SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-09964
Corcap, Inc.
(Exact name of registrant as specified in its charter)
Nevada 06-1237135
--------------------- -----------------
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
120 Union Street, Willimantic, Connecticut 06226
------------------------------------------ -------------
(Address of principal executive offices) Zip Code)
(860) 456-4187
--------------------------------------------
Registrant's telephone number, including area code
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X NO
As of November 14, 1996, a total of 3,375,726 shares of Common Stock,
$.01 par value, were outstanding.
CORCAP, INC.
INDEX
Page No.
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets -
September 30, 1996 (unaudited) and December 31, 1995 3
Consolidated Statements of Operations -
Three Months and Nine Months Ended
September 30, 1996 and 1995 (unaudited) 4
Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1996 and 1995 (unaudited) 5
Notes to Consolidated Financial Statements 6-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-11
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 11
Signature 12
CORCAP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
September 30, December 31,
1996 1995
------------- ------------
(Unaudited)
ASSETS
Net non-current assets of discontinued
operations $ 79 $ -
-------- --------
Total Assets $ 79 $ -
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Net current liabilities of
discontinued operations $ 289 $ 1,681
-------- --------
Total Current Liabilities 289 1,681
Non-current Liabilities:
Net non-current liabilities of
discontinued operations - 265
-------- --------
Total Liabilities 289 1,946
STOCKHOLDERS DEFICIT
Common stock 33 29
Capital in excess of par 269 269
Minimum pension liability - (888)
Accumulated deficit (25,545) (26,389)
-------- --------
(25,243) (26,979)
Contributed capital 25,033 25,033
-------- --------
Total Stockholders' Equity (210) (1,946)
-------- --------
Total Liabilities and Stockholders'
Equity (Deficit) $ 79 $ -
======== ========
See Accompanying Notes to Consolidated Financial Statements (unaudited).
CORCAP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Data)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
----------------- -----------------
1996 1995 1996 1995
------- ------- ------- -------
Net sales $ - $ - $ - $ 4,615
Cost of Sales - - - 3,993
------ ------- ------- -------
Gross margin - - - 622
Selling, general and
administrative expenses - - - 496
------ ------- ------- -------
Operating income (loss) - - - 126
Other income (expense):
Interest expense, net - - - (10)
Other income (expense), net - - - (12)
------ ------- ------- ------
Total other income
(expense), net - - - (22)
------ ------- ------- ------
Income (loss) from continuing
operations - - - 104
Discontinued operations:
CompuDyne (loss) from discontinued
operations - - - (246)
Corcap income (loss) from
operations net of tax benefit (21) (618) 1,731 (663)
------ ------- ------ -------
Net Income (loss) $ (21) $ (618) $ 1,731 $ (805)
====== ======= ====== ======
Weighted average common shares 3,376 2,926 3,376 2,926
====== ======= ====== =======
Net income (loss) per common share:
Continuing operations $ - $ - $ - $ .04
Discontinued operations (.01) (.21) .51 (.31)
------ ------- ------ ------
Net income (loss) per share $ (.01) $ (.21) $ .51 $ (.27)
====== ======= ====== ======
See Accompanying Notes to Consolidated Condensed Financial Statements
(unaudited).
CORCAP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Nine Months Ended
September 30,
1996 1995
------- -------
Cash flows provided by (used for)
operating activities:
Changes in assets and liabilities:
Decrease in other net $ - $ (163)
Decrease in accounts receivables, net - 1,827
Decrease in long term liabilities - (432)
Decrease in other assets - 37
Decrease in inventories - 514
Decrease in accounts payable and
other accrued liabilities - (2,027)
------- -------
Net cash provided (used) by
continuing operations - (244)
------- -------
Income (loss) from discontinued operations 1,732 (663)
Increase (decrease) in net non-current
assets of discontinued operations (79) (18)
Increase (decrease) in net current liabilities
of discontinued operations (1,392) 799
Increase (decrease) in net non-current
liabilities of discontinued operations 265 -
------- -------
Net cash flows provided (used) by
discontinued operations (4) 118
------- -------
Net cash provided (used) by operating activities - (126)
------- -------
Cash flows from investing activities:
Decrease in investment in CompuDyne - (10)
Deletions to property, plant and equipment - 27
------- -------
Net cash used for investing activities - 17
------- -------
Cash flows from financing activities:
Decrease in receivable from management - (92)
Issuance of common stock 4 -
------- -------
Net cash provided by (used for) financing activities 4 (92)
------- -------
Net change in cash - (202)
Cash and cash equivalents at beginning of period - 202
------- -------
Cash and cash equivalents at end of period $ - $ -
======= =======
See Accompanying Notes to Consolidated Condensed Financial Statements
(unaudited).
CORCAP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIGNIFICANT ACCOUNTING POLICIES
- -------------------------------
BASIS OF PRESENTATION. The accompanying unaudited financial statements
have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and note
disclosures normally included in the annual financial statements,
prepared in accordance with generally accepted accounting principles,
have been condensed or omitted pursuant to those rules and regulations,
although the Company believes that the disclosures made are adequate to
make the information presented not misleading.
In the opinion of management, the unaudited accompanying consolidated
financial statements reflect all necessary adjustments and
reclassifications (all of which are of a normal, recurring nature) that
are necessary for fair presentation for the periods presented. It is
suggested that these consolidated financial statements be read in
conjunction with the consolidated financial statements and the notes
thereto included in the Company's latest annual report to the Securities
and Exchange Commission on Form 10-K for the year ended December 31,
1995.
PRINCIPLES OF CONSOLIDATION. All financial information for all interim
periods presented is unaudited. The financial statements include the
accounts of Corcap, its wholly owned subsidiaries, and its investment in
CompuDyne Corporation ("CompuDyne") for the quarter ended September 30,
1996. As of July 1, 1995, Corcap began accounting for its investment in
CompuDyne by the equity method of accounting as a result of the reduction
in the investment Corcap had in CompuDyne. As of July 1, 1996, Corcap
adopted the cost basis of accounting for its holdings in CompuDyne since
its fully diluted interest in CompuDyne had declined to a relatively
nominal level due to an acquisition and financing by CompuDyne. As of
December 31, 1995, Corcap held 24.7% of CompuDyne Common Stock. As of
September 30, 1996, Corcap held 3.4% and, on a fully diluted basis, 2.2%.
The management of Corcap believes that all adjustments necessary to
present a fair statement of the results for the periods have been
included. On August 21, 1995 Quanta Systems Corporation, a wholly owned
subsidiary of CompuDyne, transferred all of the assets and liabilities of
its Suntec division to Suntec Service Corporation ("SSC"), which was sold
to Norman Silberdick, CompuDyne's Chairman, President, CEO and Director.
As a result of the sale of SSC, the balance sheet and statement of
operations for Corcap have been restated to reflect the treatment of SSC
as a discontinued operation for the three months and nine months ended
September 30, 1995. The effect of consolidating CompuDyne with Corcap
was to report CompuDyne's net sales from continuing operations, which
totaled $4.6 million for the six months ended June 30, 1995.
INCOME TAXES. Effective January 1, 1993, the Company adopted Statement
of Financial Accounting Standards No. 109 (SFAS 109), "Accounting for the
Income Taxes". Under SFAS 109 deferred income taxes are recognized for
the future tax consequences of differences between tax bases of assets
and liabilities and financial reporting amounts, based upon enacted tax
laws and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances
are established when necessary to reduce deferred tax assets to amounts
expected to be realized. Income tax expense is the tax payable for the
period and the change during the period in deferred tax assets and
liabilities. The adoption of SFAS 109 had no impact on operations for
any of the periods presented.
NET INCOME (LOSS) PER COMMON SHARE. Net income (loss) per common share
is based on the weighted average of common shares outstanding during the
period, including the effect of common stock equivalents and stock awards
where such effect would be dilutive.
BUSINESS SEGMENTS
- -----------------
Financial information for Corcap and CompuDyne on a separate company
basis, excluding the elimination of adjustments made in consolidation, is
as follows:
Discontinued Operations
- -----------------------
Corcap - Formerly operated an elastomer products business.
The results of Corcap are accounted for as discontinued operations in the
Balance Sheet and the Consolidated Statements of Operation in the
financial statements due to the divestment of the Acadia segment on July
1, 1991. Net current liabilities and net non-current assets of
discontinued operations at September 30, 1996 and December 31, 1995
consisted of the following:
September 30, December 31,
1996 1995
($ Thousands)
Investments (1) $ 139 $ 139
Notes payable due after one year (60) (60)
Net current liabilities (289) (1,681)
Deferred pension liability - (344)
-------- --------
Total (210) (1,946)
Less current portion (289) (1,681)
-------- --------
Net non-current assets (liabilities) of
discontinued operations $ 79 $ (265)
1. Investments include 97,7271 shares of CompuDyne common stock of which
27,000 are held in a remediation fund and may not be available to Corcap,
and 18.8% of Fabrilock.
For the Three Months ended September 30 1996 1995
($ Thousands)
Net Sales $ - $ -
Gross Margin - -
------ -------
Net income (loss) from discontinued
operations $ (21) $ (618)
====== =======
CompuDyne - CompuDyne operates an electronics and engineering services
business. Corcap ceased consolidating CompuDyne results as of July 1,
1995, therefore, there are no CompuDyne results included in Corcap's
third quarter 1995 or 1996 results.
PENSION PLANS
- -------------
On September 15, 1995 Corcap contributed 224,000 shares of CompuDyne
Common Stock to satisfy Corcap's minimum funding obligations for the
1992, 1993 and 1994 Plan Years of its employees' pension plans: Plan 1A
and Plan 6B under Section 412 of the Internal Revenue Code of 1986, as
amended (the "Code"). The Constituent Plans comprised, and were
administered through a single trust: the Corcap, Inc. Pooled Pension
Investment Trust (the "Trust"). Corcap contributed 143,600 shares of
CompuDyne Common Stock to Plan 1A and 80,400 shares of CompuDyne Common
Stock to Plan 6B.
In March 1996, in anticipation of termination of the Corcap Pension Plan
1A and the Corcap Pension Plan 6B (collectively the "Plans"), the Pension
Benefit Guaranty Corp. (the "PBGC") and Corcap reached an agreement
whereby the PBGC accepted an additional 188,660 shares of CompuDyne
Common Stock in satisfaction of the Plans' remaining underfunding
liabilities. The agreement was executed in May 1996 and resulted in a
gain on the sale of CompuDyne shares of $532 thousand. The PBGC has
taken possession of, and is now acting as Trustee and is administering,
the Plans.
As a result of Corcap's failure to fund $35,553 to the pension plans on a
timely basis, between December 1995 and June 1996 the IRS imposed
penalties of $12,005. With added interest of $7,968, the $35,553
underfunded tax liability had grown to $55,526. In discussions with the
IRS, Corcap believes that the IRS has now agreed to abate a substantial
portion and perhaps all of these penalties with final notification
expected by mid December.
RELATED PARTY TRANSACTIONS
- --------------------------
CompuDyne provides limited corporate services to Corcap under an
agreement reached in March 1996. Said obligation is limited to $1,000
per month through March 1998.
Corcap's residual outstanding debt to CompuDyne was $78 thousand as of
September 30, 1996 compared with $72 thousand as of September 30, 1995.
On August 21, 1995, Corcap purchased 150,000 shares of CompuDyne Common
Stock for $.40 per share in accordance with the terms of a Warrant issued
by CompuDyne to Corcap on March 10, 1993 and amended as of April 1, 1995
and August 15, 1995. In payment of the purchase price of the Warrant
Shares, Corcap executed a promissory note for $60 thousand payable to
CompuDyne, which is included in net non-current liabilities of
discontinued operations at December 31, 1995 in the consolidated balance
sheet. The Corcap Promissory Note bears interest on the unpaid principal
at the annual rate of eight percent (8%). Payment of the unpaid principal
of the Corcap promissory note and of all accrued and unpaid interest
thereon is due on August 21, 2000.
As a result of the sale of 18,000 shares in February 1996 by Corcap
pursuant to Rule 144 under the 1933 Act, the transfer of 120,000 shares
to Lydall, Inc. ("Lydall") and the transfer of 188,660 shares to the
PBGC, a settlement with former employees for 22,500 shares of CompuDyne
Common Stock and CompuDyne's financial arrangements for its purchase of
Shorrock Electronic Systems in July of 1996, Corcap's ownership of
CompuDyne Common Stock decreased from 24.7% of the issued and outstanding
shares of CompuDyne Common Stock as of December 31, 1995 to 3.4% as of
September 30, 1996, and, after assuming (i) the conversion of 1,260,460
shares of Series D Preference Stock to Messrs. Roenigk and Markowitz,
which shares are convertible by the holder into 1,260,460 shares of
CompuDyne Common Stock, (ii) the exercise of the Roenigk Option to
purchase 200,000 shares of CompuDyne Common Stock at an exercise price of
$1.50 per share, (iii) the exercise of non-employee director stock
options for a cumulative total of 1,050 shares of CompuDyne Common Stock
issued to David W. Clark, Jr., Alan Markowitz and Millard H. Pryor, Jr.
at an exercise price of $1.625 per share, (iv) the exercise of stock
options for 26,000, 28,000 and 120,000 shares of CompuDyne Common Stock
issued to key employees of Quanta Systems, MicroAssembly and Quanta
SecurSystems, respectively, and (v) the exercise by CompuDyne of its
options to purchase 16,666 shares of CompuDyne Common Stock from Corcap,
Corcap's ownership would be decreased to 1.8% on a fully diluted basis.
On February 9, 1996, certain directors of Corcap, who were former
officers and employees of Corcap, waived $328 thousand of accrued wages.
On March 25, 1996 the Board of Directors reduced the exercise price on
outstanding options to purchase common stock of the Company under the
Corcap, Inc. Non-Qualified Stock Option Agreement dated August 21, 1995
granted to Martin A. Roenigk and outstanding options under the Corcap,
Inc. 1988 Stock Incentive Compensation Plan granted to a certain officer
of the Company, to $.01 per share. The reduction in the exercise price
reflects the current market price of the Company's common stock, as well
as substantial progress by said individual towards stabilizing the
company's financial position.
On May 23, 1996 Martin Roenigk exercised his options to purchase 450,000
shares of Corcap Common Stock at a price of $.01 per shares.
CONTINGENT LIABILITIES
- ----------------------
Corcap no longer has any long term operating leases.
During the third quarter of 1991, a wholly-owned subsidiary of Corcap
received notification that it may be a potential responsible party under
the North Carolina General Statutes in connection with the closure and
abatement of the Seaboard Chemical Corporation site located in Jamestown,
North Carolina. Preliminary information supplied by the North Carolina
Department of Environment, Health and Natural Resources indicates that,
during the fall of 1986 and early 1987, a subsidiary of Lydall, which was
part of its Elastomer Products Group, may have shipped approximately
.0001016% of the aggregate waste material located at the site. In
connection with the spinoff of Corcap from Lydall on July 1, 1988, Corcap
succeeded to the businesses and operations that were formerly conducted
by the Elastomer Products Group of Lydall, and Corcap agreed to indemnify
Lydall with respect to liabilities arising out of the conduct of the
elastomer products business prior to the spinoff. During the third
quarter of 1994 Corcap received a pro-rata invoice from the consulting
engineer for the site for approximately $500. In March 1996, Corcap
received a diminimus party settlement offer from the engineers for $5
thousand. However, it has chosen to make a continuing pro-rata payment
of $10 in anticipation of a lower actual cost.
Certain retirees of the Dayville plant had received voluntary medical and
life insurance payments from Corcap which ceased in 1991 when Corcap was
unable to continue to make these payments. The retirees retained counsel
and made a claim against the Company asserting that the Company was
liable for the medical insurance payments as well as certain life
insurance claims. The Company denied the claim that it was liable since
it made voluntary payments. In February 1996 the Company reached an
agreement with counsel and the Union for certain retirees of the Dayville
plant to transfer 22,500 shares of CompuDyne Common Stock to the retirees
upon the signing of the settlement agreement. The final settlement
agreement was signed on April 26, 1996.
Corcap Midwest, Inc., a subsidiary of Corcap, Inc., is a defendant in a
lawsuit in federal court in Indiana, entitled American Motorists
Insurance Co., et al. v. Lydall, Inc., et al., involving alleged
environmental liabilities related to a Superfund site in Indiana. The
complaint alleges that hazardous substances disposed of at the site were
generated by a plant in Paltier, Indiana, which at various times was
operated by the defendants named in the action, or by the defendants'
subsidiaries and predecessors. The named plaintiffs are insurance
companies that claim to be subrogated to the rights of Lyon Metal
Products, Inc., the company that in 1978 purchased the Paltier plant and
the entity that operated it. Corcap Midwest, Inc. has appeared and filed
an answer asserting defenses. No claim or demand has ben made of Corcap
Midwest by any governmental agency or authority in connection with the
operation of the Paltier Plant. To date no specific demand has been made
of Corcap Midwest by the plaintiffs in the pending lawsuit. The
plaintiffs' claimed damages are not yet known. Corcap Midwest would be
liable, if at all, for a proportional share of those damages reflecting
equitable allocation of responsibility among all parties. The financial
consequences of this lawsuit to the Company, therefore, are not known and
cannot be reasonably estimated at this early stage of the litigation.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
Corcap had a net loss from discontinued operations for the 1996 third
quarter of $21 thousand compared with a loss of $618 thousand for the
quarter ended September 30, 1995. The 1996 quarter reflects normal
operating expenses with no offsetting revenue. The 1995 quarter
reflected a series of unusual items: Corcap sold its investment in the
Dayville property to Fabrilock, Inc. in exchange for 20% of its issued
and outstanding stock, as a result of the sale, Corcap absorbed a loss on
the disposal of the Dayville property of $937 thousand, which was reduced
by the elimination of the environmental reserve of $248 thousand and
gains on sale of CompuDyne common stock of $467 thousand related to
pension contributions; Corcap also recorded a tax expense of $382
thousand from Lydall. Both quarters reflect the cessation of
consolidation with Compudyne due to the reduction in Corcap's
shareholdings in CompuDyne to a nominal amount.
FINANCIAL CONDITION
- -------------------
At the end of the 1996 third quarter, Corcap's consolidated working
capital deficiency was $271 thousand from discontinued operations
compared with a deficiency of $1.681 million at December 31, 1995. The
$1.4 million decrease was due to the Settlement Agreement with Lydall of
$881 thousand, the waiver of accrued salaries from former officers of
$328 thousand and the effect of the settlement with the PBGC of $193
thousand.
Corcap's Continued Existence
- ----------------------------
Due to the disposition of assets in 1990, 1991 and 1995, Corcap's
remaining assets are its investments in CompuDyne Corporation and
Fabrilock, Inc. Neither Fabrilock nor CompuDyne are now paying dividends.
Consequently, Corcap does not have any revenue or cash flow.
As a result of no longer exercising control over CompuDyne and no longer
consolidating its financial statements with CompuDyne, Corcap is deemed
to be a "transient investment company" as provided in Rule 3a-2 under the
Investment Company Act of 1940, as amended (the "1940 Act"). Since
Corcap's only holdings are investment securities of entities it does not
control, it would be deemed to be an investment company subject to the
reporting, filing and operating requirements of the 1940 Act but for Rule
3a-2. Such rule provides that a company is deemed not to be an
investment company during a period of time not to exceed one year
provided that the company has a bona fide intent to be engaged primarily,
as soon as is reasonably possibly (in any event by the termination of
such period of time), in a business other than that of an investment
company. The Board of Directors explored the following in order to
attempt to comply with Rule 3a-2 by the one year deadline, or August 21,
1996:
1. Liquidation of the Fabrilock and/or CompuDyne investments, with the
proceeds to be reinvested in new operations.
2. The merger of Corcap with another company in an exchange of stock.
3. Liquidation of Corcap, either voluntarily or through a Bankruptcy
filing. If this option is adopted, it is unlikely that Corcap could
afford the cost of a voluntary liquidation, including a special
shareholder vote.
Corcap was not able to execute any of the proposed actions prior to the
August 21, 1996 deadline. However, informal discussions with the SEC
have led the company to conclude that it can continue to pursue one or
more of these actions without adverse action by the SEC under the
Investment Company Act, as long as the company is actively seeking a
resolution of its investment company status. To this end the company has
had a number of discussions on possible acquisitions or mergers, two of
which are ongoing. The company has also reached a tentative agreement
with Fabrilock to sell its investment in Fabrilock back to Fabrilock in
exchange for $150 thousand in cash, a $50 thousand intermediate term
note, and the release of CompuDyne common stock currently held by and
obligated to a Dayville plant remediation fund. It is felt that such a
transaction would facilitate an acquisition or merger. There is no
assurance that the Fabrilock transaction or any acquisition or merger
transaction will be consummated.
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Reports on Form 8-K
None
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CORCAP, INC.
Date: November 15, 1996 /s/ I. Elaine Chen
I. Elaine Chen
Treasurer
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