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 July 31, 2002
[ ] 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.
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(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
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(Address of principal executive offices)
(718) 752-2400
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(Registrant's telephone number, including area code)
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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. [X] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of outstanding shares of the registrant's Common Stock, par value
$.001, was 6,769,963 as of September 20, 2002.
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
as of July 31, 2002 (unaudited) and April 30, 2002........................................... 3
Consolidated Statements of Operations (unaudited)
for the three months ending July 31, 2002 and 2001........................................... 4
Unaudited Consolidated Statement of Stockholders' Equity (Deficit)
for the three months ending July 31, 2002.................................................... 5
Consolidated Statements of Cash Flows (unaudited)
for the three months ending July 31, 2002 and 2001........................................... 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 2. Changes in Securities and Use of Proceeds.................................................... 19
Item 6. Exhibits and Reports on Form 8K.............................................................. 19
Signatures............................................................................................ 21
Certifications........................................................................................ 22
Exhibit 4.2
Exhibit 99.1
Page 2
NESCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
July 31 April 30
2002 2002
----------- ---------
(Unaudited)
Current Assets:
Cash and equivalents $ 426,952 $ 111,260
Accounts receivable, net 1,673,781 2,427,457
Unbilled costs and estimated earnings in excess
of billings on uncompleted contracts 199,509 222,700
Inventory 152,979 154,992
Prepaid taxes and expenses 199,563 105,087
----------- -----------
Total current assets 2,652,784 3,021,496
Fixed assets, net 121,677 135,277
Intangibles, net 416,954 416,954
Other assets 51,259 47,331
----------- -----------
$ 3,242,674 $ 3,621,058
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
July 31 April 30
2002 2002
----------- ---------
(Unaudited)
Current Liabilities:
Accounts payable and accrued expenses $ 1,442,614 $ 1,941,485
Notes payable, bridge loan 100,000 447,274
Loans payable, shareholders, current 156,297 10,263
Billings in excess of costs and estimated
earnings on uncompleted contracts 349,148 397,686
----------- -----------
Total current liabilities 2,048,059 2,796,708
Loans payable, shareholders 876,204 1,022,238
Deferred rental income 245,700 257,400
----------- -----------
Total liabilities 3,169,963 4,076,346
----------- -----------
Stockholders' Equity:
10% convertible preferred stock, $2.00 par value,
1,000,000 shares authorized, 512,500 shares
issued and outstanding 1,036,389 --
Common stock, $0.001 par value, 25,000,000 shares
authorized, 6,769,963 and 6,694,963 shares
issued and outstanding 6,770 6,695
Capital in excess of par value 1,546,740 1,119,105
Accumulated deficit (2,517,188) (1,581,088)
----------- -----------
72,711 (455,288)
----------- -----------
$ 3,242,674 $ 3,621,058
----------- -----------
See accompanying notes
Page 3
NESCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDING JULY 31, 2002 AND 2001
July 31
-----------------------------------
2002 2001
---- ----
(Unaudited)
Earned revenues $ 1,372,324 $ 2,022,833
Cost of earned revenues 1,157,926 1,660,173
----------- -----------
Gross profit 214,398 362,660
General and administrative expenses 528,883 407,610
----------- -----------
Operating loss (314,485) (44,950)
----------- -----------
Other income (expense):
Sub-lease income 11,700 11,700
Interest expense, net (99,346) (16,308)
----------- -----------
Loss before income taxes (402,131) (49,558)
Income tax provision (benefit) 10,080 (641)
----------- -----------
Net loss $ (412,211) $ (48,917)
----------- -----------
Convertible preferred stock dividends 11,389 --
Value related to beneficial conversion feature of
convertible preferred stock 512,500 --
----------- -----------
Net loss available to common shareholders $ (936,100) $ (48,917)
----------- -----------
Basic and diluted loss per common share $ (0.14) $ (0.01)
----------- -----------
Weighted average common shares outstanding,
basic and diluted 6,723,496 6,694,963
----------- -----------
See accompanying notes
Page 4
NESCO INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
THREE MONTHS ENDING JULY 31, 2002
Retained
Preferred stock Common stock Capital in earnings/
------------------- ------------------ excess of accumulated
Shares Amount Shares Amount par value deficit Total
------- ---------- --------- ------ ---------- ----------- ---------
Balance at April 30, 2002 6,694,963 $6,695 $1,119,105 $(1,581,088) $(455,288)
Convertible preferred stock issuance 512,500 $1,025,000 (159,041) 865,959
Convertible preferred stock dividends 11,389 (11,389) --
Convertible preferred stock beneficial
conversion feature 512,500 (512,500) --
Common stock issued in connection
with bridge financing 75,000 75 74,176 74,251
Net loss for the quarter ended
July 31, 2002 (412,211) (412,211)
------- ---------- --------- ------ ---------- ----------- ---------
512,500 $1,036,389 6,769,963 $6,770 $1,546,740 $(2,517,188) $ 72,711
======= ========== ========= ====== ========== =========== =========
See accompanying notes
Page 5
NESCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDING JULY 31, 2002 AND 2001
July 31
--------------------------------
2002 2001
---- ----
(Unaudited)
Cash Flows from Operating Activities:
Net loss $ (412,211) $ (48,917)
Adjustments to reconcile net loss to
net cash used by operating activities:
Amortization of discount on bridge loan 52,726 --
Amortization of deferred sub-lease income (11,700) (11,700)
Depreciation and amortization 51,972 27,223
Provision for bad debts 18,029 (18,923)
Changes in operating assets and liabilities:
Accounts receivable 735,647 101,565
Unbilled costs and estimated earnings in excess
of billings on uncompleted contracts 23,191 (179,808)
Inventory 2,013 19,357
Prepaid expenses and taxes (94,476) (16,452)
Other assets (42,300) --
Accounts payable and accrued expenses (424,621) 126,769
Billings in excess of costs and estimated
earnings on uncompleted contracts (48,538) (81,451)
---------- ---------
Net cash used by operating activities (150,268) (82,337)
---------- ---------
Cash Flows from Financing Activities:
Payment of equipment notes -- (1,577)
Repayment of bridge loan (400,000) --
Net proceeds of shareholder loans -- 25,000
Net proceeds of convertible preferred stock offering 865,960 --
---------- ---------
Net cash provided by financing activities 465,960 23,423
---------- ---------
Net increase (decrease) in cash and equivalents 315,692 (58,914)
Cash and equivalents, beginning of year 111,260 68,169
---------- ---------
Cash and equivalents, end of period $ 426,952 $ 9,255
---------- ---------
See accompanying notes
Page 6
Notes to Consolidated Financial Statements
- ------------------------------------------
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 SEC on Form 10-KSB for the
fiscal year ended April 30, 2002, as amended.
The Company's fiscal year ends on April 30 and, therefore, references to
fiscal 2002 and fiscal 2003 refer to the fiscal years ending April 30, 2002
and April 30, 2003, respectively. Certain fiscal 2002 amounts have been
reclassified to conform to the fiscal 2003 presentation.
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
preparation of consolidated financial statements in accordance with
generally accepted accounting principles requires the Company to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingencies as of the date of the
consolidated financial statements and the reported amount of revenues and
expenses during the period. Actual results could differ from those
estimates.
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate continuation of
the Company as a going concern. 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, 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 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 the
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 significant
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
B. Liquidity
The accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America,
which contemplate continuation of the Company as a going concern. As of
July 31, 2002, however, the Company had an accumulated deficit in
stockholders' equity of $2,517,188 and had incurred a net loss of $412,211
for the three months ended July 31, 2002.
The Company has undertaken to promote and expand the indoor air quality
segment through increased promotional and marketing efforts and strategic
acquisitions of, and/or relationships with, leaders in the indoor air
quality market. There can be no assurance, however, that the Company will
achieve its operational goals.
The Company is also exploring debt and equity markets in order to satisfy
its current and future capital requirements and believes it can no longer
rely on shareholder loans for its capital needs going forward.
On April 1, 2002, the Company issued unsecured promissory notes
("Shareholder Loans") totaling $1,032,501, in exchange for and in full
satisfaction of all outstanding balances due on the demand loans,
management fees and consulting fees payable to shareholders and affiliates
of the Company. The Shareholder Loans do not bear interest. Each
Shareholder Loan requires repayment in twenty-one (21) equal monthly
payments. Repayment on a Shareholder Loan in the principal amount of
$10,263 begins in February 2003, and repayment on the remaining Shareholder
Loans totaling $1,022,238 begins in May 2003.
On January 10, 2002, the Company secured bridge loan financing in the
aggregate sum of $500,000 from KSH Strategic Investment Fund I, LP and
Cleveland Overseas, Ltd. The Company received net proceeds of $475,000 from
the bridge loan financing. The bridge loan investors were issued secured
promissory notes in the aggregate principal amount of $500,000, which bore
interest at a rate of 10% per annum. These investors were also granted
warrants to purchase a total of 200,000 shares of common stock at an
exercise price of $.50 per share. KSH Investment Group, Inc., a registered
broker-dealer and an affiliate of KSH Strategic Investment Fund I, LP,
received $25,000 and was issued 75,000 shares of common stock as a fee for
arranging the financing. In June 2002, the Company used a portion of the
proceeds derived from the private placement of 512,500 shares of its 10%
Series A Convertible Preferred Stock (as discussed below) to repay $400,000
in principal due KSH Strategic Investment Fund I, LP and all accrued and
payable interest on the bridge loans to date. The Company's attempting to
renegotiate the remaining $100,000 bridge loan that is due October 10,
2002.
In June 2002, the Company completed the initial closing of a private
placement of a minimum of 500,000 and a maximum of 1,000,000 shares of its
10% Series A Convertible Preferred Stock ("Preferred Stock") to accredited
investors at $2.00 per share. Five hundred twelve thousand five hundred
(512,500) shares of Preferred Stock were issued, each of which is
convertible into four shares of common stock at a conversion price of $.50
per share. As of the closing, it was determined that the Preferred
Stockholders received a common stock conversion preference based on the
excess of the common stock's then current market value of $.75 per share
over the Preferred Stock's $.50 per share conversion price. This preference
was assigned a value of $512,500 relative to the 2,050,000 underlying
shares of common stock into which the Preferred Stock may be converted. The
Company received net proceeds of approximately $865,960 from the issuance
of the 512,500 shares of Preferred Stock, a portion of which was used to
retire $400,000 in principal and all accrued and payable interest to date
on the January 2002 bridge loan financing. KSH Investment Group, Inc.
served as placement agent and received, among other things, a cash
commission equal to 7.5% of the aggregate purchase price of the shares
sold, a non-accountable expense allowance equal to 1.5% of the aggregate
purchase price of the shares sold, and warrants to purchase 402,500 shares
of common stock at $.65 per share in connection with the private placement.
Warrants for 325,625 shares were issued in June 2002 and warrants for the
remaining 76,875 shares were issued in September 2002. Dividends on the
Preferred Stock at the rate of $.20 per share per annum are payable in
kind, or in shares of the Company's common stock if a sufficient number of
shares of Preferred Stock is not available. Dividends shall accrue and be
payable in May of each year; as of July 31, 2002, the Company had accrued
Preferred Stock dividends of $11,389. The Preferred Stock is redeemable, at
the option of the Company, after the second anniversary of the closing.
Consequently, the Preferred Stock has been classified as equity.
Page 8
Although the Company has satisfied its current capital needs through debt
and equity markets, there can be no assurance that the Company will secure
the necessary financing to achieve its operational goals in the future.
Management believes the Company has the ability to meet its financing
requirements for the next twelve months. However, if the Company's planned
cash flow projections for fiscal 2003 are not met, the Company's ability to
operate could be adversely affected.
C. Major Customers
During the three months ended July 31, 2002, one customer, PPC Construction
LLC, comprised 51% of revenues and three customers comprised 79% of
revenues, PPC Construction LLC, Structure Tone, Inc. and Boston Properties,
Inc. The Company expects a significant percentage of its revenues to be
provided by a single customer or a few customers for at least the next 12
months.
D. Loss Per Share Disclosures
Basic loss per share excludes dilution and is calculated by dividing the
loss available to common stockholders by the weighted average number of
common shares outstanding for the period. Diluted loss per share reflects
the potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock and
resulted in the issuance of common stock. Because the Company incurred a
net loss available to common shareholders, diluted net loss per share was
the same as basic net loss per share for the three months ended July 31,
2002 and July 31, 2001, since the effect of any potentially dilutive
securities would be antidilutive. Options, warrants and other agreements
for the issuance of common stock which were excluded from the calculation
of diluted loss per share totaled 3,870,625 with an average exercise price
of $.67 as of July 31, 2002, and 445,000 with an exercise price of $1.50 as
of July 31, 2001.
E. New Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("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. Adoption of SFAS No. 141 did not have a
material effect on the Company's financial position, results of operations
and cash flows.
In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets," which is effective for all fiscal years beginning after December
31, 2001. 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 out of previously
reported 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 transitional goodwill impairment
test was conducted as of the end of the first quarter of fiscal 2003 and
indicated no impairment of goodwill at that time. Ongoing, periodic testing
is required under SFAS No. 142 and, consequently, there can be no guarantee
that future testing will not result in an impairment of the Company's
goodwill. Goodwill amortization of $12,692 was expensed during the first
quarter of fiscal 2002. On a pro forma basis, if SFAS No. 142 had been
adopted as of the beginning of fiscal 2002, the net loss for the first
quarter of fiscal 2002 would have been $36,225 and the basic and diluted
loss per share for the quarter would have been unchanged.
Page 9
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." This statement is effective
for fiscal years beginning after December 15, 2001. SFAS No. 144 supercedes
SFAS No. 121 while retaining many of the requirements of SFAS No. 121.
Adoption of SFAS No. 144 did not materially affect the Company's financial
position, results of operations and cash flows.
The FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and
64, Amendment of FASB Statement No. 13, and Technical Corrections," on
April 30, 2002. SFAS No. 145 rescinds Statement No. 4, which required all
gains and losses from extinguishments of debt to be aggregated and, if
material, classified as an extraordinary item, net of related income tax
effect. Upon adoption of SFAS No. 145, companies are required to apply the
criteria in APB Opinion No. 30, "Reporting the Results of Operations -
Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions"
in determining the classification of gains and losses resulting from the
extinguishments of debt. SFAS No. 145 is effective for fiscal years
beginning after May 15, 2002. The Company is in the process of evaluating
the impact of adopting this pronouncement on its consolidated financial
statements.
On July 30, 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." The standard requires
companies to recognize costs associated with exit or disposal activities
when they are incurred rather than at the date of a commitment to an exit
or disposal plan. Examples of costs covered by the standard include lease
termination costs and certain employee severance costs that are associated
with a restructuring, discontinued operation, plant closing, or other exit
or disposal activity. SFAS No. 146 is to be applied prospectively to exit
or disposal activities initiated after December 31, 2002. The Company is in
the process of evaluating the impact of adopting this pronouncement on its
consolidated financial statements.
Page 10
F. Contingencies
Litigation
----------
National Abatement Corp. ("NAC") and/or NAC Environmental Services, Inc.
("NACE"), which are wholly-owned subsidiaries of the Company, are
co-defendants in lawsuits involving property damage and/or personal injury
claims arising in the ordinary course of business from job-site accidents.
Plaintiffs' claims in these lawsuits exceed NAC and NACE's applicable
insurance coverages. Claims in excess of insurance coverages totaled
approximately $18,000,000 as of July 31, 2002. NAC and NACE are being
represented in these lawsuits by legal counsel engaged by their insurers
and, in most or all cases, have filed cross-claims and third-party claims
against other parties. Any judgment or settlement in excess of insurance
coverages, however, will require payment by NAC and/or NACE. The Company
believes, based on prior experience, that the amount of ultimate liability
of NAC and NACE with respect to these claims will not have a material
effect on the Company's financial position, results of operations and cash
flows. There can be no assurance, however, that any judgment or settlement
of these claims will not exceed the NAC's and NACE's insurance coverages,
which could have a material effect on the Company's financial position,
results of operations and cash flows.
Except for the claims against NAC and NACE set forth above, the Company, or
its subsidiaries, is not involved in any other material legal proceedings.
Environmental Matters
---------------------
The Company routinely handles waste materials in the ordinary course of
business, some of which may be considered to be hazardous wastes. The
Company is subject to numerous local, state and federal laws and
regulations concerning the containment and disposal of asbestos, pursuant
to which it has been required to incur compliance and clean-up costs.
Compliance with environmental laws and regulations due to currently unknown
circumstances or developments could result in substantial costs and could
have a material adverse effect on the Company's financial position, results
of operations and cash flows.
G. Business Segment Information
During fiscal 2002, the Company began to implement strategies for achieving
its operational goals which included changes in the way the business is
managed and operated and, as a result, is not presenting separate segment
data. The Company is continuing these efforts in fiscal 2003 and, at
present, is focused on providing indoor air quality solutions to businesses
and organizations primarily in the tri-state metropolitan New York City
area. During the first quarter of fiscal 2003, the Company began
consolidating the operations and activities of its various subsidiaries,
each of which previously represented a business segment, into a single
operating unit to cut costs and improve efficiency. Going forward,
management believes the Company's business in the tri-state metropolitan
New York City area will be managed through this operating unit. The Company
also is starting to focus its resources toward strategic acquisitions of
and relationships with leaders in the indoor air quality business
throughout the East Coast and other parts of the United States. The Company
is engaged in confidential negotiations with certain acquisition targets,
but it cannot be certain that it will be able to complete any acquisitions.
Page 11
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operation
-----------------------------------------------------------------------
This Quarterly Report on Form 10-QSB of NESCO Industries, Inc. (the "Company")
for the quarter ended July 31, 2002 contains statements that constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. These statements can be identified by
introductory words such as "expects," "plans," "intends," "believes," "will,"
"estimates," "forecasts," "projects" or words of similar meaning, and by the
fact that they do not relate strictly to historical or current facts.
Forward-looking statements frequently convey our current expectations regarding,
among other things, the Company's:
o transition to and success of new management;
o emphasis on indoor air quality solutions;
o achievement of operational goals;
o impact of existing and new product and/or services applications;
o success of various business segments;
o dependence on a small number of customers;
o ability to secure financing;
o negotiation and consummation of strategic acquisitions, collaborations
and relationships;
o settlement or conclusion of lawsuits and other disputes;
o research and development activities;
o regulatory submissions and approvals;
o financial condition, results of operations and cash flows; and
similar operating matters. Any or all of the Company's forward-looking
statements may turn out to be wrong. Many factors may cause actual results to
differ from forward-looking statements, including inaccurate assumptions and a
broad variety of risks and uncertainties, some of which are known and others of
which are not. Known risks and uncertainties include those identified from time
to time in the Company's reports filed with the Securities and Exchange
Commission, which should be considered together with any forward-looking
statement. No forward-looking statement is a guarantee of future results or
events, and one should avoid placing undue reliance on such statements. The
Company claims the protection of the safe harbor for forward-looking statements
that is contained in the Private Securities Litigation Act of 1995. The Company
expressly disclaims any obligation or undertaking to update or revise
forward-looking statements made in this report or in its other reports filed
with the Securities and Exchange Commission.
General
- -------
The Company is engaged in providing indoor air quality testing, monitoring and
remediation, asbestos and lead abatement services, mold remediation, and other
environmental services primarily through its wholly-owned subsidiary National
Abatement Corp. ("NAC"), but also through its wholly-owned subsidiaries
NAC/Indoor Air Professionals, Inc. ("IAP") and NAC Environmental Services, Inc.
("NACE").
The Company was incorporated in Nevada in March 1993, and was inactive for a
number of years until it acquired NAC and NACE in March 1998. As a result of
this acquisition, which was the result of arms length negotiations between
previously non-affiliated parties, the former shareholders of NAC and NACE
acquired 5,000,000 shares of the Company's common stock, or 80% of the total
outstanding, immediately following the acquisition. The former shareholders of
NAC were the same as the former shareholders of NACE. 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.
Page 12
NAC was incorporated in May 1988 to provide asbestos abatement services
primarily in the greater metropolitan New York City area, and today is a full
service asbestos and lead abatement contractor which has begun positioning
itself as a full service indoor air quality solutions provider.
NACE was incorporated in May 1993 and, in the past, provided environmental
services such as subsurface soils/groundwater remediation, Phase I and Phase II
environmental site assessments and underground storage tank management and
remediation. The Company is phasing out the business conducted by NACE in order
to focus on indoor air quality solutions.
In June 1999, the Company formed NAC/Indoor Air Professionals, Inc. ("IAP")
through which it provides indoor air quality testing, monitoring and remediation
services, primarily in New York, New Jersey and Connecticut. Prior to the
organization of IAP, the Company provided limited indoor air quality services
through NACE.
During the first quarter of fiscal 2003, the Company began consolidating the
operations and activities of its various subsidiaries into a single operating
unit to cut costs and improve efficiency. Going forward, management believes the
Company's business in the tri-state metropolitan New York City area will be
managed through this operating unit.
Critical Accounting Policies and Estimates
- ------------------------------------------
The Company considers certain accounting policies related to revenue
recognition, impairment of long-lived assets, allowance for doubtful accounts
and valuation of deferred tax assets, to be critical policies due to the
estimation processes involved in each.
Revenue Recognition
-------------------
The Company derives a significant portion of its revenue from fixed price
contracts, which require continuing estimations of costs to complete each
job. From time to time due to job conditions, job scheduling and
productivity, the cost to complete estimates are revised upward or downward
which correspondingly increases or decreases both estimated revenues and
estimated gross profits, and earned revenues and earned gross profits. The
Company uses the percentage of completion method to recognize revenue for
each project. When an estimate indicates a significant loss (i.e.,
estimated costs exceed estimated revenues), the entire estimated loss is
recognized in the Company's results of operations. Any changes in estimated
amounts, including contract losses, could be material to the Company's
results of operation in both current and future periods, as jobs progress
to completion.
Allowance for Doubtful Accounts
-------------------------------
The Company records an allowance for uncollectible amounts based on a
review of the collectibility of its accounts receivable. Management
determines the adequacy of this allowance by analyzing historical bad
debts, continually evaluating individual customer receivables and
considering the customer's financial condition and current economic
conditions. If the financial condition of the Company's customers were to
deteriorate, resulting in an impairment of their ability to make payments,
additional allowances could be required. The Company's accounts receivable
balance as of July 31, 2002 was $1,673,781, net of an allowance for
doubtful accounts of $407,928.
Impairment of Long Lived Assets
-------------------------------
The Company's long-lived assets include goodwill and other intangible
assets with a carrying value of $416,954 as of July 31, 2002. In assessing
the recoverability of the Company's goodwill and other intangibles, the
Company must make assumptions regarding estimated future operating results,
cash flows and other factors to determine the fair value of these assets.
If these estimates or their related assumptions change in the future, the
Company may be required to record impairment charges that were not
previously recorded for these assets.
Page 13
Valuation of Deferred Tax Assets
--------------------------------
The Company records the tax benefit of unused income tax losses and credits
as recoverable assets and evaluates the realizability of recorded deferred
tax assets by considering future cash flows and the applicability of tax
laws, tax jurisdictions and certain other assumptions. The Company has
determined that a one hundred percent (100.0%) valuation allowance is
appropriate at the present time, therefore, the carrying value of the
Company's deferred tax asset is zero in amount, and is evaluated on a
quarterly basis.
Three Months ended July 31, 2002 and 2001
- -----------------------------------------
The following table presents selected consolidated financial data for the
periods indicated expressed as a percentage of net sales:
=============================================================================================
Three Months Ended July 31,
2002 2001
---------------------------------------------------------------------------------------------
Earned revenues 100.0% 100.0%
Cost of earned revenues (84.4) (82.0)
---------------------------------------------------------------------------------------------
Gross profit 15.6 18.0
General and administrative expense (excluding depreciation) (37.6) (18.8)
Depreciation (1.0) (1.4)
---------------------------------------------------------------------------------------------
Operating loss (23.0) (2.2)
Other income 0.8 0.6
Interest expense (7.2) (0.8)
Income tax benefit (provision) (0.7) --
Convertible preferred stock dividends (0.8) --
Convertible preferred stock beneficial conversion feature (37.3) --
---------------------------------------------------------------------------------------------
Net loss available to common shareholders (68.2)% (2.4)%
=============================================================================================
The Company's revenues during the first quarter of fiscal 2003 declined by
$650,509 to $1,372,324, or 32.2%, compared with revenues of $2,022,833 for the
first quarter of fiscal 2002. The decline was primarily due to the overall
slowdown in the economy and the Company's decision to restructure its sales
organization to expand its customer base and offer a broader array of services
to those customers. The Company's decision to restructure its sales organization
resulted in a first quarter decline in revenues previously generated by IAP and
NACE, which was in line with expectations. The Company has added two sales
representatives in fiscal 2003, one of whom commenced employment in July 2002
and the other in September 2002. There can be no assurances, however, that the
Company's plan to restructure its sales organization or add new sales personnel
will be successful at increasing revenues.
The Company's gross margin was 15.6% of revenues during the first quarter of
fiscal 2003 compared with 18.0% during the comparable period of fiscal 2002. The
lower gross margin in fiscal 2003 was primarily attributable to asbestos
abatement services comprising a larger portion of total revenues. In addition,
asbestos abatement services generally have lower gross margins than indoor air
quality services due to ongoing competitive conditions in a finite market that
lacks a recurring services component. The higher portion of revenues derived
from asbestos related work in the first quarter of fiscal 2003 was primarily due
to the anticipated decline in business which was previously generated by the
Company's IAP and NACE subsidiaries. The Company did not experience any
significant losses on jobs in the first quarter of fiscal 2003.
The Company's general and administrative expenses increased to $528,883 during
the first quarter of fiscal 2003 from $407,610 during the first quarter of
fiscal 2002. The increase was primarily due to costs incurred to reposition the
Company, including the addition of new management and the use of consulting and
professional services to explore debt and equity financing alternatives,
evaluate the business and develop a new corporate strategy. There can be no
assurances that the new management or the services of consultants and
professionals will be successful in their efforts on behalf of the Company,
including those efforts to obtain financing; develop new business or business
with higher margins; increase revenues; improve operations, controls, procedures
and profit margins; or complete acquisitions.
Page 14
Interest expense increased to $99,346 in the first quarter of fiscal 2003
compared with $16,308 during the same period of fiscal 2002. The increase was
primarily due to costs associated with bridge financing that was negotiated by
the Company in January 2002. The principal due on the bridge financing totaled
$500,000, of which $400,000, and all accrued and payable interest on the bridge
financing to date, was repaid. The Company's attempting to renegotiate the
remaining $100,000 bridge loan that is due October 10, 2002.
An income tax provision of $10,080 was incurred in the first quarter of fiscal
2003 compared with an income tax benefit of $641 during the comparable period of
fiscal 2002. The provision in the first quarter of fiscal 2003 was primarily due
to an overestimate in the anticipated refund recorded in fiscal 2002 and carried
in prepaid expense as of the end of fiscal 2002.
The Company incurred dividends of $11,389 during the first quarter of fiscal
2003 payable to holders of its 10% Series A Convertible Preferred Stock
("Preferred Stock"). The Preferred Stock, which was issued in June 2002, pays
dividends of 10% per annum in the form of additional shares of Preferred Stock
or in shares of the Company's common stock if a sufficient number of shares of
Preferred Stock is not available.
Issuance of the Preferred Stock resulted in a preferential conversion feature
that was valued at $512,500 during the first quarter of fiscal 2003. The
preference's value was determined based on: (a) the number of underlying common
shares into which the Preferred Stock may be converted, and (b) the difference
between the Preferred Stock conversion price per share of common stock and the
prevailing market value of a share of common stock on the date the Preferred
Stock was issued.
Liquidity and Capital Resources
- -------------------------------
Net cash used by operating activities was $150,268 for the first quarter of
fiscal 2003 compared with $82,337 during the first quarter of fiscal 2002. The
net cash used during the first quarter of fiscal 2003 was primarily due to the
net loss for the quarter and the decrease in accounts payable, offset in part by
a reduction in accounts receivable balances and non-cash depreciation and
amortization charges. No cash was used or provided by investing activities
during the first quarter of fiscal 2003 or fiscal 2002. Net cash provided by
financing activities was $464,960 for the first quarter of fiscal 2003 compared
with $23,423 during the same period of fiscal 2002. The net cash provided during
the first quarter fiscal 2003 was primarily derived from the June 2002 initial
closing of a private placement of a minimum of 500,000 and a maximum of
1,000,000 shares of the Company's Preferred Stock to accredited investors at
$2.00 per share.
Five hundred twelve thousand five hundred (512,500) shares of Preferred Stock
were issued in the June 2002 private placement, each share of which is
convertible into four shares of common stock at a conversion price of $.50 per
share. As of the closing, it was determined that the Preferred Stockholders
received a common stock conversion preference based on the excess of the common
stock's then current market value of $.75 per share over the Preferred Stock's
$.50 per share conversion price. This preference was assigned a value of
$512,500 relative to the 2,050,000 underlying shares of common stock into which
the Preferred Stock may be converted. The Company received net proceeds of
approximately $865,960 from the issuance of the 512,500 shares of Preferred
Stock, a portion of which was used to retire $400,000 in principal and all
accrued and payable interest to date on the January 2002 bridge loan financing
(the bridge loan financing is further discussed in Note A to the below table).
KSH Investment Group, Inc. served as placement agent and received, among other
things, a cash commission equal to 7.5% of the aggregate purchase price of the
Page 15
shares sold, a non-accountable expense allowance equal to 1.5% of the aggregate
purchase price of the shares sold, and warrants to purchase 402,500 shares of
common stock at $.65 per share in connection with the private placement.
Warrants for 325,625 shares were issued in June 2002 and warrants for the
remaining 76,875 shares were issued in September 2002. Dividends on the
Preferred Stock at the rate of $.20 per share per annum are payable in kind, or
in shares of the Company's common stock if a sufficient number of shares of
Preferred Stock is not available. Dividends shall accrue and be payable in May
of each year; as of July 31, 2002, the Company had accrued Preferred Stock
dividends of $11,389. The Preferred Stock is redeemable, at the option of the
Company, after the second anniversary of the closing. Consequently, the
Preferred Stock has been classified as equity. Although the Company has
successfully completed the initial closing of the Preferred Stock offering,
there can be no assurance the Company will be able to complete the second half
of the offering which could have a material adverse effect on the Company's cash
position, financial condition and ability to operate.
At July 31, 2002, the Company had an accumulated deficit in stockholder's equity
of $2,517,188 and incurred a net loss of $412,211 during the quarter then ended.
As a result, the 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, 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 classifications
of assets and liabilities that might be necessary should the Company be unable
to continue in existence.
The Company will require additional financing during fiscal 2003, without which
its ability to operate could be adversely affected. Management believes,
however, that the Company has the ability to meet its financing requirements for
the next 12 months. There can be no assurance, however, that additional
financing will be available when the Company needs it, which is dependent, in
part, on the Company meeting its operating plan and collecting its receivables
on a timely basis.
The Company's ability to finance its operating cash needs with cash generated by
operations is a function of its return to profitability. The Company has taken
measures to conserve cash by cutting back on personnel and related expenses and
has subleased its New York City office and relocated to less expensive offices.
The Company has satisfied its current capital needs through debt and equity. In
addition, the Company continues to explore equity and private debt funding to
finance its working capital needs and achieve its operational goals in the
future. If the markets for debt and equity financing continue to diminish, the
Company's ability to raise additional financing may be adversely affected. There
can be no assurance that the Company will be able to obtain any other financing.
National Abatement Corp. ("NAC") and/or NAC Environmental Services, Inc.
("NACE"), which are wholly-owned subsidiaries of the Company, are co-defendants
in lawsuits involving property damage and/or personal injury claims arising in
the ordinary course of business from job-site accidents. Plaintiffs' claims in
these lawsuits exceed NAC and NACE's applicable insurance coverages. Claims in
excess of insurance coverages totaled approximately $18,000,000 as of July 31,
2002. NAC and NACE are being represented in these lawsuits by legal counsel
engaged by their insurers and, in most or all cases, have filed cross-claims and
third-party claims against other parties. Any judgment or settlement in excess
of insurance coverages, however, will require payment by NAC and/or NACE. The
Company believes, based on prior experience, that the amount of ultimate
liability of NAC and NACE with respect to these claims will not have a material
effect on the Company's financial position, results of operations and cash
flows. There can be no assurance, however, that any judgment or settlement of
these claims will not exceed NAC and NACE's insurance coverages, which could
have a material effect on the Company's financial position, results of
operations and cash flows.
Page 16
The following table provides a summary of our contractual obligations at July
31, 2002:
Less than 1-3 3 or More
Total 1 Year Years Years
----------- ----------- ---------- ---------
Notes payable, bridge loan (a) $ 100,000 $ 100,000 $ -- $ --
Loans payable, shareholders (b) 1,032,501 156,297 876,204 --
Operating leases (c) 1,190,417 195,686 428,816 565,915
----------- ----------- ---------- ---------
Total contractual obligations $ 2,322,918 $ 451,983 $1,305,020 $ 565,915
=========== =========== ========== =========
(a) Notes payable, bridge loan
--------------------------
On January 10, 2002, the Company secured bridge loan financing in
the aggregate sum of $500,000 from KSH Strategic Investment Fund
I, LP and Cleveland Overseas, Ltd. The Company received net
proceeds of $475,000 from the bridge loan financing. The bridge
loan investors were issued secured promissory notes in the
aggregate principal amount of $500,000, which bore interest at a
rate of 10% per annum. The $400,000 bridge loan due KSH Strategic
Investment Fund I, LP, and all accrued and payable interest to
date on the bridge loan financing, was paid in June 2002. The
Company is attempting to renegotiate the remaining $100,000 bridge
loan that is due on October 10, 2002.
(b) Loans payable, shareholders
---------------------------
On April 1, 2002, the Company issued unsecured promissory notes
("Shareholder Loans") totaling $1,032,501, in exchange for and in
full satisfaction of all outstanding balances due on the demand
loans, management fees and consulting fees payable to shareholders
and affiliates of the Company. The Shareholder Loans do not bear
interest. Each Shareholder Loan requires repayment in twenty-one
(21) equal monthly payments. Repayment on a Shareholder Loan in
the principal amount of $10,263 begins in February 2003, and
repayment on the remaining Shareholder Loans totaling $1,022,238
begins in May 2003.
(c) Operating leases
----------------
In the past, the Company has entered into operating leases for
office and warehouse facilities which expire through September 30,
2008. During the first quarter of fiscal 2003, the Company signed
a lease for approximately 8,500 square feet of warehouse space
located in Rahway, New Jersey. The lease, which runs for a
three-year term ending July 31, 2005, required two security
deposits totaling $49,350. Rents due under the lease total
$3,116.66 per month.
At July 31, 2002 and 2001, the Company did not have any relationships with
unconsolidated entities or financial partnerships, such as entities often
referred to as structured finance or special purpose entities, which would have
been established for the purpose of facilitating off-balance sheet arrangements
or other contractually narrow or limited purposes. In addition, the Company does
not engage in trading activities involving non-exchange traded contracts. As
such, the Company is not exposed to any financing, liquidity, market, or credit
risk that could arise if the Company had engaged in such activities.
Page 17
New Accounting Pronouncements:
- ------------------------------
In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("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. Adoption of SFAS No. 141 did not have a material
effect on the Company's financial position, results of operations and cash
flows.
In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets," which is effective for all fiscal years beginning after December 31,
2001. 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 out of previously reported 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
transitional goodwill impairment test was conducted as of the end of the first
quarter of fiscal 2003 and indicated no impairment of goodwill at that time.
Ongoing, periodic testing is required under SFAS No. 142 and, consequently,
there can be no guarantee that future testing will not result in an impairment
of the Company's goodwill. Goodwill amortization of $12,692 was expensed during
the first quarter of fiscal 2002. On a pro forma basis, if SFAS No. 142 had been
adopted as of the beginning of fiscal 2002, the net loss for the first quarter
of fiscal 2002 would have been $36,225 and the basic and diluted loss per share
for the quarter would have been unchanged.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." This statement is effective for fiscal years
beginning after December 15, 2001. SFAS No. 144 supercedes SFAS No. 121 while
retaining many of the requirements of SFAS No. 121. Adoption of SFAS No. 144 did
not materially affect the Company's financial position, results of operations
and cash flows.
The FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64,
Amendment of FASB Statement No. 13, and Technical Corrections," on April 30,
2002. SFAS No. 145 rescinds Statement No. 4, which required all gains and losses
from extinguishments of debt to be aggregated and, if material, classified as an
extraordinary item, net of related income tax effect. Upon adoption of SFAS No.
145, companies are required to apply the criteria in APB Opinion No. 30,
"Reporting the Results of Operations - Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions" in determining the classification of gains and losses
resulting from the extinguishments of debt. SFAS No. 145 is effective for fiscal
years beginning after May 15, 2002. The Company is in the process of evaluating
the impact of adopting this pronouncement on its consolidated financial
statements.
On July 30, 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." The standard requires companies to recognize
costs associated with exit or disposal activities when they are incurred rather
than at the date of a commitment to an exit or disposal plan. Examples of costs
covered by the standard include lease termination costs and certain employee
severance costs that are associated with a restructuring, discontinued
operation, plant closing, or other exit or disposal activity. SFAS No. 146 is to
be applied prospectively to exit or disposal activities initiated after December
31, 2002. The Company is in the process of evaluating the impact of adopting
this pronouncement on its consolidated financial statements.
Page 18
PART II: OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
-----------------------------------------
On March 11, 1998, the Company's Articles of Incorporation were amended to
authorize 1,000,000 shares of preferred stock, par value $.001 per share, to be
issued with rights, preferences and designations as determined by the Board of
Directors. In June 2002, the Company designated 1,000,000 shares of the
preferred stock as 10% Series A Convertible Preferred Stock ("Preferred Stock")
with the rights, preferences and designations set forth in the Certificate of
Designation of 10% Series A Convertible Preferred Stock filed with the Secretary
of State of Nevada on June 12, 2002. The Preferred Stock may vote with other
classes and series of stock of the Company as a single class on all actions
taken by the stockholders of the Company. Each share of Preferred Stock is
convertible into the number of shares of common stock as is obtained by (i)
multiplying the number of shares of Preferred Stock so to be converted by $2.00
and (ii) dividing the result by the conversion price of $.50 per share. However,
the conversion price may be adjusted in the event of certain dilutive offerings.
Holders of the Preferred Stock shall be entitled to receive dividends at a rate
of $.20 per share per annum, payable in kind or in shares of common stock.
Holders of the Preferred Stock are also entitled to a liquidation preference
equal to $2.00 per share plus, in the case of each share, an amount equal to all
dividends accrued but unpaid thereon.
In June 2002, the Company completed the initial closing of a private placement
of a minimum of 500,000 and a maximum of 1,000,000 shares of its Preferred Stock
to accredited investors at $2.00 per share. The Company received net proceeds of
$865,960 from the issuance of 512,500 shares of Preferred Stock, a portion of
which was used to retire $400,000 in principal and all accrued and payable
interest to date on the January 2002 bridge loan financing. KSH Investment
Group, Inc. served as placement agent and received, among other things, a cash
commission equal to 7.5% of the aggregate purchase price of the shares sold, a
non-accountable expense allowance equal to 1.5% of the aggregate purchase price
of the shares sold, and warrants to purchase 402,500 shares of common stock at
$.65 per share in connection with the private placement. Warrants for 325,625
shares were issued in June 2002 and warrants for the remaining 76,875 shares
were issued in September 2002. KSH Investment Group, Inc. also received the
right to elect one director to the Company's Board of Directors. The Preferred
Stock is redeemable at the option of the Company after the second anniversary of
the initial closing if the average market price of the common stock during any
ten-day period after the second anniversary is at least $1.00. The Company
relied on Section 4(2) of the Securities Act and Rule 506 of Regulation D
promulgated thereunder in issuing the shares of Preferred Stock and warrants
without registration under the Act. Under the terms of the private placement,
the Company has agreed to undertake to register the common stock issuable upon
the conversion of the maximum offering of the Preferred Stock and the common
stock issuable upon the exercise of warrants issued to the placement agent.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
Exhibit 4.1: Form of Certificate of Designation of 10% Series A
Convertible Preferred Stock, which was filed as
Exhibit 3.3 to the Company's Annual Report on Form
10-KSB for the fiscal year ended April 30, 2002, is
incorporated herein by reference.
Exhibit 4.2: Form of Registration Rights Agreement related to the
June 2002 private placement of the Company's 10%
Series A Convertible Preferred Stock
Exhibit 99.1: Certifications of the Chief Executive Officer and
Chief Financial Officer Pursuant to Section 906 of the
Public Company Accounting Reform and Investor
Protection Act of 2002 (18 U.S.C.ss. 1350, as adopted)
(b) Reports on Form 8-K
Page 19
Current Reports on Form 8-K filed during the first quarter of fiscal
2003 and the subsequent interim period ended September 23, 2002 are as
follows:
1. Report on Form 8-K, filed with the Commission on July 16, 2002,
announcing the election of Jeffrey L. Powell as president, chief
executive officer and director and the resignation of Santo
Petrocelli, Sr. as president and chief executive officer under
Item 5 - Other.
2. Report on Form 8-K, filed with the Commission on July 23, 2002,
announcing the initial closing of the minimum offering of 500,000
shares of the Company's 10% Series A Convertible Preferred Stock
and the election of Joel Schoenfeld as director to fill the
vacancy created by the resignation of Michael J. Caputo under Item
5 - Other.
3. Report on Form 8-K, filed with the Commission on August 19, 2002,
announcing the submission of the certifications of the chief
executive officer and the chief financial officer pursuant to 18
U.S.C. Section 1350 in connection with the Company's Annual Report
on Form 10-KSB filed with the Commission on August 13, 2002, and
Amendment No. 1 thereto filed with the Commission on August 19,
2002, under Item 7 - Financial Statements and Exhibits and Item 9
- Regulation FD Disclosure.
4. Report on Form 8-K, filed with the Commission on August 20, 2002,
announcing the election of Paul Bailey as vice president and chief
financial officer to fill the vacancies created by the resignation
of Lawrence S. Polan under Item 5 - Other.
Page 20
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: September 23, 2002 By: /s/ Jeffrey L. Powell
--------------------------------------------
Jeffrey L. Powell
Chief Executive Officer
(Principal Executive Officer)
DATE: September 23, 2002 By: /s/ Paul J. Bailey
--------------------------------------------
Paul J. Bailey
Chief Financial Officer
(Principal Financial and Accounting Officer)
Page 21
CERTIFICATIONS
I, Jeffrey L. Powell, Chief Executive Officer and President of NESCO Industries,
Inc., certify that:
1. I have reviewed this quarterly report on Form 10-QSB of NESCO
Industries, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this quarterly report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report.
DATE: September 23, 2002 By: /s/ Jeffrey L. Powell
--------------------------------------------
Jeffrey L. Powell
Chief Executive Officer
(Principal Executive Officer)
I, Paul J. Bailey, Chief Financial Officer and Vice President of NESCO
Industries, Inc., certify that:
4. I have reviewed this quarterly report on Form 10-QSB of NESCO
Industries, Inc.;
5. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this quarterly report; and
6. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report.
DATE: September 23, 2002 By: /s/ Paul J. Bailey
--------------------------------------------
Paul J. Bailey
Chief Financial Officer
(Principal Financial and Accounting Officer)
Page 22