Securities and Exchange Commission
Washington, DC 20549
FORM 10-K/A
AMENDMENT NO. 1 TO
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1994
Commission File Number 000-17577
CENTERCORE, INC.
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(Exact name of Registrant as specified in its charter)
Delaware 22-2537194
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
110 Summit Drive, Exton, PA 19341
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (610) 524-1905
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of Each Class on which registered
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None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
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(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the Registrant was required to file such report(s)) and (2) has
been subject to such filing requirements for the past 90 days.
Yes No X
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
Aggregate market value of voting stock held by non-affiliates (based on
the average of the bid and asked prices as quoted by a market maker in
the "pink sheets" on June 15, 1995) was approximately $376,000. For
purposes of determining this amount only, Registrant has defined
affiliates as including (a) the executive officers named in Part III of
this 10-K report, (b) all directors of Registrant, and (c) each
stockholder that has informed Registrant by May 4, 1995 that it is the
beneficial owner of 10% or more of the outstanding Common Stock of
Registrant.
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock as of June 15, 1995:
Common Stock 10,437,326 shares
DOCUMENTS INCORPORATED BY REFERENCE
No documents are incorporated by reference in this Form 10-K.
PART I
Item 1(a). General Development of the Business
Prior to 1993, CenterCore, Inc. (the "Company") was engaged solely
in the business of designing, manufacturing and distributing space-
efficient, modular workstation systems and a line of complementary
office products, including cable and wiring systems, ergonomically
designed seating products, and air management systems for temperature
blending and breathing zone filtration. In February 1993, the Company,
through a subsidiary, acquired the assets and assumed the liabilities of
Airo Clean Engineering, Inc., a designer and manufacturer of cleanroom
and air filtration components and systems serving industry and the
hospital and health care markets. In September 1993, the Company,
through a subsidiary, purchased substantially all of the assets and
assumed certain liabilities of Maris Equipment Company, a specialty
contractor providing integration, installation and servicing of advanced
electronic systems for security access control, fire alarm, sound,
communications and other applications on a nationwide basis. Maris
provides these services to business, aviation and transportation
authorities and correctional facilities. These acquisitions were part
of the Company's overall strategy to improve the Company's operating
performance by penetrating new and growing markets to compensate for the
continued government spending decline in its furnishings segment,
particularly by the Department of Defense. The reduced government sales
has had a major impact on the Company's domestic furnishings operations
in recent years, and the outlook for furnishings sales to the Federal
government continues to be uncertain.
The Company also attempted in 1993 to improve performance by
significantly downsizing its Canadian operations and consolidating most
of the manufacturing, product development, marketing and service
functions into its domestic furnishings operations based in Plainfield,
New Jersey.
In order to better meet its working capital needs, the Company
refinanced and increased its bank credit facility with a new bank in
March 1994. In June 1994, the Company raised an additional $1.5 million
of capital through the issuance of preferred stock to Safeguard
Scientifics, Inc. ("Safeguard"), the Company's majority shareholder.
However, the Company's results from its office furnishing
operations continued to deteriorate, and the Company realized
substantial losses resulting primarily from unanticipated costs and
operating difficulties associated with certain construction contracts
acquired in the Maris acquisition, which problems were somewhat
exacerbated by insufficient financing to support the timely performance
of the contracts. As a result of these losses, the Company suffered a
severe liquidity problem, in that it was not able to pay its vendors on
a timely basis, was having difficulty completing work in progress, and
defaulted on certain financial covenants under its bank loan agreement.
The Company's management has decided that it is in the Company's
best interest to dispose of its office furnishings business, to downsize
its electronic security systems and detention hardware business, and to
repay its bank debt as quickly as possible. In pursuance of this
determination, the Company has taken the following actions. The Company
has entered into an agreement for the sale of its office furnishings
business as currently carried on by CenterCore, Inc. directly and by its
subsidiary, Corel Corporate Seating, Inc. The Company expects to apply
the sale proceeds to pay down its bank debt. However, the closing of
the sale is subject to certain conditions, and there is no assurance
that the Company will successfully consummate the sale of its
furnishings business. Maris has turned over to its surety companies all
of its bonded construction projects in progress, and has obtained
agreements from the surety companies to release Maris and the Company
from their indemnity obligations to the surety companies in exchange for
cash payments, the issuance of Company common stock, and other
consideration. See Item 7. Management's Discussion and Analysis -
Liquidity and Capital Resources. Most of Maris' largest construction
projects were bonded. Maris has stopped bidding for large, bonded
correctional facility and airport contracts, and all correctional
facility projects, regardless of size, involving the supply and
installation of detention hardware. The Company and Maris have entered
into an agreement with the parties from whom the Company purchased Maris
to restructure the terms of the Company's purchase of Maris and to
settle all remaining obligations and liabilities among them. Finally,
Safeguard has agreed to contribute a portion of its CenterCore stock to
the Company, to sell a portion of its CenterCore stock to the management
of the Company, and to provide the Company with up to $3 million of
loans or loan guarantees to enable the Company to address its current
working capital needs. The Company will continue to operate its
electronic security systems business and its air quality products
business. The electronic security systems business will focus on low
voltage security and fire alarm projects and "smart highway" projects.
Although management believes that the Company will be able to
operate profitably following the restructuring, there can be no
assurance that the Company will not continue to realize losses in the
future, or that it will have adequate capital to fund its operations.
Even though the Company is in default under its bank loan agreement, the
Company's bank lender is continuing to make loans available to the
Company in accordance with its borrowing base formula, plus additional
advances secured by collateral pledged by Safeguard. The bank could
determine to discontinue making loans available to the Company and/or to
declare the outstanding loan balance immediately due and payable at any
time, although it has not notified the Company that it intends to do so.
The Company intends to attempt to restructure the loan agreement. If
the Company is not successful in consummating a sale of its furnishings
business, it would be necessary to either locate another purchaser or
consider alternative restructuring plans. The Company has not developed
any definitive alternative plan. In either such event, the Company
would be unable to pay down its bank loan as quickly as it anticipates,
which would add an additional burden to the Company's working capital
and liquidity needs, and could cause the Company's bank to consider
discontinuing making loans available to the Company and/or declaring the
outstanding loan balance immediately due and payable.
Item 1(b). Financial Information about Industry Segments
Financial information about the Company's industry segments is
contained in footnote 15 to the Consolidated Financial Statements
contained in Item 14 below.
Item 1(c). Narrative Description of Business
SECURITY SYSTEMS
Products and Services
The Company, through its wholly owned subsidiary, Maris Equipment
Company, Inc., provides low voltage electronic security systems to the
commercial and institutional markets. Products include fire alarm
systems, closed circuit television surveillance systems, card access
security and alarm monitoring systems, paging and intercom systems,
hospital communications systems, parking and revenue control systems and
programmable logic controller based central alarm and control systems.
The Company no longer intends to pursue large, bonded correctional
facility and airport projects, and will no longer provide correctional
detention hardware, such as doors, security glazing and access operating
devices, to the correctional marketplace. Maris is also pursuing a
developing market--the "smart" highway program--which entails the
integration and installation of communications networks for automated
traffic management systems such as re-routing access lanes on bridges,
tunnels and superhighways as traffic patterns fluctuate throughout the
day. Because the smart highway projects are for state or federal
transportation departments, Maris may be required to provide surety
bonds as a condition to winning these jobs. It is likely that
availability of bonding at Maris will be limited, at best, in the near
future. This may inhibit the rate of growth of the Company's business
in the "smart" highway program.
Patents and Proprietary Rights
The Company is qualified as an electrical or alarm contractor,
where required, in most of the Continental United States. Maris does
not hold any material patents or proprietary rights. In its role as an
integrator, Maris obtains proprietary products from vendors for
integration and installation at customers' facilities or on construction
sites.
Marketing and Distribution; Contracting Practices
Maris has significantly reduced its marketing and sales staff in
accordance with its downsized business. The Company maintains a sales
force in its headquarters in Exton, Pennsylvania and in its regional
office in Austin, Texas.
Maris will focus on bidding for smaller projects involving new or
upgraded construction to electrical contractors and on providing
proposals to owners and building managers for new or upgraded systems.
These bids and proposals are generally made at a fixed price based on
the specifications provided by the contractor, owner or manager.
Accurate estimation of the Company's total cost to complete a project is
therefore crucial to profitability. The Company will no longer bid on
large, bonded correctional facility and airport projects or on any
correctional facility projects which require the provision or
installation of detention hardware. These are the projects which Maris
has in the past experienced difficulties managing and completing
profitably. Maris typically provides the integration engineering,
assembly shop drawings and system start-up with its own staff of project
managers, engineers, computer aided design (CAD) operators and
technicians.
As with any construction activities, there are risks associated
with the business. Cost overruns can occur from a variety of sources,
including but not limited to estimating errors, owner-initiated changes
to system performance or operation, unanticipated conditions at the
installation site, delays in collection of accounts receivable because
of performance issues, delays caused by other contractors which may
cause the Company to be delayed and not be compensated for such delay,
and subjective assessment of system performance compared to
specifications. Maris and its subcontractors may submit change orders
for additional work or costs incurred beyond their control or beyond the
scope of the contract, but they are subject to approval. Working
capital requires active management for several reasons. Contracts
frequently provide for a retention of five percent or more of the total
contract amount until satisfactory completion of the contract. Maris
retains comparable amounts from its subcontractors, but often the
subcontractors' work is completed before Maris' work is completed. The
timing and amounts of payments due to and from Maris are often subject
to dispute for the reasons described above resulting in delays in
collection of receivables and payment of payables. Maris attempts to
match the timing of payments to its subcontractors and vendors with
payments received from the general contractors or construction managers
wherever possible.
Design and Development; Product Availability; Inventory
As an integrator, Maris purchases proprietary products for
integration and installation at customer facilities or construction
sites. The Company does not manufacture, design or develop any of its
systems. The Company is a party to a number of distribution agreements
with the major manufacturers of the systems which it provides. Because
of the Company's financial difficulties, a number of its suppliers have
restricted their purchase terms to the Company, in some cases requiring
C.O.D. terms. The Company is continuing to negotiate with its suppliers
regarding purchase terms. The Company's relationships with several
different suppliers allows the Company to provide the latest technology
to its markets without the necessity of designing and developing new
products. The Company maintains only a sufficient amount of inventory
as may be necessary to provide materials for warranty service and
repairs.
Revenue Recognition and Backlog
The Company recognizes revenues on a percentage of completion
basis. Backlog consists of the uncompleted portion of the contracts.
The backlog for the security systems segment (excluding projects which
have been turned over to sureties) was approximately $9.2 million at
December 31, 1994. The Company anticipates that approximately 90% of
the backlog will be fulfilled during 1995. Backlog for the segment at
December 31, 1993 included substantial amounts from businesses Maris has
discontinued and therefore the amount is no longer meaningful.
Competition
The Company provides security systems to a variety of
institutional markets. In that marketplace, the Company competes with
numerous local dealers and factory direct operations. There are also
numerous firms operating nationally in the construction marketplace that
provide electronic security systems integration. Competition is based
primarily on price, quality of work, and ability to complete the work on
time. The Company's recent financial difficulties and limited ability
to obtain bonding are a competitive disadvantage in the institutional
markets. Many large institutional projects require the contractor to
provide a completion bond. However, in the commercial and industrial
building markets, the Company believes that its personnel and the depth
of their knowledge are important competitive factors.
U. S. Government Sales and Dependence on Significant Customers
In the past, the Federal Bureau of Prisons has been a substantial
direct and indirect customer of Maris. In 1994, Maris generated
revenues constituting 13% of the Company's revenues from one federal
correctional facility project. Maris' contract on that project was with
Omni Construction, the general contractor for the project. However, the
Company expects that it will do very little work, on federal or state
correctional facilities in the future. Maris has also performed in the
past numerous large airport projects for different customers, generally
lasting not more than 12 months. These projects had resulted in single
customers accounting for significant portions of Maris' revenues in any
single year. Maris surety companies have taken over all of its bonded
correctional facility and airport jobs, and Maris does not intend to
perform any more large bonded correctional facility or airport projects
for the foreseeable future, although it may perform a number of smaller
projects for a single institutional customer. See "Management's
Discussion and Analysis - Review of Continuing Operations" for a summary
of sales and gross margins for correctional facility and airport
projects compared to other projects.
Seasonality
The security systems business is not subject to any material
seasonal fluctuations.
AIR TECHNOLOGY PRODUCTS
Products
The Company designs, manufactures and distributes through its
wholly owned subsidiary, Airo Clean, Inc., air filtration components and
systems which are used in a variety of industries which require
particle-free, ultra clean working environments, as well as patient
isolation devices for hospital and health care applications.
The two room-size cleanroom systems manufactured and distributed
by the Company are the UDF Perforated Ceiling System and the
UltraGuard(registered trademark) HEPA/Fan Module Ceiling System, both
of which can be delivered prepackaged using standard components or can
be custom designed to meet precise client specifications. The UDF
Perforated Ceiling System provides mass air displacement for a more
uniform distribution of clean air throughout a cleanroom environment
and other critically controlled areas. The UltraGuard HEPA/Fan Module
Ceiling System is a pressurized plenum system which utilizes a self-
powered blower and HEPA filter packaged together in one compact housing
which can be installed in a suspended ceiling grid.
The Company also manufactures and distributes several application
specific, modular cleanroom systems which are available in a number of
prepackaged sizes or can be customized to meet special requirements.
The BioShieldTM air filtration unit, a health care product introduced
late in 1993, is an air scrubbing product for controlling airborne
pathogens. The product is targeted for the health care industry. The
BioShield product meets or exceeds the Center for Disease Control
guidelines for hospital isolation rooms, which require a minimum of 6
air changes per hour. The guidelines were issued during the fourth
quarter of 1994. The Company expects these guidelines to have a
positive impact on BioShield sales, and is aggressively promoting the
product. The Microlab(registered trademark) portable cleanroom can be
set up by one person and operational within 30 minutes to provide Class
100 air for sanitized operations such as animal studies, health care,
hybrid electronics, and medical device assembly. The Microlab unit's
compact design fits through standard 36" doorways, can be expanded by
linking multiple units together where additional space is required, and
can be quickly moved to another location or folded and stored until
needed again. The CleanStation(registered trademark) single-pass
softwall cleanroom is available in 15 sizes for Class 100, 1,000 or
10,000 air requirements and is designed for customers with limited
budgets requiring fast delivery and quick setup using standard tools.
The Flexi-JetTM system is an economical solution that supplies HEPA-
filtered Class 100 air to a large area for industrial and institutional
applications that require minimal dust and other airborne contaminants.
The Bacteria Controlled Nursing UnitTM (BCNU) is a portable, transparent
clean air isolation enclosure which houses a standard size hospital bed
and can provide patient access through direct entry access curtains or
arm/hand insertion gauntlets. The PureZoneTM product is specifically
targeted to the commercial market and can be wall-mounted or retrofitted
on existing furniture systems.
Patents and Proprietary Rights
The Company has a number of patents, patent applications, patent
licenses and trademarks with respect to various air technology products.
The Company's issued patents and patent licenses expire between 2008 and
2011. The Company believes that these patents and trademarks help
differentiate the Company's product offerings, but price and flexibility
of product offerings are equally important competitive factors.
Marketing and Distribution
The Company primarily conducts its sales and marketing activities
for its cleanroom and other indoor air quality products from its Airo
Clean facility located in Exton, Pennsylvania. The Company markets and
sells these products to a wide variety of end-users throughout the
United States through a network of independent dealers and
manufacturers' representatives primarily located in the eastern United
States. Some of the dealers have exclusive rights to sell the
Company's air technology products to specific markets in a defined
territory, so that a territory servicing different markets may have more
than one dealer. These dealers are paid commissions for product sales.
Customers of cleanroom products include a variety of manufacturing
operations, including biomedical, microelectronics, medical devices,
pharmaceuticals, and the hospital and health care markets.
The Company also has a distributor in Singapore which accounted
for over 30% of the sales for the air technology products segment in
1994.
The Company's marketing activities seek to demonstrate the unique
applications and quality of its products. These activities include
distribution of sales literature, on-site demonstrations, direct mail
programs, advertising, publication of articles in the trade press and
participation in industry conferences and trade shows.
Airo Clean's marketing efforts have been targeted primarily to
end-users and facility managers for use in manufacturing applications.
However, the Company anticipates expanding the marketing efforts for its
air cleansing devices to satisfy the increased demand for the prevention
of infectious contaminants in hospitals and for a variety of industrial
applications.
Manufacturing
The Company's cleanrooms and indoor air quality products are
manufactured in Exton, Pennsylvania. This manufacturing operation
consists primarily of an assembly process and testing of finished
products.
Raw Materials and Supplies
The Company's air technology products include specific filters,
blowers and electronic components that are assembled with steel
assemblies and cabinets which constitute the majority of the products.
Some of these items are custom made for the Company and require
coordination from qualified vendors to assure availability of various
electronic and steel assemblies. If any supplier should terminate its
relationship for any reason, the Company anticipates that it will be
able to develop, or obtain from other sources, substitute components
without sustaining any material adverse effects.
Backlog
The backlog for the air quality segment was approximately $1.4
million at December 31, 1994, compared to approximately $2 million at
December 31, 1993. The Company anticipates that this backlog will be
fulfilled in 1995.
Backlog primarily represents firm accepted orders for air
technology products. Although orders included in backlog may be
canceled or rescheduled by the customer, cancellations are uncommon and
cancellation or restocking charges may apply to a canceled order.
Seasonality
The air quality segment of the business is not seasonal.
Competition
The Company competes primarily in the hospital and health care
segment and the small to mid-size commercial and industrial applications
segment of the market for indoor air quality products. The Company is
too small to compete for large industrial applications such as for the
semiconductor and biotech/pharmaceutical industries. The Company's
products are based on high efficiency filtration systems, and are
targeted at markets with strict air purity requirements. There are a
wide variety of companies providing services similar to Airo Clean, and
the market is very competitive. Competition is based on price, ability
of the products to satisfy specified air purity standards, ability to
customize products to meet specific customer needs, and reputation.
Management believes that the excellent long term reputation of Airo
Clean and its ability to provide customized solutions, combined with the
growing number of applications requiring air particle control, places
the Company in a good position to grow with the market and potentially
improve its market share.
U.S. Government Sales and Dependence on Significant Customers
Airo Clean does not sell any material amount of products to the
U.S. government. Airo Clean has one distributor located in Singapore
which sells products in China and Southeast Asia, and which accounted
for over 30% of Airo Clean's total revenues in 1994. The loss of this
distributor would have a material adverse effect on Airo Clean's
business.
Employees
As of December 31, 1994, the Company had 110 employees engaged in
its continuing operations, excluding certain individuals who are
employed by Maris but are exclusively assisting the surety companies in
completing jobs taken over by them, and who are being funded by the
surety companies. None of the Company's employees is represented by a
labor union. The Company considers its employee relations to be good
and has never experienced any work stoppages.
Item 1(d). Financial Information About Foreign and Domestic Operations
and Export Sales
The Company has sold or is negotiating to sell all of its foreign
operations. The Company's air technology products segment had
approximately $1.3 million of export sales through a distributor in
Singapore. These sales are dollar-denominated. The security systems
segment does not have any export sales.
Item 1(e). Directors and Executive Officers of Registrant
Information about the Company's executive officers and directors
can be found in Part III of this report under "Item 10. Directors and
Executive Officers of Registrant."
Item 2. Properties
The Company's continuing operations are conducted primarily at its
headquarters in Exton, Pennsylvania. This facility occupies
approximately 21,580 square feet of space and is currently leased on a
month-to-month basis from Safeguard. The Company's indoor air quality
products are manufactured and sold from its Airo Clean facility
occupying approximately 15,300 square feet of space in Exton,
Pennsylvania, which is leased through December 2001. The Company plans
to sublet its Airo Clean facility, and to consolidate its air products
operations into its Maris facility in Exton, Pennsylvania. The Company
believes that that facility will be adequate for its present and
anticipated purposes. The Company also leases sales and support offices
in Austin, Texas and Los Angeles California.
The Company is moving out of its leased furniture operations
offices in Exton, Pennsylvania, and has agreed, subject to certain
conditions, to sell its furniture business, including its lease on its
furniture manufacturing facility which occupies approximately 176,000
square feet of space in Plainfield, New Jersey, and its lease on its
seating products manufacturing and office facility which occupies
approximately 26,700 square feet of space in Mansfield, Ohio. The
Plainfield lease runs through June 1998, and the Company's Mansfield
lease runs through June 1995. The Company continues to be obligated
under a lease for approximately 2,900 square feet of office space in
London, England which runs through September 2013. The Company is
negotiating with the landlord to terminate that lease.
Item 3. Legal Proceedings
Maris is a named party to certain pending law suits relating to
certain of Maris' security system installation projects. In connection
with Maris' settlement with its surety companies, the surety companies
have assumed all liabilities and all claims and counterclaims in respect
of these law suits, and the surety companies have agreed to release
Maris from its indemnity obligations to them.
The Company and its subsidiaries are involved in various claims
and legal actions arising in the ordinary course of business. In the
opinion of management, the ultimate disposition of these matters will
not have a material adverse effect on the Company's results of
operations, liquidity, or consolidated financial position.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the fourth quarter 1994.
PART II
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters
As of May 4, 1995, the Company's common stock was de-listed from
the NASDAQ small-cap market. Since that date, there has been no
established public trading market for the common stock. The Company's
common stock continues to be quoted by a limited number of market makers
in what is commonly referred to as the "pink sheets" under the symbol
"CCOR." There can be no assurance that there will be regularly
available quotations from market makers in the Company's common stock in
the future. The following are the historical high and low bid
quotations for the Company's common stock prior to its de-listing from
NASDAQ.
1995 1994 1993
High Low High Low High Low
First Quarter $.50 $.34 $1.38 $.75 $ .75 $ .56
Second Quarter .38 .16 1.38 .81 1.06 .56
Third Quarter .88 .56 1.06 .56
Fourth Quarter .56 .38 .84 .69
The above bid quotations reflect inter-dealer prices without mark-
ups, mark-downs or commissions and may not necessarily represent actual
transactions.
There were approximately 1700 holders of the Company's Common
Stock on June 15, 1995. The Company has historically reinvested any
earnings in the growth of the business and has not paid cash dividends
on its common stock.
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
(In thousands, except per share amounts) 1994 1993 1992 1991 1990
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<S> <C> <C> <C> <C> <C>
Net sales $31,245 $15,242 $- $- $-
Net earnings (loss)
Continuing operations (10,392) (113) - - -
Discontinued operations (5,048) (703) 989 282 (1,249)
Net earnings (loss) (15,440) (816) 989 282 (1,249)
Earnings (loss) per share
Continuing operations (1.00) (.01) - - -
Discontinued operations (.48) (.07) .09 .03 (.12)
Net earnings (loss) (1.48) (.08) .09 .03 (.12)
Working capital (11,379) 3,947 - - -
Total assets 16,691 34,571 16,014 17,773 19,645
Long-term debt 0 9,939 4,451 6,393 8,335
Stockholders' equity (deficit) (4,425) 10,236 11,078 10,667 10,395
Discontinued operations includes the furnishings segment and Nord Systems.
</TABLE>
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Overview
Due to declining furniture sales, particularly to the federal
government, the Company has decided to dispose of the furnishings
segment. Due to these plans, the furnishings segment has been
presented as a discontinued operation. The Company has agreed to sell
the assets of the domestic furnishings segment including Corel for cash
and notes receivable. The cash portion of the purchase price will be
determined based on the furnishing segment's working capital at closing,
and is anticipated to be approximately $2.5 million. The notes
receivable portion will be determined based on the furnishings segment's
working capital and the amount of the other assets sold and liabilities
assumed at closing, and are anticipated to equal approximately $4
million in the aggregate. The Company will apply the sale proceeds to
pay down its bank debt.
The UK furnishings business will be sold to local management of
the respective operations in return for notes receivable. The Canadian
operation was sold to Safeguard Scientifics, Inc. in April 1995.
Continuing operations reflect the results of the on-going
businesses of Maris Equipment Company ("Maris") and Airo Clean.
Airo Clean was acquired in February 1993 and Maris was purchased
in September 1993. Therefore, 1992 includes only discontinued
operations and 1993 includes the results of the acquired operations
subsequent to their acquisition. In 1995, the Company decided to
significantly downsize the Maris business by concentrating on the low
voltage security and fire alarm businesses and on selected smart highway
applications. Total 1994 Maris sales of $27.2 million includes
correctional facility and airport sales of approximately $16.2 million.
Maris does not expect to pursue larger bonded correctional facility and
airport projects in the future. Due to these developments comparisons
from year-to-year are not meaningful.
Review of continuing operations
Maris sales were $27.2 million in 1994 compared to $12.5 million
in 1993. This sales increase reflects the inclusion of Maris operations
for the entire year in 1994 compared to 1993 which included the results
subsequent to its September acquisition. Gross margins as a percentage
of sales at Maris were (8.4%) in 1994 and 15.9% in 1993. The negative
gross margin in 1994 reflects losses incurred to complete fixed fee
major correctional facility and airport projects in process at the time
of the September 1993 Maris acquisition. Since 1993, Maris has
experienced reductions in profitability or losses on fixed fee
contracts. This erosion was caused primarily by unforeseen operational
and contract problems which were exacerbated by insufficient financing
to support the timely performance of the contracts. As a result of this
profit degradation, the Company was not able to pay vendors on a timely
basis and had difficulty completing work in progress. Most of the
larger jobs affected by these issues were bonded and the Company entered
into agreements with the surety companies to have them assume
responsibility for completing their jobs and to release the Company from
its indemnity obligations with respect to those jobs. The Company has
recorded a provision for losses on transferring the contracts to the
surety companies of $4.0 million, more fully discussed in note three to
the financial statements.
As a result of these difficulties, the Company has ceased bidding
on major correctional facility and airport projects. Uncompleted bonded
projects have been turned over to the bonding companies for completion.
The following table summarizes correctional facility and airport
revenues and margins compared to all other revenues and margins for 1994
and for approximately three months in 1993.
(In thousands) Correctional All Other
Facility and Airport
1994 1993 1994 1993
Net sales $16,185 $9,162 $10,993 $3,353
Cost of goods sold 19,763 7,821 9,689 2,705
Gross margin % of sales (22.1%) 14.6% 11.9% 19.3%
Airo Clean sales were $4.1 million in 1994 compared to $2.7
million in 1993. The increase in sales in 1994 came from increased
product sales and the inclusion of Airo Clean for twelve months compared
to eleven months in 1993. Airo Clean gross margins as a percentage of
sales declined to 20.9% in 1994 from 24.2% in 1993. Lower margins in
1994 can be attributed to increased sales discounts on several large
export sales.
Sales and marketing expenses for continuing operations were $3.3
million in 1994 and $1.2 million in 1993. These costs, as a percentage
of sales, were 10.6% and 7.8% in 1994 and 1993, respectively. These
costs increased $2.1 million in 1994 primarily due to the inclusion of
Maris operations subsequent to its September 1993 acquisition. Sales
efforts at Maris are being concentrated in expanding the electronic
security systems business, which typically has had higher gross margins
than the correctional facility and airport hardware construction
business. The competitive environment and the difficulty in estimating
costs and collecting revenues has adversely impacted Maris' gross
margins on long-term correctional facility and airport construction
projects. The shorter completion cycle coupled with a less competitive
environment has enabled Maris to achieve higher gross margins in the
electronic security systems business. Marketing efforts at Airo Clean
have been focused on promoting the BioShield and Ultraguard products
which are air scrubbing devices for controlling airborne pathogens and
targeted for the health care industry. The Center for Disease Control
guidelines were issued in November 1994 for hospital isolation rooms,
and these more stringent guidelines should have a positive impact on
BioShield and Ultraguard sales in 1995.
General and administrative expenses were $4.5 million in 1994 and
$1.5 million in 1993. These costs, as a percentage of sales, were 14.4%
in 1994 and 9.9% in 1993. The absolute dollar increase of $3 million in
1994 reflects the acquisition of Maris. The Company continues to
closely monitor and control costs and recognizes that a significantly
downsized business in 1995 is necessary for survival.
During 1994 the Company restructured it's security business which
resulted in a change of $2,239,900 in the statement of operations more
fully described in note three to the financial statements.
Interest expense was $593,400 in 1994 compared to $116,200 in
1993. The increase in 1994 reflects additional debt incurred to finance
the Maris acquisition and to fund losses. Also contributing, but to a
lesser extent, was higher interest rates.
The income tax benefit of $1.6 million in 1994 principally
reflects the benefit of recoverable U.S. income taxes as a result of the
losses incurred. In addition, the Company has generated an unrecorded
loss carryforward of approximately $3 million, more fully described in
note twelve to the financial statements.
Backlog at December 31, 1994 was $9.2 million at Maris and $1.4
million at Airo Clean. Backlog at December 31, 1993 was $4 million at
Maris and $2 million at Airo Clean. Maris' backlog excludes
correctional facility and airport projects.
Liquidity and Capital Resources
As a result of significant operating difficulties, the
Company has a severe liquidity problem. The Company is in default of
its loan facility ($8.3 million at December 31, 1994). These defaults
cause the debt to be due upon demand, and, should the lender demand
payment, the Company does not have the resources to satisfy the debt.
The Company has withdrawn from the correctional facility security
business and is undertaking to significantly downsize the business which
includes the sale of the furnishings business unit. Proceeds from the
sale, as well as a 1995 tax refund of $1.6 million, will be used to
reduce outstanding bank debt. In anticipation of these events, the bank
continues to extend credit to the Company under the existing borrowing
base formula. Except for a $2.4 million guarantee of bank debt,
Safeguard is not contractually obligated to satisfy any of the Company's
obligations at December 31,1994. The Company believes that the
combination of cash received from the sale of the furnishings business,
the tax refund, the guarantee of Safeguard and the working capital
assets of the ongoing business will be sufficient to satisfy/support all
of the bank debt.
The Company has entered into an agreement with the parties from
whom it acquired Maris, to significantly restructure the original
purchase transaction. Under this agreement the seller has agreed to
offset its $3.6 million note receivable from the Company in exchange for
releases from its indemnification liabilities to the Company under the
original asset purchase agreement. Because the Company did not have the
required working capital to complete certain projects it turned to its
sureties to assume and complete certain construction contracts and has
extended its payables to vendors. The principal sureties have agreed to
release the Company from its indemnity obligations to them in return for
300,000 shares of CenterCore stock, cash payments of $495,000 and
additional payments equal to 20% of Maris' net earnings in 1998-2002 up
to $1 million in the aggregate. The Company is negotiating with all
principal vendors to arrange a repayment schedule while continuing to
supply the Company with materials needed to meet current requirements.
Safeguard has agreed to contribute 2 million shares of its
CenterCore common stock to the Company, sell 2.5 million shares of its
CenterCore common stock to CenterCore management, and provide up to $3
million in advances to the Company to address current funding
requirements of the downsized business which will be substantially
utilized by the Company in 1995.
As a result of the restructurings, the Company will emerge as a
significantly downsized company. Availability of bonding on jobs will,
at least in the near term, be limited. Bank financing may be available
for limited working capital requirements to augment any advances from
Safeguard. If these sources of funds prove to be inadequate or in the
case of bank financing, unavailable, then the Company will have to seek
additional funds from other investors in order to continue operations.
There can be no assurance that new sources of funds, if required, will
be available. Although the Company believes it will be able to continue
to operate in this new downsized mode, continuation is contingent on the
Company's ability to adequately reduce its cost structure to a point
where it is supported by the new downsized operations.
Item 8. Financial Statements
The consolidated financial statements and schedules appear
at the end of this report beginning on page F-1.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of Registrant
Executive Officers:
The following persons were executive officers of the Registrant at
June 15, 1995:
Has Been an
Officer
Name A Since Position
George E. Mitchell 57 1984 President, Chairman and
Chief Executive Officer
Frederick B. Franks, III(1) 55 1989 Vice President-Finance,
Chief Financial Officer,
Treasurer and
Assistant Secretary
Michael Pelosi III(2) 37 1994 President, Airo Clean, Inc.
(1) Mr. Franks joined the Company in May 1989. From March 1981 to
April 1989, Mr. Franks served as Vice President-Finance and Chief
Financial Officer of Ferag, Inc., a manufacturer of newspaper
material handling equipment.
(2) Mr. Pelosi joined Airo Clean in 1981, and became Sales and
Marketing Director in 1985. He was appointed President in 1989.
<TABLE>
<CAPTION>
Directors:
<S> <C> <C> <C>
Principal Occupation and Business Has Been a
Name Experience During Last Five Years Director Since Age
George E. Mitchell President, Chairman and Chief Executive
Officer of the Company................... 1984 57
Anthony A. Nichols President, The Nichols Company, which owns,
manages, and leases commercial office and
industrial space(1)(2).................... 1988 55
Richard P. Richter President Emeritus, Ursinus College(1)(3)(4) 1989 64
____________
<FN>
<F1>
(1) Member of the Audit Committee.
<F2>
(2) Member of the Compensation Committee.
<F3>
(3) Member of the Stock Option Committee.
<F4>
(4) Prior to January 1, 1995, Mr. Richter was President of Ursinus College.
Charles Root and Donald Caldwell resigned from the Board of Directors in April 1995.
</FN>
</TABLE>
Disclosure of Delinquent Filers Pursuant to Item 405 of Regulation S-K:
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors, executive officers, and persons who own more than
ten percent of a registered class of the Company's equity securities
("10% Stockholders") to file reports of ownership and changes in
ownership of Common Stock and other equity securities of the Company
with the Securities and Exchange Commission ("SEC"). Officers,
directors and 10% Stockholders are required by SEC regulation to furnish
the Company with copies of all Section 16(a) forms they file. Based
solely on its review of the copies of such forms received by it and
written representations from certain reporting persons that no other
reports were required for those persons, the Company believes that
during the period from January 1, 1994 to December 31, 1994, all Section
16(a) filing requirements applicable to its officers, directors and 10%
Stockholders were complied with, except for a late Form 3 filed by Mr.
Pelosi and one transaction which was reported late on a Form 4 by
Safeguard Scientifics, Inc.
Item 11. Executive Compensation
REPORT OF THE BOARD COMPENSATION COMMITTEE
The Compensation Committee of the Board of Directors (the
"Committee") determines compensation levels, including incentive
compensation, for the executives of the Company. Anthony A. Nichols is
presently serving as the sole member of the Compensation Committee.
Charles A. Root was a member of the Compensation Committee until his
resignation from the Board of Directors in April 1995.
Executive Compensation Policies
The Company was and is in a highly competitive industry. In order
to succeed, the Company believes that it must be able to attract and
retain qualified executives, promote among them the economic benefits of
stock ownership in the Company, and motivate and reward executives who,
by their industry, loyalty and exceptional service, make contributions
of special importance to the success of the business of the Company.
The Company has structured its executive compensation program to support
the strategic goals and objectives of the Company.
Base compensation levels and benefits for executives generally had
been set in previous years to be between the lower end and the midpoint
of the scale of compensation paid by comparable companies in the
Company's principal industry. Conversely, incentive programs were
regarded to be above the midpoint of the scale in the industry. In
pursuing this philosophy, the Company believed it could keep the fixed
component of the compensation package at reasonable levels while
incenting its key executives and managers to achieve better than average
results. Therefore, the total cash compensation plan is made up of a
lower base and higher incentive opportunity which in total would be
competitive with comparable companies in the industry if the Company's
objectives are achieved. For the purpose of establishing these levels,
the Company had reviewed an evaluation by an independent compensation
consultant of various published industry salary surveys. In setting
executive compensation packages for 1994, the Committee considered an
evaluation of executive compensation levels for comparably-sized
companies in the electrical contracting industry, rather than in the
office furnishings industry.
Annual cash bonuses are based on return on assets and individual
performance. At the beginning of each year, the Committee approves a
target range of return on assets, and a range of potential bonus amounts
for the chief executive officer and each other executive officer, stated
as a percentage of base salary. Performance bonuses are awarded at
year-end based on the actual return on assets compared to the target
range of return on assets, and the achievement of individual objectives
and individual contributions during the year to the achievement by the
Company of its financial and strategic objectives as set forth in the
Company's annual strategic plan.
Grants of Company stock options are intended to align the
interests of executives and key employees with the long-term interests
of the Company's stockholders, and to encourage executives and key
employees to remain in the Company's employ. Generally, grants are not
made in every year, but are awarded subjectively based on a number of
factors, including the pre-tax operating earnings of the Company, the
individual's contributions to the achievement of the Company's financial
and strategic objectives, and the amount and remaining term of options
already held by an individual. The Stock Option Committee of the Board
administers the Company's stock option plan. No options were granted by
the Stock Option Committee to the Company's executive officers for
services rendered in 1994.
CEO Compensation
The Compensation Committee authorized an increase in Mr.
Mitchell's 1994 base salary to $140,000. However, based on the
Company's performance during the first quarter and its cash flow
problems, in April 1994, Mr. Mitchell initiated a 16% reduction in his
salary in order to conserve Company resources. Since the Company failed
to achieve the established target range of return on assets during 1994,
no bonus was paid for 1994 to Mr. Mitchell.
Other Executive Compensation
The Compensation Committee re-set executive salaries for 1994 for
certain executives based on its review of executive compensation in the
electrical contracting industry. Mr. Pelosi's compensation is governed
by a five-year employment agreement, and his salary was not adjusted.
However, based on the Company's performance during the first quarter and
its cash flow problems, in April and May 1994, all executives accepted
salary reductions in order to conserve Company resources. Since the
Company failed to achieve the established target range of return on
assets during 1994, no bonuses were paid to any of the Company's
executive officers for 1994.
By the Compensation Committee:
Anthony A. Nichols
EXECUTIVE COMPENSATION
Summary Compensation of Executive Officers
The following table sets forth information concerning compensation
paid to the Chief Executive Officer and to each other person who was an
executive officer of the Company at any time during 1994 and whose
salary and bonus exceeded $100,000 in 1994.
<TABLE>
<CAPTION>
Summary Compensation Table
- ---------------------------------------------------------------------------------------------------------------------------------
Long Term
Annual Compensation Compensation
------------------------------------------------ ------------
Awards
------------
Securities
Other Annual Underlying All Other
Compensation Options/ Compensa-
Name and Principal Position Year Salary ($)(1) Bonus ($)(2) ($)(3) SARS (#) tion ($)(4)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
George E. Mitchell, 1994 $125,354 $ 0 $ 13,816 0 $ 33,787
President, Chairman and
Chief Executive Officer 1993 130,001 0 13,350 0 36,084
1992 129,000 129,000 10,795 0 33,141
- ---------------------------------------------------------------------------------------------------------------------------------
Michael H. Pelosi III, 1994 $130,961 $ 0 $ 0 0 $ 0
President, Airo Clean, Inc.(5)
- ---------------------------------------------------------------------------------------------------------------------------------
<FN>
<F1>
(1) Includes annual compensation which has been deferred by the named
executives pursuant to the Company's 401(k) Tax Deferred Retirement and
Incentive Plan ("401(k) Plan").
<F2>
(2) A portion of the cash bonus listed above for services rendered in
1992 was paid in 1993.
<F3>
(3) Represents amounts reimbursed during the fiscal year for the
payment of taxes. Perquisites and other personal benefits did not
exceed the lesser of $50,000 or 10% of any executive officer's salary
and bonus and accordingly have been omitted from the table as permitted
by the rules of the Securities and Exchange Commission.
<F4>
(4) The stated amounts for fiscal 1994 include the following amounts
for each named executive officer: Company contributions under the
401(k) Plan -- Mr. Mitchell, $1,216; Mr. Pelosi, $0; term life and
disability premiums -- Mr. Mitchell, $24,563; Mr. Pelosi, $0; current
dollar value of benefits to the named executives of the remainder of
split-dollar premiums paid by the Company -- Mr. Mitchell, $6,581; Mr.
Pelosi, $0.
<F5>
(5) Mr. Pelosi was elected as an executive officer of the Company in
mid-1994.
</FN>
</TABLE>
Stock Options
The Company did not grant any stock options or stock appreciation
rights to its Chief Executive Officer or its other named executive
officer during 1994. The following table sets forth information with
respect to the number of unexercised options and the value of
unexercised in-the-money options at December 31, 1994.
<TABLE>
<CAPTION>
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values
- ---------------------------------------------------------------------------------------------------------------------------------
Number of Securities
Shares Underlying Unexercised Value of Unexercised
Acquired Options/SARs at Fiscal in-the-Money Options/SARs
on Year-End (#)(1) at Fiscal Year-End ($)(1)
Exercise Value
Name (#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
George E. Mitchell 0 $ 0 0 0 $ 0 $ 0
- ---------------------------------------------------------------------------------------------------------------------------------
Michael H. Pelosi III 0 $ 0 27,500 17,500 $ 0 $ 0
- ---------------------------------------------------------------------------------------------------------------------------------
<FN>
<F1>
(1) On December 29, 1994, the fair market value was $.4063. No
options were in-the-money on that date.
</FN>
</TABLE>
Employment Contracts and Termination of Employment and Change-in-Control
Arrangements.
In connection with the acquisition of the assets of Airo Clean
Engineering, Inc. in 1993, Airo Clean, Inc. entered into a five-year
employment agreement with Michael H. Pelosi III providing for his
employment through February 1, 1998 as President of Airo Clean, Inc. at
a minimum base salary of $100,000 per year, which was subsequently
increased to $137,500 per year. The agreement also provided for Mr.
Pelosi to receive an incentive payment each year equal to 3.75% of Airo
Clean's net income, before allocated expenses and taxes, in excess of
$150,000 per year. Airo Clean did not achieve this target in 1994, and
consequently Mr. Pelosi did not receive any incentive payment for 1994.
In May 1994, in recognition of the Company's liquidity problems, Mr.
Pelosi accepted a temporary salary reduction for the balance of 1994 in
order to conserve Company resources. Upon the termination of Mr.
Pelosi's employment for reasons other than just cause or voluntary
resignation, he will be entitled to receive an amount equal to his base
salary for the balance of the term of the agreement. Pursuant to this
agreement, Mr. Pelosi has agreed to refrain from competing with the
Company until the earlier of February 1, 1998 or two years after the
termination of his employment.
STOCK PERFORMANCE GRAPH
The following chart compares the cumulative total stockholder return on
the Company's Common Stock for the period December 31, 1989 through
December 31, 1994 with the cumulative total return on the NASDAQ Index
and the cumulative total return for a peer group index for the same
period. Because the Company has discontinued its furnishings
operations, the Company has selected as a new peer group SIC Code 1731--
Electrical Contractors, which is the primary industry in which the
Company is continuing to operate.
The following table of numbers were used to generate the graphic chart
in the printed piece.
200
180
160
140
120
100
80
60
40
20
0
1989 1990 1991 1992 1993 1994
1989 1990 1991 1992 1993 1994
CenterCore 100 49 49 55 73 39
NASDAQ 100 85 136 159 181 177
Peer Group 100 77 77 21 6 2
As required by the rules of the Securities and Exchange Commission, the
chart below compares the cumulative stockholder return on the Company's
Common Stock with the cumulative total return on the NASDAQ Index and
the peer group used in the chart presented in the Company's 1994 proxy
statement. The peer group in this chart consists of SIC Code 252--
Office Furniture.
The following table of numbers were used to generate the graphic chart
in the printed piece.
200
180
160
140
120
100
80
60
40
20
0
1989 1990 1991 1992 1993 1994
1989 1990 1991 1992 1993 1994
CenterCore 100 49 49 55 73 39
NASDAQ 100 85 136 159 181 177
Peer Group 100 84 103 122 159 144
Each of the above charts assumes that $100 was invested on December 31,
1989 in the Company's Common Stock and in each of the comparison groups,
and assumes reinvestment of dividends.
Directors' Compensation
Directors are elected annually and hold office until their
successors are elected and have qualified or until their earlier
resignation or removal. Directors who are not employees of the Company
or Safeguard Scientifics, Inc. are paid a quarterly fee of $1,000 and
$400 for each Board meeting attended, including committee meetings
attended on a date other than a Board meeting date.
The Company also maintains a stock option plan for Non-Employee
Directors (the "Directors' Plan") which provides for the grant of
options to directors not otherwise employed by the Company, its parent
or any of its subsidiaries ("Eligible Director"). Each Eligible
Director receives, as of the date such person first becomes an Eligible
Director, an option to purchase 5,000 shares of the Company's Common
Stock at an option exercise price equal to the fair market value of the
Common Stock on the date of grant. All options granted under the
Directors' Plan vest in four equal annual installments beginning on the
first anniversary of the date of option grant and have a term of seven
years. No options were granted to or exercised by an Eligible Director
during 1994.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
The following table sets forth as of June
15, 1995, the Company's Common Stock beneficially owned by each person
known to the Company to be the beneficial owner of more than 5% of the
outstanding Common Stock, and the number of shares of Common Stock owned
beneficially by each director, by each named executive officer, and by
all executive officers and directors as a group. In addition to the
information regarding the Company's Common Stock listed below, as of
June 15, 1995, there were 15,000 Series A Shares issued and outstanding.
All of such Series A Shares are owned of record by Safeguard Scientifics
(Delaware), Inc., a wholly owned subsidiary of Safeguard Scientifics,
Inc. ("Safeguard"), and consequently are beneficially owned by
Safeguard. The following table does not reflect the agreed contribution
by Safeguard of 2,000,000 shares of Common Stock to the Company and the
agreed sale by Safeguard of 2,500,000 shares of Common Stock to Company
management. After consummation of these transactions, Safeguard's
ownership will be reduced to 37.7% of the outstanding Common Stock, and
the officers and directors as a group will own 36.8% of the outstanding
Common Stock.
Number of Percent of
Shares Owned(1) Class
Safeguard Scientifics (Delaware), Inc.
103 Springer Building
3411 Silverside Road
Wilmington, DE 19803 (2)............ 8,244,757 69.1%
George E. Mitchell (3)................ 651,250 6.2%
110 Summit Drive
Exton, PA 19341
Anthony A. Nichols (4)................ 29,688 *
Richard P. Richter (4)................ 5,100 *
Michael H. Pelosi III(4).............. 47,500 *
Officers and directors
as a group (5 persons)(5)............ 801,038 7.6%
______________
(*) Less than 1%.
(1) Except as otherwise disclosed, the nature of beneficial ownership
is the sole power to vote and to dispose of the shares (except
for shares held jointly with spouse).
(2) Safeguard Scientifics (Delaware), Inc. is the record owner of
6,744,757 shares of Common Stock and 15,000 Series A Shares,
which are presently convertible into 1,500,000 shares of Common
Stock. Such shares are beneficially owned by Safeguard. All of
the shares beneficially owned by Safeguard have been pledged by
Safeguard as collateral in connection with its bank line of
credit.
(3) Includes 300,000 shares of Common Stock held by Mr. Mitchell's
spouse.
(4) Includes for Messrs. Nichols, Richter and Pelosi 5,000 shares,
5,000 shares and 37,500 shares, respectively, which may be
acquired pursuant to stock options which are currently
exercisable or which will become exercisable by August 14, 1995.
(5) Includes 115,000 shares which may be acquired pursuant to stock
options which are currently exercisable or which will become
exercisable by August 14, 1995.
Item 13. Certain Relationships and Related Transactions
The Company and Safeguard are parties to an administrative
services agreement pursuant to which Safeguard provides the Company with
administrative support services for an annual fee and the reimbursement
of certain out-of-pocket expenses incurred by Safeguard in performing
services under the agreement. The administrative support services
include consultation regarding the Company's general management,
investor relations, financial management, human resources management,
certain legal services, insurance programs administration, and tax
research and planning. In connection with the Company refinancing its
bank credit facility in March, 1994, the maximum annual administrative
services fee was reduced to $300,000, retroactive to January 1, 1994 and
was subordinated to the bank loan. The Company paid administrative
services fees of $83,333 to Safeguard and accrued the remaining fees of
$216,667 in 1994. The administrative services agreement was terminated
in 1995. However, Safeguard is providing certain administrative
services to the Company at no charge in 1995. In connection with the
sale by Safeguard of Company common stock to management and its
contribution of Company Common Stock to the Company, the administration
services agreement will be terminated.
Maris Equipment Company, Inc., a subsidiary of the Company
("Maris"), rents 21,580 square feet of office space in Exton,
Pennsylvania from Safeguard. The lease expired April 1995, and has been
extended on a month-to-month basis. The Company pays monthly rental
payments to Safeguard of $11,539 and a monthly operating expense
allowance of $4,784, subject to adjustment based upon its proportionate
share of actual operating expenses. The Company also is responsible for
its proportionate share of utility charges and insurance for each of the
leased premises. The Company intends to retain this lease as its
corporate headquarters. The Company has advised that it believes the
lease terms are no less favorable than could be obtained from an
unrelated third party.
The Company also rents 4,600 square feet of office space in Exton,
Pennsylvania from Safeguard, which has served as its corporate
headquarters. The lease expired May 6, 1995, and has been extended on a
month-to-month basis. The Company pays monthly rental payments to
Safeguard of $3,067. The Company also pays a monthly operating expense
allowance of $1,303 subject to adjustment based upon its proportionate
share of actual operating expenses. The Company intends to terminate
this lease shortly.
In September 1993, Safeguard loaned $1.1 million to the Company on
a subordinated, unsecured basis to partially finance the Company's
acquisition of Maris Equipment Company. In the fourth quarter of 1994,
Safeguard contributed this loan to the capital of the Company.
In March 1994, Safeguard guaranteed payment of up to a maximum of
$940,000 under the Company's revolving credit agreement with Mellon
Bank, subject to reduction or elimination upon the Company satisfying
certain requirements imposed by the bank. In June 1994, Safeguard
guaranteed an additional $1.5 million under the Company's credit
facility with Mellon Bank. Safeguard received no monetary compensation
for the extension of these guarantees. The Company has agreed to
indemnify Safeguard against loss resulting from the above described
guarantees.
In June 1994, Safeguard purchased from the Company 15,000 shares
of its Series A Redeemable Convertible Preferred Stock ("Series A
Shares") for an aggregate purchase price of $1.5 million. The Series A
Shares are convertible into shares of Common Stock based on a conversion
price of $1.00 per share of Common Stock. The conversion price and
number of shares into which the Series A Shares may be converted are
subject to anti-dilutive adjustments. The Series A Shares are entitled
to a 6% per annum dividend payable out of legally available funds.
Dividends which are not declared and paid will accumulate. No dividends
have been declared to date. Unpaid, undeclared cumulative dividends as
of December 31, 1994 were $45,000. The Series A Shares are entitled to
one vote for each share of Common Stock into which such Series A Shares
may be converted. The Company may redeem the Series A Shares at any
time after June 1, 1995 and must redeem all outstanding Series A Shares
on June 1, 2001.
In March 1995, the Company sold all of the capital stock of
CenterCore Canada Limited to Safeguard for $10,000. CenterCore Canada
had an intercompany liability to the Company of approximately $369,300,
which liability survived the stock sale. Safeguard intends to cause
CenterCore Canada to sell its assets, and to use the sale proceeds to
satisfy its outstanding liabilities, including its liability to the
Company. The purchase price for CenterCore Canada's assets is expected
to be paid over time, and is not expected to be sufficient to satisfy
all of CenterCore Canada's liabilities to the Company. The Company has
established a reserve against the entire amount of this intercompany
liability, and will treat any amounts collected as income at the time
received.
In 1995, Safeguard agreed to contribute 2,000,000 shares of the
Company's Common Stock to the capital of the Company. Safeguard also
agreed to sell to George E. Mitchell and certain other members of
management an aggregate of 2,500,000 shares of the Company's Common
Stock, at a price of $.10 per share, payable in the form of five-year,
interest bearing promissory notes secured by 1,800,000 of the purchased
shares. The parties estimated the fair market value of the shares to be
$.10, taking into account a discount for lack of liquidity after the
Common Stock of the Company was delisted from NASDAQ. Mr. Mitchell and
the other management purchasers agreed to contribute 700,000 of such
shares into escrow with the Company which the Company may redeem in
order to satisfy exercises of options under the Company's 1993 Stock
Option Plan when such exercises exceed 500,000 shares in the aggregate.
Safeguard also has agreed to provide loans and/or loan guarantees to the
Company for up to a maximum of $3 million, subject to certain
conditions. In accordance with Safeguard's agreement, in April 1995,
Safeguard pledged to the Company's bank a $1.5 million letter of credit
to secure advances, if any, which the bank might make in excess of the
Company's borrowing base formula. The Company has agreed to indemnify
Safeguard against loss resulting from the pledge.
In connection with the Airo Clean acquisition in 1993, Airo Clean,
Inc. entered into a five-year employment agreement with Joseph P.
Pelosi, the brother of Michael H. Pelosi, III. The agreement provides
for a minimum annual base salary of $80,000, and provides for an
incentive payment each year equal to 3.75% of Airo Clean's net income,
before allocated expenses and taxes, in excess of $150,000. During
1994, the Company paid Joseph Pelosi $80,000 plus normal employee
benefits.
Also in connection with the Airo Clean acquisition, Airo Clean
entered into a lease for approximately 15,300 square feet of flex
office, warehouse and assembly space in Exton, PA from Michael Pelosi,
Jr. and Lucille Pelosi, who are the parents of Michael H. Pelosi, III.
The lease continues through December 2001. During 1994, Airo Clean paid
$107,000 as rent to Mr. and Mrs. Pelosi, and also paid all operating
expenses for the leased premises. The Company plans to consolidate Airo
Clean's operations into Maris' facility and will attempt to sublet the
space.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K
(a) Financial Statements and Schedules
CONSOLIDATED FINANCIAL STATEMENTS
INDEPENDENT AUDITORS' REPORT
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED STATEMENTS OF OPERATIONS
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
CONSOLIDATED STATEMENTS OF CASH FLOWS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FINANCIAL STATEMENT SCHEDULES
INDEPENDENT AUDITORS' REPORT
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the
quarter ended December 31, 1994.
(c) Exhibits
The following is a list of exhibits required by Item 601 of Regulation
S-K to be filed as part of this Report.
Exhibit No. Exhibit
3.1 Restated Certificate of Incorporation
3.2 By-Laws
4.1 Reference is made to Exhibit 3.1
4.2 Form of certificate representing the shares of
Common Stock
4.3** Amended and Restated 1984 Stock Option Plan of
CenterCore, Inc.
4.4** Stock Option Plan for Non-Employee Directors
4.5** 1993 Stock Option Plan
4.6 Certificate of Designation for Series A Preferred Stock
10.1 Administrative Services Agreement between Safeguard
Scientifics, Inc. and CenterCore, Inc. dated
December 4, 1987
10.2 Amendment to Administrative Services Agreement between
Safeguard Scientifics, Inc. and CenterCore, Inc.
effective as of January 1, 1992
10.3 Amendment to Administrative Services Agreement between
Safeguard Scientifics, Inc. and CenterCore, Inc. effective
as of January 1, 1994
10.4 Lease for 1355 West Front Street, Plainfield, New
Jersey, dated July 30, 1983, and Consent to Lease
Assignment to CenterCore, Inc.
10.5 Letter amendment to lease for 1355 West Front Street,
Plainfield, New Jersey, dated October 30, 1992
10.6 Lease for 330 Ashland Road, Mansfield, Ohio
dated July 1, 1992 between Shaw Mansfield Corp. and
Corel Corporate Seating, Inc.
10.7 Underlease of Unit 2.04 Harbour Exchange Square, London,
England between CenterCore UK Limited and
Berkley House Properties Limited
10.8 Assignment and Assumption of Lease Agreement for
212 Phillips Road, Lionville, PA dated as of February 1,
1993 between Airo Clean Engineering, Inc. and Airo Clean
Acquisition Corp.
10.9 Lease Agreement between CenterCore, Inc. and The Nichols
Company dated September 29, 1993 for 110 Summit
Drive, Exton, PA and Landlord's Waiver dated
February 9, 1994
10.10 Lease Agreement between Maris Equipment Company and Chesco
Nichols Company dated July 23, 1986 for 110C Summit
Drive, Exton, PA and amendments thereto
10.11** CenterCore, Inc. 401(k) Tax Deferred Retirement
and Incentive Plan
10.12** CenterCore, Inc. 401(k) Tax Deferred Retirement
and Incentive Plan, Amendment 2-93
10.13** Third Amendment to the CenterCore, Inc. 401(k) Tax
Deferred Retirement and Incentive Plan effective as
of June 1, 1994
10.14 Settlement Agreement dated December 13, 1991 by and
among Safeguard Scientifics, Inc., CenterCore, Inc.,
Michael Martin and Frank LaForgia
10.15 Common Stock Purchase Agreement dated as of
July 9, 1992 between Warren V. Musser and
CenterCore, Inc.
10.16 Award/Contract with the General Services
Administration effective February 7, 1992,
Contract No. GS-00F-6296A
10.17 Award/Contract with the General Services
Administration effective June 4, 1992,
Contract No. GS-00F-8071F
10.18 Award/Contract with the General Services
Administration effective January 31, 1992,
Contract No. GS-00F-9003A
10.19 Award/Contract with the General Services
Administration effective May 5, 1993 through
March 31, 1996 for TEC 2000/ADP furniture,
Contract No. GS-00F-0327A
10.20 Award Contract with the General Services
Administration effective October 1, 1993 through
September 30, 1994 for air treatment/air purifiers,
Contract No. GS-07F-5821A
10.21 Common Stock Purchase Agreement between Corel,
Inc. and Joseph Pisarra dated December 29, 1989
10.22 Asset Purchase Agreement dated February 1, 1993
between Airo Clean Acquisition Corp. and
Airo Clean Engineering, Inc. and Michael H.
Pelosi III, Joseph Pelosi and Michael H.
Pelosi, Jr. (schedules and exhibits
omitted)
10.23** Employment Agreement dated February 1, 1993
between Airo Clean, Inc. and Michael H. Pelosi, III
10.24 Exclusive License Agreement between Michael H.
Pelosi III and Airo Clean, Inc. dated
as of February 1, 1993
10.25 Asset Purchase Agreement dated September 15, 1993
among MEC Acquisition, Inc., CenterCore, Inc., Maris
Equipment Company and JWP Inc.
10.26 Promissory Note dated September 22, 1993 made by
Maris Equipment Company to JWP Inc.
10.27 Agreement and Release dated June 19, 1995 among
CenterCore, Inc., Maris Equipment Company, Inc.,
Safeguard Scientifics, Inc., EMCOR Group, Inc.,
JWP/MEC Corp., and Seaboard Surety Company
10.28 Agreement dated June 16, 1995 among CenterCore, Inc.,
Maris Equipment Company, Inc., and Insurance Company of
North America
10.29 Agreement dated June 19, 1995 among CenterCore, Inc.,
Maris Equipment Company, Inc., and Liberty Mutual
Insurance Company
10.30 $1.1 Million Note to Safeguard Scientifics, Inc. dated
September 22, 1993
10.31 First Fidelity Bank, N.A. Pennsylvania Loan Agreement
with CenterCore, Inc. dated October 6, 1993
10.32 Maris Security Agreement
10.33 $1 Million Note to First Fidelity Bank, N.A.
Pennsylvania dated October 6, 1993
10.34 CenterCore Guarantee Agreement dated October 22, 1993
10.35 CenterCore Subordination Agreement dated
October 22, 1993
10.36 CenterCore Pledge and Security Agreement dated
October 22, 1993
10.37 CenterCore Collection Guarantee
10.38 CenterCore Amended Credit Agreement
10.39 CenterCore Amended and Restated Noted
10.40 Loan and Security Agreement among CenterCore, Inc.,
CenterCore Canada, Inc., CenterCore Systems of
Pennsylvania, Inc., CenterCore U.K. Limited,
CenterCore Office Environments (S.A.) Ltd.,
Maris Equipment Company, Inc., Airo Clean, Inc.
Corel Corporate Seating, Inc. and Mellon Bank, N.A.
dated March 4, 1994
10.41 First Amendment to Loan and Security Agreement dated
June 1, 1994
10.42 Revolving Credit Note dated March 4, 1994 in the principal
amount of $10,000,000
10.43 Subordination Agreement dated March 1994 among
Maris Equipment Company, Inc., JWP/MEC Corp., and Mellon
Bank
10.44 Preferred Stock Purchase Agreement dated June 15, 1994
between CenterCore, Inc. and Safeguard Scientifics
(Delaware), Inc.
10.45 Asset Purchase Agreement dated May 26, 1995 among
CenterCore, Inc., Corel Corporate Seating, Inc. and
The CenterCore Group, Inc.
10.46 Amendment No. 1 dated as of June 30, 1995 to Asset
Purchase Agreement
21 List of Subsidiaries
23 Consent of Independent Auditors
- --------------
** These exhibits relate to compensatory plans, contracts or
arrangements in which directors and/or executive officers of the
registrant may participate.
Independent Auditors' Report
The Board of Directors and Stockholders
CenterCore, Inc.:
We have audited the consolidated balance sheets of CenterCore, Inc. and
subsidiaries as of December 31, 1994 and 1993 and the related
consolidated statements of operations, stockholders' equity (deficit)
and cash flows for each of the years in the three year period ended
December 31, 1994. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
CenterCore, Inc. and subsidiaries as of December 31, 1994 and 1993, and
the results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1994, in conformity
with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Notes 3
and 15 to the financial statements, the Company has incurred losses from
operations, is experiencing liquidity problems, is in default under
certain borrowing agreements and has a net stockholders' deficit all of
which raise substantial doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are described in
Note 15. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
/s/ KPMG Peat Marwick LLP
Philadelphia, Pennsylvania
May 3, 1995
<TABLE>
<CAPTION>
Consolidated Balance Sheets
December 31,
Assets 1994 1993
----------- -----------
<S> <C> <C>
Current assets
Cash $ 583,600 $ 376,900
Receivables, less allowances ($2,864,700 --1994; $1,842,900 --1993) 5,024,900 12,705,200
Costs and estimated earnings in excess of billings on uncompleted contracts 292,500 3,233,100
Inventories 625,700 1,127,100
Income taxes receivable 1,357,900
Other current assets 231,300 427,500
----------- -----------
Total current assets 8,115,900 17,869,800
Net assets of discontinued operations 7,157,300 13,069,800
Plant and equipment
Leasehold improvements 155,400 150,800
Machinery and equipment 816,900 708,000
----------- -----------
972,300 858,800
Less accumulated depreciation and amortization (385,400) (90,000)
----------- -----------
Net plant and equipment 586,900 768,800
Other assets
Excess of cost over net assets of businesses acquired 192,300 1,961,300
Other 638,300 900,800
----------- -----------
Total other assets 830,600 2,862,100
----------- -----------
$16,690,700 $34,570,500
=========== ===========
Liabilities and Stockholders' Equity (Deficit)
Current liabilities
Accounts payable $ 5,885,500 $ 9,929,100
Accrued expenses 3,793,500 1,625,500
Taxes on income 361,400
Billings in excess of costs and estimated earnings on uncompleted contracts 1,419,800 1,623,100
Current debt 8,396,100 383,300
----------- -----------
Total current liabilities 19,494,900 13,922,400
Long-term debt 9,939,000
Other liabilities 121,300 124,500
Deferred taxes 348,600
Redeemable convertible preferred stock issued to Safeguard Scientifics, Inc. 1,500,000
Stockholders' equity (deficit)
Common stock, $.01 par value; Authorized -- 20,000,000 shares;
Issued - 10,767,326 shares 107,700
Additional paid-in capital 7,923,400 6,823,400
Retained earnings (accumulated deficit) (12,036,100) 3,404,000
Foreign currency translation adjustment 0 321,400
Treasury stock at cost - 330,000 shares (420,500) (420,500)
----------- -----------
Total stockholders' equity (deficit) (4,425,500) 10,236,000
----------- -----------
$16,690,700 $34,570,500
=========== ===========
See notes to consolidated financial statements
</TABLE>
<TABLE>
<CAPTION>
Consolidated Statements of Operations
Year Ended December 31,
1994 1993 1992
------------- ------------- -------------
<S> <C> <C> <C>
Net sales $ 31,244,700 $ 15,242,100 $
Cost of goods sold 32,668,200 12,593,100
------------- ------------- -------------
Gross margin (1,423,500) 2,649,000
Expenses
Sales and marketing 3,310,000 1,188,300
General and administrative 4,488,200 1,504,700
Restructuring 2,239,900
Interest 593,400 116,200
------------- ------------- -------------
10,631,500 2,809,200
Loss from continuing operations before income taxes (12,055,000) (160,200)
Benefit of income taxes (1,662,900) (47,000)
------------- ------------- -------------
Loss from continuing operations (10,392,100) (113,200)
Earnings (loss) from discontinued operations (net of tax
of $0 - 1994, $190,200 - 1993, and $1,091,200-19 (1,745,200) (703,000) 988,800
Loss on disposition of discontinued operation (3,302,800)
------------- ------------- -------------
Net earnings (loss) $(15,440,100) $ (816,200) $ 988,800
============= ============= =============
Earnings (loss) per share
Continuing operations $ (1.00) $ (.01)
Discontinued operations (.17) (.07) $ .09
Loss on disposition of discontinued operations (.31)
----- ----- -----
Net earnings (loss) $ (1.48) $ (.08) $ .09
-------- ------- -----
Weighted average shares outstanding 10,437,000 10,434,000 10,664,000
See notes to consolidated financial statements
</TABLE>
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
Year Ended December 31,
1994 1993 1992
----------- ----------- ---------
<S> <C> <C> <C>
Operations
Net Loss $(15,440,100) $ (816,200)
Loss from discontinued operations 1,745,200 703,000
Loss on disposition of discontinued operations 3,302,800
Adjustments to reconcile net earnings (loss) to cash from operations
Provision for restructuring 2,239,900
Depreciation and amortization 473,800 160,400
Decrease in deferred taxes (36,000) (141,900)
Cash from discontinued operations 782,200 315,300
(102,400)
Cash provided by (used in) changes in working capital items
Receivables 1,703,200 (977,600)
Inventories 501,400 (205,600)
Contracts in progress 856,500 974,800
Other current assets (68,900) (52,700)
Accounts payable 326,300 (1,620,100)
Accrued expenses 1,673,900 504,000
Taxes on Income (1,719,300) 237,900
----------- ----------- ---------
Cash (used in) operations (3,659,100) (918,700)
(102,400)
Financing Activities
Additions of term debt 1,100,000
Issuance of preferred stock 1,500,000
Borrowings (repayments) of debt 2,773,700 586,100
Purchase of treasury stock
----------- ----------- ---------
Cash provided by financing activities 4,273,700 1,686,100
Investing Activities
Expenditures for plant and equipment (113,500) (2,500)
Businesses acquired, net of cash (1,170,300)
Other, net (294,400) 128,100
----------- ----------- ---------
Cash used in investing activities (407,900) (1,044,700)
----------- ----------- ---------
Increase (decrease) in cash 206,700 (277,300)
(102,400)
Cash beginning of year 376,900 654,200 756,600
----------- ----------- ---------
Cash end of year $ 583,600 $ 376,900 $ 654,200
=========== =========== =========
See notes to consolidated financial statements
</TABLE>
<TABLE>
<CAPTION>
Consolidated Statements of Stockholders' Equity (Deficit)
Retained Foreign
Common stock Additional earnings/ currency
------------------- paid-in (accumulated translation Treasury
Shares Amount capital deficit) adjustment stock
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance -- December 31, 1991 10,764,826 $107,600 $6,830,800 $ 3,231,400 $ 497,600
Net earnings 988,800
Stock options exercised 2,500 100 1,200
Translation adjustment (133,400)
Purchase of treasury stock $(445,900)
---------- -------- ---------- ------------ ------------ ---------
Balance -- December 31, 1992 10,767,326 107,700 6,832,000 4,220,200 364,200 (445,900)
Net loss (816,200)
Translation adjustment (42,800)
Reissue of treasury stock (8,600) 25,400
---------- -------- ---------- ------------ ------------ ---------
Balance -- December 31, 1993 10,767,326 107,700 6,823,400 3,404,000 321,400 (420,500)
Net loss (15,440,100)
Note receivable contribution 1,100,000
Translation adjustment (196,800)
Write off translation adjustment (124,600)
---------- -------- ---------- ------------ ------------ ---------
Balance -- December 31, 1994 10,767,326 $107,700 $7,923,400 $(12,036,100) $ -- $(420,500)
========== ======== ========== ============ ============ =========
See notes to consolidated financial statements
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
DESCRIPTION OF BUSINESS - The Company provides low voltage electronic
security systems to the commercial and institutional markets. Work is
generally performed under fixed fee or unit price contracts as a
subcontractor to the general contractor or as a prime contractor to the
owner. The Company also designs, manufactures and distributes air
filtration components and systems which are used in a variety of
industries which require particulate-free, ultra-clean working
environments, as well as patient isolation devices for hospital and
healthcare applications.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the accounts of CenterCore, Inc. and its domestic wholly-owned
subsidiaries (the Company). All significant intercompany accounts and
transactions have been eliminated. The furnishings segment of the
Company is being disposed of and accordingly is reported as a
discontinued operation.
RETAINAGE RECEIVABLES AND PAYABLES under contracts which are expected to
be completed within one year are classified as current assets and
current liabilities. Accounts receivable under retainage provision
contracts at December 31, 1994 and 1993 was $795,100 and $2,659,900,
respectively. Accounts payable under retainage provision contracts at
December 31, 1994 and 1993 was $71,900 and $858,600, respectively.
INVENTORIES are valued at the lower of average cost or market.
PLANT AND EQUIPMENT are carried at cost and depreciated on a straight-
line basis over the estimated useful lives of the assets (leasehold
improvements - 5 years; machinery and equipment - 3 to 7 years).
EXCESS OF COST OVER NET ASSETS OF BUSINESSES ACQUIRED is amortized on
a straight-line basis primarily over 15 years. Assessment of the
carrying amount of goodwill is made when changing facts and
circumstances suggest that the carrying value of goodwill or other
assets may be impaired using the forecasted undiscounted cash flow from
the related business activity (including possible proceeds from a sale
of the business). Accumulated amortization at December 31, 1994 and
1993 was $32,700 and $271,900, respectively.
TAXES ON INCOME are accounted for using the asset and liability
method. Under this method, deferred income taxes are recognized for the
tax consequences of "temporary differences" by applying enacted
statutory tax rates applicable to future years to differences between
the financial statement carrying amounts and the tax basis of existing
assets and liabilities. The effect on deferred taxes of a change in
statutory tax rates is recognized in results of operations in the period
that includes the enactment date.
CONTRACTING SALES are recognized using the percentage of completion
accounting method determined by the ratio of cost incurred to date on
the contract to management's estimate of the total contract cost.
Provisions for estimated losses on uncompleted contracts are recorded in
the period in which the losses are determined. Changes in estimated
sales and costs are recognized in the periods in which such estimates
are revised.
SALES of air filtration products are recognized when product is
shipped and title or risk of loss is transferred. Revenue from
installation services is recognized when performed.
EARNINGS (LOSS) PER SHARE of common stock are computed on net
earnings (loss) using the weighted average number of shares outstanding
during each period, including common stock equivalents (unless
antidilutive) which would arise from the exercise of stock options.
2. Acquisitions
On February 1, 1993, the Company acquired the assets and assumed the
liabilities of Airo Clean Engineering, Inc. (Airo Clean), a designer and
manufacturer of cleanroom and air filtration components and systems for
$828,000. The acquisition was accounted for by the purchase method with
cost in excess of net assets of businesses acquired of $220,300
recorded.
On September 22, 1993, the Company purchased substantially all of the
assets and certain liabilities of Maris Equipment Company (Maris), a
wholly-owned subsidiary of JWP, Inc. (JWP). The purchase price was a
fixed amount of $4.3 million plus a contingent payment. The fixed
portion was funded by a note payable to JWP for $3.95 million and
$350,000 in cash at closing. The acquisition was accounted for by the
purchase method, and accordingly, the purchase price was allocated to
the assets acquired and the liabilities assumed based on the estimated
fair value at the date of acquisition. Cost in excess of net assets of
businesses acquired of $1,954,800 was recorded.
The pro forma information below is unaudited and reflects purchase
price accounting adjustments assuming the Maris acquisition occurred at
the beginning of the periods presented, including the impact of certain
adjustments, such as amortization of intangibles, interest expense on
the acquisition debt, and the related tax effects.
(In thousands, except per share amounts) 1993 1992
- -----------------------------------------------------------------------
Net sales $46,254 $41,953
Net loss (1,402) (2,134)
Net loss per share (.13) (.20)
3. Restructurings
Furnishing Business
Due to declining furniture sales, particularly to the federal
government, the Company has decided to sell the furnishings segment.
The Company has agreed to sell the domestic furniture business which
will generate an estimated $2.5 million of cash at closing, which is
expected to occur in August 1995, and deferred payments from the buyer
based on a contractually specified formula. Installment payments for
an aggregate of an estimated $2 million are payable in 4 installments
beginning 9 months after the close of the transaction, and are secured
by a second lien on all the assets of the buyer. A subordinated note,
for an estimated $2 million, is payable in semiannual installments from
18 months to 5 years after closing, and bears interest at 8% per annum
secured by a second lien on the fixed assets of the buyer. The Company
also has tentative agreements to sell the United Kingdom furnishings
businesses to United Kingdom management in return for a note. The
Canadian furnishings business was sold to Safeguard Scientifics, Inc.
who has a tentative agreement to sell the business to the Canadian
management for a note. Proceeds of the note will be applied to satisfy
certain indebtedness of CenterCore Canada to CenterCore after satisfying
remaining lease obligations of CenterCore Canada. The total of both the
UK and Canadian notes is expected to be $566,700. The Company recorded
an anticipated loss of $3,302,800 related to the sale of these
businesses, including accruals for estimated costs of satisfying lease
obligations in the U.K. Revenues for the furnishings segment, which are
not included in consolidated sales, for 1994, 1993 and 1992 were
$34,088,200, $37,924,900 and $45,638,800, respectively
The following is a summary of the net assets of the furnishings
business segment at December 31:
(in thousands) 1994 1993
---- ----
Current assets $12,787 $17,082
Net property and equipment 1,065 3,214
Other assets 325 152
Current liabilities (6,838) (7,218)
Long-term liabilities (182) (160)
-------- -------
Net assets $ 7,157 $13,070
======== =======
Security Business
Since its acquisition of Maris (Note 2) in 1993 the Company
experienced reductions in profitability or losses on fixed fee
contracts. This erosion was caused primarily by unforeseen costs and
operational and contract problems, which were exacerbated by
insufficient financing to support the timely performance of the effected
contracts. As a result of this profit degradation, the Company was not
able to pay its vendors on a timely basis and was having difficulty
completing work in progress.
Most of the larger jobs affected by these issues were bonded and the
Company entered into agreements with surety companies to have them
assume responsibility for completing their respective jobs. The Company
has obtained agreements with such sureties to release the Company from
any financial obligations with respect to completing the jobs in
exchange for 300,000 shares of the Company's stock and cash settlements
totaling $495,000 and additional payments of 20% of Maris' net earnings
in 1998-2002 up to $1 million in the aggregate.
The Company has agreed with the parties from whom it purchased Maris,
to restructure the original purchase transaction by offsetting its note
receivable from Maris of $3.6 million in exchange for releases from its
indemnification liabilities to the Company under the original asset
purchase agreement. The effective $3.6 million reduction in the note
payable net of the related write-off of $1.8 million of remaining costs
in excess of net assets of businesses acquired recorded for the Maris
acquisition has been reflected in 1994 financial statements.
The financial effect of the above transfer of contracts to the surety
companies and the restructuring of the original purchase transaction is
summarized below:
(In thousands)
Accounts receivable $ 5,977
Costs and estimated earnings in excess of
billings on uncompleted contracts net 1,881
Payables (4,370)
Settlement with surety companies 495
Costs in excess of net assets of business
acquired 1,794
Note payable (3,600)
Other 63
--------
Charge for restructuring $ 2,240
========
These transactions are recorded in the 1994 financial statements of
the Company.
As of December 31, 1994 Safeguard contributed a note receivable from
the Company of $1.1 million as additional paid-in capital.
4. Inventories
(In thousands) 1994 1993
---- ----
Raw materials $311 $ 329
Work in progress 0 46
Finished goods 315 752
---- ------
$626 $1,127
==== ======
5. Accrued Expenses
(In thousands) 1994 1993
---- ----
Commissions $ 122 $ 317
Salaries 794 507
Sales and Use Tax 1,025 164
Other 1,853 637
------ ------
$3,794 $1,625
====== ======
6. Commitments and Contingencies
In consideration for contributions to the development of certain air
filtration products, the Company agreed to pay royalties based on sales
of such products to a former shareholder of the dealer through December
1996. Royalty costs were $18,500 and $20,500 in 1994 and 1993,
respectively.
Maris is a named party to certain pending law suits relating to
certain of Maris' security system installation projects. Maris also
believes that it has certain claims with respect to other security
systems installation projects for which it has not yet filed law suits.
In connection with Maris' settlement with its surety companies, the
surety companies have assumed all claims and all liabilities in respect
of these law suits and potential law suits, and the surety companies
have agreed to release Maris from its indemnity obligations to them.
The company is subject to other pending and threatened legal
proceedings and claims which have arisen in the ordinary course of
business and which have not been fully adjudicated. These actions, when
ultimately concluded and determined, will not, in the opinion of
management, have a material effect on the results of operations,
liquidity, or financial position of the Company.
7. Contracts in progress
(In thousands) 1994 1993
- ----------------------------------------------------------------------
Costs incurred on uncompleted contracts $ 30,053 $ 81,557
Estimated earnings 4,258 11,840
-------- --------
34,311 93,367
Billings to date (35,438) (91,757)
-------- --------
$ (1,127) $ 1,610
======== ========
Such amounts are included in the
accompanying consolidated balance sheet as
follows:
Costs and estimated earnings in excess of
billings on uncompleted contracts $ 293 $ 3,233
Billings in excess of costs and estimated
earnings on uncompleted contracts (1,420) (1,623)
-------- --------
$ (1,127) $ 1,610
======== ========
8. Related Party Transactions
Safeguard Scientifics, Inc. (Safeguard) owns 65% of the outstanding
common stock of the Company at December 31, 1994 and all of the
redeemable convertible preferred stock. In 1995, Safeguard agreed to
contribute 2 million shares of CenterCore, Inc. common stock to the
Company, sell 2.5 million shares of CenterCore, Inc. common stock to the
management of the Company to further incentivize them, and provide up to
$3 million in advances to address current funding requirements of the
business. Subsequent to these restructurings, Safeguard's ownership
percentage will fall below 50%.
The Company and Safeguard are parties to an administrative services
agreement pursuant to which Safeguard provides the Company with
administrative support. At January 1, 1994 the agreement for these
administrative services was for a maximum annual fee of $500,000 and the
reimbursement of certain out-of-pocket expenses incurred by Safeguard in
performing services under the agreement. However, in conjunction with
the Company's bank agreement in March 1994, the maximum annual fee was
reduced to $300,000 retroactive to January 1, 1994, and payment of the
fee was made subject to the Company's satisfaction of certain
requirements under its bank agreement which the Company has not been
able to satisfy. The Company made payments of $83,333 to Safeguard and
accrued the remaining fees of $216,667 in 1994. The amount charged to
continuing operations was $220,000 in 1994, $13,500 in 1993 and $0 in
1992, respectively. The balance of these fees were charged to
discontinued operations. The Company leases building space from
Safeguard. The amount payable to Safeguard at December 31, 1994 and
1993 for these transactions and other expenses incurred on behalf of the
Company was $502,400 and $164,200, respectively. In 1995 the
administrative services agreement was terminated. However, Safeguard is
providing certain administrative services to the Company at no charge in
1995.
During 1994 Safeguard purchased 15,000 shares of redeemable
convertible preferred stock for $1.5 million. The preferred stock has a
stated value of $100 per share and entitles holders to quarterly
dividends of $1.50 per share commencing on July 1, 1994. Unpaid
undeclared cumulative dividends as of December 31, 1994 were $45,000.
The Company may redeem all outstanding preferred stock any time after
June 1, 1995 at the stated value plus any unpaid dividends. However,
the preferred stock must be redeemed prior to June 1, 2001. The
preferred stock is convertible at any time into shares of the Company
common stock at one share for each dollar of stated value plus unpaid
dividends. The preferred stock has voting privileges equivalent to the
shares of common stock into which it converts. The Company has
authorized 1,000,000 shares of preferred stock.
9. Debt
Debt consists of the following:
(In thousands) 1994 1993
---- ----
Revolving secured bank facility $8,266 $ 5,199
Note payable 3,700
Safeguard note, subordinated to bank 1,100
Other 130 323
------ -------
8,396 10,322
Less current debt 8,396 383
------ -------
$ -- $ 9,939
====== =======
In March 1994, the Company entered into a $10 million revolving
credit agreement with a bank and repaid the prior credit facilities.
Borrowings bear interest at prime plus 1 1/2%. The agreement limits
borrowings under the credit facility to certain levels of receivables
and inventory and requires the maintenance of liquidity and indebtedness
ratios, minimum levels of net worth and earnings, and limits the amounts
available for capital expenditures and amounts to be advanced to the
Company's subsidiaries. The agreement prohibits the payment of cash
dividends. The Company pays a commitment fee of 1/4% on the unused
portion of the credit facility. Safeguard has guaranteed a portion
(maximum $2.4 million) of the outstanding debt.
Due to the losses incurred in the second half of 1994, the Company is
not in compliance with certain financial covenants under its bank
agreements. The Company has not been successful in restructuring these
covenants, therefore the $8.3 million of formerly long-term bank
borrowings has been reflected as a current obligation as the bank has
the ability to request immediate loan repayment. Additionally, in 1995,
by mutual agreement with the bank availability under the credit facility
has been reduced to $7.7 million. The bank continues to extend credit
to the Company under the existing borrowing base formula.
During 1994 and 1993, the Company borrowed a maximum of $8.8 and $5.7
million, respectively, under its credit facilities. The weighted
average interest rate was 8.1% and 6.1% in 1994 and 1993, respectively.
Interest paid in 1994, 1993 and 1992 was $844,000, $316,000 and
$267,000, respectively.
10. Operating Leases
The Company leases its plant and office facilities and certain
equipment under operating leases ranging from one to seven years.
Future minimum rental payments under operating leases that have initial
or remaining noncancelable lease terms in excess of one year are as
follows:
(In thousands)
1995 $ 333
1996 175
1997 130
1998 125
1999 107
Thereafter 214
------
$1,084
======
Rental expense in 1994, 1993 and 1992 was $776,900, $204,400 and $0,
respectively.
11. Major Customers
The Company's security systems segment has been primarily in the
prison and airport construction business where the customer is an agent
of either the federal or state governments or local municipalities.
During the year ended December 31, 1994, one customer generated 15%, and
during 1993 three customers generated 15%, 14% and 12% of security
systems sales.
The Company has turned over to its sureties most of its prison and
airport construction projects, and does not intend to bid for any
significant additional prison or airport projects.
12. Income Taxes
The benefit for taxes on losses from continuing operations was:
The benefit for taxes on losses from continuing operations was:
(In thousands) 1994 1993
---- ----
Current $(1,579) $(50)
Deferred (84) 3
------- ----
Continuing operations $(1,663) $(47)
------- ----
State tax provision included above $22 $6
A reconciliation of the provision (benefit) for income taxes to the
federal statutory rate follows:
Statutory tax benefit $(4,099) $(54)
State taxes net of federal tax benefit 15 4
Non-deductible U.S. losses 2,421 3
------- ----
$(1,663) $(47)
------- ----
The tax effects of temporary differences that give rise to
significant
portions of the deferred tax assets (liabilities) are presented below:
Deferred tax assets:
Foreign net operating loss carryforwards $ 856
U.S. net operating loss carryforwards $1,014
Bonded jobs allowance 1,420
Receivables allowance 1,146 240
Alternative minimum tax credit 97
Life insurance benefit 48
Goodwill allowance 717
Inventory capitalization 25
------ -----
Total gross deferred assets 4,394 1,169
Less valuation allowance (4,390) (856)
------ -----
Net deferred tax assets 4 313
------ -----
Deferred tax liabilities:
Accelerated depreciation (4) (349)
------ -----
As of December 31, 1994, the Company had net operating loss
carryforwards for U.S. income tax purposes of $8 million. Of this
amount, $5 million has been carried back to offset prior years taxable
income and resulted in the Company receiving a $1.6 million tax refund
in 1995. The remaining net operating loss carryforward of $3 million is
available to offset future taxable income until the year 2009.
Total income taxes paid (refunded) in 1994, 1993 and 1992, were
$158,200, ($34,900) and $0, respectively.
13. Stock Options
In 1994, the Company shareholders approved an additional 500,000
common shares for a new employee stock option plan. Under the various
incentive stock option plans, selected employees may be granted options
to purchase the Company's common stock at a price not less than fair
market value on the date of grant.
Generally, all options are exercisable 25% per year beginning one
year from date of grant. Options expire seven years from the date of
grant.
A summary of stock option activity in the plans follows:
1994 1993
---- ----
Shares under option beginning of year 749,250 455,625
Options granted 342,000
Options canceled (143,375) (48,375)
-------- -------
Shares under option end of year 605,875 749,250
======== =======
Options exercisable 377,325 287,750
Shares available for future grant 443,000 425,000
Average price of shares under option $.90 $.94
Under the Company's non-employee Director stock option plan, 5,000
options at $1.75 and 5,000 options at $1.13 per share are outstanding at
December 31, 1994. These options are currently exercisable and expire
in 1995 and 1996, respectively.
At December 31, 1994, the Company has reserved 1,098,875 shares of
common stock for possible future issuance under all stock option plans.
14. Retirement Plans
The Company has defined contribution plans which cover substantially
all domestic employees. Certain plans provide for a limited Company
match of employee contributions. The Company contributed $85,600,
$35,000 and $0 in 1994, 1993 and 1992, respectively.
15. Liquidity and Capital Resources
As a result of significant operating difficulties, the Company has a
severe liquidity problem. The Company is in default of its loan
facility ($8.3 million at December 31, 1994). These defaults cause the
debt to be due upon demand, and, should the lender demand payment, the
Company does not have the resources to satisfy the debt. The Company
has withdrawn from the correctional facility security business and is
undertaking to significantly downsize the business which includes the
sale of the furnishings business unit. Proceeds from the sale, as well
as a 1995 tax refund of $1.6 million, will be used to reduce
outstanding bank debt. In anticipation of these events, the bank
continues to extend credit to the Company under the existing borrowing
base formula. Except for a $2.4 million guarantee of bank debt,
Safeguard is not contractually obligated to satisfy any of the Company's
obligations. The Company believes that the combination of cash received
from the sale of the furnishings business, the tax refund, the guarantee
of Safeguard and the working capital assets of the ongoing business will
be sufficient to satisfy/support all of the bank debt.
The Company has entered into an agreement with the parties from whom
it acquired Maris, to significantly restructure the original purchase
transaction. Under this agreement the seller has agreed to offset its
$3.6 million note receivable from the Company in exchange for releases
from its indemnification liabilities to the Company under the original
asset purchase agreement. Because the Company did not have the required
working capital to complete certain projects it turned to its sureties
to assume and complete certain construction contracts and has extended
its payables to vendors. The principal sureties have agreed to release
the Company from its indemnity obligations to them in return for 300,000
shares of CenterCore stock, cash payments of $495,000 and additional
payments equal to 20% of the Company's net earnings in 1998-2002 up to
$1 million in the aggregate. The Company is negotiating with all
principal vendors to arrange a repayment schedule while continuing to
supply the Company with materials needed to meet current requirements.
Safeguard has agreed to contribute 2 million shares of its CenterCore
common stock to the Company, sell 2.5 million shares of its CenterCore
common stock to CenterCore management, and provide up to $3 million in
advances to the Company to address current funding requirements of the
downsized business.
As a result of the restructurings, the Company will emerge as a
significantly downsized company. Availability of bonding on jobs will,
at least in the near term, be limited. Bank financing may be available
for limited working capital requirements to augment any advances from
Safeguard. If these sources of funds prove to be inadequate or in the
case of bank financing, unavailable, then the Company will have to seek
additional funds from other investors in order to continue operations.
There can be no assurance that new sources of funds, if required, will
be available. Although the Company believes it will be able to continue
to operate in this new downsized mode, it is contingent on the Company's
ability to adequately reduce its cost structure to a point where it is
supported by the new downsized operations.
16. Segment Data
In thousands
Security Systems Air Technology
Products
---------------- --------------
1994
- ----
Net sales $27,178 $4,067
Loss before income taxes (11,895) (160)
Assets employed 5,009 2,213
1993
- ----
Net sales 12,515 2,727
Earnings (Loss) before income taxes 92 (252)
Assets employed 17,649 1,922
Security systems provides low voltage electronic systems to the
commercial and institutional markets. Air Technology products designs
and manufactures clean room and air filtration components and systems.
Virtually all sales are to United States customers. During 1994 the
Company discontinued the furnishings segment. Assets employed include
continuing operations net of assets used for general corporate purposes
of $2,311 and $1,930 for 1994 and 1993, respectively.
INDEPENDENT AUDITOR'S REPORT
The Board of Directors and Stockholders
CenterCore, Inc.:
Under date of May 3, 1995, we reported on the consolidated balance
sheets of CenterCore, Inc. and subsidiaries as of December 31, 1994 and
1993, and the related consolidated statements of operations,
stockholders' equity (deficit) and cash flows for each of the years in
the three-year period ended December 31, 1994, as contained in the 1994
annual report to stockholders. These consolidated financial statements
and our report thereon are included in the annual report on Form 10-K
for the year 1994. In connection with our audits of the aforementioned
consolidated financial statements, we have also audited the related
financial statement schedule as listed in the accompanying index. This
financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on the financial
statement schedule based on our audit.
In our opinion, such financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
As discussed in our report on the basic financial statements,
substantial doubt exists about the Company's ability to continue as a
going concern.
/s/KPMG Peat Marwick
Philadelphia, Pennsylvania
May 3, 1995
<TABLE>
<CAPTION>
CENTERCORE, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Balance Additions
Beginning Charged to Balance
DESCRIPTION of Year Operations Deductions Other End of Year
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts (1)
Year ended December 31, 1993 $ (17,800) $1,860,700 (2) $1,842,900
Year ended December 31, 1994 $1,842,900 $ 1,170,800 (3) $(149,000) $2,864,700
<FN>
<F1>
(1) Net write-offs.
<F2>
(2) Maris Equipment Co. valuation reserve at acquisition date.
<F3>
(3) All but $100,000 of this amount relates to existing contracts assumed in the Maris acquisition.
</FN>
- ----------------------------------------------------------------------------------------------------
Does not reflect the discontinued furnishings segment.
</TABLE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated: July , 1995 CENTERCORE, INC.
By: /s/ George E. Mitchell
----------------------------
George E. Mitchell
President and Chief Executive Officer
EXHIBIT INDEX
The following is a list of exhibits required by Item 601 of
Regulation S-K to be filed as part of this Report. Where so indicated
by footnote, exhibits which were previously filed are incorporated by
reference. For exhibits incorporated by reference, the location of the
exhibit in the previous filing is indicated in parentheses. The page
numbers listed refer to the page numbers where such exhibits are located
using the sequential numbering system specified by Rules 0-3 and 403.
Exhibit No. Exhibit
3.1 Restated Certificate of Incorporation
(3) (Exhibit 3.1)
3.2 By-Laws (3) (Exhibit 3.2)
4.1 Reference is made to Exhibit 3.1 (3) (Exhibit 4.1)
4.2 Form of certificate representing the shares of
Common Stock (3) (Exhibit 4.2)
4.3** Amended and Restated 1984 Stock Option Plan of
CenterCore, Inc.(9)(Exhibit 4.3)
4.4** Stock Option Plan for Non-Employee Directors
(5) (Exhibit 10.18)
4.5** 1993 Stock Option Plan (13)(Exhibit 4.1)
4.6 Certificate of Designation for Series A Preferred Stock
(13)(Exhibit 4.2)
10.1 Administrative Services Agreement between Safeguard
Scientifics, Inc. and CenterCore, Inc. dated
December 4, 1987 (2) (Exhibit 10.10)
10.2 Amendment to Administrative Services Agreement between
Safeguard Scientifics, Inc. and CenterCore, Inc.
effective as of January 1, 1992 (8) (Exhibit 10.3)
10.3 Amendment to Administrative Services Agreement between
Safeguard Scientifics, Inc. and CenterCore, Inc.
effective as of January 1, 1994 (12)(Exhibit 10.3)
10.4 Lease for 1355 West Front Street, Plainfield, New
Jersey, dated July 30, 1983, and Consent to Lease
Assignment to CenterCore, Inc. (1) (Exhibit 10.11)
10.5 Letter amendment to lease for 1355 West Front Street,
Plainfield, New Jersey, dated October 30, 1992
(9)(Exhibit 10.4)
10.6 Lease for 330 Ashland Road, Mansfield, Ohio
dated July 1, 1992 between Shaw Mansfield Corp. and
Corel Corporate Seating, Inc.(9)(Exhibit 10.7)
10.7 Underlease of Unit 2.04 Harbour Exchange Square, London,
England between CenterCore UK Limited and
Berkley House Properties Limited (5) (Exhibit 10.14)
10.8 Assignment and Assumption of Lease Agreement for
212 Phillips Road, Lionville, PA dated as of February 1,
1993 between Airo Clean Engineering, Inc. and Airo Clean
Acquisition Corp.(9)(Exhibit 10.9)
10.9 Lease Agreement between CenterCore, Inc. and The Nichols
Company dated September 29, 1993 for 110 Summit
Drive, Exton, PA and Landlord's Waiver dated
February 9, 1994 (12)(Exhibit 10.10)
10.10 Lease Agreement between Maris Equipment Company and
Chesco Nichols Company dated July 23, 1986 for 110C
Summit Drive, Exton, PA and amendments thereto
(12)(Exhibit 10.11)
10.11** CenterCore, Inc. 401(k) Tax Deferred Retirement
and Incentive Plan(9)(Exhibit 10.16)
10.12** CenterCore, Inc. 401(k) Tax Deferred Retirement
and Incentive Plan, Amendment 2-93 (12)(Exhibit 10.13)
10.13** Third Amendment to the CenterCore, Inc. 401(k) Tax
Deferred Retirement and Incentive Plan effective as
of June 1, 1994 (13) (Exhibit 10.1)
10.14 Settlement Agreement dated December 13, 1991 by and
among Safeguard Scientifics, Inc., CenterCore, Inc.,
Michael Martin and Frank LaForgia
(8) (Exhibit 10.17)
10.15 Common Stock Purchase Agreement dated as of
July 9, 1992 between Warren V. Musser and
CenterCore, Inc.(9)(Exhibit 10.18)
10.16 Award/Contract with the General Services
Administration effective February 7, 1992,
Contract No. GS-00F-6296A (8) (Exhibit 10.25)
10.17 Award/Contract with the General Services
Administration effective June 4, 1992,
Contract No. GS-00F-8071F(9)(Exhibit 10.22)
10.18 Award/Contract with the General Services
Administration effective January 31, 1992,
Contract No. GS-00F-9003A(9)(Exhibit 10.23)
10.19 Award/Contract with the General Services
Administration effective May 5, 1993 through
March 31, 1996 for TEC 2000/ADP furniture,
Contract No. GS-00F-0327A (12)(Exhibit 10.20)
10.20 Award Contract with the General Services
Administration effective October 1, 1993 through
September 30, 1994 for air treatment/air purifiers,
Contract No. GS-07F-5821A (12)(Exhibit 10.21)
10.21 Common Stock Purchase Agreement between Corel,
Inc. and Joseph Pisarra dated December 29, 1989
(5) (Exhibit 10.35)
10.22 Asset Purchase Agreement dated February 1, 1993
between Airo Clean Acquisition Corp. and
Airo Clean Engineering, Inc. and Michael H.
Pelosi III, Joseph Pelosi and Michael H.
Pelosi, Jr. (schedules and exhibits
omitted)(9)(Exhibit 10.27)
10.23** Employment Agreement dated February 1, 1993
between Airo Clean, Inc. and Michael H. Pelosi, III (15)
(Exhibit 10.23)
10.24 Exclusive License Agreement between Michael H.
Pelosi III and Airo Clean, Inc. dated
as of February 1, 1993(9)(Exhibit 10.28)
10.25 Asset Purchase Agreement dated September 15, 1993
among MEC Acquisition, Inc., CenterCore, Inc., Maris
Equipment Company and JWP Inc. (10)(Exhibit 2.1)
10.26 Promissory Note dated September 22, 1993 made by
Maris Equipment Company to JWP Inc. (10)(Exhibit 1)
10.27 Agreement and Release dated June 19, 1995 among
CenterCore, Inc., Maris Equipment Company, Inc.,
Safeguard Scientifics, Inc., EMCOR Group, Inc.,
JWP/MEC Corp., and Seaboard Surety Company (15)
(Exhibit 10.27)
10.28 Agreement dated June 16, 1995 among CenterCore, Inc.,
Maris Equipment Company, Inc., and Insurance Company of
North America (15) (Exhibit 10.28)
10.29 Agreement dated June 19, 1995 among CenterCore, Inc.,
Maris Equipment Company, Inc., and Liberty Mutual
Insurance Company (15) (Exhibit 10.29)
</R<
10.30 $1.1 Million Note to Safeguard Scientifics, Inc. dated
September 22, 1993 (11)(Exhibit 10.3)
10.31 First Fidelity Bank, N.A. Pennsylvania Loan Agreement
with CenterCore, Inc. dated October 6, 1993
(11)(Exhibit 10.4)
10.32 Maris Security Agreement (11)(Exhibit 10.5)
10.33 $1 Million Note to First Fidelity Bank, N.A. Pennsylvania
dated October 6, 1993 (11)(Exhibit 10.6)
10.34 CenterCore Guarantee Agreement dated October 22, 1993
(11)(Exhibit 10.7)
10.35 CenterCore Subordination Agreement dated
October 22, 1993 (11)(Exhibit 10.8)
10.36 CenterCore Pledge and Security Agreement dated
October 22, 1993 (11)(Exhibit 10.9)
10.37 CenterCore Collection Guarantee (11)(Exhibit 10.10)
10.38 CenterCore Amended Credit Agreement (11)(Exhibit 10.11)
10.39 CenterCore Amended and Restated Noted (11)(Exhibit 10.12)
10.40 Loan and Security Agreement among CenterCore, Inc.,
CenterCore Canada, Inc., CenterCore Systems of
Pennsylvania, Inc., CenterCore U.K. Limited, CenterCore
Office Environments (S.A.) Ltd., Maris Equipment Company,
Inc., Airo Clean, Inc. Corel Corporate Seating, Inc. and
Mellon Bank, N.A. dated March 4, 1994 (12)(Exhibit 10.39)
10.41 First Amendment to Loan and Security Agreement dated
June 1, 1994 (13)(Exhibit 10.2)
10.42 Revolving Credit Note dated March 4, 1994 in the principal
amount of $10,000,000 (12)(Exhibit 10.40)
10.43 Subordination Agreement dated March 1994 among
Maris Equipment Company, Inc., JWP/MEC Corp., and Mellon
Bank (14)(Exhibit 10.1)
10.44 Preferred Stock Purchase Agreement dated June 15, 1994
between CenterCore, Inc. and Safeguard Scientifics
(Delaware), Inc. (13) (Exhibit 10.3)
10.45 Asset Purchase Agreement dated May 26, 1995 among
CenterCore, Inc., Corel Corporate Seating, Inc. and The
CenterCore Group, Inc. (16) (Appendix 99.2)
10.46 Amendment No. 1 dated as of June 30, 1995 to the Asset
Purchase Agreement*
21 List of Subsidiaries (15) (Exhibit 21)
23 Consent of Independent Auditors *
- ----------
* Filed herewith
** These exhibits relate to compensatory plans, contracts or
arrangements in which directors and/or executive officers of the
registrant may participate.
(1) Filed on December 9, 1987 as an exhibit to the Registration
Statement on Form S-1 (No. 33-18974) and incorporated herein by
reference.
(2) Filed on March 22, 1988 as an exhibit to Amendment No. 1 to the
Registration Statement on Form S-1 (No. 33-18974) and incorporated
herein by reference.
(3) Filed on April 14, 1988 as an exhibit to Amendment No. 2 to the
Registration Statement on Form S-1 (No. 33-18974) and incorporated
herein by reference.
(4) Filed on March 30, 1989 as an exhibit to Annual Report on Form 10-
K (No. 000-17577) and incorporated herein by reference.
(5) Filed on April 2, 1990 as an exhibit to Annual Report on Form 10-K
(No. 000-17577) and incorporated herein by reference.
(6) Filed on February 14, 1991 as an exhibit to Form 8-K (No. 00-
17577) and incorporated herein by reference.
(7) Filed on March 29, 1991 as an exhibit to Annual Report on Form 10-
K (No. 000-17577) and incorporated herein by reference.
(8) Filed on March 30, 1992 as an exhibit to Annual Report on Form 10-
K (No. 000-17577) and incorporated herein by reference.
(9) Filed on March 31, 1993 as an exhibit to Annual Report on Form 10-
K (No. 000-17577) and incorporated herein by reference.
(10) Filed on October 7, 1993 as an exhibit to Form 8-K (No. 000-17577)
and incorporated herein by reference.
(11) Filed on November 15, 1993 as an exhibit to Quarterly Report on
Form 10-Q (No. 000-17577) and incorporated herein by reference.
(12) Filed as an exhibit to Annual Report on Form 10-K for the fiscal
year ended December 31, 1993 (No. 000-17577) and incorporated
herein by reference.
(13) Filed as an exhibit to Quarterly Report on Form 10-Q for the
fiscal quarter ended June 30, 1994 (No. 000-17577) and
incorporated herein by reference.
(14) Filed as an exhibit to Quarterly Report on Form 10-Q for the
fiscal quarter ended September 30, 1994(No. 000-17577) and
incorporated herein by reference.
(15) Filed as an exhibit to Annual Report on Form 10-K for the fiscal
year ended December 31, 1994 (No. 000-17577) and incorporated
herein by reference.
(16) Filed as an appendix to the Preliminary Information Statement on
Schedule 14C (No. 000-17577) filed on June 26, 1995 and
incorporated herein by reference.
Exhibit 23
Consent of Independent Auditor
The Board of Directors and Stockholders
CenterCore, Inc.:
We consent to incorporation by reference in the registration statements
(No's. 33-25536 and 33-57972) on Form S-8 of CenterCore, Inc. of our
reports dated May 3, 1995, relating to the consolidated balance sheets
of CenterCore, Inc. and subsidiaries as of December 31, 1994 and 1993
and the related consolidated statements of operations, stockholders'
equity (deficit), and cash flows and related schedule for each of the
years in the three-year period ended December 31, 1994, which reports
are included in the December 31, 1994 annual report on Form 10-K/A
Amendment No.1 of CenterCore, Inc.
As discussed in our reports, substantial doubt exists about the
Company's ability to continue as a going concern.
/s/ KPMG Peat Marwick LLP
Philadelphia, Pennsylvania
July 27, 1995
