
1997 $ 342,592
---------
Income taxes applicable to income from discontinued
operations were offset by the Company's net operating loss
carryforward.
NOTE K - SUBSEQUENT EVENT
On March 3, 2000 the Registrant entered into a Letter of
Intent to acquire all of the assets and operations of Truck
Farm, Inc., a closely-held South Carolina corporation with
-10-
<PAGE> F-12
NOTE K - SUBSEQUENT EVENT (Cont'd)
principal offices in Georgetown, South Carolina. Pursuant
to the terms of the Letter of Intent, during the course of
mutual due diligence by the Registrant and by Truck Farm,
Inc., Corrections Services, Inc. will determine to acquire
either all of the issued and outstanding capital stock of
Truck Farm, Inc. or all of its assets in a transaction in
which the business operations of Truck Farm, Inc. will
become the business operations of the Registrant upon
completion of the acquisition transaction. It is
contemplated by both companies that the Registrant's Board
of Directors will be comprised in whole or in majority part
of the Directors of Truck Farm, Inc. and that the Registrant
will change its name to reflect its new commercial
operations.
-11-
<PAGE> F-13
</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 II, Item 8. of this Form 10-K and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 22,059
<SECURITIES> 523,479
<RECEIVABLES> 271,006
<ALLOWANCES> 155,031
<INVENTORY> 0
<CURRENT-ASSETS> 664,602
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 666,273
<CURRENT-LIABILITIES> 1,390
<BONDS> 0
0
0
<COMMON> 759
<OTHER-SE> 1,253,851
<TOTAL-LIABILITY-AND-EQUITY> 666,273
<SALES> 0
<TOTAL-REVENUES> (23,657)
<CGS> 0
<TOTAL-COSTS> 333,775
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (357,432)
<INCOME-TAX> 0
<INCOME-CONTINUING> (357,432)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (357,432)
<EPS-BASIC> 0.00
<EPS-DILUTED> 0.00
</TABLE>
