SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________.
Commission File No.: 0-23038
CORRECTIONAL SERVICES CORPORATION
(Exact name of small business issuer in its charter)
Delaware 11-2872782
_______________________________ __________________________________
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1819 Main Street, Suite 1000, Sarasota, Florida 34236
(Address of principal executive offices)
Issuer's telephone number: (941) 953-9199
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes [x] No []
The number of shares outstanding of the issuer's Common Stock, par
value $.Ol per share, as of May 12, 1997, was 7,670,879.
<PAGE> CORRECTIONAL SERVICES CORPORATION
INDEX
Page No.
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance
Sheets - December 31, 1996
and March 31, 1997........................................3
Condensed Consolidated Statements
of Income - for the Three Months
Ended March 31, 1997
and March 31, 1996........................................4
Condensed Consolidated Statement
of Cash Flows - for the Three Months
Ended March 31, 1997
and March 31, 1996........................................5
Notes to Financial Statements.............................6
Item 2. Management's Discussion and Analysis
or Plan of Operation.................................7
Part II. Other Information......................................11
Signature................................................14
<PAGE>
<TABLE>
CORRECTIONAL SERVICES CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>
(Unaudited)
ASSETS
March 31, December 31,
1997 1996
___________ _____________
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $16,950,820 $20,932,309
Accounts receivable 6,365,473 4,023,620
Receivable from sale of equipment and
leasehold improvements 1,476,000 1,476,000
Prepaid expenses and other current assets 1,719,923 2,001,973
__________ __________
Total current assets 26,512,216 28,433,902
EQUIPMENT AND LEASEHOLD
IMPROVEMENTS AT COST, NET 13,445,641 12,040,149
LONG-TERM RECEIVABLE FROM SALE OF EQUIPMENT AND
LEASEHOLD IMPROVEMENTS 2,031,882 2,031,882
OTHER ASSETS
Deferred development and start-up costs, net 7,120,670 5,817,959
Deferred income taxes 1,495,000 1,495,000
Other 531,885 485,157
___________ ___________
$51,137,294 $50,304,049
___________ ___________
___________ ___________
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $4,971,880 $4,873,542
__________ __________
Total current liabilities 4,971,880 4,873,542
LONG-TERM MORTGAGE PAYABLE 325,000 --
LONG-TERM PORTION OF ACCRUED CLOSURE COSTS 1,606,000 1,606,000
SUBORDINATED PROMISSORY NOTES 3,898,897 3,899,841
STOCKHOLDERS' EQUITY
Preferred Stock, $.01 par value, 1,000,000
shares authorized, none issued and
outstanding -- --
Common Stock, $.01 par value, 30,000,000
shares authorized, 7,670,879 and
7,660,779 shares issued and outstanding 76,709 76,608
Additional paid-in capital 42,107,403 42,022,593
Accumulated deficit (1,848,595) (2,174,535)
__________ __________
Total stockholders' equity 40,335,517 39,924,666
___________ ___________
$51,137,294 $50,304,049
___________ ___________
___________ ___________
The accompanying notes are an integral part of these statements
</TABLE>
<PAGE>
<TABLE>
CORRECTIONAL SERVICES CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
<CAPTION>
Three Months Ended
March 31,
__________________________
1997 1996
_____________ ___________
<S> <C> <C>
Revenues 11,598,986 7,143,393
Expenses:
Operating 8,484,243 4,897,231
General and administrative 2,722,096 2,038,660
__________ __________
11,206,339 6,935,891
__________ __________
Operating income 392,647 207,502
Interest income (expense), net 128,293 (188,780)
__________ __________
Income before income taxes 520,940 18,722
Income tax provision 195,000 8,000
__________ __________
Net earnings $325,940 $10,722
__________ __________
__________ __________
Net earnings per common share $0.04 $0.00
__________ __________
__________ __________
Weighted average shares outstanding 8,129,150 5,404,053
__________ _________
__________ _________
The accompanying notes are an integral part of these statements
</TABLE>
<PAGE>
<TABLE>
CORRECTIONAL SERVICES CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
<CAPTION>
Three Months Ended
March 31,
_______________________
1997 1996
___________ ___________
<S> <C> <C>
Cash flows from operating activities:
Net income $325,940 $10,722
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 522,048 241,791
Changes in operating assets and liabilities:
Accounts receivable (2,341,853) 315,989
Prepaid expenses and other current assets 282,050 717,512
Accounts payable and accrued liabilities 98,338 6,964
Reserve for New Jersey facility carrying
costs -- (150,000)
___________ ___________
Net cash provided by (used in) operating
activities: (1,113,477) 1,142,978
___________ ___________
Cash flows from investing activities:
Acquisition of fixed assets (1,611,805) (3,763,144)
Development and start-up costs (1,531,390) (584,889)
___________ ___________
Net cash (used in) investing activities: (3,143,195) (4,348,033)
___________ ___________
Cash flows from financing activities:
Other assets (111,438) (27,662)
Proceeds on short-term and long-term debt, net 325,000 (137,825)
Gross proceeds received from exercise of stock
warrants 61,621 64,874
___________ ____________
Net cash provided by (used in) financing
activities: 275,183 (100,613)
___________ ___________
NET DECREASE IN CASH AND CASH EQUIVALENTS (3,981,489) (3,305,668)
Cash and cash equivalents at beginning of period 20,932,309 3,756,748
___________ ___________
Cash and cash equivalents at end of period $16,950,820 $451,080
___________ ___________
___________ ___________
Supplemental disclosures of cash flows information:
Cash paid during the period for:
Interest $105,459 $218,740
___________ ___________
___________ ___________
Income taxes $2,657 $23,385
___________ ___________
___________ ___________
The accompanying notes are an integral part of these statements
</TABLE>
<PAGE>
CORRECTIONAL SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
(Unaudited)
NOTE 1 - In the opinion of management of Correctional Services Corporation
and subsidiaries (the "Company"), the accompanying unaudited condensed
consolidated financial statements as of March 31, 1997 include all
adjustments (consisting only of normal recurring adjustments) necessary for
a fair presentation. The statements should be read in conjunction with the
consolidated financial statements and the related notes included in the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1996
and do not include all the information and footnote disclosures required by
generally accepted accounting principles for complete financial statements.
The results of operations for the three months ended March 31, 1997 are not
necessarily indicative of the results to be expected for the full year.
NOTE 2 - In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share,"
which is effective for financial statements for both interim and annual
periods ending after December 15, 1997. Early adoption of the new standard
is not permitted. The new standard eliminates primary and fully diluted
earnings per share and requires presentation of basic and diluted earnings
per share together with disclosure of how the per share amounts were
computed. The pro forma effect of adopting the new standard would be basic
earnings per share of $.04 and $0.00, and diluted earnings per share of
$.04 and $0.00 for the quarters ended March 31, 1997 and 1996,
respectively.
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation
Results of Operations
Three Months ended March 31, 1997 Compared to Three Months ended March 31,
1996.
Revenue increased 62.4% from $7,143,393 for the three months ended March
31, 1996 to $11,598,986 for the three months ended March 31, 1997. The net
increase in revenues for the 1997 period as compared to the 1996 period
resulted principally from the full quarter operations of the Company's
Phoenix, Arizona facility and the opening of the juvenile detention
facilities and related educational programs in Polk and Pahokee, Florida.
In addition, revenues were generated in the first quarter of 1997 by
newly opened facilities in Bell County and Frio County, Texas and from per
diem increases in several ongoing contracts.
Operating expenses increased 73.3% from $4,897,231 for the three months
ended March 31, 1996 to $8,484,243 for the three months ended March 31,
1997 primarily due to increases in payroll which increased $2,547,187, or
81.0%. The opening of the facilities noted above and the addition of
management personnel in the corporate office accounted for the increase in
operating expenses. As a percentage of revenues, operating expenses
increased from 68.6% for the three months ended March 31, 1996 to 73.1% for
the three months ended March 31, 1997. The percentage increase primarily
reflects higher expenses as a percentage of revenues in the Company's newly
opened facilities which were in their start up phase in the first quarter.
General and administrative expenses increased 33.5% from $2,038,660 for the
three months ended March 31, 1996 to $2,722,096 for the three months ended
March 31, 1997. The increase in general and administrative expenses was
primarily attributable to the full quarter operations of the Company's
Phoenix Arizona facility and the opening of the detention facilities
previously noted in Polk and Pahokee, Florida and Bell and Frio counties in
Texas. As a percentage of revenues, general and administrative expenses
were 28.5% and 23.5% for the three months ended March 31, 1996 and 1997,
respectively.
Operating income for the 1996 and 1997 first quarters were $207,502 and
$392,647 respectively, an increase of 89.2%. Improved occupancy levels,
the full quarter operations of the Company's Phoenix Arizona facility and
the contribution from the newly opened facilities in Polk and Pahokee,
Florida primarily accounts for the increase in operating income.
The Company had interest expense, net of interest income of $188,780 for
the three months ended March 31, 1996 while for the same period for 1997
the Company had interest income, net of interest expense of $128,293, an
improvement of $317,073. The improvement resulted primarily from utilizing
a portion of the net proceeds received from the September 1996 public
offering of Common Stock to repay bank indebtedness which reduced interest
expense, and from investing the balance of the net proceeds in cash
equivalents which increased interest income.
As a result of the foregoing factors, the Company had net income of $10,722
or $0.00 per share for the three months ended March 31, 1996 compared to
net income of $325,940 or $0.04 per share for the three months ended March
31, 1997.
<PAGE>
Liquidity and Capital Resources
The Company has historically financed its operations through private
placements and public sales of its securities, cash generated from
operations and borrowings from banks.
The Company had working capital at March 31, 1997 of $21,540,336, as
compared to working capital of $23,560,360 at December 31, 1996, which is
principally attributable to funds received from the September 1996 public
offering of its common stock noted below in the financing section. The
Company's current ratio was 5.33 to 1 at March 31, 1997 as compared to 5.83
to 1 at December 31, 1996.
Net cash of $1,113,477 was used in operating activities for the three
months ended March 31, 1997 as compared to $1,142,978 of cash provided by
operations for the three months ended March 31, 1996. The decrease was
attributed primarily to an increase in accounts receivable.
Net cash of $3,143,195 was used in investing activities during the
three months ended March 31, 1997 as compared to $4,348,033 being used in
the first quarter of 1996. In the 1997 period such cash was used
principally for construction of the Company's Florence, Arizona facility
and for fixed asset and start-up costs associated with the Polk and
Pahokee, Florida facilities and the Frio, Texas facility. In the
comparable period for 1996 the construction and start-up costs of the
Phoenix, Arizona facility was the principal investment activity of the
Company.
Net cash of $275,183 was provided by financing activities for the three
months ended March 31, 1997 as compared to financing activities utilizing
$100,613 during the first quarter of 1996. In the first quarter of 1997,
the acquisition of the land for the Florence, Arizona facility was financed
by a $325,000 mortgage.
The Company received from the exercise of stock warrants during the three
months ended March 31, 1997 and 1996, $61,621 and $64,874 respectively.
<PAGE>
PART II-OTHER INFORMATION
Item 1. Legal Proceedings
The nature of the Company's business results in numerous claims or
litigation against the Company for damages arising from the conduct of its
employees or others. Under the rules of the Securities and Exchange
Commission, the Company is obligated to disclose lawsuits which involve a
claim for damages in excess of 10% of its current assets notwithstanding
the Company's belief as to the merit of the lawsuit and the existence of
adequate insurance coverage.
In May 1993, a former employee of the Company filed suit in the United
States District Court, Southern District of New York, claiming he was
intentionally assaulted by employees of the Company and claiming $5,000,000
in damages on each of six causes of action. In January 1996, a lawsuit was
filed with the Supreme Court of New York, County of Kings, by a former
employee alleging sexual harassment and discrimination, physical assault,
rape and negligent screening of employees and claiming damages of
$4,000,000 plus attorney fees.
In March 1996, former inmates at one of the Company's facilities filed suit
in the Supreme Court of the State of New York, County of Bronx on behalf of
themselves and others similarly situated, alleging personal injuries and
property damage purportedly caused by negligence and intentional acts of
the Company and claiming $500,000,000 for each compensatory and punitive
damages, which suit was transferred to the United States District Court,
Southern District of New York, in April 1996. In July 1996, seven
detainees at one of the Company's facilities (and certain of their spouses)
filed suit in the Superior Court of New Jersey, County of Union, seeking
$10,000,000 each in damages arising from alleged mistreatment of the
detainees, which suit was transferred to the United States District Court,
District of New Jersey, in August 1996.
The Company believes the claims made in each of the foregoing actions to be
without merit and will vigorously defend such actions. The Company further
believes the outcome of these actions and all other current legal
proceedings to which it is a party will not have a material adverse effect
upon its results of operations, financial condition or liquidity. However,
there is an inherent risk in any litigation and a decision adverse to the
Company could be rendered.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
On February 13, 1997, CSC took over the operation of a regional juvenile
facility in Rockdale, Texas. The Company was selected to manage the
facility after the previous operator was relieved of their
responsibilities. The facility can currently house up to 48 adjudicated
juveniles and is expandable to 60 beds.
On March 24, 1997 it was announced that CSC received 248 Idaho inmates in
its Frio County, Texas facility. These inmates were accepted pursuant to a
contract with the State of Idaho which, at full utilization, represents
approximately $3.5 million in annual revenue. CSC has taken over the
management of the Frio County facility on an interim basis from Dove
Development and has the option to acquire the contracted rights to manage
the facility.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995
This document contains forward looking statements. Forward looking
statements are subject to risks and uncertainties, including the risk
factors listed in the Company's reports filed with the Securities and
Exchange Commission, that could cause actual results to differ materially
from those projected.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
___________________
27. Financial Data Schedule
(b) Reports on Form 8-K
___________________
None.
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
CORRECTIONAL SERVICES CORPORATION
Registrant
By: \s\ Aaron Speisman
________________________________
Aaron Speisman, Secretary
By: \s\ Lee Levinson
________________________________
Lee Levinson, Chief Financial Officer
Dated: May 15, 1997
