SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K\A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported) April 22, 1998
Canisco Resources, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation)
0-12293 54-0952207
(Commission File Number) (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)
Item 2
Registrant refers to the 8-K filing dated April 22, 1998, filed
May 7, 1998, regarding the acquisition of Mansfield Industrial
Coatings, Inc. and supplements that filing with the Financial
Statements and Pro forma financial information contained herein.
Item 7 (a)
Financial statements of Mansfield Industrial Coatings, Inc.
For the Nine Months ended December 31, 1997
Independent Auditor's Report
Financial Statements
Balance Sheet
Statement of Income and Retained Earnings
Statement of Cash Flows
Notes to Financial Statements
For the Years ended March 31, 1997 and 1996
Independent Auditor's Report
Financial Statements
Balance Sheet
Statement of Income
Statement of Changes in Stockholders' Equity
Statement of Cash Flows
Notes to Financial Statements
Financial statements of Mansfield Industrial
Coatings of Louisiana, Inc.
For the Years ended December 31, 1997 and 1996
Independent Auditor's Report
Financial Statements
Balance Sheet
Statement of Income and Retained Earnings
Statement of Cash Flows
Notes to Financial Statements
Item 7 (b)
Pro forma condensed, combined financial information for Canisco
Resources, Inc. (unaudited)
Pro forma condensed combined Balance Sheet
as of March 31, 1998
Pro forma condensed combined Statement of Operations
for the year ended March 31, 1998
Notes to pro forma condensed combined financial
information
Item 7 (c)
Exhibits
23.01 Consent of Independent Accountants
Donna M. Bloomer & Associates
23.02 Consent of Independent Accountants
O'Sullivan Hicks Patton, LLP
23.03 Consent of Indenpendent Accountants
O'Sullivan Hicks Patton, LLP
MANSFIELD INDUSTRIAL COATINGS, INC.
FINANCIAL STATEMENTS
AND
ADDITIONAL INFORMATION
FOR THE NINE MONTHS ENDED
DECEMBER 31, 1997
MANSFIELD INDUSTRIAL COATINGS, INC.
FINANCIAL STATEMENTS AND ADDITIONAL INFORMATION
FOR THE NINE MONTHS
DECEMBER 31, 1997
C O N T E N T S
Page
INDEPENDENT AUDITOR'S REPORT 2
FINANCIAL STATEMENTS
Balance Sheet 3
Statement of Income and Retained Earnings 4
Statement of Cash Flows 5
Notes to Financial Statements 6
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
of Mansfield Industrial Coatings, Inc.
Pensacola, Florida
We have audited the accompanying balance sheet of Mansfield Industrial
Coatings, Inc. (an S corporation) as of December 31, 1997, and the related
statements of income and retained earnings and cash flows for the nine months
then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Mansfield Industrial
Coatings, Inc. as of December 31, 1997, and the results of its operations and
its cash flows for the nine months then ended in conformity with generally
accepted accounting principles.
O'Sullivan Hicks Patton, LLP
March 25, 1998
<TABLE>
<CAPTION>
Mansfield Industrial Coatings, Inc.
Balance Sheet
December 31, 1997
ASSETS
<S> <C>
Current Assets
Cash $ 631,819
Investments 1,050,007
Contracts receivable, less allowance for
doubtful accounts of $32,000 3,262,782
Other receivables 4,219
Other receivables - related entities 31,724
Costs and estimated earnings in excess of
billings on uncompleted contracts 177,005
Inventory 9,507
Prepaid income tax 8,170
Prepaid expenses 45,812
Total current assets 5,221,045
Property and Equipment, net 1,811,031
Other Assets
Deposits 33,750
Cash surrender value of life insurance 1,696
$ 7,067,522
The accompanying notes are an integral part of these financial statement.
Mansfield Industrial Coatings, Inc.
Balance Sheet
December 31, 1997
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable $ 473,209
Income tax payable 10,353
Billings in excess of costs and estimated
earnings on uncompleted contracts 272,264
Payroll and sales tax payable 39,396
Salaries payable 75,347
Accrued insurance payable 261,833
Current portion of long-term debt 332,909
Total current liabilities 1,465,311
Long-Term Debt, net of current maturities 2,864,513
Stockholders' Equity
Common stock: par value $1 per share,
100,000 shares authorized, 35 shares
issued and outstanding 35
Additional contributed capital 9,296
Retained earnings 2,728,367
2,737,698
$ 7,067,522
</TABLE>
The accompanying notes are an integral part of these financial statements.
<TABLE>
<CAPTION>
Mansfield Industrial Coatings, Inc.
Statement of Income and Retained Earnings
For the nine months ended December 31, 1997
<S> <C>
Contract Revenues Earned $ 14,987,356
Costs of Contract Revenues earned 11,627,707
Gross Profit 3,359,649
Operating Expenses
General and administrative 1,171,165
Depreciation 112,682
Interest 178,704
Total operating expenses 1,462,551
Income from Operations 1,897,098
Other Income 64,941
Other Expenses (94,067)
Income Before Income Taxes 1,867,972
Income Tax Benefit 177,857
Net Income 2,045,829
Retained earnings, April 1, 1997 682,538
Retained Earnings, December 31, 1997 $ 2,728,367
</TABLE>
The accompanying notes are an integral part of these financial statements.
<TABLE>
<CAPTION>
Mansfield Industrial Coatings, Inc.
Statement of Cash Flows
For the nine months ended December 31, 1997
<S> <C>
Cash Flows from Operating Activities
Net Income $ 2,045,829
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation 355,355
Bad debt expense, net of recoveries 60,217
Loss on sale of assets 28,314
Decrease (increase) in:
Contracts receivable (734,196)
Other receivables 4,743
Costs and estimated earnings in excess of
billings on uncompleted contracts 117,566
Deferred tax asset 80,928
Inventory 12,139
Prepaid income tax (2,255)
Prepaid expenses 14,754
Deposits (5,000)
Increase (decrease) in:
Accounts payable (341,790)
Income tax payable (114,253)
Billings in excess of costs and estimated
earnings on uncompleted contracts 78,057
Payroll and sales tax payable (37,682)
Salaries payable (110,811)
Deferred income taxes (293,316)
Accrued insurance payable 78,710
Net cash provided by operating activities 1,237,309
Cash Flows Used by Investing Activities
Proceeds from sale of property and equipment 2,200
Purchases of property and equipment (185,229)
Purchases of investments (600,007)
Net cash used for investing activities (783,036)
Cash Flows from Financing Activities
Proceeds from bank line of credit 383,350
Payments on bank line of credit (383,350)
Principal payments on long-term debt (347,245)
Net cash used for financing activities (347,245)
Net Increase in Cash 107,028
Mansfield Industrial Coatings, Inc.
Statement of Cash Flows
For the nine months ended December 31, 1997
(continued)
Cash, Beginning of Year 524,791
Cash, End of Year $ 631,819
Supplemental Disclosures of Cash Flow Information
Cash paid during the year for interest $ 178,704
Cash paid during the year for taxes $ 161,025
Purchase of property and equipment in exchange
for note payable $ 299,495
</TABLE>
The accompanying notes are an integral part of these financial statements
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(1) Business Activity
Mansfield Industrial Coatings, Inc. is an S-corporation effective for the
nine month period beginning April 1, 1997. The Company began operations in
1975, and is engaged primarily in industrial painting and insulation
throughout the Southeastern United States and Caribbean Islands. The
Company performs work under both fixed contracts and cost plus contracts.
(2) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
(3) Revenue and Cost Recognition
Revenue from fixed price construction contracts is recognized on the
percentage-of-completion method, measured by the percentage of cost
incurred to date to estimated total cost for each contract. This method is
used because total cost is considered to be the best available measure of
progress on these contracts. Because of the inherent uncertainties in
estimating costs, it is reasonably possible that the estimates used will
change within the near term.
Contract costs include all direct material and labor costs and those
indirect costs related to contract performance, such as indirect labor,
supplies, tools, repairs, and depreciation. Selling, general, and
administrative costs are charged to expense as incurred. Provisions for
estimated losses on uncompleted contracts are made in the period in which
such losses are determined. Changes in job performance, job conditions,
and estimated profitability may result in revisions to costs and income and
are recognized in the period in which the revisions are determined.
The asset, 'Costs and estimated earnings in excess of billings on
uncompleted contracts,' represents revenues recognized in excess of amounts
billed. The liability, 'Billings in excess of costs and estimated earnings
on uncompleted contracts,' represents billings in excess of revenues
recognized.
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Revenue from cost plus contracts is recognized based on costs incurred plus
a negotiated profit factor. Cost plus contract costs include all direct
materials and labor cost plus other negotiated indirect costs. These
contracts are considered 100 percent complete at all times.
(4) Cash and Cash Equivalents
For purposes of the statement of cash flows, management considers all
highly liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents.
(5) Investments
Investments, consisting of certificates of deposits and municipal bonds,
are classified as 'available for sale' securities and are valued at cost,
which approximates market value. Unrealized holding gains and losses are
reported as a separate component of stockholders' equity. The average cost
method is used to determine realized gains and losses.
(6) Inventory
Inventory consists primarily of raw materials and is recorded at cost on a
first-in, first-out basis.
(7) Property and Equipment
Property and equipment are stated at cost. Depreciation is provided for on
the straight-line method over the estimated useful lives of the related
assets as follows:
Aircraft 5 years
Vehicles 5 to 10 years
Buildings and leasehold improvements 7 to 40 years
Machinery and equipment 5 to 10 years
Furniture and fixtures 3 to 10 years
Major renewals, betterments and replacements are capitalized, while
maintenance and repair costs are charged directly to expense as incurred.
When properties are sold or otherwise disposed of, the related cost and
accumulated depreciation are removed from the accounts and any gain or loss
is reflected in earnings.
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(8) Accrued Insurance Payable
Prior to October 1, 1995, the Company was responsible for worker's
compensation claims up to $350,000 per claim incurred in Florida and
Louisiana, after which insurance was available. During 1994, several
worker's compensation claims were filed by employees for various injuries
sustained at work. In October 1995, the Company changed its worker's
compensation policies. Under the new policy covering all states, the
Company is responsible for claims up to $250,000 per incident after which
insurance is available. In connection with the change in insurance
coverage, the Company has obtained a letter of credit with Barnett Bank for
$250,000. The letter of credit is callable on demand and carries an
interest rate of bank prime. The estimated potential liability to the
Company for these outstanding worker's compensation claims has been accrued
at December 31, 1997.
(9) Income Taxes
The Company has elected S-corporation status effective April 1, 1997.
Earnings and losses after that date will be included in the personal income
tax returns of the stockholders. Accordingly, the Company will not incur
additional income tax obligations and future financial statements will not
include a provision for income taxes. State income taxes assessed at the
corporate level are reflected on the Statement of Income and Retained
Earnings. Prior to the change, income taxes currently payable and deferred
income taxes related primarily to differences between the recognition of
bad debt expense, basis of property and equipment and accrued officer
salaries for financial and income tax reporting were recorded in the
financial statements.
(10) Overhead Allocation
The Company allocates certain general and administrative costs indirectly
related to contracts to cost of contract revenues earned.
(11) Advertising
Advertising costs are expensed as incurred and were $23,559 for the nine
months ended December 31, 1997.
NOTE B - INVESTMENTS
Cost and fair market values of investments at December 31, 1997 are as
follows:
<TABLE>
<CAPTION>
Gross Gross Fair
Unrealized Unrealized Market
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Available for sale
Certificates of
deposit $ 450,000 -- -- $ 450,000
Municipal bonds 600,007 -- -- 600,007
$1,050,007 $ -- $ -- 1,050,007
</TABLE>
At December 31, 1997, there were no unrealized or realized gains or losses.
NOTE C - CONTRACTS RECEIVABLE
Contracts receivable consist of the following:
Completed contracts $1,058,683
Contracts in progress 2,034,259
Retained 201,840
Less allowance for doubtful accounts (32,000)
$3,262,782
NOTE D - COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
Costs and estimated earnings in excess of billings and billings in excess
of costs and estimated earnings on uncompleted fixed price contracts at
December 31, 1997 are summarized as follows:
Costs incurred on uncompleted contracts $ 2,719,310
Estimated earnings 321,134
3,040,444
Less billings to date 3,135,703
$ (95,259)
Included in the accompanying balance sheet under the following captions:
Costs and estimated earnings in excess
of billings on uncompleted contracts $ 177,005
Billings in excess of costs and
estimated earnings on uncompleted
contracts (272,264)
$ (95,259)
NOTE E - PROPERTY AND EQUIPMENT
Property and equipment is summarized as follows:
Land 222,848
Furniture and fixtures 297,585
Buildings and leasehold improvements 208,325
Machinery and equipment 3,239,384
Vehicles 874,177
Aircraft 360,419
5,202,738
Less accumulated depreciation (3,391,707)
$ 1,811,031
Depreciation expense was $355,355 for the nine months ended
December 31, 1997. Of this amount, $242,673 was allocated directly
to contracts.
NOTE F - ACCOUNTS PAYABLE
Accounts payable consist of the following:
Subcontractors $ 51,452
Other accounts payable 421,757
$ 473,209
NOTE G - LINE OF CREDIT
At December 31, 1997, the Company had available a line of credit of
$2,000,000 of which $-0- was outstanding. The line bears interest at prime
(8.5% at December 31, 1997), is secured by the stockholders and is
scheduled to expire on November 29, 1998. There is a cross-
collateralization / cross-default agreement between this line of credit and
the airplane loan.
NOTE H - LONG-TERM DEBT
Long-term debt is summarized as follows:
Note to Barnett Bank payable in monthly
installments of $4,778 plus interest at prime
plus .5%, due February 2000; collateralized
by aircraft and guaranteed by stockholder. $ 29,218
NOTE H - LONG-TERM DEBT (Continued)
Note to Barnett Bank payable in monthly
installments of $2,235 plus interest at
prime, due July 2000; collateralized by
four vehicles. $ 69,299
Note to Barnett Bank payable in monthly
installments of $1,472 plus interest at prime,
due October 2000; guaranteed by stockholders. 50,056
Note to Associates Commercial Corp. payable
in monthly installments of $5,137 including
interest at 7.14%, due September 2000;
collateralized by eight compressors. 148,598
Note to former stockholder payable in monthly
installments of $22,907 including interest at
7%, due May 2011; guaranteed by stockholders. 2,387,445
Note to GE Capital payable in monthly
installments of $422 including interest at
16.5%, due March 1999; collateralized by
office trailer. 4,997
Note to Spacemaster International payable in
monthly installments of $220 including interest
at 14.5%, due April 1998; collateralized by
storage vans. 854
Note to Spacemaster International payable in
monthly installments of $238 including interest
at 14.8%, due April 1998; collateralized by
storage vans. 924
Note to stockholder payable in monthly
installments of $6,092 including
interest at 7%, due December 2002. 308,570
Note to stockholder payable in monthly
installments of $3,898 including
interest at 7%, due December 2002. 197,461
3,197,422
Less current maturities (332,909)
$ 2,864,513
NOTE H - LONG-TERM DEBT (Continued)
Following are future maturities of long-term debt:
1998 $ 332,909
1999 314,522
2000 297,976
2001 244,884
2002 1,744,544
Thereafter $ 3,197,422
NOTE I - INCOME TAXES
The provision for income taxes (tax benefit) at December 31, 1997
consists of the following components:
Current provision $ 34,531
Deferred (benefit) (212,388)
Total (177,857)
As discussed in Note A, the Company changed its tax status from taxable to
non-taxable effective as of April 1, 1997. Accordingly, the net deferred
tax liability at the date that the election for the change was filed of
approximately $45,800 has been eliminated through a credit to the deferred
tax provision. The 1997 tax provision differs from the expense that would
result from applying federal statutory tax rates to income before income
taxes because certain expenses are not tax deductible.
NOTE J - RELATED-PARTY TRANSACTIONS
The Company leases building space owned jointly by an officer of the
Company under a noncancellable operating lease. The lease obligation at
December 31, 1997 is as follows:
Year Ended
December 31, Amount
1998 $ 78,000
1999 78,000
2000 78,000
2001 19,500
Total minimum future rental payments $253,500
Rent expense under this lease for the nine months ended December 31, 1997
was $58,500.
NOTE J - RELATED-PARTY TRANSACTIONS (Continued)
At December 31, 1997, the Company owed its stockholders $506,031 under 7%
notes with final maturity December 2002.
The Company has a receivable of $31,724 at December 31, 1997 from a related
entity owned partially by the Company's stockholders.
NOTE K - LEASES
The Company is obligated under operating leases for equipment with
noncancellable terms in excess of one year as of December 31, 1997 as
follows:
Year Ended
December 31, Amount
1998 $ 5,532
1999 5,532
2000 1,300
Total minimum future lease payments $ 12,364
Rent expense under these operating leases for the nine months ended
December 31, 1997 was $8,166.
The Company also leases office space under a month to month operating
lease. Rent expense under this lease for the nine months ended December
31, 1997 was $5,400.
NOTE L - SUBSEQUENT EVENTS
Effective January 5, 1998, the Company acquired 100% of the stock of
Mansfield Industrial Coatings of Louisiana, Inc., under a stock purchase
agreement for $1,245,000. Later in January 1998, Mansfield Industrial
Coatings of Louisiana, Inc. was merged into the Company and the outstanding
shares of Mansfield Industrial Coatings of Louisiana, Inc. were canceled.
The net assets of the acquired company were approximately $1,000,000.
In January 1998, the shareholders signed a letter of intent for the
proposed sale of all the issued and outstanding shares of the Company. The
Company anticipates such sale will be completed by April 1998.
NOTE M - LITIGATION
The Company is involved in various legal actions arising in the normal
course of business. In the opinion of management, the outcome of these
matters will not have a material effect on the financial statements of the
Company.
NOTE N - CONCENTRATIONS OF RISK
1. Uninsured Cash Balances
In the normal course of business, the Company's cash balances may
exceed the maximum coverage provided by the Federal Deposit Insurance
Corporation of $100,000. At December 31, 1997, the Company had an
uninsured cash balance of $1,124,158.
2. Concentration of Customers
A material portion of the Company's revenues are generated from a few
customers. For the nine months ended December 31, 1997, five customers
account for revenue totaling $5,980,660, or 40%, of the Company's
contract revenues. Receivables from these customers totaled $450,021
at December 31, 1997.
3. Accounts Receivable
The Company extends credit based on an evaluation of the customers'
financial condition, generally without requiring collateral. Exposure
to losses on receivables is principally dependent on each customer's
financial condition. The Company monitors its exposure for credit
losses and maintains allowances for anticipated losses.
MANSFIELD INDUSTRIAL COATINGS, INC.
FINANCIAL STATEMENTS AND
ADDITIONAL INFORMATION
YEARS ENDED MARCH 31, 1997 AND 1996
MANSFIELD INDUSTRIAL COATINGS, INC.
FINANCIAL STATEMENTS AND ADDITIONAL INFORMATION
YEARS ENDED MARCH 31, 1997 AND 1996
C O N T E N T S
Page
INDEPENDENT AUDITOR'S REPORT 2
FINANCIAL STATEMENTS:
Balance Sheets 3-4
Statements of Income 5
Statements of Changes in Stockholders' Equity 6
Statements of Cash Flows 7
Notes to Financial Statements 8-17
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
of Mansfield Industrial Coatings, Inc.
Pensacola, Florida
We have audited the accompanying balance sheets of Mansfield Industrial
Coatings, Inc. (a C corporation) as of March 31, 1997 and 1996 and the related
statements of income, changes in stockholders' equity and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Mansfield
Industrial Coatings, Inc. as of March 31, 1997 and 1996 and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
As discussed in Note Q to the financial statements, on April 1, 1996, the
Company repurchased the common stock of its majority stockholder for cash and
a long-term note, and subsequently cancelled all its treasury stock. This
transaction significantly affected the composition of the Company's debt and
equity.
Donna M. Bloomer & Associates
June 27, 1997
MANSFIELD INDUSTRIAL COATINGS, INC.
BALANCE SHEETS
MARCH 31, 1997 AND 1996
ASSETS
1997 1996
CURRENT ASSETS
Cash and cash equivalents $ 524,791 $ 643,331
Certificates of deposit 450,000 450,000
Contract receivables - net of allowance
of $32,000 and $32,000, respectively 2,588,803 2,554,510
Other receivables 20,776 15,051
Prepaid expenses 82,212 88,746
Other receivables - related entities 19,910 119,235
Costs and estimated earnings in excess of
billings on uncompleted contracts 294,571 180,880
Deferred tax asset 80,928 106,847
TOTAL CURRENT ASSETS 4,061,991 4,158,600
PROPERTY AND EQUIPMENT
Land - office site 144,120 144,120
Land - Bellingrath Road 78,728 - 0 -
Aircraft 360,419 360,419
Buildings and leasehold improvements 144,010 103,305
Autos, trucks and trailers 798,829 718,308
Construction equipment 3,129,542 3,230,955
Furniture and fixtures 287,284 252,798
4,942,932 4,809,905
Less accumulated depreciation (3,230,756) (3,096,129)
NET PROPERTY AND EQUIPMENT 1,712,176 1,713,776
OTHER ASSETS
Deposits 31,000 33,800
Cash surrender value of life insurance 1,696 49,593
TOTAL OTHER ASSETS 32,696 83,393
TOTAL ASSETS $5,806,863 $5,955,769
The accompanying notes are an integral part of these financial statements.
MANSFIELD INDUSTRIAL COATINGS, INC.
BALANCE SHEETS
(continued)
MARCH 31, 1997 AND 1996
LIABILITIES AND STOCKHOLDERS' EQUITY
1997 1996
CURRENT LIABILITIES
Accounts payable $ 814,999 $ 348,806
Income taxes payable 118,691 156,956
Line of credit - 0 - - 0 -
Billings in excess of costs and estimated
earnings on uncompleted contracts 194,207 125,659
Loans from stockholders 582,606 219,929
Payroll and sales tax payable 77,078 104,341
Salaries payable 186,158 120,315
Accrued expenses - other 3,757 195,970
Accrued insurance payable 181,616 249,175
Current portion of long-term debt 177,599 63,514
TOTAL CURRENT LIABILITIES 2,336,711 1,584,665
LONG TERM LIABILITIES
Notes payable, less current portion 2,484,967 101,824
Deferred tax liability 293,316 334,903
TOTAL LONG TERM LIABILITIES 2,778,283 436,727
TOTAL LIABILITIES 5,114,994 2,021,392
STOCKHOLDERS' EQUITY
Common stock: $1 par value, 100,000
shares authorized, 35 and 20,035
shares issued and outstanding,
respectively 35 20,035
Additional paid in capital 9,296 9,296
Less treasury stock - 0 - (150,000)
Retained earnings 682,538 4,055,046
TOTAL STOCKHOLDERS' EQUITY 691,869 3,934,377
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $5,806,863 $5,955,769
The accompanying notes are an integral part of these financial statements.
MANSFIELD INDUSTRIAL COATINGS, INC.
STATEMENTS OF INCOME
YEARS ENDED MARCH 31, 1997 AND 1996
1997 1996
Contract revenues $14,991,527 $16,498,573
Cost of contract revenues earned (11,892,884) (13,498,043)
GROSS PROFIT 3,098,643 3,000,530
General and administrative expenses ( 1,237,147) ( 1,298,174)
Depreciation ( 402,604) ( 413,449)
Interest ( 225,773) ( 33,706)
Income from operations 1,233,119 1,255,201
Other income 109,354 261,663
Other expense ( 83,151) ( 58,665)
Income before taxes 1,259,322 1,458,199
Income taxes ( 501,830) ( 645,244)
Net Income after taxes $ 757,492 $ 812,955
The accompanying notes are an integral part of these financial statements.
MANSFIELD INDUSTRIAL COATINGS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED MARCH 31, 1997 AND 1996
COMMON PAID IN TREASURY RETAINED
STOCK CAPITAL STOCK EARNINGS TOTAL
(SHARES) $ (SHARES) $
Balance
at
March 31,1994 20,000 $20,000 $ - 0 - - 0 - $ - 0 - $2,788,312 $2,808,312
Repurchased
common stock (5,000) (150,000) (150,000)
Current year
earnings 453,779 453,779
Balance
at
March 31,1995 20,000 $20,000 $ - 0 - (5,000)$(150,000)$3,242,091 $3,112,091
Sale of
common stock 35 35 $ 9,296 9,331
Current year
earnings 812,955 812,955
Balance
at
March 31,1996 20,035 $20,035 $ 9,296 $(5,000)$(150,000) $4,055,046$3,934,377
Repurchase
of
common stock (15,000)(4,000,000) (4,000,000)
Cancellation
of Treasury
stock (20,000) (20,000) 20,000 4,150,000 (4,130,000) - 0 -
Current
year
earnings 757,492 757,492
Balance
at
March 31,1997 35 $ 35 $9,296 - 0 - $ - 0 - $ 682,538 $ 691,869
The accompanying notes are an integral part of these financial statements.
MANSFIELD INDUSTRIAL COATINGS, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 1997 AND 1996
1997 1996
CASH FLOW FROM OPERATING ACTIVITIES:
Net income $ 757,492 $ 812,955
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 402,604 413,449
(Gain) loss on sale of fixed assets 13,188 ( 4,967)
Bad Debts - 0 - 5,356
Deferred taxes ( 15,668) 109,821
Shareholder bonus - 0 - 219,929
(Increase) decrease in assets:
Contract receivables ( 34,293) (218,765)
Other receivables 93,600 37,860
Refundable income taxes - 0 - 151,677
Prepaid expense 6,534 245,507
Costs and estimated earnings in excess of
billings on uncompleted contracts ( 113,691) 91,218
Deposits 2,800 ( 16,700)
Cash surrender value of life insurance ( 3,178) ( 2,793)
Increase (decrease) in liabilities:
Accounts payable 466,193 ( 102,319)
Income taxes ( 38,265) 156,956
Billings in excess of costs and estimated
earnings on uncompleted contracts 68,548 ( 73,931)
Accrued bonus - 0 - (161,124)
Other current liabilities ( 221,192) ( 73,529)
Net cash provided by
operating activities 1,384,672 1,590,600
CASH FLOW FROM INVESTING ACTIVITIES:
Proceeds from sale of equipment 4,575 18,012
Capital expenditures ( 418,767) ( 190,028)
Net cash used in
investing activities ( 414,192 ( 172,016)
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from notes payable 1,926,611 - 0 -
Payments on notes payable ( 1,515,631) ( 969,924)
Sale of stock - 0 - 9,331
Repurchase of stock ( 1,500,000) - 0 -
Net cash used for
financing activities ( 1,089,020) ( 960,593)
NET INCREASE IN CASH AND CASH EQUIVALENTS ( 118,540) 457,991
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 643,331 185,340
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 524,791 $ 643,331
The accompanying notes are an integral part of these financial statements.
MANSFIELD INDUSTRIAL COATINGS, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997 AND 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Activity
The Company began operations in 1975. The Company is engaged in
industrial painting and insulation. The Company performs work
throughout the Southeastern United States and Caribbean Islands under
both fixed price and cost plus contracts.
Management uses estimates and assumptions in preparing these financial
statements in accordance with generally accepted accounting principles.
Those estimates and assumptions affect the reported amount of assets and
liabilities, the disclosure of contingent assets and liabilities, and
the reported revenues and expenses. Actual results could vary from the
estimates that were used.
Revenue and Cost Recognition
Fixed Price Contracts
Revenue from fixed price construction contracts is recognized on the
percentage-of-completion method, measured by the percentage of cost
incurred to date to estimated total cost for each contract. This method
is used because management considers expended costs to be the best
available measure of progress on these contracts. Because of the
inherent uncertainties in estimating costs, it is at least reasonably
possible that the estimates used will change within the near term.
Contract costs include all direct material and labor costs and those
indirect costs related to contract performance, such as indirect labor,
supplies, tools, repairs, and depreciation. Selling, general, and
administrative costs are charged to expense as incurred. Provisions for
estimated losses on uncompleted contracts are made in the period in
which such losses are determined. Changes in job performance, job
conditions, and estimated profitability may result in revisions to costs
and income and are recognized in the period in which the revisions are
determined.
The asset, "Costs and estimated earnings in excess of billings on
uncompleted contracts," represents revenues recognized in excess of
amounts billed. The liability, "Billings in excess of costs and
estimated earnings on uncompleted contracts," represents billings in
excess of revenues recognized.
Cost Plus Contracts
Revenue from cost plus contracts is recognized based on costs incurred
plus a negotiated profit factor. Cost plus contract costs include all
direct materials and labor cost plus other negotiated indirect costs.
These contracts are considered 100 percent complete at all times.
Cash and Cash Equivalents
For purposes of the statement of cash flows, management considered all
highly liquid debt instruments purchased with a maturity of three months
or less to be cash equivalents.
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided as
follows:
Useful Life Method
Aircraft 5 years Double Declining
Buildings 20 years Straight Line
Leasehold improvements 9-20 years Straight Line
Autos, trucks and trailers 5-10 years Straight Line
Construction equipment 5-10 years Straight Line
Furniture, fixtures,
computers and software 3-7 years Straight Line
Major renewals, betterments and replacements are capitalized, while
maintenance and repair costs are charged directly to expense as
incurred. When equipment is sold or otherwise disposed of, the related
cost and accumulated depreciation are removed from the accounts and any
gain or loss is reflected in earnings.
Accrued Insurance Payable
Prior to October 1, 1995, the Company was responsible for worker's
compensation claims up to $350,000 per claim incurred in Florida and
Louisiana, after which insurance was available. During 1994, several
worker's compensation claims were filed by employees for various
injuries sustained at work. In October 1995, the Company changed its
worker's compensation policies. Under the new policy covering all
states, the Company is responsible for claims up to $250,000 per
incident after which insurance is available. In connection with the
change in insurance coverage, the Company has obtained a letter of
credit with Barnett Bank for $250,000. The letter of credit is
callable on demand and carries an interest rate of bank prime. The
estimated potential liability to the Company for these outstanding
worker compensation claims has been accrued at March 31, 1997 and 1996.
Reclassifications
Certain amounts in the 1996 financial statements have been reclassified
to conform to the 1997 presentation.
NOTE B - CERTIFICATES OF DEPOSIT
Certificates of deposit totalling $200,000 are pledged to the State of
Florida as security on the Company's retained worker's compensation
risk. These certificates of deposit are required to remain pledged
until all claims under the policy are closed.
NOTE C - CONTRACT RECEIVABLES
Contract receivables at March 31, 1997 and 1996 include the following:
1997 1996
Contract receivables:
Completed contracts - fixed price $ 390,538 $ 447,851
Contracts in progress - fixed price 752,663 667,621
Cost plus 1,445,602 1,439,038
$2,588,803 $2,554,510
Contract Receivables are composed of billed and unbilled amounts at
March 31, 1997 and 1996 as follows:
1997 1996
Billed $2,464,323 $2,463,312
Unbilled 124,480 91,198
$2,588,803 $2,554,510
Billed receivables include $71,548 and $220,465 for retainage at March
31, 1997 and 1996 respectively, which is expected to be received during
the next fiscal year. Unbilled receivables represent amounts for which
invoices have been prepared and revenues recognized but which have not
been presented for payment.
NOTE D - COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
1997 1996
Costs incurred on uncompleted contracts $1,174,908 $3,304,678
Estimated earnings 388,883 538,108
1,563,791 3,842,786
Less: Billings to date (1,463,427) (3,787,565)
$ 100,364 $ 55,221
Included in the accompanying balance sheet under the following captions:
1997 1996
Costs and estimated earnings in
excess of billings
on uncompleted contracts $ 294,571 $ 180,880
Billings in excess of costs
and estimated earnings
on uncompleted contracts ( 194,207) ( 125,659)
$ 100,364 $ 55,221
NOTE E - LONG TERM DEBT
A schedule of long term debt at March 31, 1997 is as follows:
Current Long Term Total
Note Payable (Airplane Loan) - bank,
due February 1,2000, payable in monthly
installments of $4,778, plus interest at
.5% above base rate (8.50% at March 31,1997).
Secured by aircraft and guaranteed by the
stockholders. There is a cross--
collateralization/cross-default
agreement between for this note, the line of
credit and the term loan. (See Note F) 57,336 19,662 76,998
Note Payable (Term Loan) - bank due
April 4,1999 payable in monthly
installments from April 4, 1996
to October 4, 1996 interest only, with
the principal and interest payments due
for 30 months and the balance due on April
4, 1999. Interest rate of the bank's prime
(8.50% at March 31, 1997) plus .25%.
Secured by pledge of the stockholders'
stock, inventory, equipment and accounts
receivable. There is a
cross-collateralization/cross-default
agreement between this note, the line
of credit and the airplane loan.
(See Note F) 21,884 100,585 122,469
Note Payable - C. Dale Mansfield due May 2011.
payable in monthly installments of $22,907,
including interest of 7.0%. Secured by all
property of stockholders. 88,515 2,360,347 2,448,862
Capital Lease - GE Capital, due March 1999
payable in monthly installments of $422,
including interest of 16.5%. Secured by
office trailer. 4,049 3,920 7,969
Capital Lease - GE Capital due November
1997,payable in monthly installments of
$162, including interest of 8.95%. Secured
by office trailer. 793 -0- 793
Capital Lease - Spacemaster International,
Inc.,due April 1998, payable in monthly
installments of $220,including interest
of 14.5%. Secured by storage van. 2,414 218 2,632
Capital Lease - Spacemaster International,
Inc.due April 1998, payable in monthly
installments of $238,including interest
of 14.8%. Secured by storage van. 2,608 235 2,843
$177,599 $2,484,967 $2,662,566
Maturities of long-term debt are as follows:
Year Ending
March 31 Amount
1998 $ 177,599
1999 165,310
2000 193,983
2001 130,208
2002 139,620
2003-2012 1,855,846
Total $2,662,566
NOTE F - CROSS-COLLATERALIZATION/CROSS-DEFAULT AGREEMENT
The line of credit, term loan and airplane loan are cross
collateralized except that the real property securing the term
loan shall not be cross-collateralized with either the airplane
loan or the line of credit. A default under any of these loans
shall constitute a default under all the loans. (See Note E)
NOTE G - INCOME TAXES
The Company follows the requirements of Financial Accounting Standards
Board Statement No. 109, 'Accounting For Income Taxes.' This method
requires an asset and liability approach for financial accounting and
reporting for deferred income taxes.
The net deferred tax liability in the accompanying balance sheet
includes the following amounts of deferred tax assets and liabilities:
1997 1996
Deferred tax asset - current $ 80,928 $ 106,847
Deferred tax liability - non current ( 293,316) ( 334,903)
Net deferred tax liability $( 212,388) $( 228,056)
The deferred tax liability results from the use of accelerated
methods of depreciation on fixed assets for tax purposes. The
deferred tax asset results from the establishment of an allowance
for doubtful accounts that is not deductible for tax purposes until
the losses are identified and written off, and accrued workers
compensation claims that are not deductible for tax purposes until paid.
The components of income tax expense (benefit) are as follows:
1997 1996
Current $ 517,499 $ 535,423
Deferred ( 15,669) 109,821
Net income tax expense $ 501,830 $ 645,244
This income tax expense is composed of both federal and state
tax expenses. The breakdown is as follows:
1997 1996
Federal tax expense $ 456,873 $ 480,537
States tax expense 60,626 54,886
Net change in deferred taxes ( 15,669) 109,821
Income tax expense $ 501,830 $ 645,244
A reconciliation between the amount of reported income tax expense and
the statutory Federal income tax is as follows:
1997 1996
Tax at statutory rate $ 440,763 $ 514,407
State tax, net of federal tax benefit 40,013 36,653
Effect of income tax brackets ( 12,593)( 14,697)
Permanent differences 35,151 50,925
Deductible expenses 14,020 57,435
Other ( 15,524) 521
$ 501,830 $ 645,244
NOTE H - PROFIT SHARING PLAN
In July 1995, the Company's Board of Directors voted to terminate the
Company's profit sharing plan effective April 1, 1996 with all
distributions to be paid by March 31, 1996.
NOTE I - RELATED-PARTY TRANSACTIONS
(1) The Company conducts its operations from facilities that are leased
under a noncancellable operating lease. This property is jointly owned
by an officer of the Company. The lease obligation at March 31, 1997 is
as follows:
Year Ending
March 31, Amount
1998 $ 83,460
1999 83,460
2000 83,460
2001 83,460
2002 86,670
$ 420,510
Rent expense under this lease was $83,460 and $83,460 for the years
ended March 31, 1997 and 1996, respectively.
(2) The Company has outstanding receivables (net of payables) from entities
owned by the Company's stockholders at March 31, 1997 and 1996 of $14,231
and $89,689, respectively. In addition, the Company provides consulting
services to these related entities. For the year ended March 31, 1997
and 1996, the Company earned $0, and $142,700, respectively, in consulting
fees from these related entities.
(3) At March 31, 1997 and 1996, the Company owed its stockholders $582,606
and $219,929, respectively, which is payable on demand and bears interest
at a rate of 6.28%. (See Note K)
NOTE J - LEASES
(1) In addition to the office lease (Note I) the Company is obligated under
operating leases for autos with noncancellable terms in excess of one
year as of March 31, 1997 as follows:
Year Ending
March 31, Amount
1998 2,764
$ 2,764
Rent expense under these operating leases for the year ended March 31,
1997 and 1996 was $22,497 and $35,537, respectively.
(2) The Company leases a building and warehouse space under a one year lease
calling for monthly rentals of $2,250. At September 1, 1996, the leasee
exercised a one year renewal and rent increased to $2,318 per month.
Rental income from the lease of this facility was $26,376 and $15,180
during the years ended March 31, 1997 and 1996, respectively.
NOTE K - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
1997 1996
Cash paid during the period for:
Interest $ 210,022 $ 108,508
Income taxes paid (refunded), net $ 568,945 $ ( 48,523)
Non-cash investing and financing activities:
Short term debt of $0 and $219,929 was incurred in the years ending
March 31, 1997 and 1996 when the Company issued notes to its
stockholders for bonuses.
On April 4, 1996, the Company repurchased 15,000 shares of its common
stock for $4,000,000; $1,500,000 cash and a $2,500,000 promissory note.
(See Note Q) A life insurance policy on the former majority stockholder
was assigned to the stockholder as part of this transaction. The cash
surrender value of this policy was reflected as a reduction from the
notes payable balance the Company owes the former stockholder.
NOTE L - ECONOMIC DEPENDENCY
A material part of the Company's business is performed for a few
customers. For the year ending March 31, 1997, six customers account
for revenues totaling $7,691,074 or 51% of the Company's contract
revenues. For the year ending March 31, 1996, four customers account
for revenues totaling $7,428,546 or 45% of the Company's contract
revenues.
NOTE M - CONCENTRATION OF CREDIT RISK
The Company maintains cash balances at several financial institutions
located in Pensacola, Florida. Accounts at each institution are insured
by Federal Deposit Insurance up to $100,000. At March 31, 1997, the
Company had uninsured cash balances of $572,033.
The Company performs work for customers across different industries and
geographical locations. The Company performs on-going credit
evaluations of its customers' financial condition and generally requires
no collateral from its customers.
NOTE N - FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of the loan due to stockholders, based on the terms
at which those same loans could be made currently, approximates fair
value. The value of the life insurance policy is carried at its cash
value as determined by the insurance company, which approximates fair
value.
NOTE O - COMMITMENTS
On March 31, 1997, the Company had available a line of credit of
$2,000,000 of which $- 0 - was outstanding. The line of credit bears an
interest rate of .25% per annum in excess of the bank's prime (which was
8.5% at March 31, 1997). The line of credit is secured by contract
receivables, fixed assets and is personally guaranteed by the
stockholders. The line of credit is scheduled to expire on
November 29, 1997. There is a cross-collateralization/cross-default
agreement between this line of credit, the term loan and airplane loan.
(See Note F)
NOTE P - LITIGATION
In the normal course of business, the Company is involved in litigation
regarding the collection of monies owed to them. In the opinion of
management, the outcome of these matters will not have a detrimental
effect on the financial statements of the Company.
NOTE Q - CAPITAL STOCK
On March 29, 1996, the Company sold 35 shares of common stock for $9,331
to the sons of the majority stockholder.
One April 4, 1996, the company repurchased 15,000 of its common stock
for $4,000,000, $1,500,000 in cash and $2,500,000 in a promissory note.
This promissory note bears interest at 7%. Payment terms require
interest only for the first year, then 168 equal payments of $23,285
beginning May 1, 1997. This promissory note is secured by a second lien
on all property of the Company. (See Note E, Note Payable- C. Dale
Mansfield) The redeemed stock was immediately cancelled after the
repurchase.
In conjunction with this purchase, the Company borrowed $1,500,000 from
a financial institution. (See Note E, Note Payable - Term Loan) This
note bears interest at prime plus .25% for the first 6 months, with
principal plus interest payment due for 30 months and balance due on
April 4, 1999. The note is secured by a first lien on all contract
receivables and fixed assets of the Company, plus the personal guarantee
of the stockholders. The stockholders' common stock is held by the
financial institution as collateral for this note.
At the same time, the Company amended and restated its $2,000,000 line
of credit. (See Note O) The line of credit is secured by contract
receivables, fixed assets and the personal guarantees of the
stockholders. This amended and restated line of credit was scheduled to
expire on August 31, 1996, but has been renewed with an expiration date
of November 29, 1997.
NOTE Q - CAPITAL STOCK (continued)
As part of this transaction, a stock redemption agreement was entered
into whereby the Company has the first right of refusal to purchase the
shares of an existing stockholder upon his death, disability or
termination of employment. The shares will be repurchased at a price
equal to the book value per share of the Company.
On July 26, 1994, the Company repurchased 5,000 shares of its common
stock for $150,000, $90,721 in cash and the cancellation of a note
receivable of $59,279. The repurchased shares were cancelled on April
4, 1996.
NOTE R - SUBSEQUENT EVENTS
In June 1997, the Company made the election to be taxed under Subchapter
S of the Internal Revenue Code. This election was effective as of April
1, 1997. For future years, in lieu of corporate income taxes, the
stockholders will be taxed on their proportionate share of the Company's
taxable income and no provision for corporate income taxes will be
included in the financial statements.
In addition, the Company has elected to convert its reporting year from
a fiscal year ended March 31 to the calendar year. This conversion is
effective for the short year beginning April 1, 1997 and ending December
31, 1997.
MANSFIELD INDUSTRIAL COATINGS OF LOUISIANA, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
MANSFIELD INDUSTRIAL COATINGS OF LOUISIANA, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
C O N T E N T S
Page
INDEPENDENT AUDITOR'S REPORT 2
FINANCIAL STATEMENTS
Balance Sheets 6
Statements of Income and Retained Earnings 8
Statements of Cash Flows 9
Notes to Financial Statements 11
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
of Mansfield Industrial Coatings of Louisiana, Inc.
Pensacola, Florida
We have audited the accompanying balance sheets of Mansfield Industrial
Coatings of Louisiana, Inc. (a C corporation) as of December 31, 1997 and
1996, and the related statements of income and retained earnings and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Mansfield Industrial Coatings
of Louisiana, Inc. as of December 31, 1997 and 1996, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
O'Sullivan Hicks Patton, LLP
June 18, 1998
Mansfield Industrial Coatings of Louisiana, Inc.
BALANCE SHEETS
December 31, 1997 and 1996
ASSETS
CURRENT ASSETS 1997 1996
Cash and cash equivalents $ 463,787 $ 687,384
Certificate of deposit 107,414 107,414
Contracts receivable 584,862 317,111
Other receivables 1,000 --
Costs and estimated earnings in
excess of billings on
uncompleted contracts 3,182 3,944
Prepaid income tax 8,141 15,908
Prepaid expenses 14,891 --
Total current assets $ 1,183,277 $ 1,131,761
PROPERTY AND EQUIPMENT, net 84,499 73,765
$ 1,267,776 $ 1,205,526
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 47,157 $ 31,123
Accounts payable to a
related party 31,724 22,232
Accrued expenses 78,161 100,000
Billings in excess of costs and
estimated earnings on uncompleted
contracts 16,443 4,474
Payroll and sales tax payable 8,870 7,855
Deferred taxes 9,687 2,736
Current portion of
long-term debt -- 21,698
Total current liabilities 192,042 190,118
LONG TERM DEBT, net of current
maturities -- 1,634
(Continued)
Mansfield Industrial Coatings of Louisiana, Inc.
BALANCE SHEETS (continued)
December 31, 1997 and 1996
STOCKHOLDERS' EQUITY 1997 1996
Common stock: no par value, 1,000
shares authorized 1,000 shares
issued and outstanding 1,000 1,000
Retained earnings 1,074,734 1,012,774
1,075,734 1,013,774
$ 1,267,776 1,205,526
The accompanying notes are an integral part of these financial statements.
Mansfield Industrial Coatings of Louisiana, Inc.
STATEMENTS OF INCOME AND RETAINED EARNINGS
December 31, 1997 and 1996
1997 1996
CONTRACT REVENUES EARNED $ 4,696,283 4,509,726
COSTS OF CONTRACT REVENUES EARNED 4,067,305 3,963,126
GROSS PROFIT 628,978 546,600
OPERATING EXPENSES
General and administrative 554,913 556,233
Depreciation 13,359 13,807
Interest 1,612 10,555
Total operating expenses 569,884 580,595
INCOME (LOSS) FROM OPERATIONS 59,094 (33,995)
OTHER INCOME 17,627 37,749
OTHER EXPENSES (2,025) (5,386)
INCOME (LOSS) BEFORE INCOME TAXES 74,696 (1,632)
INCOME TAX EXPENSE (12,736) (990)
NET INCOME (LOSS) 61,960 (2,622)
RETAINED EARNINGS, BEGINNING OF YEAR 1,012,774 1,015,396
RETAINED EARNINGS, END OF YEAR $ 1,074,734 1,012,774
The accompanying notes are an integral part of these financial statements.
Mansfield Industrial Coatings of Louisiana, Inc.
STATEMENT OF CASH FLOWS
For the years ended December 31, 1997 and 1996
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 61,960 (2,622)
Adjustments to reconcile net
earnings to net cash (used for)
provided by operating activities:
Depreciation 26,719 27,614
Gain on sale of assets -- (8,700)
Decrease (increase) in:
Contracts receivables (267,751) 358,305
Other receivables (1,000) 100
Costs and estimated earnings in
excess billings on uncompleted
contracts 762 7,894
Prepaid income tax 7,767 (1,994)
Prepaid expenses (14,891) 1,123
Increase (decrease) in:
Accounts payable 16,034 (11,446)
Accounts payable to
a related party 9,492 (18,983)
Accrued expenses (21,839) 8,840
Billings in excess of costs and
estimated earnings on uncompleted
contracts 11,969 (12,824)
Payroll and sales tax payable 1,015 (5,728)
Deferred income taxes 6,951 647
Net cash (used for) provided by
operating activities (162,812) 342,226
CASH FLOWS USED BY INVESTING ACTIVITIES
Proceeds from sale of property
and equipment -- 8,700
Purchases of property and equipment (37,453) (32,620)
Net cash used for investing
activities (37,453) (23,920)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on long-term debt (23,332) (38,848)
Net cash used for financing
activities (23,332) (38,848)
(Continued)
Mansfield Industrial Coatings of Louisiana, Inc.
STATEMENT OF CASH FLOWS (Continued)
For the years ended December 31, 1997 and 1996
1997 1996
NET (DECREASE) INCREASE IN CASH $ (223,597) $ 279,458
CASH AND CASH EQUIVALENTS, BEGINNING
OF YEAR 687,384 407,926
CASH AND CASH EQUIVALENTS, END OF YEAR 463,787 687,384
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid during the year for interest $ 1,612 $ 10,555
Cash paid during the year for taxes 1,982 2,337
The accompanying notes are an integral part of these financial statements.
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. Business Activity
Mansfield Industrial Coatings of Louisiana, Inc. (the Company) began
operations in 1987, and is a contractor specializing in industrial
painting, primarily in the State of Louisiana. The Company performs work
mainly under cost-plus-fee and fixed priced contracts.
2. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
3. Revenue and Cost Recognition
Revenue from fixed price contracts is recognized on the percentage-of-
completion method, measured by the percentage of cost incurred to date to
estimated total cost for each contract. This method is used because total
cost is considered to be the best available measure of progress on these
contracts. Because of the inherent uncertainties in estimating costs, it
is reasonably possible that the estimates used will change within the near
term.
Contract costs include all direct material and labor costs and those
indirect costs related to contract performance, such as indirect labor,
supplies, tools, repairs, and depreciation. Selling, general, and
administrative costs are charged to expense as incurred. Provisions for
estimated losses on uncompleted contracts are made in the period in which
such losses are determined. Changes in job performance, job conditions,
and estimated profitability may result in revisions to costs and income and
are recognized in the period in which the revisions are determined.
The asset, "Costs and estimated earnings in excess of billings on
uncompleted contracts," represents revenues recognized in excess of amounts
billed. The liability, "Billings in excess of costs and estimated earnings
on uncompleted contracts," represents billings in excess of revenues
recognized.
Revenue from cost plus contracts is recognized based on costs incurred plus
a negotiated profit factor. Cost plus contract costs include all direct
materials and labor cost plus other negotiated indirect costs. These
contracts are considered 100 percent complete at all times.
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
4. Cash and Cash Equivalents
For purposes of the statements of cash flows, management considers all
highly liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents. Certificates of deposit totaling $105,077 for
each of the years ended December 31, 1997 and 1996 are considered to be
cash equivalents.
5. Property and Equipment
Property and equipment are stated at cost. Depreciation on furniture and
fixtures, machinery and equipment, and vehicles is provided using an
accelerated method over the estimated useful lives of the related assets as
follows:
Office furniture and equipment 5 years
Machinery and equipment 4 to 7 years
Vehicles 4 to 5 years
Major renewals, betterments and replacements are capitalized, while
maintenance and repair costs are charged directly to expense as incurred.
When properties are sold or otherwise disposed of, the related cost and
accumulated depreciation are removed from the accounts and any gain or loss
is reflected in earnings.
6. Income Taxes
Deferred taxes are provided on a liability method whereby deferred tax
assets are recognized for deductible temporary differences and operating
loss and tax credit carryforwards and deferred tax liabilities are
recognized for taxable temporary differences. Temporary differences are
the differences between the reported amounts of assets and liabilities and
their tax bases. Deferred tax assets are reduced by a valuation allowance
when, in the opinion of management, it is more likely than not that some
portion or all of the deferred tax assets will not be realized. Deferred
tax assets and liabilities are adjusted for the effects of changes in tax
laws and rates on the date of enactment.
7. Overhead Allocation
The Company allocates certain general and administrative costs indirectly
related to contracts to cost of contract revenues earned.
NOTE B - CONTRACTS RECEIVABLE
Contracts receivable consist of the following:
1997 1996
Completed contracts $ 389,187 $ 269,461
Contracts in progress 163,023 21,461
Earned but unbilled 32,652 26,189
$ 584,862 $ 317,111
Based on management's experience, accounts receivable are considered to be
fully collectible and, therefore, no provision for uncollectible accounts
has been established.
NOTE C - COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
Costs and estimated earnings in excess of billings and billings in excess
of costs and estimated earnings on uncompleted fixed price contracts at
December 31, 1997 and 1996 are as follows:
1997 1996
Costs incurred on uncompleted contracts $ 210,174 $ 43,243
Estimated earnings 64,578 18,240
274,752 61,483
Less: Billings to date (288,013) (62,013)
$ (13,261) $ (530)
Included in the accompanying balance sheet under the following captions:
Costs and estimated earnings in excess
of billings on uncompleted contracts $ 3,182 $ 3,944
Billings in excess of costs and
estimated earnings on uncompleted
contracts 16,443 4,474
$ (13,261) $ (530)
NOTE D - PROPERTY AND EQUIPMENT
Property and equipment is summarized as follows:
1997 1996
Machinery and equipment $ 1,167,628 $ 1,139,974
Vehicles 65,336 55,537
Office furniture and equipment 39,713 39,713
1,272,677 1,235,224
Less accumulated depreciation (1,188,178) (1,161,459)
$ 84,499 $ 73,765
Depreciation expense was $26,719 and $27,614 for the years ended December
31, 1997 and 1996. Of this amount, $13,360 and $13,807 was allocated
directly to contracts.
NOTE E - ACCRUED EXPENSES
Accrued expenses consist of the following:
1997 1996
Bonuses $ 71,161 $ 100,000
Professional services 7,000 --
$ 78,161 $ 100,000
NOTE F - INCOME TAXES
Deferred tax liabilities consist of the difference in the bases of long-
term contracts for financial reporting and income tax purposes. The
Company uses the percentage-of-completion method of recognizing revenue on
long-term contracts for book purposes. For tax purposes the Company uses
the completed contract method, except for long-term contracts, which are
reported under the percentage-of-completion method. Deferred tax
liabilities at December 31, 1997 and 1996 were $9,687 and $2,736,
respectively. The deferred tax amounts mentioned above have been
classified on the accompanying balance sheets as of December 31, 1997 and
1996 as current liabilities.
NOTE F - INCOME TAXES -- CONTINUED
The provision for income taxes charged to operations for the years ended
December 31, 1997 and 1996 consists of the following:
1997 1996
Current tax expense $ 5,785 $ 343
Deferred tax expense 6,951 647
$ 12,736 $ 990
The income tax provision differs from the amount of income tax determined
by applying the U.S. federal income tax rate to pretax income for the years
ended December 31, 1997 and 1996 primarily due to state income taxes and
the benefit of income taxed at lower rates.
NOTE G - NOTES PAYABLE
Notes payable at December 31, 1997 and 1996 consist of the following:
1997 1996
Note to bank, payable in monthly installments
of $1,600 including interest at 9.25%, due
April 1998, secured by equipment $ -- $ 19,762
Note to bank, payable in monthly installments
of $406 including interest at 7.75%, due
September 1997, secured by a vehicle -- 3,570
-- 23,332
Less current portion -- (21,698)
$ -- $ 1,634
NOTE H - RELATED-PARTY TRANSACTIONS
The following related party transactions occurred between the Company and
related parties:
Accounts payable in the amount of $31,724 and $22,232 at December 31,
1997 and 1996, respectively, are due to a corporation owned by a
stockholder.
Operating expenses for the year ended December 31, 1997 include $21,600
related to computer service provided by a corporation owned by a
stockholder.
NOTE I - OPERATING LEASES
The Company rents equipment under operating leases with monthly terms.
The Company leases its office from an unrelated party on a month-to-month
basis. Rent expense under this lease was $15,400 and $18,200 for the
years ended December 31, 1997 and 1996, respectively.
The Company leases its blastyard from an unrelated party under a six-month
operating lease, which contains six-month renewal options. Rent expense
under this lease was $5,000 and $0 for the years ended December 31, 1997
and 1996, respectively. Future minimum lease payments under this lease
total $2,500 and are due in 1998.
NOTE J - CONCENTRATION OF CREDIT RISK
1. Uninsured Cash Balances
The Company invests its excess cash in certificates of deposit with a
local financial institution. Additionally, the Company has other funds on
deposit with this financial institution, which at times may exceed the
FDIC insurance coverage.
2. Concentration of Customers
A material portion of the Company's revenues is generated from a few
customers. A contract with one customer represented 72% and 67% of the
Company's contract revenues earned for 1997 and 1996, respectively. This
customer has notified the Company that its contract, which expires
June 30, 1998, will not be renewed.
NOTE K - CONTINGENCY
The Company is the defendant in a pending lawsuit. The Company expects to
obtain a favorable judgment in the case. However, the ultimate outcome of
this litigation is unknown at the present time. Accordingly, no provision
for any liability that might result has been made in the accompanying
financial statements. In the opinion of management, the existing
litigation is not considered to be material in relation to the Company's
financial position.
NOTE L - SUBSEQUENT EVENT
On January 5, 1998, Mansfield Industrial Coatings, Inc., a related party,
acquired all of the outstanding common stock of the Company. Later in
January 1998, the Company was dissolved and Mansfield Industrial Coatings,
Inc. assumed all ongoing operations.
Canisco Resources, Inc.
Pro Forma Condensed Combined Financial Information
(Unaudited)
The following unaudited pro forma condensed combined balance sheet of Canisco
Resources, Inc. as of March 31, 1998 and unaudited pro forma condensed
combined statement of operations of Canisco Resources, Inc. for the year ended
March 31, 1998 give effect to the acquisition of Mansfield Industrial Coatings
on April 22, 1998, using the purchase method of accounting. For purposes of
the pro forma condensed combined balance sheet, the information is presented
as if the acquisition had occurred on March 31, 1998. For purposes of the pro
forma condensed combined statement of operations, the information is presented
as if the acquisition had occurred on April 1, 1997. The results are not
necessarily indicative of what would have occurred had this acquisition been
consummated as of April 1, 1997 or of future operations of the combined
companies.
These pro forma condensed, consolidated financial statements should be read in
conjunction with the Canisco Resources, Inc. historical financial statements.
Mansfield Industrial Coatings of Louisiana, Inc. was merged into Mansfield
Industrial Coatings, Inc. effective January 30, 1998.
Canisco Resources, Inc.
Pro Forma Condensed Combined Balance Sheet
March 31, 1998
(Unaudited)
(In thousands)
Mansfield
Industrial
Mansfield Coatings Pro
Canisco Industrial of Forma Pro
Resources, Coatings, Louisiana, Adjust- Forma
Inc. Inc.(H) Inc.(H) ments Combined
Assets
Current assets:
Cash and investments $1,188 $1,682 $571 $(1,601)(A) $1,840
(B)
Accounts receivable 8,276 3,267 586 (586)(A) 11,543
Inventories 420 9 0 0 429
Deferred income
taxes 289 0 0 0 289
Prepaid and other
current assets 1,962 54 23 0 2,039
Cost and earnings
in excess of
billings 1,377 177 3 0 1,557
Total current
assets 13,512 5,189 1,183 (2,187) 17,697
Due from (to)
affiliated
company 0 32 (32) 0 0
Property and equipment,
net 3,493 1,812 84 1,853(C) 7,242
Goodwill 0 0 0 3,690(C) 3,690
Intangible pension
asset 906 0 0 0 906
Deferred income tax 2,116 0 (10) 10(A) 2,116
Other assets 606 35 0 0 641
Total assets $20,633 $7,068 $1,225 $3,366 $32,292
Liabilities and
Shareholder's Equity
(Continued)
Mansfield
Industrial
Mansfield Coatings Pro
Canisco Industrial of Forma Pro
Resources, Coatings, Louisiana, Adjust- Forma
Inc. Inc.(H) Inc.(H) ments Combined
Current liabilities:
Long term debt-
current portion $1,975 $333 $ 0 $984(C) $3,292
Accounts payable 3,301 484 47 (47)(A) 3,785
Other accrued
expenses 1,426 262 78 (78)(A) 1,688
Accrued payroll and
employee benefits 1,138 115 9 (9)(A) 1,253
Billings in excess
of cost and
earnings 379 271 16 0 666
Long term debt, less
current portion 8,281 2,865 0 5,673(C) 16,819
Accrued pension
cost 963 0 0 0 963
Shareholder's equity 3,170 2,738 1,075 (3,157)(A) 3,826
(C)
Total liabilities
and
shareholder's
equity $20,633 $7,068 $1,225 $3,366 $32,292
See accompanying notes to unaudited pro forma condensed combined
financial information.
Canisco Resources, Inc.
Pro Forma Condensed Combined Statement of Operations
Year ended March 31, 1998
(Unaudited)
(In thousands)
Mansfield Mansfield Mansfield
Industrial Industrial Industrial
Coatings, Coatings, Coatings Pro
Canisco Inc. Inc. of Forma Pro
Resources, Nine Three Louisiana, Adjust- Forma
Inc. Months(I) Months(I) Inc. ments Combined
Revenues $52,227 $14,987 $4,329 $4,696 $ 0 $76,239
Cost of revenues 42,851 11,628 3,280 4,067 371(D) 62,197
Gross margin 9,376 3,359 1,049 629 (371) 14,042
General and
administrative
expenses 7,790 1,284 351 568 246(E) 10,239
Income from
operations 1,586 2,075 698 61 (617) 3,803
Interest expense (1,004) (179) (67) (2) (541)(F) (1,793)
Other income
(expense),
net 77 (29) 18 16 0 82
Income from
continuing
operations 659 1,867 649 75 (1,158) 2,092
Income tax
expense (benefit) 169 (178) 260 13 672(G) 936
Net income $ 490 $2,045 $389 $ 62 $(1,830) $ 1,156
Net earnings per
share (basic) $0.22 $0.47
Weighted average
common and common
equivalent shares
(basic) 2,193 2,443
Net earnings per
share (diluted) $0.20 $0.42
Weighted average
common shares
(diluted) 2,405 2,755
See accompanying notes to unaudited pro forma condensed combined
financial information.
Canisco Resources, Inc.
Notes to Pro Forma Condensed Combined Financial Information
March 31, 1998
(Unaudited)
(In thousands)
The following notes describe the pro forma adjustments for the
acquisition of Mansfield Industrial Coatings, Inc. by Canisco
Resources, Inc.
(A) Reflects adjustments for net assets of Mansfield Industrial Coatings
of Louisiana, Inc. operation distributed to former owners prior to its
merger into Mansfield Industrial Coatings, Inc. effective
January 30, 1998.
(B) Reflects distribution of approximately $1,000 to former owners of
Mansfield Industrial Coatings, Inc. after December 31, 1997 but prior to
Closing for payment of federal taxes (subchapter S).
(C) Reflects purchase of Mansfield for cash of $6,560, stock
issuance of $656, direct expenses of $100; elimination of
equity of Mansfield and the write up of property and equipment to
fair market value. Purchase was financed by additional bank borrowings.
Also reflects estimate of goodwill to be recorded based on the
preliminary allocation of purchase price.
(D) Reflects the additional depreciation expense resulting from the
write up of the equipment to fair market value, using the
straight-line method over a five year period.
(E) Reflects the additional amortization expense due to goodwill over
a fifteen year period.
(F) Reflects the additional interest expense from the assumed
additional borrowings to fund the purchase of Mansfield using
Canisco Resources, Inc.'s interest rate of 8.5%.
(G) Reflects an adjustment to income tax expense on income from
continuing operations (as adjusted for the additional
depreciation and interest expense) for Mansfield to
bring it to an effective rate of 44.7%.
(H) Reflects the amount as of December 31, 1997. If necessary, pro forma
adjustments are proposed to reflect significant activity between December
31, 1997 and March 31, 1998.
(I) Mansfield Industrial Coatings, Inc. is represented by columns
representing the nine months ended December 31, 1997 (financial
statements included herein) and the three months ended March 31, 1998.
EX-23
EXHIBIT 23.01
The Board of Directors
Canisco Resources, Inc.
We consent to the inclusion of our report dated June 27, 1997, with
respect to the balance sheets of Mansfield Industrial Coatings, Inc.
as of March 31, 1997 and 1996, and the related statements of income,
changes in stockholders' equity and cash flows for each of the years
then ended, which report appears in the Form 8-K/A of Canisco
Resources, Inc., dated July 6, 1998.
DONNA M. BLOOMER & ASSOCIATES
July 6, 1998
EXHIBIT 23.02
Consent of Independent Accountants
The Board of Directors
Canisco Resources, Inc.
We consent to the inclusion of our report dated June 18, 1998,
with respect to the balance sheets of Mansfield Industrial Coatings
of Louisiana, Inc. as of December 31, 1997 and 1996, and the related
statements of income, and retained earnings and cash flows for each
of the years then ended, which report appears in the Form 8-K/A of
Canisco Resources, Inc., dated July 6, 1998.
O'SULLIVAN HICKS PATTON, LLP
July 6, 1998
EXHIBIT 23.03
Consent of Independent Accountants
The Board of Directors
Canisco Resources, Inc.
We consent to the inclusion of our report dated March 25, 1998,
with respect to the balance sheet of Mansfield Industrial
Coatings, Inc. as of December 31, 1997, and the related statements
of income, and retained earnings and cash flows for the nine months
ended, which report appears in the Form 8-K/A of Canisco Resources, Inc.,
dated July 6, 1998.
O'SULLIVAN HICKS PATTON, LLP
July 6, 1998
