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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1997
33-02035-A
(Commission File Number)
CORRECTIONS SERVICES, INC.
(Exact name of Registrant as specified in its charter)
Florida 59-2508470
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
3040 East Commercial Boulevard
Fort Lauderdale, Florida 33308
(Address of Principal Executive Offices)
(954) 772-2297
(Registrant's Telephone Number)
None
(Former Name, Former Address and former Fiscal Year, if
changed since last report)
Securities registered pursuant to Section 12(b) of the Act
None None
(Title of Each Class) (Name of Each Exchange
on which Registered)
Securities registered pursuant to Section 12(g) of the Act
None None
(Title of Each Class) (Name of Each Exchange
on which Registered)
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
The aggregate market value of the voting stock held by non-
affiliates of the Registrant as of March 25, 1998, was
approximately $1,300,000.00.
The number of shares of Common Stock, $.0001 par value, of the
Registrant issued as of March 25, 1998 was 7,276,900 shares.
Of that total 7,216,900 shares are outstanding. The Company
has 60,000 shares in treasury.
PART I
ITEM 1. BUSINESS
Introduction
Corrections Services, Inc. (the "Company") was incorporated in
the State of Florida in 1984. The Company was organized for the
purpose of developing and marketing a house arrest program ("Program")
to relieve the need for individual incarceration in a jail or similar
full time confinement facility. The Program consists of computer-
controlled, electronic signaling systems which permit continuous
around the clock monitoring of a client/inmate's presence or absence
from his or her residence to ensure compliance with an order of house
arrest of the client/inmate.
Background
The Company undertook to secure equipment to assemble a system
which would be responsive to the needs of corrections authorities and
began to market its Program with a new hardware system supplied by an
independent manufacturer. During 1986, the Company secured
registration of its trademark "In-House-Arrest" from the United States
Patent and Trademark office (Registration No. 1,394,745).
Beginning in 1988 the Company's system was manufactured by
Marconi Electronic Devices, Ltd. ("Marconi") in the United Kingdom.
Following a long period of difficulties and shortfall, the Company
filed a federal lawsuit against Marconi for breach of contract and
breach of warranty, seeking damages and ending its turbulent
manufacturing and supply arrangement with Marconi. On July 28, 1993
a settlement agreement was entered into fully and finally terminating
the litigation.
Pursuant to the settlement agreement, the Company transferred
certain product equipment, intellectual property rights in the
systems' equipment design and software and a three year covenant not
to compete to Marconi. In exchange, the Company received
extinguishment of its approximately $2.1 Million payable to Marconi
and the sum of $250,000 in cash. Following closing of the settlement
agreement the Company, within the bounds of its non-compete agreement,
continued to service its existing customer base.
Subsequent to the litigation settlement, Marconi sold all of its
tangible and intangible assets related to the system's equipment
production, sales and service to Aeroflex Laboratories, Inc. of
Plainview, New York. After mid-1993, neither Marconi nor Aeroflex had
engaged in any operations in the electronic monitoring systems
marketplace and/in late May 1994, the Company approached Aeroflex with
a view toward purchase of all of the monitoring system assets and
release from its earlier non-compete agreement with Marconi.
On July 1, 1994, the Company both re-acquired from Aeroflex all
of the system equipment it had relinquished in the litigation
settlement agreement, and acquired all of the other tangible and
intangible assets related to production, sales and service of the
monitoring system product line previously acquired by Aeroflex from
Marconi, including completed parts and parts for construction of
additional units, all of the related software, firmware, tooling,
tools and test equipment and all intellectual property including
patents and design and manufacturing drawings, schematics, information
and records. The Company was also able to secure simultaneously
unconditional release from the non-compete agreement with Marconi.
In exchange, the Company paid Aeroflex Laboratories, Inc. the sum
of $100,000 in cash and released Aeroflex Laboratories, Inc. and
Marconi from liability for equipment field service obligations,
including outstanding, unexpired manufacturer's equipment warranties,
which obligations were assumed by the Company.
With completion of the Aeroflex transaction in mid-1994 the
Company in effect, negated all of the limiting factors imposed by
settlement of the litigation against Marconi in mid-1993. The Company
re-entered the marketplace depending upon its then newly acquired,
finished equipment inventory. The Company continues to consider
alternative manufacturing options for possible future implementation
prior to potential exhaustion, if any, of its finished equipment
inventory. There can be no assurances that the Company will be able
to implement one or more manufacturing options in the event of a need
to do so. The Company does not now perceive a near term need to
secure and implement a manufacturing option. If unable to do so,
however, when and if needed, the Company will be adversely affected.
Employees
In addition to its officers, Norman H. Becker and Frank R. Bauer,
who each currently devote approximately ten (10%) percent of their
time to its activities, and Diane Martini, who currently devotes
approximately eighty (80%) percent of her time to its activities, the
Company currently has four (4) other full-time employees See Part
III., Item 10, Directors and Executive Officers of the Registrant.
ITEM 2. PROPERTIES
The Company occupies its principal offices and shop facilities
space on a month-to-month basis at a combined rental and
administrative charge of $2,600 per month ($31,200 per annum).
The Company also occupies warehouse space in the adjacent City
of Pompano Beach, Florida on an annual lease basis at a rental of $828
per month ($9,936 per annum).
ITEM 3. LEGAL PROCEEDINGS
The Company is not now a party to any litigation or, to its
knowledge, threatened litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted, through solicitation of proxies or
otherwise, to a vote of the Company's security holders during the
fourth quarter of fiscal 1997.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The following table sets forth the range of bid and asked prices
for the Company's Common Stock on the Over-The-Counter Market for the
period indicated, as reported by the National Quotation Bureau, Inc.
The Common Stock is traded on the electronic bulletin board under the
symbol CRSE. The figures shown represent inter-dealer quotations
without retail mark-up, mark-down or commission and may not
necessarily represent actual transactions.
COMMON STOCK
Period Bid Price Asked Price
High Low High Low
First Quarter, 1996 $0.125 $0.10 $0.025 $0.20
Second Quarter, 1996 $0.18 $0.125 $0.25 $0.18
Third Quarter, 1996 $0.18 $0.125 $0.25 $0.18
Fourth Quarter, 1996 $0.18 $0.125 $0.25 $0.18
First Quarter, 1997 $0.21 $0.18 $0.25 $0.22
Second Quarter, 1997 $0.20 $0.17 $0.25 $0.22
Third Quarter, 1997 $0.21 $0.18 $0.29 $0.25
Fourth Quarter, 1997 $0.21 $0.18 $0.375 $0.25
January 1, through
March 25, 1998 $0.29 $0.21 $0.375 $0.25
(b) Holders. As of March 25, 1998, the approximate number of
recordholders of Common Stock of the Registrant was 636.
The Company is however generally unable to determine the actual
number of beneficial holders of its Common Stock due to Common Stock
held for stockholders "in street name" but estimates the current total
to be approximately 985.
(c) Dividends. The Registrant has paid no dividends since inception
and does not now anticipate paying cash dividends in the foreseeable
future. See Item 7.(a) Financial Condition.
ITEM 6. SELECTED FINANCIAL DATA
Summary of Statement of Operations:
As of As of As of As of As of
12/31/97 12/31/96 12/31/95 12/31/94 12/31/93
Revenue $ 342,592 $ 552,441 $ 533,269 $ 890,094 $ 612,178
Oper. Exp. $ 525,199 $ 532,331 $ 542,884 $ 708,578 $1,058,497
Net Income(Loss) ($ 137,759) $ 113,003 ($ 22,717) $ 61,412 $1,200,364
Weighted No. of
shs. outstanding 5,936,893 5,126,900 5,126,900 5,179,709 5,181,545
Net Income(Loss)
per sh. Common
Stk. Outstanding ($ .02) $ .02 ($ .004) $ .01 $ .23
(See Note A-Notes
to Fin. Stmts.)
Summary Balance Sheet Information
As of As of As of As of As of
12/31/97 12/31/96 12/31/95 12/31/94 12/31/93
Total Assets $1,758,638 $1,205,096 $1,087,236 $1,101,968 $1,032,050
Total Current $ 92,298 $ 135,090 $ 120,382 $ 98,104 $ 85,314
Liabilities
Tot. Current
Assets $1,684,941 $1,199,917 $1,079,708 $1,093,577 $1,015,736
Stkholders'
Equity $1,666,340 $1,070,006 $ 957,003 $ 979,720 $ 937,058
Cash Dividends $ -0- $ -0- $ -0- $ -0- $ -0-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
(a) Financial Condition. As of December 31, 1997 the Company
had current assets of $1,684.941 compared to $1,199.917 at December
31, 1996, total assets of $1,758,638 compared to $1,205,096 at
December 31, 1996 and shareholders equity of $1,666,340 as compared
to $1,070,006 as of December 31, 1996. The increases in current
assets and total assets were primarily the result of the Company's
increase in cash and marketable trading securities resulting from
the acquisition of Hi-Tech Leasing, Inc. Shareholders Equity at
December 31, 1997 increased $596,334. to $1,666,340, from
$1,070,006 at December 31, 1996. The increase was primarily the
result of the Company's acquisitions of Hi-Tech Leasing, Inc. and
Professional Programmers Inc. See Item 8., Financial Statements and
Supplementary Data.
Liquidity. The Company had a net increase in cash and cash
equivalents for the year ended December 31, 1997 of $127,899, and
cash and cash equivalents at the end of the year of $464,577, as
compared to an increase in cash and cash equivalents of $75,293,
and cash and cash equivalents of $336,678, for the year ended
December 31, 1996. See Item 8., Financial Statements and
Supplementary Data.
The Company continues to have no fixed executory obligations.
Capital Resources. The Company has no present material
commitments for additional capital expenditures. The Company has
no outstanding credit lines or commitments in place and no
immediate need for additional financial credit. There can be no
assurance however that it will be able to secure additional credit
borrowing, if needed.
Results of Operations. The Company's revenues for the fiscal
period ended December 31, 1997, were derived from sales, lease
income and repairs and maintenance income.
The Company's revenues decreased $209,849, or 40%), to
$342,592 for the fiscal year ended December 31, 1997, as compared
to $552,441 for the same period of 1996. The principal reason for
decreased revenue was a decline in the sale of new monitoring
units.
Operating expenses decreased $7,132, or 1.3%, to $525,199 as
compared to $532,331 for the same period last year principally due
to a minor decrease in cost of sales. The Company realized a net
loss of ($137,759) for the fiscal year ended December 31, 1997, as
compared to net income of $113,003 for the same period last year.
The decrease in net income was primarily due to a decline in the
sale of new units and a decrease in realized and unrealized gain
(loss) on marketable securities.
The operating expenses decrease in the period ended December
31, 1997 of $7,132 in comparison to 1996 operating expenses was
primarily attributable to a decrease in cost of sales.
The Company knows of no unusual or infrequent events or
transactions, nor significant economic changes that have materially
affected the amount of its reported income from continuing
operations for the year ended December 31, 1997.
On August 27, 1997 the Company's ownership interest in its
former affiliate, Vanderbilt Square Corp., was sold to an unrelated
third party. With completion of that transaction, the Company
essentially ended its affiliate relationship with Vanderbilt Square
Corp.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See attached financial statements and supplementary data.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a)(b) Identification of Directors and Executive Officers
Name Age Offices Held
Norman H. Becker 60 President/Director
Frank Bauer 53 Vice President/Director
Diane Martini 50 Secretary/Treasurer/Director
Eugene M. Kennedy 60 Director
Robert B. Yeakle 59 Director
(1)(c) Identification of Certain Significant Employees. Mr.
Becker was also President and a Director of the Company's previous
affiliate, Vanderbilt Square Corp., Mr. Kennedy is legal counsel
to the Company and also provides legal services to the Company's
previous affiliate, Vanderbilt Square Corp.
(1)(e) Business Experience.
Norman H. Becker has been a director of the Company since July
1, 1987. On January 15, 1993, Mr. Becker was appointed the
Company's President. Mr. Becker was also, since its inception,
an officer and a director of Vanderbilt Square Corp., a publicly
held Florida corporation previously affiliated with the Company.
Mr. Becker resigned his position as an officer and director of
Vanderbilt Square Corp. on August 27, 1998 as an aspect of change
of control of that company. Since January, 1985, Mr. Becker has
also been self-employed in the practice of public accounting in
Hollywood, Florida. Mr. Becker is a graduate of City College of
New York (Bernard Baruch School of Business) and is a member of a
number of professional accounting associations including the
American Institute of Certified Public Accountants, the Florida
Institute of Certified Public Accountants and the Dade Chapter of
Florida Institute of Certified Public Accountants.
Frank R. Bauer has been an Officer and a director of the
Company since February 15, 1988 and its Vice President since
January 4, 1993. Mr. Bauer is also President and Chief Executive
Officer of Specialty Device Installers, Inc., a Florida corporation
engaged in outside plant utility and construction contracting. Mr.
Bauer holds the Bachelor of Business Administration Degree from
Stetson University.
Diane Martini has been Secretary/Treasurer and a director of
the Company since January 12, 1993. Ms. Martini was also
Secretary/Treasurer of Vanderbilt Square Corp., a former affiliate
of the Company. Ms. Martini resigned her position as an officer and
director of Vanderbilt Square Corp. on August 27, 1997 as an aspect
of change of control of that Company at that time. Ms. Martini is
also President and Chief Executive Officer of Financial
Communications, Inc., a privately held Florida public relations and
business consulting firm. Ms. Martini is married to the Company's
principal shareholder, Ronald A. Martini.
Eugene M. Kennedy has been a director of the Company since
March 15, 1989. Mr. Kennedy has also been the Company's legal
counsel since September, 1985. Mr. Kennedy operates his own
private law practice in Fort Lauderdale, Florida. He holds the
Bachelor of Science Degree in Physics from the City University of
New York, has attended the Masters in Business Administration
Program at Adelphi University, in Garden City, New York, and holds
the Juris Doctor Degree from the University of Miami School of Law
in Coral Gables, Florida.
Robert B. Yeakle resigned as an officer of the Company on May
1, 1992. Until that point, he was the Company's President and a
Director and had been since June 22, 1989 and continues as a member
of the Board. In January, 1988 Mr. Yeakle retired from Alexander
Proudfoot & Company in West Palm Beach, Florida, having spent the
prior 21 years in various executive management positions within the
Proudfoot organization, to manage his personal investments.
Alexander Proudfoot & Co. is a $200 million, publicly held
management consulting company which is traded on the London Stock
Exchange. During April, 1991, Mr. Yeakle returned to Alexander
Proudfoot & Company in an executive capacity and currently devotes
only a minimum of his time to the Company's affairs. Mr. Yeakle
attended the School of Engineering at Rutgers University in New
Brunswick, New Jersey.
ITEM 11. EXECUTIVE COMPENSATION
Compensation
Messrs. Norman H. Becker and Frank Bauer, devote approximately
10% of their time, respectively, to the Company's affairs. Ms.
Diane Martini currently devotes approximately 80% of her time to
the Company's affairs. There are no employment agreements in
effect or contemplated. The total compensation received by all
Executive Officers of the Company during the year ended December
31, 1997 was received entirely by Diane Martini and amounted to
$39,000.
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
Awards Payouts
Name and Other Restricted All
Principal Annual Stock Options/ LTIP Other
Position Year Salary Bonus(2) Compensation Awards SARS Payouts Compensation
Norman H. Becker
President (1) 1996 $ -0- -- -- -- -- -- --
(since 1/15/93) 1997 $ -0- -- -- -- -- -- --
Frank Bauer (1)
Vice-President 1996 $ -0- -- -- -- -- -- --
President 1997 $ -0- -- -- -- -- -- --
Diane Martini
Secretary/ 1996 $37,333 -- -- -- -- -- --
Treasurer 1997 $39,000 -- -- -- -- -- --
(since 01/12/93)
All Executive
Officers & Former 1996 $37,333 -- -- -- -- -- --
Executive Officers 1997 $39,000 -- -- -- -- -- --
as a Group (3)
Persons (1)
(1) Mr. Becker received a total of $16,608 in
accounting fees from the Company during 1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
(b) Security of Ownership of Management
Name of Amount and Nature Percent
Title of Beneficial of Beneficial of
Class Owner Ownership Class(1)
Common Stock Diane Martini 85,000 Shares 1.2%
Common Stock Norman H. Becker 291,724 Shares 0.6%
Common Stock Frank R. Bauer 31,500 Shares 0.4%
Common Stock Eugene M. Kennedy 50,000 Shares 0.7%
Common Stock Ronald A. Martini 1,125,806 Shares 15.6%
Common Stock Robert B. Yeakle (2) 550,000 Shares 7.6%
Common Stock Corp. Invest. Assoc. 767,700 Shares 10.6%
Common Stock All Officers and
Directors as a Group
(5 persons) 1,008,224 Shares 14.0%
(1) Based upon 7,216,900 shares outstanding at March
25,1998.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with Management and Others
The Company paid a total of $116,199 to various
affiliates of the Company's principal shareholder, Ronald
A. Martini, in the nature of consulting fees, rentals and
office and administrative services. See "Financial
Statements - Notes to Consolidated Financial Statements,
Note G".
Certain Business Relationships
During the year ended December 31, 1997, the Company
paid its director, Eugene M. Kennedy, $4,569 in legal
fees and costs reimbursement in connection with legal
services rendered to the Company by his law firm.
In addition, the Company paid its President and
director, Norman H. Becker accounting fees of $16,608.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND
REPORTS ON FORM 8-K
Financial Statements:
Report of Independent Certified Public
Accountant.
Consolidated Balance Sheet - December 31, 1997
and December 31, 1996.
Consolidated Statement of Operations - Three
Years Ended December 31, 1997.
Consolidated Statement of Shareholders' Equity
- Three Years Ended December 31, 1997.
Consolidated Statement of Cash Flows - Three
Years Ended December 31, 1997.
Notes to Consolidated Financial Statements.
2. Exhibits:
Articles of Incorporation and By-Laws:
Articles of Incorporation and By-Laws
incorporated by reference to the filing of the
original registration statement on Form S-18.
Instruments defining the rights of security
holders, including indentures:
Not applicable.
Voting Trust Agreement:
Not applicable.
Material Contracts:
Not applicable.
Statement Re: Computation of per share income
(loss):
See Note "A"., Notes to Consolidated Financial
Statements and Statement of Operations Three
Years Ended December 31, 1997.
Statements RE: Computation of Ratios:
Not applicable.
Annual Report to Security Holders, Form 10-Q
or quarterly report to security holders:
Not applicable.
Letter re: Change in accounting principles:
Not applicable.
Previously unfiled documents:
Not applicable.
Other Documents or Statements to Security
Holders:
Not applicable.
Subsidiaries of the Registrant:
Corrections Systems International, Inc.
Hi-Tech Leasing, Inc.
Professional Programmers Inc.
Published report regarding matters submitted
to vote of Security Holders:
Not applicable.
Consents of experts and counsel:
Not applicable.
Power of Attorney:
Not applicable.
Additional Exhibits:
The Registrant filed no current reports on
Form 8-K during the fourth quarter of 1997.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange
Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized,
in the City of Fort Lauderdale, State of Florida, on the 30th day
of March, 1998.
CORRECTIONS SERVICES, INC.
BY:/s/Norman H. Becker
Norman H. Becker, President
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the Registrant in the capacities and on the dates
indicated.
Signatures Title Date
(i) Principal Executive Officer President March 30, 1998
/s/Norman H. Becker
Norman H. Becker
(ii) Principal Financial and Secretary March 30, 1998
Accounting Officer
/s/Diane Martini
Diane Martini
(iii) A Majority of the Board Director March 30, 1998
of Directors
/s/Diane Martini Director March 30, 1998
Diane Martini
Director March __, 1998
Frank Bauer
/s/Norman H. Becker Director March 30, 1998
Norman H. Becker
/s/Eugene M. Kennedy Director March 30, 1998
Eugene M. Kennedy
Director March __, 1998
Robert B. Yeakle