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 December 31, 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, DE 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 December 31, 1998.
CANISCO RESOURCES, INC.
(formerly Nuclear Support Services, Inc.)
PART I ITEM 1
FINANCIAL STATEMENTS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets as of December 31, 1998 and
March 31, 1998
Consolidated Statements of Operations for the Three
Month Periods Ended December 31, 1998 and 1997
Consolidated Statements of Operations for the Nine Month
Periods Ended December 31, 1998 and 1997
Consolidated Statements of Cash Flows for the Nine Month
Periods Ended December 31, 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 December 31, March 31,
1998 1998
(Unaudited) (Audited)
Current assets:
Cash $ 1,191,835 $1,188,393
Accounts receivable, net
Billed 12,080,369 7,749,599
Unbilled 516,394 242,930
Other 640,219 283,491
Total accounts receivable 13,236,982 8,276,020
Inventory 457,838 419,697
Deferred income taxes 170,000 289,000
Other prepaid expenses and current assets 1,378,849 1,961,818
Costs and estimated earnings in excess
of billings on uncompleted contracts 2,646,858 1,377,433
Total current assets 19,082,362 13,512,361
Property and equipment:
Land 1,124,100 954,100
Buildings and improvements 1,128,512 1,085,812
Machinery and equipment 5,816,322 2,545,281
Furniture and fixtures 469,481 404,811
Vehicles 1,123,715 389,516
Total property and equipment 9,662,130 5,379,520
Less accumulated depreciation (2,580,999) (1,886,289)
Property and equipment, net 7,081,131 3,493,231
Intangible pension asset 828,286 905,938
Deferred income taxes 1,665,000 2,116,000
Other assets 508,590 605,779
Goodwill, net 3,224,036 0
Total assets $32,389,405 $20,633,309
CANISCO RESOURCES, INC.
(formerly Nuclear Support Services, Inc.)
Consolidated Balance Sheets
Liabilities and Shareholders' Equity
December 31, March 31,
1998 1998
(Unaudited) (Audited)
Current liabilities:
Current portion of long-term debt $ 1,759,113 $ 1,974,993
Accounts payable 3,674,303 3,301,171
Other accrued expenses 1,769,982 2,563,489
Billings in excess of costs and estimated
earnings on uncompleted contracts 779,124 379,462
Total current liabilities 7,982,522 8,219,115
Long-term debt, less current portion 7,974,627 1,755,000
Accrued pension cost 868,915 962,869
Note payable to bank 10,740,307 6,526,421
Total liabilities 27,566,371 17,463,405
Shareholders' equity:
Common stock, $.0025 par value,
Authorized 20,000,000 and 10,000,000;
Shares issued 2,788,617 and 2,477,592
Shares; and outstanding 2,526,565 and
2,215,540 shares, respectively at
December 31, 1998 and March 31, 1998 6,972 6,194
Additional paid-in-capital 3,688,764 2,873,101
Retained earnings 5,078,835 4,242,146
Treasury stock, at cost (3,951,537) (3,951,537)
Total shareholders' equity 4,823,034 3,169,904
Total liabilities and
shareholders'equity $32,389,405 $20,633,309
CANISCO RESOURCES, INC.
(formerly Nuclear Support Services, Inc).
Consolidated Statements of Operations
(Unaudited)
Three Months Ended December 31,
1998 1997
Revenues from services $17,616,476 $ 14,007,229
Cost of services 14,047,943 11,439,532
Gross margin 3,568,533 2,567,697
General and administrative expenses 2,753,255 1,967,244
Income from operations 815,278 600,453
Interest expense (451,812) (259,973)
Other (expense) income, net ( 58,229) 2,599
Income before income taxes 305,237 343,079
Income tax expense 82,055 137,232
Net earnings 223,182 $205,847
Basic earnings per share $0.09 $0.09
Weighted average common shares (basic) 2,526,565 2,215,540
Diluted earnings per share $0.09 $0.09
Weighted average common shares (diluted) 2,589,259 2,398,474
CANISCO RESOURCES, INC.
(formerly Nuclear Support Services, Inc).
Consolidated Statements of Operations
(Unaudited)
Nine Months Ended December 31,
1998 1997
Revenues from services $54,050,354 $41,716,752
Cost of services 43,673,941 33,882,988
Gross margin 10,376,413 7,833,764
General and administrative expenses 7,553,951 5,851,204
Income from operations 2,822,462 1,982,560
Interest expense (1,403,750) (785,857)
Other (expense), net ( 24,229) (10,189)
Income before income taxes 1,394,483 1,186,514
Income tax expense 557,794 474,607
Net earnings $836,689 $711,907
Basic earnings per share $0.34 $0.32
Weighted average common shares (basic) 2,433,553 2,193,040
Diluted earnings per share $0.32 $0.30
Weighted average common shares (diluted) 2,579,857 2,398,474
CANISCO RESOURCES, INC.
(formerly Nuclear Support Services, Inc).
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended December 31,
1998 1997
Cash flows from operating activities:
Net earnings $ 836,689 $ 711,907
Adjustments to reconcile net
earnings to net cash provided by
(used in) operating activities:
Depreciation and amortization 922,362 488,940
Deferred income taxes 570,000 475,000
Change in assets and liabilities
net of effects from purchase
of business:
(Increase) decrease in accounts
receivable (2,080,252) 301,025
(Increase) in inventory (12,929) (6,068)
(Increase) in costs
and estimated earnings in excess
of billings on uncompleted
contracts (389,238) (540,184)
Decrease in other assets 548,424 575,789
Increase (decrease) in accounts
payable 73,139 (674,583)
(Decrease) in accrued expenses (1,275,655) (1,178,144)
Increase (decrease) in billings
in excess of costs and
estimated earnings on
uncompleted contracts 110,955 (105,311)
Net cash (used in) provided by
operating activities (696,505) 48,371
Cash flows from investing activities:
Net purchase of property
and equipment (532,630) (123,855)
Purchase of business (net of cash
acquired) (6,793,564) 0
Net cash (used in) investing activities (7,326,194) (123,855)
Cash flows from financing activities:
Net borrowings on notes payable 3,173,951 907,987
Proceeds from long term debt 6,284,633 0
Principal payments on
long-term debt (2,248,884) (1,491,451)
Proceeds of sale of common stock 816,441 73,123
Net cash provided by (used in)
financing activities 8,026,141 (510,341)
Net increase (decrease) in cash 3,442 (585,825)
Cash at beginning of period 1,188,393 1,308,225
Cash at end of period $ 1,191,835 $ 722,400
See the accompanying notes to the consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 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 period ended December
31, 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 operations 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 value of net assets acquired is
being amortized over a 15 year period on the straight line basis. The
preliminary purchase price allocation is as follows:
Net assets $4,132,416
Goodwill 3,374,036
Total purchase price $7,506,452
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 substantially 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 DECEMBER 31, 1998
COMPARED TO THE THREE MONTHS ENDING DECEMBER, 1997
On April 22, 1998, the Company acquired all the outstanding stock of
Mansfield Industrial Coatings, Inc. Mansfield provides painting and
specialty coatings 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 United States. 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 attributable
to the addition of the Mansfield business.
Revenues for the period were Seventeen Million Six Hundred Sixteen
Thousand ($17,616,000) compared to Fourteen Million Seven Thousand
($14,007,000) in the prior year.
The power generation market accounted for eighteen percent (18%) of
total revenues compared to thirty-three percent (33%) of total revenues
for the same period last year. The petro-chemical business accounted
for thirty-eight percent (38%) of 1998 third quarter revenues, compared
to twenty-one percent (21%) for the quarter ended December 31, 1997.
The pulp and paper market accounted for fifteen percent (15%) of
revenues compared to twenty-one percent (21%) in the comparable period a
year ago. The revenue contribution of all other businesses collectively
was twenty-nine percent (29%) compared to twenty-five percent (25%) for
the same period last year.
The gross margin for the period was Three Million Five Hundred Sixty
Nine Thousand ($3,569,000) compared to Two Million Five Hundred Sixty
Eight Thousand ($2,568,000) for the same period last year. As a percent
of revenue, the gross margin for the current period increased to
twenty percent (20%) compared to eighteen percent (18%) during the
period ended December 31, 1997. The power market margin contribution
was twenty percent (20%) versus thirty-four percent (34%) for the same
period last year. The margin contribution for the petro-chemical
business increased to forty-six percent (46%) from sixteen percent (16%)
a year ago. The pulp and paper industry accounted for twelve percent
(12%) of gross margin, down from twenty-six percent (26%) during the
same period last year. All other markets contributed twenty-two (22%)
of gross margin compared to twenty-four percent (24%) in the comparable
period a year ago. Changes in margin contribution were related to
shifts in revenues between market sectors.
General and administrative expenses for the quarter were Two Million
Seven Hundred Fifty Three Thousand ($2,753,000) compared to One Million
Nine Hundred Sixty Seven Thousand ($1,967,000) the same period last
year. As a percentage of revenue General & Administrative expenses
increased to sixteen percent (16%) from fourteen percent (14%) the prior
year. The increase is attributable to goodwill and additional general
and administrative expenses associated with the Mansfield acquisition.
Income from operations was Eight Hundred Fifteen Thousand
($815,000) compared to Six Hundred Thousand ($600,000) for the same
period last year.
Interest expense for the period was Four Hundred Fifty-Two Thousand
($452,000) compared to Two Hundred Sixty Thousand ($260,000) for the
same period a year ago. The increase was due to additional debt
associated with the acquisition of Mansfield, offset somewhat by reduced
interest rates.
Other expense, net of income, was Fifty Eight Thousand ($58,000)
compared to other income, net of expense, of Three Thousand ($3,000)
for the same period a year ago.
Income taxes of Eighty-Two Thousand ($82,000) were accrued for the
period compared to One Hundred Thirty Seven Thousand Five Thousand
($137,500) for the same period a year ago.
The Company posted net earnings of Two Hundred Twenty-Three Thousand
$223,000 or $0.09 (Basic) per share compared to Two Hundred Six Thousand
$206,000 or $0.09 (Basic) per share for the same period in the prior
year. There were 2,526,565 weighted average shares outstanding for the
quarter ended December 31, 1998, compared to 2,215,540 weighted average
shares outstanding for the same period a year ago.
NINE MONTHS ENDED DECEMBER 31, 1998
COMPARED TO THE NINE MONTHS ENDED DECEMBER 31, 1997
Revenues for the period were Fifty-Four Million Fifty Thousand
($54,050,000) compared to Forty One Million Seven Hundred
Seventeen Thousand ($41,717,000) for the prior year.
The power generation market accounted for twenty-one percent (21%)
of total revenues compared to thirty-three percent (33%) percent of
total revenues for the same period last year. The petro-chemical
business was thirty-nine percent (39%) compared to twenty-two percent
(22%) of revenues for the same period last year. The pulp and paper
market accounted for sixteen percent (16%) of revenues compared to
twenty-one percent (21%) for the same period last year. The revenue
contribution of all other businesses collectively was unchanged at
twenty-four percent (24%) compared to the same period last year.
The gross margin when compared to the same period a year ago
increased Two Million Five Hundred Forty-Two Thousand ($2,542,000) to
Ten Million Three Hundred Seventy-Six Thousand (10,376,000). As a
percent of revenue, the gross margin for the nine months ended December
31, 1998 remained constant at nineteen percent (19%) compared to the
prior year. The power generation market margin contribution was twenty-
one percent (21%) versus thirty-seven percent (37%) for the same period
last year. The margin contribution of the petro-chemical business
increased to forty-one percent (41%) from eighteen percent (18%) a year
ago. The pulp and paper industry accounted for fourteen percent (14%) of
gross margin, down from twenty-four percent (24%) during the same period
last year. All other markets contributed twenty-four percent (24%) of
gross margin compared to twenty-one percent (21%) in the comparable
period a year ago.
General and administrative expenses compared to the first nine months
last year increased One Million Seven Hundred Three Thousand
($1,703,000) to Seven Million Five Hundred Fifty-Four Thousand
($7,554,000). As a percentage of revenue General and Administrative
expenses remained unchanged at fourteen percent (14%) from fourteen
percent (14%) a year ago.
Income from operations was Two Million Eight Hundred Twenty-
Two Thousand ($2,822,000) compared to One Million Nine Hundred Eighty
Three Thousand ($1,983,000) for the same period last year.
Interest expense was One Million Four Hundred Four Thousand
($1,404,000) compared to Seven Hundred Eighty Six Thousand
($786,000) the same period a year ago. The increase was due to
additional debt load associated with the Mansfield acquisition.
Other expenses, net of income, was Twenty-Four Thousand ($24,000)
compared to Ten Thousand ($10,000) a year ago.
Income taxes of Five Hundred Fifty-Eight Thousand ($558,000) were
accrued for the period compared to Four Hundred Seventy Four Thousand
($474,000) for the same period a year ago.
The net earnings for the first nine months of fiscal year 1998 was
approximately Eight Hundred Thirty-Seven Thousand $837,000 or $0.34 per
share (Basic) compared to Seven Hundred Twelve Thousand $712,000 or
$0.32 per share (Basic) for the same period last year.
Weighted average shares outstanding were 2,433,553 compared to 2,193,040
for the same period a year ago.
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 December 31, 1998, the Company had borrowed approximately $10,740,000
on its working capital line and had an outstanding principal balance of
$6,926,000 on its long term secured loan obligation.
At December 31, 1998, the Company had working capital of approximately
$11,100,000 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 offset somewhat by the
decrease in other current 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.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income". SFAS No. 130 establishes standards for reporting
and display of comprehensive income and its components in financial
statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information". SFAS No. 131 requires that
public business enterprises report certain information about operating
segments, products and services, geographic areas and major customers in
financial statements.
Both of the statements are effective for fiscal years beginning after
December 15, 1997. These statements address presentation and disclosure
matters and adoption of the statements will have no effect on the
Company's financial position or results of operations.
YEAR 2000
Many computer systems were based upon using two digits rather
than four to define the applicable year. As a result, those systems
are time sensitive and recognize a date using "00" as the year 1900
rather than the year 2000. This could cause a system failure or
miscalculations causing disruptions of operations, including,
among other things, a temporary inability to process transactions, send
invoices, or engage in similar normal business activities.
The Company utilizes software vendors for its major computer program
applications. The installation of a year 2000 compliant version of the
Company's financial, inventory, and job costing software occurred prior
to the fiscal year end 1998. The Company is also in the process of
assessing its internal personal computer network, telephones, facsimile
machines and labeling equipment for year 2000 compliance.
In addition to risks associated with the Company's own computer systems
and equipment, the Company has relationships with, and is to varying
degrees dependent upon, a number of third parties that provide goods,
services and information to the Company. These include contract
manufacturers, suppliers, licensees, vendors, and financial
institutions. If any of these third parties experience failures in
their computer systems or equipment, which systems and equipment are
outside the control of the Company, due to year 2000 non-compliance, it
could affect the Company's ability to engage in normal business
activities. Although the Company has minimal computer interface with
third parties, the Company is in the process of making contact with all
of its significant customers, suppliers and partners to determine the
extent, if any, to which the Company is vulnerable should these third
parties experience a year 2000 failure of their system and to ascertain
their year 2000 compliance and risks. The Company does not believe that
the cost of becoming year 2000 compliant will be in excess of $25,000.
To date, the Company has incurred minor expenses, primarily for
assessment of the year 2000 issue, development of a modification plan,
and preparation for the installation of a year 2000 compliant version of
its financial, inventory, and job costing software.
The cost of the project and the dates on which the Company believes it
will complete the year 2000 modifications are based on management's best
estimates. However, there can be no guarantee that these estimates will
be achieved.
SUBSEQUENT EVENT
On January 7, 1999, the Company terminated its previously announced sale
of convertible preferred stock to institutional investors.
The 8-K filing for this transaction was filed on October 30, 1998. The
8-K filing regarding the termination of this transaction was filed on
January 14, 1999.
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 2 CHANGES IN SECURITIES AND USE OF PROCEEDS
PART II ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3. Articles of Incorporation, as amended, as filed with the
Secretary of State of Delaware on September 16, 1998.
10.2 Securities Purchase Agreement, dated as of October 16, 1998,
by and among Mellon Ventures, L.P. and Morse Partners, Ltd.
and Canisco Resources, Inc. (incorporated by reference, see
Exhibit 10.2 to 8-K filed October 30, 1998).
10.3 Stock Purchase Agreement for acquisition of Mansfield
Industrial Coatings, Inc. on April 22, 1998 (incorporated by
reference, see Exhibit 1 to 8-K filed May 7, 1998)
10.4 Amended and Restated Security Agreement with the BNY
Financial Corporation dated as of April 17, 1998
(incorporated by reference, see Exhibit 4 to 8-K filed May
7, 1998).
27 Financial Data Schedule for the Nine-Month Period Ended
December 31, 1998.
(b) On October 30, 1998, the Company filed an 8-K related to the
execution of a Securities Purchase Agreement for the sale of
preferred stock to Mellon Ventures, L.P and Morse Partners, Ltd.,
incorporated herein by reference.
On January 14, 1999, the Company filed an 8-K regarding the
termination of the Securities Purchase Agreement between Mellon
Ventures, L.P. and Morse Partners, Ltd., incorporated herein by
reference.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed by the undersigned
thereunto duly authorized.
Date: ___________________________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 DECEMBER 31, 1998
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> DEC-31-1998
<CASH> 1,191,835
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<RECEIVABLES> 13,449,878
<ALLOWANCES> 212,896
<INVENTORY> 457,838
<CURRENT-ASSETS> 19,082,362
<PP&E> 9,662,130
<DEPRECIATION> 2,580,999
<TOTAL-ASSETS> 32,389,405
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<SALES> 54,050,354
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<CGS> 43,673,941
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