UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A
Amendment No. 1
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the quarterly period ended July 31, 2000
[ ] TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from to .
---------------- --------------------
COMMISSION FILE NUMBER: 0-28307
NESCO INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Nevada 13-3709558
- --------------------------------- --------------------------------
(State of other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
22-09 Queens Plaza North
Long Island City, NY 11101
(Address of principal executive offices)
718/752-2400
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(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.
[X] Yes [ ] 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 August 31, 2000
Traditional small business issuer format: Yes [ ] No [X]
Page 1
NESCO INDUSTRIES, INC.
INDEX
PART I: FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets --
July 31, 2000 (unaudited) and April 30, 2000........ 3
Consolidated Statements of Operations--unaudited
for the three months ended July 31, 2000 and
1999................................................ 4
Consolidated Statements of Cash Flows--unaudited
for the three months ended July 31, 2000 and
1999................................................ 5
Consolidated Statement of Stockholders' Equity
(Deficit) unaudited for the three months ended
July 31, 2000 and the year ended April 30, 2000..... 6
Notes to Consolidated Financial Statements.......... 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................. 12
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8K............ 15
Signatures................................................................ 15
Page 2
NESCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
July 31 April 30
2000 2000
------- --------
(Unaudited)
Current Assets:
Cash and equivalents $ 56,414 $ 32,515
Accounts receivable 2,911,974 3,114,220
Unbilled costs and estimated earnings
in excess of billings on
uncompleted contracts 693,348 525,606
Prepaid expenses 266,050 205,353
Other current assets 169,911 169,606
----------- -----------
Total current assets 4,097,697 4,047,300
Fixed assets, net 276,193 233,497
Intangibles, net 488,194 502,778
Other assets 93,524 94,331
----------- -----------
$ 4,955,608 $ 4,877,906
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
July 31 April 30
2000 2000
------- --------
(Unaudited)
Current Liabilities:
Accounts payable and accrued expenses $ 3,098,742 $ 2,965,771
Notes payable, equipment - current portion 8,701
Loans payable, shareholders 659,610 979,000
Billing in excess of costs and estimated
earnings on uncompleted contracts 620,056 594,825
Deferred sublease income 46,800
----------- -----------
Total current liabilities 4,425,208 4,548,297
Deferred sublease Income 339,300
Notes Payable Equipment 1,577
----------- -----------
Total liabilities 4,764,508 4,549,874
----------- -----------
Stockholders' Equity (Deficit):
Common stock, $.001 par value
Authorized 25,000,000 shares
Issued and outstanding 6,614,963 6,615 6,615
Capital in excess of par value 883,185 883,185
Accumulated Deficit (698,700) (561,768)
----------- -----------
191,100 328,032
----------- -----------
$ 4,955,608 $ 4,877,906
----------- -----------
See accompanying Notes.
Page 3
NESCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDING JULY 31, 2000 AND 1999
July 31
------------------------------
2000 1999
---- ----
(Unaudited)
Earned Revenues $ 2,646,083 $ 3,319,958
Cost of earned revenues 2,221,551 2,677,865
----------- -----------
Gross profit 424,532 642,093
General and administrative expenses 553,498 610,225
----------- -----------
Operating income (loss) (128,966) 31,868
----------- -----------
Other Income (Expense):
Sublease income 11,700
Interest expense, net (19,666) (7,355)
----------- -----------
Income (loss) before income taxes (136,932) 24,513
Income tax expense 14,786
----------- -----------
Net Income (Loss) $ (136,932) $ 9,727
----------- -----------
Basic and diluted loss per share $ (0.02) -
----------- -----------
Weighted Average Common and dilutive shares
outstanding 6,614,963 6,333,992
----------- -----------
Page 4
NESCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDING JULY 31, 2000 AND 1999
July
--------------------------------------
2000 1999
---- ----
(Unaudited)
Cash Flows from Operating Activities:
Net Income (loss) $ (136,932) $ 9,727
Adjustments to reconcile net income (loss) to
net cash provided (used) by operating activities:
Depreciation and amortization 27,088 22,721
Changes in operating assets and liabilities:
Accounts receivable 202,246 (459,891)
Prepaid expenses (60,697) (25,208)
Other current assets (305)
Unbilled costs and estimated earnings in excess
of billings on uncompleted contracts (167,742) (433,858)
Other assets 807 450
Accounts payable and accrued expenses 132,971 429,224
Income taxes payable (18,220)
Billings in excess of costs and estimated
earnings on uncompleted contracts 25,231 190,145
Deferred Sublease Income 386,100
----------- -------------
Net cash provided (used) by operating activities 408,767 (284,910)
----------- -------------
Cash Flows from Investing Activities:
Purchase of fixed assets (55,200) (4,677)
Acquisition of Indoor Air Professionals (137,050)
----------- -------------
Net cash provided (used) by investing activities (55,200) (141,727)
----------- -------------
Cash Flows from Financing Activities:
Payment of equipment notes (10,278) (4,263)
Net borrowings (repayment) of shareholder loans (319,390) 350,000
----------- -------------
Net cash provided (used) by financing activities (329,668) 345,737
----------- -------------
Net increase (decrease) in cash and equivalents 23,899 (80,900)
Cash and equivalents, beginning of year 32,515 97,765
----------- -------------
Cash and equivalents, ending of quarter $ 56,414 $ 16,865
----------- -------------
See accompanying Notes.
Page 5
NESCO INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
(UNAUDITED)
For the three months ended July 31, 2000 and year ended April 30, 2000
Common Stock Capital In Accumu-
--------------------- Excess of lated
Shares Amount Par Value deficit Total
---------- -------- ---------- ------- -----
Balance at April 30, 2000 6,614,963 $ 6,615 $ 883,185 $ (561,768) $ 328,032
Net loss for the three months
ended July 31, 2000 (136,932) (136,932)
--------- ------- ---------- ---------- ---------
Balance at July 31, 2000 6,614,963 $ 6,615 $ 883,185 $ (698,700) $ 191,100
--------- ------- ---------- ---------- ---------
See accompanying Notes.
Page 6
NESCO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. 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-KSB for the fiscal year ended April 30, 2000).
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 July 31, 2000 and for the three
months ended July 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.
The accompanying financial statements have been prepared in
conformity with generally accepted accounting principles, which
contemplate continuation of the Company as a going concern.
However, as of July 31, 2000, the Company has an accumulated
deficit in stockholders' equity of $698,700, negative working
capital of $327,511 and has incurred a net loss of $136,932 for
the three months ended July 31, 2000.
In view of the matters described in the preceding paragraph,
recoverability of a major portion of the recorded asset amounts
shown in the accompanying balance sheet is dependent upon the
Company's ability to meet its financing requirements on a
continuing basis, to maintain its present financing, and to
succeed in its future operations. The financial statements do not
include any adjustments relating to the recoverability and
classification of liabilities that might be necessary should the
Company be unable to continue in existence.
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.
Page 7
NESCO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
B. New Accounting Pronouncements:
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133
establishes accounting and reporting standards for derivative
instruments, including derivative instruments embedded in other
contracts, and for hedging activities. Subsequently, the FASB
issued SFAS No. 137 which deferred the effective date of SFAS No.
133. SFAS No. 137 is effective for all fiscal quarters of fiscal
years beginning after June 15, 2000. The Company believes that
the adoption of SFAS No. 133 will not have a material impact on
the Company's financial statements.
C. Sublease income:
In June 2000, the Company received a payment of $397,800 from a
company in which a majority shareholder of the Company is a
stockholder in connection with the sublease of its New York City
offices from a tenant for future rent. The payment received will
be recognized as "other income" on a straight-line basis over the
life of the lease. The lease expires on October 31, 2008.
Page 8
NESCO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
D. Business Segment Information:
The asbestos removal segment provides asbestos abatement
including removal and disposal, enclosure and encapsulation. The
environmental services segment provides environmental
remediation, closure, and cost effectiveness services. Services
include Phase I, II, and III environmental assessments, including
underground storage tank removals, injection well closures, soil
and ground water treatment systems, contaminated soil removal and
emergency response. The indoor air quality services segment
provides indoor air quality testing, monitoring and remediation
services.
Indentifiable assets by segment are those assets that are used in
the operations of each segment as well as the accounts receivable
generated by each segment. Corporate assets consist primarily of
cash and cash equivalents, prepaid expenses, and corporate
furniture, fixtures and equipment. Capital expenditures are
comprised primarily of additions to data processing equipment,
furniture and fixtures, and leasehold improvements.
Page 9
NESCO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
D. Business Segment Information (continued)
The following table presents the Company's business segment
financial information:
Three months
Ended July 31,
2000 1999
---- ----
Revenues
Asbestos removal $1,951,444 $ 3,040,235
Environmental services 308,020 209,929
Indoor air quality services 386,619 69,794
------------- --------------
Total revenues $2,646,083 $3,319,958
------------- --------------
Operating income (loss) from segments
Asbestos removal $ (645) $ 150,722
Environmental services (57,963) (57,748)
Indoor air quality services (24,326) (44,453)
------------- --------------
(82,934) 48,521
Corporate expenses, net (46,032) (16,653)
Interest expense, net (19,666) (7,355)
Other income, net 11,700 -
Income taxes - (14,786)
------------- --------------
Net income (loss) $ (136,932) $ 9,727
============= =============
Depreciation and amortization
Asbestos removal $ 4,178 $ 17,481
Environmental services 304
Indoor air quality services 17,446 5,240
Corporate 5,160
------------- --------------
Total depreciation and amortization $ 27,088 $ 22,721
============= =============
Page 10
NESCO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
D. Business Segment Information (continued)
JULY 31
-------
2000 1999
---- ----
Capital expenditures
Asbestos removal $ 2,148 $ 4,677
Indoor air quality services 53,052
------------ ----------
Total capital expenditures $ 55,200 $ 4,677
============ ==========
Identifiable assets
Asbestos removal $3,420,845 $3,998,636
Environmental services 421,364 428,107
Indoor air quality services 892,715 736,207
------------ ----------
Total assets for reportable segments 4,734,924 5,162,950
Corporate 220,684 42,132
------------ ----------
Total assets $4,955,608 $5,205,082
============ ==========
E. Contingencies
National Abatement Corp. is a defendant in lawsuits involving personal injury
claims arising from job-site accidents. These plaintiffs' claims exceed the
National Abatement Corp.'s applicable insurance coverage; therefore, any
judgment or settlement in excess of insurance will require payment by the
National Abatement Corp. Claims in excess of insurance coverage total
approximately $51,000,000 as of the quarter ended July 31, 2000. In the
opinion of management, the amount of ultimate liability with respect to these
actions will not materially affect the financial position, results of operations
or net cash flows of the Company. However, there can be no assurance that the
settlement of claims will not exceed insurance coverage, which could have a
material impact of the financial position, results of operations and net cash
flows of the Company.
Page 11
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, and are urged to
carefully review and consider the various disclosures elsewhere in this Report
which discuss factors which affect our business, including the discussion under
the caption "Risk Factors" in our Registration Statement on Form 10-SB, filed
November 29, 1999, and amended January 31, 2000.
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 net sales:
- -------------------------------------------------------------------------------
Three months ended Three months ended
July 31, 2000 July 31, 1999
- -------------------------------------------------------------------------------
Net sales 100.0 100.0
Cost of sales 84.0 80.7
- -------------------------------------------------------------------------------
Gross profit 16.0 19.3
General and administra-
tive expense 19.9 17.7
Depreciation 1.0 .7
- -------------------------------------------------------------------------------
Operating income (loss) (4.9) .9
Other income (expense) (.3) .2
Income tax expense -- .4
- -------------------------------------------------------------------------------
Net income (loss) (5.2) .3
- -------------------------------------------------------------------------------
Page 12
Three Months July 31, 2000 and 1999
The following table sets forth our revenues by operating area in the periods
indicated:
- --------------------------------------------------------------------------------
Three Months Ended Three Months Ended
July 31, 2000 July 31, 1999
- --------------------------------------------------------------------------------
Asbestos abatement $1,951,444 $3,040,235
- --------------------------------------------------------------------------------
Other environmental services 308,020 209,929
- --------------------------------------------------------------------------------
Indoor air quality services 386,619 69,794
- --------------------------------------------------------------------------------
TOTAL $2,646,083 $3,319,958
- --------------------------------------------------------------------------------
Three months ended July 31, 2000 compared to the three months ended July 31,
1999:
During the three months ended July 31, 2000 our earned revenues declined 20% as
compared to the three months ended July 31, 2000 due to our lower revenues on
the asbestos abatement segment.
Our cost of earned revenues increased more on a percentage basis than the
increase in revenues. Our gross profit margins decreased to 16% compared to 19%
in the three months ended July 31, 1999. The decrease in our gross profit
margins was primarily the result of an over-all declining trend in profitability
from the asbestos abatement segment due to an increased competitive market.
Although we believe that competitive pressures will continue in the asbestos
abatement segment, we are attempting to be more selective in acquiring new
business in order to improve margins.
Our general and administrative expenses decreased in the first three months of
the current fiscal year to $553,498 as compared to $610,225 in the first three
months of the fiscal year ended July 31, 1999 due to our reductions in salaries,
rents, and travel expenses.
The decrease in gross profit was greater than our reductions in expenses, as a
result, we had a net loss of $136,932 in the three months ended July 31, 2000,
versus net income of $9,727 in the comparable 1999 period.
Page 13
Liquidity and Capital Resources
The following table sets forth our working capital position at the end of the
fiscal periods indicated:
- ---------------------------------------------------------------------------
Three Months Ended Fiscal Year Ended
July 31, 2000 April 30, 2000
- ---------------------------------------------------------------------------
Current assets $4,097,697 $4,047,300
- ---------------------------------------------------------------------------
Current liabilities 4,425,208 4,548,297
- ---------------------------------------------------------------------------
Working Capital deficiency $ 327,511 $ 500,997
- ---------------------------------------------------------------------------
At July 31, 2000 our working capital deficiency was ($327,511) as compared to
the April 30, 2000 deficiency of ($500,997). Working capital and cash flows
improved with the collection of $397,800 from the sublease of our NYC offices
which were used to repay $319,390 of outstanding short-term shareholder loans.
Working capital was negatively impacted by our net loss during the quarter ended
July 31, 2000 of $136,932 and the purchase of fixed assets of $55,203.
As of July 31, 2000 the company total stockholders' equity decrease from
$328,032 to $191,100, has a negative working capital of $327,511 and has
incurred a net loss of $136,932 for the three months ended July 31, 2000.
In view of the matters described in the preceding paragraph, recoverability of a
major portion of the recorded asset amounts shown in the accompanying balance
sheet is dependent upon the Company's ability to meet its financing requirements
on a continuing basis, to maintain its present financing, and to succeed in its
future operations. The financial statements do not include any adjustments
relating to the recoverability and classification of liabilities that might be
necessary should the Company be unable to continue in existence.
Management has reduced staff, space and overhead expenditures, which it believes
is sufficient to provide the Company with the ability to continue in existence.
Page 14
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Exhibit Title
------- -------------
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: January 7, 2002 By: /s/ Lawrence S. Polan
-------------------------------
Lawrence S. Polan, Chief Financial Officer
Page 15