UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1998
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 0-12293
CANISCO RESOURCES, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 54-0952207
(State of Incorporation) (IRS Employer Identification No.)
300 Delaware Avenue, Suite 714, Wilmington, Delaware 19801
(Address of Principal Executive Offices) (Zip Code)
302-777-5050
(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 ( )
Common Stock, par value $.0025 per share 2,526,565 shares outstanding as
of June 30, 1998.
<PAGE>
CANISCO RESOURCES, INC.
(formerly Nuclear Support Services, Inc.)
PART I ITEM 1
FINANCIAL STATEMENTS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets as of June 30, 1998 and March 31, 1998
Consolidated Statements of Operations for the Three Month Periods Ended
June 30, 1998 and 1997
Consolidated Statements of Cash Flows for the Three Month Periods Ended
June 30, 1998 and 1997
Notes to Consolidated Financial Statements
PART I ITEM 2
Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II ITEM 6
Exhibits and Reports on Form 8-K
PART I ITEM 1 FINANCIAL STATEMENTS
CANISCO RESOURCES, INC.
(formerly Nuclear Support Services, Inc.)
Consolidated Balance Sheets
Assets
Assets June 30, March 31,
1998 1998
(Unaudited) (Audited)
Current assets:
Cash $1,811,019 $1,188,393
Accounts receivable, net
Billed 14,112,282 7,749,599
Unbilled 423,087 242,930
Other 598,193 283,491
Total accounts receivable 15,133,562 8,276,020
Inventory 443,366 419,697
Deferred income taxes 278,000 289,000
Other prepaid expenses and current assets 1,458,613 1,961,818
Costs and estimated earnings in excess
of billings on uncompleted contracts 2,922,818 1,377,433
Total current assets 22,047,378 13,512,361
Property and equipment:
Land 1,125,100 954,100
Buildings and improvements 1,130,812 1,085,812
Machinery and equipment 5,653,397 2,545,281
Furniture and fixtures 463,402 404,811
Vehicles 1,051,778 389,516
Total property and equipment 9,424,489 5,379,520
Less accumulated depreciation 2,130,939 1,886,289
Property and equipment, net 7,293,550 3,493,231
Intangible pension asset 880,054 905,938
Deferred income taxes 2,170,000 2,116,000
Other assets 447,297 605,779
Goodwill 2,952,801 0
Total assets $35,791,080 $20,633,309
CANISCO RESOURCES, INC.
(formerly Nuclear Support Services, Inc.)
Consolidated Balance Sheets
Liabilities and Shareholders' Equity
June 30, March 31,
1998 1998
(Unaudited) (Audited)
Current liabilities:
Current portion of long-term debt 2,170,310 1,974,993
Accounts payable 3,905,305 3,301,171
Other accrued expenses 2,555,168 2,563,489
Billings in excess of costs and estimated
earnings on uncompleted contracts 985,787 379,462
Total current liabilities 9,616,570 8,219,115
Long-term debt, less current portion 8,978,010 1,755,000
Accrued pension cost 941,077 962,869
Note payable to bank 12,130,670 6,526,421
Total liabilities 31,666,327 17,463,405
Shareholders' equity:
Common stock, $.0025 par value, authorized
10,000,000 shares; issued 2,477,592 shares,
outstanding 2,465,540 shares 6,819 6,194
Additional paid-in-capital 3,528,726 2,873,101
Retained earnings 4,540,745 4,242,146
Treasury stock, at cost (3,951,537) (3,951,537)
Total shareholders' equity 4,124,753 3,169,904
Total liabilities and shareholders'equity $35,791,080 $20,633,309
CANISCO RESOURCES, INC.
(formerly Nuclear Support Services, Inc).
Consolidated Statements of Operations
(Unaudited)
Three Months Ended June 30,
1998 1997
Revenues from services $18,607,149 $ 12,807,833
Cost of services 15,286,609 10,328,040
Gross margin 3,320,540 2,479,793
General and administrative expenses 2,394,396 1,950,295
Income from operations 926,144 529,498
Interest expense (470,654) (261,346)
Other income (expense), net 75,540 (573)
Income before income taxes 531,030 267,579
Income tax expense 232,431 107,032
Net earnings 298,599 160,547
Earnings per share (basic) $0.12 $0.07
Weighted average common shares (basic) 2,420,540 2,170,540
Earnings per share (diluted) $0.11 $0.07
Weighted average common shares (diluted) 2,695,688 2,418,760
CANISCO RESOURCES, INC.
(formerly Nuclear Support Service, Inc.
Consolidated Statements of Cash Flows
Three Months Ended June 30,
1998 1997
Cash flows from operating activities:
Net earnings $ 298,599 $160,547
Adjustments to reconcile net
earnings to net cash
used in operating activities:
Depreciation and amortization 279,066 125,440
Deferred income taxes (43,000) -
Change in assets and liabilities
net of effects from purchases
of subsidiaries:
(Increase) in accounts receivable (3,976,832) (1,008,888)
Decrease in inventory 1,543 24,064
Decrease in costs and estimated
earnings in excess of billings
on uncompleted contracts (415,198) (204,037)
Decrease in other assets 571,471 872,195
Increase in accounts payable 304,141 41,810
Decrease in accrued expenses (386,313) (514,467)
Increase in billings in excess
of costs and estimated earnings on
uncompleted contracts 317,618 63,432
Net cash used in operating
activities (3,048,905) (439,904)
Cash flows from investing activities:
Purchase of property and equipment (294,989) (24,263)
Purchase of company (net of
cash acquired) (6,704,373) -
Net cash used in
investing activities (6,999,362) (24,263)
Cash flows from financing activities:
Net borrowings on notes payable 4,715,995 55,890
Proceeds from long term debt 6,284,633 -
Principal payments on long-term debt (985,985) (521,600)
Proceeds of sale of common stock 656,250 -
Net cash provided by (used in)
financing activities 10,670,893 (465,710)
Net increase (decrease) in cash 622,626 (929,877)
Cash at beginning of period 1,188,393 1,308,225
Cash at end of period $1,811,019 $378,348
See the accompanying notes to the consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998
NOTE 1:
The accompanying unaudited interim consolidated financial statements have
been prepared in accordance with the rules and regulations of the Securities
and Exchange Commission pertaining to interim financial information and do
not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. These
financial statements should be read in conjunction with the consolidated
financial statements and accompanying notes included in the Company's
Annual Report for the year ended March 31, 1998. In the opinion of
management, all adjustments consisting only of normal recurring adjustments
considered necessary for a fair presentation of financial position and
results of operations have been included therein. The results for the
three months ended June 30, 1998 are not necessarily indicative of the
results that may be expected for a full fiscal year.
NOTE 2:
On April 22, 1998 the Company acquired the stock of Mansfield Industrial
Coatings, Inc. The acquisition was accounted for under the purchase
method and accordingly the results of operations were included in the
Company's consolidated statement of income from the date of acquisition
forward. The purchase price, paid in cash and common stock, has been
allocated to the assets and liabilities on a preliminary basis and the
excess of cost over the fair market value of net assets acquired is being
amortized over a 15 year period on a straight line basis. The preliminary
purchase price allocation is as follows:
Net assets $4,413,622
Goodwill 3,002,851
Total purchase price $7,416,473
NOTE 3:
In April 1998, the Company expanded its credit facility to a three year
secured $25,000,000 facility. Borrowings under this agreement are secured
by all assets of the Company. This loan agreement, among other things,
requires the Company to meet various covenants including minimum levels
of working capital and tangible net worth.
PART I, ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1998
COMPARED TO THE THREE MONTHS ENDED JUNE 30, 1997
On April 22, 1998 the Company acquired all the outstanding stock of Mansfield
Industrial Coatings, Inc. Mansfield provides painting and specialty
coating as well as asbestos and lead abatement, insulation and scaffolding
services to the power generation, pulp and paper, petro-chemical and other
general industries located throughout the southeastern and gulf coast
regions of the country. The addition of the Mansfield business has had
the positive financial impact anticipated and unless otherwise noted the
variance between this quarter's results and the comparable period last year
are due to the addition of the Mansfield business.
Revenues for the period were Eighteen Million, Six Hundred Seven
Thousand ($18,607,000) compared to Twelve Million Eight Hundred and
Eight Thousand ($12,808,000) in the same prior year, an increase of 45.2%.
For the first quarter of fiscal year 1999, the power generation market
accounted for twenty-three (23%) of total revenues compared to thirty-eight
percent (38%)of total revenues for the same period last year. The
petro-chemical business accounted for forty-one percent (41%) of 1999
first quarter revenues, compared to twenty-one percent (21%) in the same
period for the quarter ended June 30, 1997. The pulp and paper market
accounted for seventeen percent (17%) of first fiscal quarter 1999
revenues compared to twenty-five percent
(25%) for the same period a year ago. The revenue contribution of all
other businesses collectively was nineteen percent (19%) compared to
sixteen percent (16%) for the same period last year. The market mix
remains in the range of that expected. The shift in market segmentation
is predominately attributable to the addition of the Mansfield business,
which is weighted in the petro-chemical market when compared to the
Company's traditional business mix. Also affecting the market mix was
a reduction in revenue from the power markets as a result of the normal
business cycle.
The gross margin for the first quarter of fiscal year 1999 increased
$841,000 to $3,321,000 from the same period last year. As a percent of
revenue, the aggregate gross margin for the current period decreased to
eighteen percent (18%) compared to nineteen percent (19%) during the period
ended June 30, 1997. The power generation market margin contribution was
eighteen percent (18%) versus forty-four percent (44%) for the same period
last year. The margin contribution of the petro-chemical business
increased to thirty-three percent (33%) from twenty percent (20%) a year
ago. The pulp and paper industry's gross margin remained constant at
twenty-six percent (26%). All other markets contributed twenty three
percent (23%) of gross margin compared to ten percent (10%) in the
comparable period a year ago. The shifts in gross margin between market
sectors is primarily a function of revenues.
General and administrative expenses for the quarter were Two Million Three
Hundred Ninety Four Thousand ($2,394,000) compared to One Million Nine
Hundred Fifty Thousand ($1,950,000) for the same period last year. As a
percentage of revenue G&A expenses decreased to thirteen percent (13%)
from fifteen percent (15%) a year ago. This decrease is expected as the
Company expands its revenue base.
As a result of the above, income from operations was Nine Hundred Twenty
Six Thousand ($926,000) compared to Five Hundred Twenty Nine Thousand
($529,000) for the same period last year.
For the first quarter of fiscal year 1999, interest expense increased
approximately Two Hundred Ten Thousand ($210,000) to Four Hundred
Seventy One Thousand ($471,000) compared to the same period a year ago.
This increase was due to the additional debt associated with the acquisition
of Mansfield offset somewhat by decreased interest rates.
The Company had other income; net of expense, of Seventy Six Thousand
($76,000) compared to other expense net of income of One Thousand ($1,000)
for the same period a year ago.
Income taxes of Two Hundred Thirty Two Thousand ($232,000) were accrued
for the period compared to One Hundred Seven Thousand ($107,000) for the
same period in fiscal year 1998.
The net income for the first quarter of fiscal year 1999 was approximately
Two Hundred Ninety Nine Thousand ($299,000) or $0.12/share compared to
approximately One Hundred Sixty One Thousand, ($161,000) or $0.07/share.
The Company expects the added value of its growth initiative to continue.
However, while the overall economy and need for its services remain strong,
certain markets are indicating softness. Also, the availability of
sufficient skilled labor is tightening in several geographical markets.
LIQUIDITY AND CAPITAL RESOURCES
The Company's ability to generate cash adequate to meet its needs depends
primarily upon payments for its services and periodic bank borrowings.
These sources of liquidity are reduced by the payment of direct costs,
taxes, purchase of property and equipment and periodic repayment of the
Company's revolving lines of credit and long term debt.
Effective April 17, 1998, the Company amended its credit facility with its
current lender. The amended credit facility consists of a three-year
commitment for a $25,000,000 credit facility, including a $5,000,000
acquisition credit line.
At June 30, 1998, on its credit facility of $25,000,000, the Company had
borrowed approximately $12,100,000 on its working capital line and had an
outstanding principal balance of $7,659,000 on its long term secured loan
obligation.
At June 30, 1998, the Company had working capital of approximately
$12,430,000 compared to working capital of $5,293,000 at March 31, 1998.
The increase in working capital was due primarily to the acquisition of
Mansfield Industrial Coatings, accounts receivable, cost and earnings in
excess of billings on uncompleted contracts, accounts payable, offset
somewhat by the decrease in other assets and accrued expenses.
The Company anticipates that working capital and available bank credit will
be sufficient to meet cash needs for the coming year.
CAUTIONARY STATEMENT
Statements in this Report on Form 10Q which express the "belief",
"anticipation" or "expectation", as well as other statements which
are not historical fact, are forward-looking statements within the
meaning of the Private Securities Litigation Reform Action of 1995 and
involve risks and uncertainties that could cause actual results to differ
materially from those projected. Certain factors such as competitive
market pressures, material changes in demand from larger customers,
changes in weather, availability of labor, changes in
government policies and changes in economic conditions could cause
actual results to differ materially from those in the forward-looking
statements.
PART II ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
On May 7, 1998, the Company filed an 8-K which detailed the acquisition
of Mansfield Industrial Coatings, Inc.
On July 7, 1998, the Company filed an 8-K\A related to the acquisition of
Mansfield Industrial Coatings, Inc., which contained the financial
statements and pro-forma financial information.
Exhibit 27 Financial Data Schedule for the Three-Month Period
Ended June 30, 1998.
SIGNATURES
Date: August, 5, 1998 CANISCO RESOURCES, INC.
/s/ Ralph A. Trallo
Ralph A. Trallo
President and CEO
/s/ Michael J. Olson
Michael J. Olson
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
CANISCO RESOURCES, INC.'S FORM 10-Q FOR THE PERIOD ENDED JUNE 30, 1998
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> JUN-30-1998
<CASH> 1,811,019
<SECURITIES> 0
<RECEIVABLES> 15,343,495
<ALLOWANCES> (209,933)
<INVENTORY> 443,366
<CURRENT-ASSETS> 22,047,378
<PP&E> 9,424,489
<DEPRECIATION> 2,130,939
<TOTAL-ASSETS> 35,791,080
<CURRENT-LIABILITIES> 9,616,570
<BONDS> 22,049,757
0
0
<COMMON> 6,819
<OTHER-SE> 4,117,934
<TOTAL-LIABILITY-AND-EQUITY> 35,791,080
<SALES> 18,607,149
<TOTAL-REVENUES> 18,607,149
<CGS> 15,286,609
<TOTAL-COSTS> 15,286,609
<OTHER-EXPENSES> 2,318,856
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 470,654
<INCOME-PRETAX> 531,030
<INCOME-TAX> 232,431
<INCOME-CONTINUING> 298,599
<DISCONTINUED> 0
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<NET-INCOME> 298,599
<EPS-PRIMARY> .12
<EPS-DILUTED> .11
</TABLE>
