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 June 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.
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(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
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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 August 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 -
June 30, 1996 (unaudited) and December 31, 1995 3
Consolidated Statements of Operations -
Three Months and Six Months Ended June 30, 1996
and 1995 (unaudited) 4
Consolidated Statements of Cash Flows -
Six Months Ended June 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
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)
June 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 $ 270 $ 1,681
-------- --------
Total Current Liabilities 270 1,681
Net non-current liabilities of
discontinued operations - 265
-------- --------
Total Liabilities 270 1,946
STOCKHOLDERS DEFICIT
Common stock 33 29
Capital in excess of par 269 269
Minimum pension liability - (888)
Accumulated deficit (25,526) (26,389)
------ ------
(25,224) (26,979)
Contributed capital 25,033 25,033
------ ------
Total Stockholders' Equity (191) (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 Six Months Ended
June 30, June 30,
1996 1995 1996 1995
------------------ -----------------
Net sales $ - $ 2,568 $ - $ 4,614
Cost of Sales - 2,221 - 3,993
------ ------- ------ -------
Gross margin - 347 - 621
Selling, general and adminis-
trative expenses - 269 - 514
------- ------- ------ -------
Operating income (loss) - 78 - 107
Other income (expense):
Interest expense, net - (3) - (10)
Other income (expense), net - (19) - (12)
------- ------- ------ ------
Total other income
(expense), net - (22) - (22)
Income (loss) from continuing
operations - 56 - 85
Income tax expense - - - -
------- ------- ------ ------
Income (loss) from continuing
operations - 56 - 85
Discontinued operations:
CompuDyne (loss) from dis-
continued operations - (92) - (227)
Corcap income (loss) from
operations net of tax benefit 529 (26) 1,752 (45)
------- ------- ------ -------
Net Income (loss) $ 529 $ (62) $ 1,752 $ (187)
======= ======= ====== =======
Weighted average common shares 3,376 2,926 3,076 2,926
======= ======= ====== =======
Net income (loss) per common
share:
Continuing operations $ - $ .02 $ - $ .03
Discontinued operations .16 (.04) .57 (.09)
------- ------- ------ -------
Net income (loss)
per share $ .16 $ (.02) $ .57 $ (.06)
======= ======= ====== =======
See Accompanying Notes to Consolidated Condensed Financial Statements
(unaudited).
- ------------------------------------------------------------------------
CORCAP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Six Months Ended
June 30,
1996 1995
------- -------
Cash flows provided by (used for)
operating activities:
Income (loss) from continuing
operations $ - $ 85
Depreciation and amortization - -
Changes in assets and liabilities:
(Increase) decrease in accounts
receivable - (611)
(Increase) decrease in accounts
receivable related parties - (8)
Increase in prepaid expenses - (52)
(Increase) decrease in inventories - (156)
Decrease in accounts payable and other
accrued liabilities - 686
------- -------
Net cash provided (used) by continuing
operations - (56)
------- -------
Income (loss) from discontinued
operations CompuDyne - (227)
Income (loss) from discontinued operations 1,752 (45)
Increase (decrease) in net non-current
assets of discontinued operations (80) -
Increase (decrease) in net current
liabilities of discontinued operations (1,410) 37
Increase (decrease) in net current assets
of discontinued operations - 110
Increase (decrease) in net non-current
liabilities of discontinued operations (267) -
------- -------
Net cash flows provided (used) by
discontinued operations (5) (125)
------- -------
Net cash provided (used) by operating
activities - (181)
------- -------
Cash flows from investing activities:
Additions to property, plant and equipment - (4)
------- -------
Net cash used for investing activities - (4)
------- -------
Cash flows from financing activities:
Issuance of common stock 5 -
Increase in short term debt - 48
------- -------
Net cash provided by (used for)
financing activities 5 48
------- -------
Net change in cash - (137)
Cash and cash equivalents at beginning
of period - 176
------- -------
Cash and cash equivalents at end of period $ - $ 39
======= =======
Supplemental Schedule of Cash Flow
Information:
Cash paid during the period for:
Interest $ - $ 10
Income taxes - -
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 June 30, 1996.
As of July 1, 1995, Corcap accounted 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 December 31, 1995, Corcap held
24.7% of CompuDyne Common Stock. As of June 30, 1996, Corcap held 5.4%
and, on a fully diluted basis, 2.2%. Significant intercompany
transactions have been eliminated in the consolidated financial
statements for the second quarter ended June 30, 1995. 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, which was sold to Norman
Silberdick, CompuDyne's Chairman, President, CEO and Director. As a
result of the sale of Suntec, the balance sheet and statement of
operations for Corcap have been restated to reflect the treatment of
Suntec as a discontinued operation for the three months and six months
ended June 30, 1995. The effect of consolidating CompuDyne with Corcap
was to report CompuDyne's net sales from continuing operations, which
totals $4.6 million for the six months ended June 30, 1995.
Income taxes. Effective January 1, 1993, the Company adopted Statement
of Financial Accounting Standards No. 109 (SFAS 109), "Accounting for the
Income Taxes". Under SFAS 109 deferred income taxes are recognized for
the future tax consequences of differences between tax bases of assets
and liabilities and financial reporting amounts, based upon enacted tax
laws and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances
are established when necessary to reduce deferred tax assets to amounts
expected to be realized. Income tax expense is the tax payable for the
period and the change during the period in deferred tax assets and
liabilities. The adoption of SFAS 109 had no impact on operations for
any of the periods presented.
Net income (loss) per common share. Net income (loss) per common share
is based on the weighted average of common shares outstanding during the
period, including the effect of common stock equivalents and stock awards
where such effect would be dilutive.
BUSINESS SEGMENTS
- -----------------
Financial information for Corcap and CompuDyne on a separate company
basis, excluding the elimination of adjustments made in consolidation, is
as follows:
Discontinued Operations
- -----------------------
Corcap - Formerly operated an elastomer products business.
The results of Corcap are accounted for as discontinued operations in the
Balance Sheet and the Consolidated Statements of Operation in the
financial statements due to the divestment of the Acadia segment on July
1, 1991. Financial results for periods prior to the date of
discontinuance have been restated. Net current liabilities and net non-
current assets of discontinued operations at June 30, 1996 and December
31, 1995 consisted of the following:
Corcap
- ------
June 30, December 31,
1996 1995
- ------------------------------------------------------------------------
($ Thousands)
Investment $ 139 $ 139
Notes payable due after one year (60) (60)
Net current liabilities (270) (1,681)
Deferred pension liability - (344)
------ -------
Total (191) (1,946)
Net non-current liabilities of discontinued
operations $ - $ 265
For the Six Months ended June 30 1996 1995
- ------------------------------------------------------------------------
(Thousands)
Net Sales $ - $ -
Gross Margin - -
Net income (loss) from discontinued operations $ 1,752 $ (187)
CompuDyne - For the quarter ended June 30, 1995 CompuDyne operated an
electronics and engineering services business.
For the Six months ended June 30 1996 1995
- ------------------------------------------------------------------------
($ Thousands)
Net Sales $ - $ 4,614
Gross Margin - 621
------- -------
Net income (loss) from:
Continuing operations - 85
------- -------
Net income (loss) $ - $ 85
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 comprise, and are
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' 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.
RELATED PARTY TRANSACTIONS
- --------------------------
CompuDyne provides corporate services to Corcap for which it charged $-0-
a month for the second quarter of 1996 compared to $4 thousand a month
during 1995.
Corcap's residual outstanding debt to CompuDyne was $72 thousand as of
June 30, 1996 compared with $13 thousand as of June 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 the 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 granting of 16,666 options to
CompuDyne, the transfer of 188,660 shares to the PBGC and a settlement
with the former employees for 22,500 shares of CompuDyne Common Stock,
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 5.4% as of June 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 conversion of $400
thousand principal amount of Convertible Notes to Messrs. Roenigk and
Markowitz, which promissory notes are convertible by the holders into
266,667 shares of CompuDyne Common Stock, (iii) the exercise of the
Roenigk Option to purchase 200,000 shares of CompuDyne Common Stock at an
exercise price of $1.50 per share, (iv) the purchase of up to an
additional 56,250 shares of CompuDyne Common Stock on August 1, 1996
pursuant to Stock Purchase Agreements dated August 1, 1993, between
CompuDyne and certain members of CompuDyne management assuming certain
conditions are met, (v) the exercise of stock options for 25,000 and
16,290 shares of CompuDyne Common Stock issued to a certain officer and
key employees of MicroAssembly, respectively, and (vi) 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 2.2% 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.
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. Rent expense under
operating leases for CompuDyne for the six months ended June 30, 1995 was
$200 thousand.
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 final 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 and its subsidiaries are party to certain legal actions and
inquiries for environmental and other matters resulting from the normal
course of business. Although the total amount of liability with respect
to these matters cannot be ascertained, management of the Company
believes that any resulting liability should not have a material effect
on its financial position or results of future operations.
- ------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
Corcap had net income for the 1996 second quarter of $529 thousand
compared with loss of $62 thousand for the quarter ended June 30, 1995.
The net income for the second quarter, which is all from discontinued
operations, was attributable to the Settlement Agreement with PBGC which
resulted in a gain on sale of securities of $532 thousand. Other gains
on securities were offset by operating costs. The loss for the 1995
first quarter was primarily attributable to the consolidation of
CompuDyne which earned $56 thousand from continuing operations and lost
$92 thousand from discontinued operations. Although Quanta earned $152
thousand for the quarter, this was offset by Data Control Systems which
lost $25 thousand and Corporate costs of $71 thousand. The significant
loss, however, was incurred by the discontinued Suntec division, which
lost $92 thousand.
Net sales from continuing operations in the second quarter of 1995 were
$2.5 million and reflected the consolidation of CompuDyne. Gross margin
for the first quarter of 1995 was $192 thousand. Selling, general and
administrative expense were $235 thousand. Research and development
costs were $34 thousand. CompuDyne's net interest expense for the 1995
second quarter was $3 thousand. Other expense was $19 thousand for the
1995 second quarter.
FINANCIAL CONDITION
- -------------------
At the end of the 1996 second 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 investment in CompuDyne Corporation and
Fabrilock, Inc. CompuDyne is not 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 is exploring the following in order 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 a stock exchange.
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.
- -------------------------------------------------------------------------
Part II. OTHER INFORMATION
-----------------
Item 6. Exhibits and Reports on Form 8-K
(a) Reports on Form 8-K
None
- -------------------------------------------------------------------------
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: August 14, 1996 /s/ I. Elaine Chen
------------------
I. Elaine Chen
(Chief Financial Officer)
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