UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A
Amendment No. 3
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the quarterly period ended October 31, 2001.
[ ] 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, New York
----------------------------------------------------
(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
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of outstanding shares of the registrant's Common Stock, par value
$.01, was 6,694,963 as of October 31, 2001.
Traditional small business issuer format: Yes [ ] No [X]
Page 1 of 18
Explanatory Note:
This Amendment No. 3 to Form 10-QSB for the quarterly period ended October 31,
2001 corrects an error in Part I: Consolidated Balance Sheet as of October 31,
2001, Consolidated Statements of Operations for the three and six months ended
October 31, 2001, Consolidated Statement of Cash Flows and Note A-Basis of
Presentation and Principles of Consolidation and Note C-Business Segment
Information, where revenue was overstated and net loss was understated by
$162,000 for the three and six months ended October 31, 2001, due to an
overstatement of unbilled costs and estimated earnings in excess of billings and
uncompleted contracts. In addition, Management's Discussion and Analysis of
Financial Condition and Results of Operations in Part I for the three and six
months ended October 31, 2001 and the Liquidity and Capital Resources section
have been revised to reflect these changes. This Amendment also modifies the
disclosures in Note F-Contingencies and the Liquidity and Capital Resources
section, to clarify that National Abatement Corp., a wholly-owned subsidiary of
the Company, is a co-defendant with one or more additional defendants in
lawsuits involving personal injury claims arising from job-site accidents.
Except as set forth above, no other substantive changes were made to the Form
10-QSB for the quarterly period ended October 31, 2001.
Page 2 of 18
NESCO INDUSTRIES, INC.
INDEX
PART I: FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets --
October 31, 2001 (unaudited) and April 30, 2001................ 4
Consolidated Statements of Operations--(unaudited)
for the three months and six ended October 31, 2001 and 2000... 5,6
Consolidated Statements of Cash Flows (unaudited)
for six months ended October 31, 2001 and 2000................. 7
Notes to Consolidated Financial Statements (unaudited)......... 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................ 13
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8K................................ 18
Signatures................................................................ 18
Page 3 of 18
NESCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
A S S E T S
October 31 April 30
2001 2001
----------- -----------
(Unaudited)
(Restated)
Current Assets:
Cash and equivalents $ 51,962 $ 68,169
Accounts receivable 2,733,432 2,497,904
Unbilled costs and estimated earnings in excess
of billings on uncompleted contracts 375,978 318,247
Prepaid taxes and expenses 133,082 21,427
Other current assets 125,456 126,329
----------- -----------
Total current assets 3,419,910 3,032,076
Fixed assets, net 158,441 187,504
Intangibles, net 434,006 455,224
Other assets 91,264 91,264
----------- -----------
$ 4,103,621 $3,766,068
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
October 31 April 30
2001 2001
----------- -----------
(Unaudited)
(Restated)
Current Liabilities:
Accounts payable and accrued expenses $ 3,019,850 $ 2,437,905
Notes payable, equipment - current portion 1,577
Loans payable, shareholders 673,490 648,490
Interest payable - shareholder 200,287 190,052
Billing in excess of costs and estimated
earnings on uncompleted contracts 393,197 422,294
----------- -----------
Total current liabilities 4,286,824 3,700,318
Deferred Rental Income 280,800 304,200
----------- -----------
Total liabilities 4,567,624 4,004,518
----------- -----------
Stockholders' Equity(Deficit):
Common stock, $.001 par value
Authorized 25,000,000 shares
Issued and outstanding 6,694,963 shares 6,695 6,695
Capital in excess of par value 983,105 983,105
Accumulated Deficit (1,453,803) (1,228,250)
----------- -----------
(464,003) (238,450)
----------- -----------
$ 4,103,621 $ 3,766,068
----------- -----------
See Accompanying Notes.
Page 4 of 18
NESCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDING OCTOBER 31, 2001 AND 2000
October 31
-------------------------
2001 2000
---------- ----------
(Unaudited)
(Restated)
Earned Revenues $2,149,751 $2,610,505
Cost of earned revenues 1,865,578 2,146,546
---------- ----------
Gross profit 284,173 463,959
General and administrative expenses 459,814 536,288
---------- ----------
Operating loss (175,641) (72,329)
---------- ----------
Other Income (Expense):
Sub-lease income 11,700 11,700
Interest expense, net (13,800) (16,778)
---------- ----------
Loss before income taxes (177,741) (77,407)
Income tax benefit (1,105)
---------- ----------
Net Loss $ (176,636) $ (77,407)
---------- ----------
Basic and diluted loss per share (0.03) (0.01)
---------- ----------
Weighted average common shares outstanding- basic
and diluted 6,694,963 6,614,963
---------- ----------
See Accompanying Notes.
Page 5 of 18
NESCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDING OCTOBER 31, 2001 AND 2000
October 31
-------------------------
2001 2000
---------- ----------
(Unaudited)
(Restated)
Earned Revenues $4,172,584 $5,256,588
Cost of earned revenues 3,525,751 4,368,097
---------- ----------
Gross profit 646,833 888,491
General and administrative expenses 867,424 1,089,786
---------- ----------
Operating loss (220,591) (201,295)
---------- ----------
Other Income (Expense):
Sub-lease income 23,400 23,400
Interest expense, net (30,108) (36,444)
---------- ----------
Loss before income taxes (227,299) (214,339)
Income tax benefit (1,746)
---------- ----------
Net Loss $ (225,553) $ (214,339)
---------- ----------
Basic and diluted loss per share (0.03) (0.03)
---------- ----------
Weighted average common shares outstanding-basic
and diluted 6,694,963 6,614,963
---------- ----------
See Accompanying Notes.
Page 6 of 18
NESCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDING OCTOBER 31, 2001 AND 2000
October 31,
-----------------------
2001 2000
---------- ---------
(Unaudited)
(Restated)
Cash Flows from Operating Activities:
Net loss $ (225,553) $(214,339)
Adjustments to reconcile net loss to
net cash provided (used) by operating activities:
Amortization of deferred sub-lease income (23,400) (23,400)
Depreciation and amortization 50,281 57,603
Provision for bad debts 8,613 9,614
Changes in operating assets and liabilities:
Accounts receivable (244,141) (199,246)
Prepaid expenses and taxes (111,655) (122,204)
Other current assets 8,170 46,813
Unbilled costs and estimated earnings in excess
of billings on uncompleted contracts (65,028) 135,444
Other assets 1,841
Accounts payable and accrued expenses 592,180 (35,018)
and interest payable
Billings in excess of costs and estimated
earnings on uncompleted contracts (29,097) 308,803
--------- ---------
Net cash used by operating activities (39,630) (34,089)
--------- ---------
Cash Flows from Investing Activities:
Purchase of fixed assets (55,200)
Proceeds from sub-lease 397,800
--------- ---------
Net cash provided by investing activities - 342,600
--------- ---------
Cash Flows from Financing Activities:
Payment of equipment notes (1,577) (10,278)
Net proceeds (repayment) of shareholder loans 25,000 (314,660)
--------- ---------
Net cash provided (used) by financing activities 23,423 (324,938)
--------- ---------
Net decrease in cash and equivalents (16,207) (16,427)
Cash and equivalents, beginning of year 68,169 32,515
--------- ---------
Cash and equivalents, end of period $ 51,962 $ 16,088
--------- ---------
See Accompanying Notes.
Page 7 of 18
NESCO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
A. Organization, Operations and Significant Accounting Policies
General:
The unaudited 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 filed with the Securities and Exchange
Commission (Form 10-KSB for the fiscal year ended April 30, 2001), as
amended.
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 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 October
31, 2001, the Company has an accumulated deficit in stockholders'
equity of $464,003, negative working capital of $866,914 and has
incurred a net loss of $225,553 for six months ended October 31, 2001.
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 and to
succeed in its future operations. The financial statements do not
include any adjustments relating to the recoverability and
classification of assets and liabilities that might be necessary should
the Company be unable to continue its 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 is 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.
Page 8 of 18
NESCO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
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.
B. Sublease income:
In June 2000, the Company received a payment of $397,800 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.
C. Business Segment Information:
The asbestos removal segment provides asbestos abatement including
removal and disposal, enclosure and encapsulation. The environmental
services segment provides environmental remediation 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 including mold and microbiological
remediation services.
Identifiable 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 of 18
NESCO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
C. Business Segment Information (continued)
The following table presents the Company's business segment financial
information:
Three months Six months
Ended October 31, Ended October 31,
2001 2000 2001 2000
---------- ---------- ---------- ----------
(Restated) (Restated)
Revenues
Asbestos removal $1,439,738 $2,177,000 $3,012,662 $4,128,444
Environmental services 7,384 27,116 22,199 335,136
Indoor air quality services 702,629 406,389 1,137,723 793,008
---------- ---------- ---------- -----------
Total revenues $2,149,751 $2,610,505 $4,172,584 $5,256,588
---------- ---------- ---------- ----------
Operating income (loss) from segments
Asbestos removal $ (22,360) $ 108,825 $ 77,795 $ 108,180
Environmental services (29,639) (69,559) (38,575) (127,522)
Indoor air quality services (24,327) (45,956) (105,075) (70,282)
---------- ---------- ---------- -----------
(76,326) (6,690) (65,855) (89,624)
Corporate expenses, net (99,315) (65,639) (154,736) (111,671)
Interest expense, net (13,800) (16,778) (30,108) (36,444)
Other income, net 11,700 11,700 23,400 23,400
Income tax benefit 1,105 1,746
---------- ---------- ---------- -----------
Net loss $ (176,636) $ (77,407) $ (225,553) $ (214,339)
========== ========== ========== ==========
Depreciation and amortization
Asbestos removal $ 2,601 $ 4,173 $ 5,203 $ 8,351
Environmental services 304 304 608 608
Indoor air quality services 18,624 21,257 41,414 38,703
Corporate 1,529 4,781 3,056 9,941
---------- ---------- ---------- ------------
Total depreciation and amortization $ 23,058 $ 30,515 $ 50,281 $ 57,603
========== ========== ========== ==========
Page 10 of 18
NESCO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
C. Business Segment Information (continued)
October, 31
-----------
2001 2000
---------- ----------
(Restated)
Capital expenditures
Asbestos removal $ 0 $ 2,148
Indoor air quality services 0 53,052
---------- ----------
Total capital expenditures $ 0 $ 55,200
========== ==========
Identifiable assets
Asbestos removal $2,382,709 $3,661,619
Environmental services 31,349 102,934
Indoor air quality services 1,638,877 1,007,067
---------- ----------
Total assets for reportable segments 4,052,935 4,771,620
Corporate 50,686 215,195
---------- ----------
Total assets $4,103,621 $4,986,815
========== ==========
D. Loss per share:
Basic loss per share excludes dilution and is computed by dividing loss
available to common shareholders by the weighted-average common shares
outstanding for the period. As a result, the diluted net loss per share
was the same as basic net loss per share for the three and six months
ended October 31, 2001 and October 31, 2000, since the effect of any
potentially dilutive securities would be anti-dilutive. Options which
were excluded from the calculation of diluted loss per share totaled
445,000 with an exercise price of $1.50 for the three and six months
ended October 31, 2001 and 2000.
E. New accounting pronouncements:
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 141 ("SFAS No. 141"),
"Business Combinations." SFAS No. 141 requires the purchase method of
accounting for business combinations initiated after June 30, 2001 and
eliminates the pooling-of-interests method. The Company does not
believe that the adoption of SFAS No. 141 will have a significant
impact on its financial statements.
Page 11 of 18
NESCO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
E. New accounting pronouncements (continued)
In July 2001, the FASB issued Statement of Financial Accounting
Standards No. 142 ("SFAS No. 142"), "Goodwill and Other Intangible
Assets," which is effective for all fiscal years beginning after
December 31, 2001; however, early adoption is permitted. SFAS No. 142
requires, among other things, the discontinuance of goodwill
amortization. In addition, the standard includes provisions for the
reclassification of certain existing recognized intangibles as
goodwill, reassessment of the useful lives of existing recognized
intangibles, reclassification of certain intangibles previously
reported in goodwill and the identification of reporting units for
purposes of assessing potential future impairment of goodwill. SFAS No.
142 also requires the Company to complete a transitional goodwill
impairment test six months from the date of adoption. The Company is
required to adopt SFAS No. 142 in fiscal 2003. The Company is currently
assessing but has not yet determined the impact of SFAS No. 142 on its
financial position and results of operations.
In August 2001, the FASB issued Statement of Financial Accounting
Standards Board No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets",("SFAS 144"). This statement is effective for fiscal
years beginning after December 15, 2001. This statement supercedes SFAS
121, while retaining many of the requirements of such statement. The
Company is currently evaluating the impact this may have but has not
yet determined the impact of SFAS No. 144 on its financial position and
results of operations.
F. Contingencies
National Abatement Corp. ("NAC"), a wholly-owned subsidiary of the
Company, is a co-defendant with one or more additional defendants in
lawsuits involving personal injury claims arising from job-site
accidents. These plaintiff's claims exceed NAC's applicable insurance
coverages; therefore, any judgment or settlement in excess of insurance
will require payment by NAC. Claims in excess of insurance coverage
total approximately $44,000,000 as of October 31, 2001. In the opinion
of management, the amount of ultimate liability of NAC with respect to
these actions will not materially affect the financial position,
results of operations and cash flows of the Company. However, there can
be no assurance that the settlement of the claims will not exceed NAC's
insurance coverage, which could have a material effect on the results
of financial position, results of operations and cash flows of the
Company.
G. Restatement
The Consolidated Financial Statements for the quarterly period ended
October 31, 2001 have been restated to correct an error in the
Consolidated Balance Sheet as of October 31, 2001, Consolidated
Statements of Operations for the three and six months ended October 31,
2001, Consolidated Statement of Cash Flows for the six months ended
October 31, 2001 and Note A - Basis of Presentation and Principles of
Consolidation and Note C - Business Segment Information, where revenue
was overstated and the net loss was understated by $162,000 for the
three and six months ended October 31, 2001, due to an overstatement of
unbilled costs and estimated earnings of billings and uncompleted
contracts.
Page 12 of 18
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 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, May 11, 2001 and of even date herewith.
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 and NES acquired 5,000,000 shares or 80% of the total outstanding
immediately following the acquisition. The former shareholders of NAC were the
same as the former shareholders of NES. 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.
In June 1999, we organized NAC/Indoor Air Professionals, Inc. ("NAC/IAP") to
carry on and further develop the indoor air quality testing and remediation
activities previously conducted by NES.
Results of Operations
Revenues are reported on the percentage of completion method of accounting using
job costs incurred to date to determine percentages of construction completion.
As the level of work installed fluctuates, job costs and earned revenues
fluctuate accordingly.
Three Months ended October 31, 2001 and 2000
The following table presents selected consolidated financial data for
the periods indicated expressed as a percentage of net sales:
Page 13 of 18
- ---------------------------------------------------------------------------------------------------------------
Three months ended Six months ended
October 31, October 31,
2001 2000 2001 2000
- ---------------------------------------------------------------------------------------------------------------
Earned revenues 100.0 100.0 100.0 100.0
Cost of earned revenues 86.8 82.2 84.5 83.1
- ---------------------------------------------------------------------------------------------------------------
Gross profit......................... 13.2 17.8 15.5 16.9
General and administrative expense
(excluding depreciation) 20.3 19.6 19.6 19.7
Depreciation....................... 1.1 1.0 1.2 1.0
- ---------------------------------------------------------------------------------------------------------------
Operating loss................... (8.2) (2.8) (5.3) (3.8)
Other expense (.1) (.1) (.3)
- ---------------------------------------------------------------------------------------------------------------
Net loss (8.2) (2.9) (5.4) (4.1)
- ---------------------------------------------------------------------------------------------------------------
The following table sets forth our revenues by operating area in the periods
indicated:
- ---------------------------------------------------------------------------------------------------------------
Three Months Ended Three Months Ended Six Months Ended Six Months Ended
October 31, 2001 October 31, 2000 October 31, 2001 October 31, 2000
- ---------------------------------------------------------------------------------------------------------------
Asbestos abatement $1,439,738 $2,177,000 $3,012,662 $ 4,128,444
- ---------------------------------------------------------------------------------------------------------------
Indoor air quality services 702,629 406,389 1,137,723 793,008
- ---------------------------------------------------------------------------------------------------------------
Other environment-al 7,384 27,116 22,199 335,136
services
- ---------------------------------------------------------------------------------------------------------------
TOTAL $2,149,751 $ 2,610,505 $4,172,584 $ 5,256,588
- ---------------------------------------------------------------------------------------------------------------
Three months ended October 31, 2001 compared to the three months ended October
31, 2000:
In the fiscal quarter ended October 31, 2001, our revenues decreased 18% and
cost of earned revenues decreased 13%. Our decrease in revenues and cost of
revenues were due to lower levels of asbestos abatement rendered by the Company
as a result of on-going competitive market conditions, which were partially
offset by an increase in our indoor air quality services as we continue to
expand this segment of our business.
For the three months ended October 31, 2001 our gross profit margin was 13.2% as
compared to 17.8% for the prior comparable period. Our gross profit margin
decreased primarily because our asbestos abatement operations experienced an
average lower gross margin from its mix of jobs in progress during the period.
One significant job in progress accounted for approximately 29.2% of the
Company's cost of earned revenues, and its gross profit margin of 11.1% was less
than the Company's margin of 13.2% in the quarter ended October 31, 2001. We
have not experienced significant losses on jobs in the current period.
Our gross profit margin decreased in part because our indoor air quality
operations experienced an average lower gross profit margin from its mix of jobs
in progress during the period when compared to the three months ended October
31, 2000. The average gross profit margins of the Company's jobs in progress was
lower at October 31, 2001 than at October 31, 2000 due to the mix of jobs in
progress for each period. The Company has not experienced losses from jobs
during the current period, and the Company did not experience significant
revisions in cost estimates from prior periods.
We have become more selective in bidding on jobs which we believe will improve
job margins. We also continue to focus on expanding our customer base and
revenues from our indoor air quality services segment.
Page 14 of 18
Our general and administrative expenses decreased 14% primarily due to
reductions in salaries and related expenses, and management fees.
The decrease in general and administrative expenses was less than the decrease
in gross profit, as a result our net loss of $176,636 in the three months ended
October 31, 2001 was greater than our net loss of $77,407 in the comparable 2000
quarter.
Six months ended October 31, 2001 compared to the six months ended October 31,
2000.
During the six months ended October 31, 2001, our revenues decreased 21% and
cost of earned revenues decreased 19%. Our decrease in revenues and costs were
due to lower levels of both asbestos abatement and other environmental services
rendered by the Company as a result of on-going competitive market conditions.
For the six months ended October 31, 2001 our gross profit margin was 15.5% as
compared to 16.9% for the prior comparable period. Our gross profit margin
decreased primarily because our asbestos abatement operations experienced an
average lower gross margin from its mix of jobs in progress during the period.
One significant job in progress accounted for 31.5% of the Company's cost of
earned revenues, and its gross profit margin of 11% was less than the Company's
margin of 15.5% in the six months ended October 31, 2001. We have not
experienced significant losses on jobs in the current period.
Our gross profit margin decreased in part because our indoor air quality
operations experienced an average lower gross profit margin from its mix of jobs
in progress during the period when compared to the six months ended October 31,
2000. The average gross profit margins of the Company's jobs in progress was
lower at October 31, 2001 than at October 31, 2000 due to the mix of jobs in
progress for each period. The Company has not experienced losses from jobs
during the current period, and the Company did not experience significant
revisions in cost estimates from prior periods.
We have become more selective in bidding on jobs which we believe will generate
high margins. We also continue to focus on expanding our customer base and
revenues from our indoor air quality services segment. The decrease in revenues
from our environmental services segment are the result of reduced marketing
efforts.
Our general and administrative expenses decreased 20% primarily due to
reductions in salaries and related expenses, and management fees.
The decrease in general and administrative expenses was less than the decrease
in gross profit, as a result our net loss of $225,553 in the six months ended
October 31, 2001 was greater than our net loss of $214,339 in the comparable
2000 period.
Page 15 of 18
Liquidity and Capital Resources
The following table sets forth our working capital position at the dates
indicated:
- ----------------------------------------------------------------------------------------------------------
October 31, 2001 April 30, 2001
- ----------------------------------------------------------------------------------------------------------
Current assets $3,419,910 $3,032,076
- ----------------------------------------------------------------------------------------------------------
Current liabilities 4,286,824 $3,700,318
- ----------------------------------------------------------------------------------------------------------
Working Capital Deficiency $ 866,914 $ 668,242
- ----------------------------------------------------------------------------------------------------------
Net cash used in operating activities was $39,630 for the six months ended
October 31, 2001, which was primarily a result of our net loss of $225,553 for
the period. Net cash provided by financing activities was $23,423 for the six
months ended October 31, 2001, which was primarily a result of proceeds received
from shareholder loans.
At October 31, 2001 the Company had total stockholder's deficit of $464,003, had
negative working capital of $866,914 and had incurred a net loss of $225,553
during the six months ended October 31, 2001.
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 on the Company's ability to meet its financing requirements
on a continuing basis and to succeed in its future operations. The financial
statements do not include any adjustments relating to the recoverability and
classifications of assets and liabilities that might be necessary should the
Company be unable to continue in its existence.
The Company's ability to finance its operating cash needs with cash generated by
operations is a function of returning to profitability. We have taken measures
to conserve cash by cutting back on personnel and related expenses and have
subleased our New York City office and relocated to less expensive offices. The
Company is exploring equity and private debt funding as compared to capital
markets to secure financing of its working capital needs, but there is no
assurance that the Company will be able to obtain any other financing.
We are directing our efforts toward improved profitability and revenue share,
reduction of overhead expense and therefore conserving and improving cash flow
from operations. Because of our net losses and negative working capital, our
auditors expressed a doubt about our ability to continue as a going concern in
their report on our financial statements for the fiscal year ended April 30,
2001. We may continue to be dependent upon loans from our shareholder until we
become profitable.
NAC, a wholly-owned subsidiary of the Company, is a co-defendant with one or
more additional defendants in lawsuits involving personal injury claims arising
from job-site accidents. These plaintiffs' claims exceed NAC's applicable
insurance coverages, therefore, any judgment or settlement in excess of
insurance will require payment by NAC and may have a negative impact on
profitability. Claims in excess of insurance coverage total approximately
$44,000,000 as of October 31, 2001. In the opinion of management, the amount of
the ultimate liability of NAC with respect to these actions will not materially
affect the financial position, results of operations or net cash flows of the
Company.
New Accounting Pronouncements:
In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 141 ("SFAS No. 141"), "Business
Combinations." SFAS No. 141 requires the purchase method of accounting for
business combinations initiated after June 30, 2001 and eliminates the
pooling-of-interests method. The Company does not believe that the adoption of
SFAS No. 141 will have a significant impact on its financial statements.
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In July 2001, the FASB issued Statement of Financial Accounting Standards No.
142 ("SFAS No. 142"), "Goodwill and Other Intangible Assets," which is effective
for all fiscal years beginning after December 31, 2001; however, early adoption
is permitted. SFAS No. 142 requires, among other things, the discontinuance of
goodwill amortization. In addition, the standard includes provisions for the
reclassification of certain existing recognized intangibles as goodwill,
reassessment of the useful lives of existing recognized intangibles,
reclassification of certain intangibles previously reported in goodwill and the
identification of reporting units for purposes of assessing potential future
impairment of goodwill. SFAS No. 142 also requires the Company to complete a
transitional goodwill impairment test six months from the date of adoption. The
Company is required to adopt SFAS No. 142 in fiscal 2003. The Company is
currently assessing but has not yet determined the impact of SFAS No. 42 on its
financial position and results of operations.
In August 2001, the FASB issued Statement of Financial Accounting Standards
Board No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets",("SFAS 144"). This statement is effective for fiscal years beginning
after December 15, 2001. This statement supercedes SFAS 121, while retaining
many of the requirements of such statement. The Company is currently evaluating
the impact this may have but has not yet determined the impact of SFAS No. 144
on its financial position and results of operations.
Page 17 of 18
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(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 22, 2002 By: /s/ Lawrence S. Polan
------------------------------------------
Lawrence S. Polan, Chief Financial Officer
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