UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the quarterly period ended January 31, 2000
[ ] TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from to .
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COMMISSION FILE NUMBER: 0-28307
NESCO INDUSTRIES, INC.
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(Exact name of registrant as specified in its charter)
Nevada 13-3709558
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(State of other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
12-12 43rd Avenue
Long Island City, NY 11101
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(Address of principal executive offices)
212/829-0880
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(Registrant's telephone number, including area code)
570 Lexington Avenue, Third Floor, New York, NY 10022
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(Former name, former address and former fiscal year
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
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 (Registrant has not been a reporting company for 90 days)
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of outstanding shares of the registrant's Common Stock, par value
$.01, was 6,614,963 as of January 31, 2000
Traditional small business issuer format: Yes [ ] No [X]
NESCO INDUSTRIES, INC.
INDEX
PART I: FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets --
January 31, 2000 (unaudited) and April 30, 1999................... 3
Consolidated Statements of Operations--unaudited
for the three months ended January 31, 2000 and
1998, and the nine months ended January 31, 2000..................4, 5
Consolidated Statements of Cash Flows--unaudited
for the six months ended January 31, 2000 and 1999................ 6
Notes to Consolidated Financial Statements........................ 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................... 9
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8K......................... 13
Signatures................................................................. 13
2
NESCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
A S S E T S
January 31, April 30,
2000 1999
----------- ----------
(Unaudited)
Current Assets:
Cash and equivalents $ 15,509 $ 97,765
Accounts receivable 3,667,359 2,822,824
Investment in joint venture 3,420 3,420
Unbilled costs and estimated earnings in excess
of billings on uncompleted contracts 1,102,894 211,961
Prepaid taxes and expenses 230 40,796
Deferred income taxes 94,600 94,600
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Total current assets 4,884,012 3,271,366
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Fixed assets, net 383,684 367,479
Intangibles, net 515,973
Other assets 114,244 109,714
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$5,897,913 $3,748,559
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LIABILITIES AND STOCKHOLDERS' EQUITY
2000 1999
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Current Liabilities:
Accounts payable and accrued expenses $2,909,790 $2,099,956
Notes payable, equipment 13,341 15,221
Loans payable, shareholders 988,441 188,441
Billing in excess of costs and estimated
earnings on uncompleted contracts 711,992 474,210
Income taxes 61,567 166,873
Taxes, other than income 42,765 18,565
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Total current liabilities 4,727,896 2,963,266
Notes payable, equipment 10,912
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Total liabilities 4,727,896 2,974,178
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Stockholders' Equity:
Common stock, $.001 par value
Authorized 25,000,000 shares
Issued and outstanding 6,614,963 shares at January 31, 2000
and 6,250,000 shares at April 30, 1999 and January 31, 1999 6,615 6,250
Capital in excess of par value 883,185 383,550
Retained earnings 280,217 384,581
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1,170,017 774,381
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$5,897,913 $3,748,559
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The accompanying Notes are an integral part of these financial statements.
3
NESCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDING JANUARY 31, 2000 AND 1999
January 31,
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2000 1999
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(Unaudited)
Earned Revenues $ 3,547,858 $ 3,067,018
Cost of earned revenues 2,862,276 2,421,264
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Gross profit 685,582 645,754
General and administrative expenses 657,297 615,159
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Operating income 28,285 30,595
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Other Income (Expense):
Gain on disposal of fixed asset 736
Interest expense, net (14,940) (2,837)
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Income before income taxes 13,345 28,494
Income tax expense 20,185 24,077
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Net Income (Loss) $ (6,840) $ 4,417
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Basic and diluted earnings (loss) per share -- --
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Common and dilutive shares 6,614,963 6,250,000
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The accompanying Notes are an integral part of these financial statements.
4
NESCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDING JANUARY 31, 2000 AND 1999
January 31,
-----------------------------
2000 1999
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(Unaudited)
Earned Revenues $ 9,815,047 $ 9,075,815
Cost of earned revenues 8,007,429 7,340,960
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Gross profit 1,807,618 1,734,855
General and administrative expenses 1,894,479 1,661,154
----------- -----------
Operating income (loss) (86,861) 73,701
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Other Income (Expense):
Income/(Loss) from Joint Venture (12,381)
Gain on disposal of fixed asset 736
Interest expense, net (28,821) (9,635)
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Income (loss) before income taxes (115,682) 52,421
Income tax expense (recovery) (11,317) 68,167
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Net Loss $ (104,365) $ (15,746)
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Basic and diluted earnings (loss) per share (0.02) --
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Common and dilutive shares 6,540,288 6,250,000
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The accompanying Notes are an integral part of these financial statements.
5
NESCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDING JANUARY 31, 2000 AND 1999
January 31,
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2000 1999
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(Unaudited)
Cash Flows from Operating Activities:
Net loss $ (104,365) $ (15,746)
Adjustments to reconcile net income (loss) to
net cash provided (used) by operating activities:
Depreciation and amortization 92,254 38,956
Gain on disposal of fixed asset (736)
Deferred income taxes (277,000)
Changes in operating assets and liabilities:
Accounts receivable (844,535) (1,433,225)
Prepaid expenses and taxes 40,566 40,556
Unbilled costs and estimated earnings in excess
of billings on uncompleted contracts (890,933) (156,612)
Other assets (4,530) (85,004)
Accounts payable and accrued expenses 809,834 1,262,607
Income taxes (105,306) 188,863
Taxes other than income 24,200 2,100
Billings in excess of costs and estimated
earnings on uncompleted contracts 237,782 248,357
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Net cash provided (used) by operating activities (745,029) (186,884)
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Cash Flows from Investing Activities:
Purchase of fixed assets (36,575) (322,444)
Acquisition and intangibles (87,860)
Advances to joint venture, net 12,381
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Net cash provided (used) by investing activities (124,435) (310,063)
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Cash Flows from Financing Activities:
Payment of equipment notes (12,792) (10,181)
Borrowings from shareholder loans 800,000 9,000
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Net cash provided (used) by financing activities 787,208 (1,181)
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Net increase (decrease) in cash and equivalents (82,256) (498,128)
Cash and equivalents, beginning 97,765 631,853
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Cash and equivalents, ending $ 15,509 $ 133,725
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The accompanying Notes are an integral part of these financial statements.
6
NESCO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization, Operations and Significant Accounting Policies)
General:
The consolidated interim financial statements, and accompanying Notes,
included herein have been prepared by NESCO Industries, Inc., (the Company)
pursuant to the rules and regulations of the Securities and Exchange
Commission ("SEC") and reflect all adjustments which are of a normal
recurring nature and which, in the opinion of management, are necessary for a
fair statement of the results for interim periods. Certain information and
footnote disclosures have been condensed or omitted pursuant to such rules
and regulations. The results of the interim period are not necessarily
indicative of the results for the full year. These consolidated financial
statements should be read in conjunction with the consolidated financial
statements and the notes thereto included in the Company's latest annual
report to stockholders (Form 10-SB for the fiscal year ended April 30, 1999).
Basis of Presentation and Principles of Consolidation:
The accompanying financial statements include the accounts of the Company and
its wholly-owned subsidiaries on a consolidated basis. All significant
intercompany accounts and transactions have been eliminated.
The financial statements as of January 31, 2000 and 1999 and for the nine
months ended January 31, 2000 and 1999 and the three months ended January 31,
2000 and 1999 are unaudited; however, in the opinion of management such
statements include all adjustments, consisting solely of normal recurring
adjustments, necessary for a fair presentation of the results for the periods
presented.
Use of Estimates:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect reported amounts of assets and liabilities, disclosure of
contingent assets and liabilities at the date of the financial statements,
and revenues and expenses during the reporting period. In these financial
statements; assets, liabilities, and earnings from contracts involve
extensive reliance on management's estimates. Actual results could differ
from those estimates.
7
NESCO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Revenue and Cost Recognition:
Earned revenues are recorded using the percentage of completion method. Under
this method, earned revenues are determined by reference to Company's
engineering estimates, contract expenditures incurred, and work performed.
The calculation of earned revenue and the effect on several asset and
liability amounts based on the common industry standard revenue determination
formula of actual costs-to-date compared to total estimated job costs. Due to
uncertainties inherent in the estimation process, and uncertainties relating
to future performance as the contracts are completed, it is at least
reasonably possible that estimated job costs, in total or on individual
contracts, will be revised. When a loss is anticipated, the entire amount of
the estimated loss is provided for in the period.
The asset, "unbilled 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.
Cash and Equivalents:
The Company classifies highly liquid debt instruments, purchased with a
maturity of six months or less, as cash equivalents. The carrying amount
approximates fair value due to the short maturity of the investments.
8
Item 2. Management's Discussion And Analysis Of Financial
Condition And Results Of Operations
When used in this discussion, the words "expect(s)", believe(s)", "will",
"may", "anticipate(s)" and similar expressions are intended to identify
forward-looking statements. Such statements are subject to certain risks and
uncertainties, which could cause actual results to differ materially from the
possible results described in such statements. Readers are cautioned not to
place undue reliance on these forward-looking statements.
You should read the following discussion and analysis in conjunction with
the financial statements and related notes that comprise Item I of this Report.
GENERAL
NESCO Industries, Inc. was incorporated in March 1993 as Coronado
Communications Corp. In March 1998, NESCO, which was then inactive, acquired all
of the outstanding capital stock of National Abatement Corp. ("NAC"), a
corporation engaged primarily in asbestos abatement services, and NAC
Environmental Services Corp. ("NES"), a provider of a variety of other
environmental remediation services. As a result of this acquisition, which was
the result of arms length negotiation between previously non-affiliated parties,
the former shareholders of NAC acquired 5,000,000 shares or 80% of the total
outstanding immediately following the acquisition. For accounting purposes, NAC
was treated as the acquiring corporation. Thus, the historical financial
statements of NAC prior to this acquisition date are deemed to be the historical
financial statements of the Company.
RESULTS OF OPERATIONS
The following table presents selected consolidated financial data for the
periods indicated expressed as a percentage of earned revenues:
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YEAR ENDED THREE MONTHS ENDED NINE MONTHS ENDED
APRIL 30, JANUARY 31, JANUARY 31,
1999 2000 2000
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Earned revenues ......................... 100.00 100.00 100.00
Cost of earned revenues ................. 79.7 80.7 81.6
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Gross profit.......................... 20.3 19.3 18.4
General and administrative
expense (excluding depreciation).... 20.8 17.5 18.4
Depreciation.......................... 0.5 1.0 0.9
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Operating income (loss)............... (1.0) 0.8 (.9)
Other income (expense)................ (.2) (.4) (.3)
Taxes................................. .2 (.6) (.1)
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Net loss ................................ (1.0) (.2) (1.1)
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9
THREE MONTHS AND NINE MONTHS ENDED JANUARY 31, 2000 AND 1999
The following table sets forth our revenues by operating area in the periods
indicated:
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Three Months Ended Nine Months Ended
January 31, 2000 January 31, 2000
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Asbestos abatement $2,515,319 $7,804,229
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Indoor air quality services 454,324 833,899
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Other environmental services 578,215 1,176,919
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TOTAL $3,547,858 $9,815,047
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Quarter ended January 31, 2000 and 1999:
In the three months ended January 31, 2000, our cost of earned revenues
increased slightly more on a percentage basis than the increase in revenues. As
a result, our gross profit margin decreased to 19.3% in the three months ended
January 31, 2000, compared to 21.1% in the three months ended January 31, 1999.
Our general and administrative expenses also rose in the first three months of
the current fiscal year revenues rose faster than and gross profit. As a result,
we had a net loss of $6,840 in the three months ended January 31, 2000, versus
net income of $4,417 in the comparable 1999 period. The increase in general and
administrative expense was due primarily to increases in occupancy costs,
depreciation and amortization and payroll associated with staffing of our indoor
air quality operations.
Nine Months ended January 31, 2000 and 1999:
In the nine months ended January 31, 2000, our cost of earned revenues increased
slightly more on a percentage basis than the increase in revenues. As a result,
our gross profit margin decreased to 18.4% in the nine months ended January 31,
2000, compared to 19.1% in the nine months ended January 31, 1999.
Our general and administrative expenses also rose in the first nine months of
the current fiscal year revenues rose faster than and gross profit. As a result,
we had a net loss of $104,365 in the nine months ended January 31, 2000, versus
a net loss of $15,746 in the comparable 1999 period. The increase in general and
administrative expense was due primarily to increases in occupancy costs,
depreciation and amortization and payroll associated with staffing of our Indoor
Air Quality operations.
10
LIQUIDITY AND CAPITAL RESOURCES
The following table sets forth our working capital position at the end of the
fiscal periods indicated:
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Nine Months Ended Fiscal Year Ended
January 31, 2000 April 30, 1999
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Current assets 4,884,012 $3,271,366
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Current liabilities 4,727,896 $2,963,266
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Working Capital 156,116 $ 308,100
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Our cash and cash equivalents declined from $97,765 at April 30, 1999 to $15,509
at January 31, 2000, notwithstanding our receipt of net shareholder loans
totaling $800,000 in the nine months ended January 31, 2000. The decline in cash
and cash equivalents was primarily as a result of operating activities
($745,029) and the purchase of fixed assets ($124,435).
Our accounts receivable increased significantly in the year ended April 30,
1999, to $2,822,824 from $2,184,516 at April 30, 1998. This increase was the
result of a greater percentage of projects in which we performed as a
subcontractor rather than contracting directly with the owner. Accounts
receivable on projects in which we bill a general contractor rather than the
owner of the project tend to be outstanding for a longer period. In addition, we
experienced a general slowdown in accounts receivable collection in the second
half of the year attributable in part to the relocation of our administrative
and executive offices in the third quarter, and the temporary loss of key
administrative personnel in the third and fourth quarter. Our receivables
turnover ratio for the year ended April 30, 1999 (i.e., revenues divided by
average accounts receivable in the period) was 3.86.
Our accounts receivable at January 31, 2000 were $3,667,359, and our receivables
turnover for the first nine months of the current year was 4.02.
As stated above to provide working capital in the current fiscal year, we have
borrowed a total of $800,000, net of repayments, during the current fiscal year
from Petrocelli Industries, Inc., a company controlled by Santo Petrocelli, Sr.,
our Chairman, President and Chief Executive Officer. The total amount due to
Petrocelli Industries at January 31, 2000 was $988,441. The loan from Petrocelli
Industries bears interest at 10% per annum, payable monthly. Terms for the
repayment of the loan principal have not been established, and we consider this
loan to be repayable on demand.
In the quarter ended July 31, 1999, we acquired certain assets now used in our
Indoor Air Quality from an unrelated third party for $137,860 and the issuance
of 364,963 shares of common stock. The cash used to acquire these assets was
provided by the loan from Petrocelli Industries that is described in the
preceding paragraph.
With the additional working capital provided by the borrowings from Petrocelli
Industries, we expect to be able to finance our operating cash needs with cash
generated by operations. We
11
have investigated the possibility of raising additional equity capital, however,
to provide increased liquidity, to fund increased business activity and to be in
a position to take advantage of acquisition opportunities should they arise. At
the present time, however, we have no commitments for any additional financing,
and we are not assured of success in raising any additional capital in our
planned public offering.
YEAR 2000
We have completed our assessment of year 2000 issues and believes that the
consequences of such issues has not had and in the future will not have a
material effect on our business, results of operations or financial condition,
without taking into account any efforts by the Company to avoid such
consequences.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in either assets or
liabilities. As amended in June 1999 by SFAS No. 137 this statement is effective
for all fiscal years beginning after June 15, 2000, and is not to be applied
retroactively to financial statements for prior periods. The impact of the
adoption of the standard has not been determined.
12
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Exhibit Title
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27 Financial Data Schedule
(b) Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned.
NESCO INDUSTRIES, INC.
DATE: March 15, 2000 By: /s/ Lawrence S. Polan
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Lawrence S. Polan,
Chief Financial Officer
13