As filed with the Securities and Exchange Commission on November __, 1999
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
NESCO INDUSTRIES , INC
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(Name of Small Business Issuer in its charter)
Nevada 13-3709558
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
570 Lexington Avenue, Third Floor, New York, NY 10022
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number: 212/829-0880 (telecopier 212/829-8895)
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Securities to be registered under Section 12(b) of the Act: None
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Securities to be registered under Section 12(g) of the Act:
Common Stock, $.001 par value
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NESCO INDUSTRIES, INC.
FORM 10-SB
TABLE OF CONTENTS
<TABLE>
<S> <C>
PART I...................................................................................................1
ITEM I.1 - DESCRIPTION OF BUSINESS...................................................................1
(a) Business Development.......................................................................1
(b) Business of the Issuer.....................................................................1
(c) Reports to Shareholders....................................................................7
ITEM I.2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS..............................................................................7
ITEM 1.3 - DESCRIPTION OF PROPERTY...................................................................10
ITEM 1.4 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............................10
ITEM 1.5 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL......................................12
ITEM 1.6 - EXECUTIVE COMPENSATION....................................................................13
(a) Summary Compensation Table................................................................13
(b) Options/SAR Grants........................................................................14
(c) Aggregated Option/SAR Exercises and Fiscal Year-End Option/SAR Value......................14
(d) Long-Term Incentive Plans.................................................................14
(e) Compensation of Directors.................................................................14
(f) Employment Contracts and Termination of Employment and Change in Control Arrangements.....14
(g) Report on Repricing of Options/SARS.......................................................14
ITEM 1.7 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................................14
ITEM 1.8 - DESCRIPTION OF SECURITIES.................................................................15
PART II.................................................................................................18
ITEM II.1 - MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS.................................................................18
(a) Market Information........................................................................18
(b) Holders...................................................................................19
(c) Dividends.................................................................................19
ITEM II.2 - LEGAL PROCEEDINGS.........................................................................19
ITEM II.3 - CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS..............................................19
ITEM II.4 - RECENT SALES OF UNREGISTERED SECURITIES...................................................20
ITEM II.5 - INDEMNIFICATION OF DIRECTORS AND OFFICERS.................................................20
FINANCIAL STATEMENTS....................................................................................21
PART III................................................................................................44
ITEM III.1 - INDEX TO EXHIBITS.........................................................................44
</TABLE>
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PART I
ITEM I.1 - DESCRIPTION OF BUSINESS
(a) Business Development:
NESCO Industries, Inc. (hereinafter sometimes referred to as "we" or the
"Company") is principally engaged in providing asbestos abatement services,
indoor air quality monitoring, testing and remediation, and other environmental
services through its wholly-owned subsidiaries, National Abatement Corp., NAC
Environmental Services Corp. and NAC/Indoor Air Professionals, Inc.
The Company was incorporated in Nevada in March 1993, and was inactive for a
number of years until it acquired National Abatement Corp. and NAC Environmental
Services Corp. in March 1998. National Abatement Corp. ("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 abatement
contractor. NAC Environmental Services Corp. ("NACE") was incorporated in May
1993. It is a provider of environmental services such as subsurface
soils/groundwater remediation, Phase I and Phase II environmental site
assessments and underground storage tank management and remediation.
In June 1999, we formed NAC/Indoor Air Professionals, Inc. ("NAC/IAP"), through
which we provide indoor air quality monitoring, testing and remediation
services, primarily in New York, New Jersey and Connecticut. Prior to the
organization of NAC/IAP, we provided limited air quality services through NACE.
(b) Business of the Issuer:
(b)(1) Principal products and services and their markets:
(b)(1)(A). National Abatement Corp.
NAC has expertise in all types of asbestos abatement including removal and
disposal, enclosure (constructing structures around asbestos-containing area)
and encapsulation (spraying asbestos-containing materials with an approved
sealant). Asbestos abatement is principally performed in commercial buildings,
hospitals, government and institutional buildings, universities and industrial
facilities. NAC's revenues in the past three fiscal years ended April 30 were as
follows: 1999 - $9,819,053 (84.7% of total Company revenues); 1998 - $11,071,751
(92.3% of total revenues); and 1997 - $9,927,882 (97.7% of total revenues).
Asbestos is a fibrous mineral found in rock formations around the world that was
used extensively as a construction material and in construction-related products
as a fire retardant and insulating material prior to the early 1970s. Asbestos
also was used as a component in a variety of building materials (such as
plaster, drywall, mortar and building block) and in caulking, tile adhesives,
paint, roofing felts, floor tile and other surfacing materials.
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In the early 1970s, it became widely recognized that inhalation or ingestion of
asbestos fibers caused a number of diseases, including asbestosis (a
debilitating pulmonary disease), lung cancer and mesothelioma (a cancer of the
abdominal and lung lining). The Environmental Protection Agency ("EPA") banned
the use of asbestos as a construction material in 1973, and the federal
government subsequently banned the use of asbestos in other building materials
as well. Most structures built before 1973, however, contained asbestos in some
form. The asbestos abatement industry grew rapidly in the 1980s due to
increasing awareness and concern over health hazards associated with asbestos,
legislative action mandating safety standards and requiring abatement in certain
circumstances, and economic pressures on building owners seeking to satisfy the
requirements of financial institutions, insurers and tenants. The market first
leveled off and then declined in the 1990s.
NAC provides its services on a project contract basis. Individual projects are
competitively bid, although many contracts with private owners are ultimately
negotiated. The majority of contracts undertaken are on a fixed price basis. The
lengths of the contracts are typically less than one year; however, larger
projects may require two or three years to complete. Responsibility for each
contract is assigned to a project manager who coordinates the project until its
completion. NAC provides its asbestos abatement services using a qualified labor
force in accordance with regulatory requirements, contract specifications and
operating procedures manual, which describes worker safety and protection
procedures, air monitoring protocols and abatement methods.
NAC's asbestos abatement operations generally have been concentrated in the
tri-state New York, New Jersey and Connecticut region. Prior to the year ended
April 30, 1999, NAC had been involved in a joint venture project in
Pennsylvania. NAC is licensed and/or certified in all jurisdictions where
required by its current work in order to conduct its operations. In addition,
certain management and staff members are licensed and/or certified by various
governmental agencies as asbestos abatement supervisors and workers.
Since NAC is able to perform asbestos abatement work throughout the year, the
business is not considered seasonal in nature. However, it is affected by the
timing of large contracts.
(b)(1)(B) NAC Environmental Services Corp.
NAC Environmental Services Corp. is a full service environmental firm with a
focus on remediation, closure and cost effectiveness. NACE's staff consists of
environmental engineers, hydrogeologists, environmental scientists, project
managers and field technicians. NACE has established long term relationships
with many fortune 500 companies, institutional and military organizations.
Services offered by NACE include Phase I, II, and III environmental assessments,
including underground storage tank removals, injection well closures, soil and
groundwater treatment systems, contaminated soil removal and emergency response.
The following is a brief summary of our environmental assessment services:
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Phase I: A Phase I site assessment is undertaken to identify potential
environmental concerns at a subject property. The process is non-invasive,
utilizing site visits, historical review, regulatory review, etc. to develop a
competent environmental survey of the subject property.
Phase II: Once an environmental concern has been identified (i.e., an
underground storage tank, evidence of hazardous waste, etc.), a Phase II
assessment or investigation will take place. This investigation could include
such procedures as drilling, ground penetrating radar or leaching pools
sampling. As part of the investigation, soil and/or water samples are collected
and analyzed to determine the presence or absence of contamination.
Phase III: If contamination is confirmed, an appropriate remedial action plan
is designed and implemented, based upon the nature and severity of the
contamination and the current conditions of the subject property. Remediation
could take place in the form of soil vapor extraction, ground water pump and
treatment systems, and many other options.
In satisfying our customers' needs, NACE generally provides inspection, various
testing services and project planning and management services directly, and
subcontracts with other environmental service providers for such specialized
services as hazardous waste removal, transportation and disposal.
(b)(1)(C) NAC/Indoor Air Professionals, Inc.
NAC/IAP provides indoor air quality testing, monitoring and remediation
services. Upon its organization, NAC/IAP took over the indoor air quality
testing and remediation activities previously conducted by NACE. In July 1999,
the Company expanded NAC/IAP's operation by acquiring the name and certain other
assets from, and hiring personnel formerly employed by, a Long Island, New York
based air quality contractor.
NAC/IAP offers an integrated approach to indoor air quality (IAQ) issues by
offering investigative services, mechanical hygiene through HVAC system cleaning
and engineering redesign, and microbiological decontamination. IAQ is an
important concern in a wide variety of industries and facilities, including
hospitals and other health care facilities, pharmaceutical and medical device
companies, food manufacturing facilities, cruise ships, commercial and
government office buildings, laboratories, universities, schools and retail
outlets. This concern results from increased awareness of health, mechanical and
fire hazards, related litigation exposure, and compliance with federal and state
IAQ mandates. As a result of increased awareness of IAP as a health issue, terms
such as "Sick Building Syndrome", "Legionnaire's Disease" and "Building Related
Illness" have come into common use.
As a member of the National Air Duct Cleaners Association, NAC/IAP practices
source removal techniques to provide a level of cleaning in compliance with the
Association's 1992-01 industry standard.
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NAC/IAP's present service area includes primarily the New York/New Jersey/
Connecticut Tri-State area. The Company is aggressively seeking to expand
NAC/IAP's service area to include the entire Atlantic seaboard and Puerto Rico.
(b)(1)(D) Backlog
At April 30, 1999, we had contracts, including contract work in progress,
representing future revenues of approximately $1,691,000. At year end 1998 and
1997, we had contracts representing future revenues of approximately $1,325,000
and $988,000, respectively.
(b)(2) Distribution Methods:
We undertake work primarily pursuant to written "fixed price" contracts which
are obtained through competitive bidding, or on a negotiated, non-bid basis.
Work performed in excess of the original contract amount is usually done
pursuant to change order. The incidence of time and material contracts, and unit
price contracts are not significant.
In marketing our services, we rely principally on a Company-employed sales staff
and upon the efforts of our operating and executive management team who
regularly call upon existing and prospective customers. We also utilize a number
of independent sales representatives. As the breadth of the services that we
offer has expanded beyond asbestos abatement to include indoor air quality and
general environmental services, cross selling and cross referrals among its
operating subsidiaries has increased and is emphasized by management to take
advantage of the working relationships which we have developed over the years
with industrial, commercial, engineering and other professional concerns in its
service area.
We support our direct sales effort through regular advertising in trade
publications, direct mailings to selected industrial and engineering firms
(e.g., in the IAQ area, to industries that are most affected by IAQ issues),
strategic telemarketing and regular participation in industry conferences and
trade shows.
(b)(3) New Products or Services:
Prior to the organization of NAC/IAP in June 1999, the indoor air quality
segment of our business was not significant. We are now actively promoting that
service segment, and presently expect NAC/IAP to generate approximately 10% of
total Company revenues in the current fiscal year.
(b)(4) Competition:
The environmental services industry is highly competitive and fragmented. We
face competition from local owner-operated service contractors and from national
and regionally based companies that perform a variety of industrial and
environmental services. Competition in this market is based primarily on hourly
rates, productivity, safety, innovative approaches and quality of service. A
substantial portion of work in our service areas is performed pursuant to
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contracts obtained through competitive bidding. Among qualified bidders, price
usually is the determining factor.
(b)(5) Sources of Supply:
We purchase job related materials and equipment from several vendors. We are not
dependent on purchasing from any one vendor, as there are a number of sources of
supply.
(b)(6) Major Customers:
Our customers include most frequently owners of commercial real estate, managing
agents and general contractors, industrial facilities and hospitals and
educational institutions. During the fiscal year ended April 30, 1999,
approximately 80% of our operating revenues were derived from commercial and
industrial clients, and approximately 20% was derived from institutional
customers such as educational institutions and hospitals. Due to the nature of
our business, which involves contracts that are often completed within one year,
customers that account for a significant portion of revenue in one year may not
represent a significant portion of revenue in subsequent years. We do not
believe that the loss of future business from any single customer would have a
material adverse effect on our results of operations or financial position taken
as a whole.
No single customer accounted for more than 10% of our revenues in any of the
past three fiscal years. Prior to the year ended April 30, 1998, a significant
portion of NAC's business was conducted through a joint venture with another
contractor. That joint venture was wound down during 1998, and did not generate
significant business activity in the last fiscal year.
(b)(7) Patents, Trademarks, Licenses, etc.
We do not consider intellectual property (apart from trade secrets concerning
customer and bidding information) to be significant to our operations.
(b)(8) and (9) Governmental Approvals and Regulations:
A core component of our business is advising and assisting our customers in
complying with local, state and federal laws and regulations concerning the
environment. With respect to asbestos abatement services, numerous regulations
at the federal, state and local levels impact the industry, including the EPA's
Clean Air Act and Occupational Safety and Health Administration ("OSHA")
requirements.
Current EPA regulations generally ban the use of asbestos materials in buildings
and establish procedures for controlling the emission of asbestos fibers into
the environment during removal, transportation or disposal of such materials.
The EPA also has notification requirements before removal operations can begin.
Many state authorities and local jurisdictions have implemented similar programs
governing removal, handling and disposal of asbestos.
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The transportation of asbestos, which has been designated a hazardous material,
is governed by the Department of Transportation under the Hazardous Materials
Transportation Act of 1975, which has established guidelines for the
transportation of asbestos.
The health and safety of personnel involved in the removal of asbestos is
protected by OSHA regulations which specify allowable airborne exposure
standards for asbestos workers, engineering and administrative control methods,
work area practices, proper supervision, training, medical surveillance and
decontamination practices for worker protection.
NAC's business depends, in part, on the issuance of permits from state and
federal agencies to allow NAC to transport hazardous materials, to operate
certain of NAC's equipment and to operate NAC's container cleaning and
wastewater pretreatment facilities. NAC believes that it has and will be able to
obtain and retain the applicable and necessary permits from governmental
authorities. The majority of these permits require renewal annually and,
accordingly, such permits may be subject to revocation, modification or denial.
NAC believes it is in compliance with all of the federal, state and local
statutes and regulations which affect its asbestos abatement business.
Certain services offered by NACE and NAC/IAP are required to be performed by
licensed individuals. In addition, as indicated above, NACE frequently
subcontracts with third parties for services which require licensing or permits
(e.g., transportation of hazardous waste).
(b)(10) Research and Development:
We continuously pursue innovative and creative approaches and methods for
providing services to our customers. We do not, however, engage in any
significant research and development activities.
(b)(11) Environmental Compliance:
Except in the ordinary course of our business operations, we do not anticipate
any significant costs to comply with environmental laws and requirements.
(b)(12) Employees: As of September 30, 1999, we had 43 full time employees. Six
of our employees are executives, six are engaged in sales and marketing, and the
remaining 31 employees are technical, production and administrative employees.
In addition to our "permanent" work force, we typically hire temporary laborers
to staff NAC and NACE projects. Temporary laborers generally are represented by
a labor union and, in New York and New Jersey, are covered by a collective
bargaining agreement between the Company and the Mason Tenders Union. We also
employ union laborers with other affiliations, depending on project
jurisdiction, on a project by project basis. Our permanent work force is not
unionized.
We believe we have good relations with our employees, and have never incurred a
significant work stoppage due to any strike or protest by our employees.
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(c) Reports to Shareholders:
At the time of filing of this Registration Statement, we are not subject to the
informational and reporting requirements of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"). Following the effective date of this
Registration Statement, we will be subject to Exchange Act reporting
requirements and, in accordance therewith, will file reports, proxy statements
and other information with the Securities and Exchange Commission (the
"Commission"). Such reports, proxy statements and other information filed with
the Commission may be inspected and copied at the public reference facilities
maintained by the Commission at its principal offices at Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549. Such reports, proxy statements and
other information may also be obtained from the web site that the Commission
maintains at http://www.sec.gov. Copies of these materials can also be obtained
at prescribed rates from the Public Reference Section of the Commission at its
principal offices in Washington, D.C., as set forth above.
ITEM I.2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
When used in this discussion, the words "expect(s)", "feels", "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.
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. ("NACE"), a provider of a variety of other environmental remediation
services. As a result of this acquisition, the former shareholders of NAC
acquired a majority of the Company's outstanding capital stock and, for
accounting purposes, NAC was treated as the acquiring corporation. Thus, the
historical financial statements of NAC prior to this acquisition date are deemed
to be the historical financial statements of the Company.
Results of Operations
Three months ended July 31, 1999 and 1998
In the quarter ended July 31, 1999, our earned revenues were $3,319,958 compared
to $2,710,972 in the same quarter in the prior fiscal year. Our cost of earned
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revenues also increased in the first quarter, but slightly less on a percentage
basis, to $2,677,865 from $2,204,603 in the first quarter of 1998. As a result,
our gross profit margin increased to 19.34% in the three months ended July 31,
1999, compared to 18.68% in the quarter ended July 31, 1998.
The improvement in our gross profit margin was attributable primarily to a
decrease in the percentage of our total revenues which were derived from NAC's
asbestos abatement contracts. These contracts generally have a lower gross
profit margin than the contracts performed by NACE and NAC/IAP.
Our general and administrative expenses also rose in the first quarter, but
less, proportionately, than revenues and gross profit. As a result, we had net
income of $9,727 in the first quarter, compared with net loss of $40,751 in the
comparable 1998 quarter.
Years ended April 30, 1999 and 1998
We experienced a slight decline (approximately 3.4%) in earned revenues in the
year ended April 30, 1999 (to $11,586,490 from $11,994,500 in the prior year),
while achieving a proportionately greater reduction (approximately 7.4%) in our
cost of earned revenues (to $9,239,824 from $9,975,115). As a result our gross
profit margin improved by approximately 20% (to 20.25% in 1999 from 16.84% in
1998). The reduction in our cost of earned revenues, and the corresponding
improvement in our gross profit margin, in the year ended April 30, 1999, was
attributable primarily to a more profitable mix of business, which reflected in
part a greater contribution to our total revenues by NACE.
Our increase in gross profit for the year ended April 30, 1999 (to $2,346,666 in
1999 from $2,019,385 in the prior year) was more than offset, however, by a
substantial increase in general and administrative expenses during the year (to
$2,256,079 from $1,658,427). This increase in general and administrative
expense, coupled with a $66,000 increase in managerial fees which represent
compensation for services of two of the Company's executive officers (to
$208,000 from $142,000), resulted in a net operating loss of ($117,413) in 1999
compared to operating income of 218,958 in the prior year.
The increase in general and administrative expense in the year ended April 30,
1999, was attributable primarily to increased occupancy costs of $69,072 related
in part to a move of our executive offices in November 1998; increased personnel
costs of $178,342; increased travel and entertainment expenses of $78,501
attributable to an expanded sales and marketing effort; and an increase in
provision for uncollectibles of $141,000 which was reflective of the increase in
receivables at year end 1999 compared to the prior year.
Our net loss of ($116,328) in the year ended April 30, 1999 ($.02 per share),
compared with net income of $200,743, or $.03 per share in year ended April 30,
1998, was primarily the result of increased general and administrative expenses
in 1999, as described above, and the fact that in 1999 we realized a loss of
($12,381) on the operations of a joint venture which were primarily related to
the wind-up of the joint venture's activities, compared to income of $296,293
from joint venture operations in 1998.
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Liquidity and Capital Resources
Our cash and cash equivalents declined from $631,853 at April 30, 1998 to
$97,765 at April 30, 1999, primarily as a result of operating activities
($261,189) and the purchase of fixed assets ($336,785) associated with the move
of our executive and administrative offices from working capital.
Our significant increase in accounts receivable at year end 1999, to $2,822,824
from $2,184,516 at April 30, 1998, was the result of a greater percentage of
projects in which we performed as a subcontractor rather than contracting
directly with the owner. Accounts receivable on projects in which we bill a
general contractor rather than the owner of the project tend to be outstanding
for a longer period. In addition, we experienced a general slowdown in accounts
receivable collection in the second half of the year attributable in part to the
relocation of our administrative and executive offices in the third quarter, and
the temporary loss of key administrative personnel in the third and fourth
quarter.
To provide additional working capital in the current fiscal year, we borrowed
$400,000 from Petrocelli Industries, Inc., a company controlled by Santo
Petrocelli, Sr., our Chairman, President and Chief Executive Officer. The loan
bears interest at 10% per annum, payable monthly. Terms for the repayment of the
loan principal have not been established, and we consider this loan to be
repayable on demand.
In the quarter ended July 31, 1999, we acquired certain assets now used by
NAC/IAP from an unrelated third party for $137,860 and the issuance of 364,963
shares of common stock. The cash used to acquire these assets was provided by
the loan from Petrocelli Industries that is described in the preceding
paragraph.
With the additional working capital provided by the $400,000 loan by Petrocelli
Industries, we expect to be able to finance our operating cash needs with cash
generated by operations. We do plan to investigate the possibility of raising
additional equity capital, however, to provide increased liquidity, to fund
increased business activity and to be in a position to take advantage of
acquisition opportunities should they arise. At the present time, however, we
have no commitments for any additional financing.
Year 2000
Many computer systems experience problems handling dates beyond the year 1999.
Therefore, some computer hardware and software will need to be modified prior to
the year 2000 in order to remain functional. Management of the Company has
completed its assessment of year 2000 issues and believes that the consequences
of such issues will not have a material effect on the Company's business,
results of operations or financial condition, without taking into account any
efforts by the Company to avoid such consequences.
New Accounting Pronouncements
In June 1997. the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
("SFAS No. 130"). SFAS No. 130 establishes standards for the reporting and
display of comprehensive income and its components (revenues, expenses, gains
and losses) in a full set of general purpose financial statements. SFAS No. 130
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is effective for fiscal years beginning after December 15, 1997. The adoption of
SFAS No. 130 did not have a material impact on the Company's financial
reporting.
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
131, "Disclosure about Segments of an Enterprise and Related Information" ("SFAS
No. 131"). SFAS No. 131 establishes standards for public business enterprises to
report information about operating segments in annual financial statements and
selected information in the notes thereto. SFAS No. 131 is effective for
financial statements for periods beginning after December 15, 1997. In the
initial year of application, comparative information for earlier years is to be
restated. SFAS No. 131 need not be applied to interim financial statements in
the year of adoption, but comparative information is required in the second year
of application. The Company believes that the adoption of SFAS No. 131 will not
have a material impact on the Company's financial reporting.
In 1998, the FASB issued Statement of Financial Accounting Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133").
SFAS No. 133 modifies the accounting for derivative and hedging activities and
is effective for fiscal years beginning after December 15, 1999. The Company
believes that the adoption of SFAS No. 133 will not have a material impact on
the Company's financial reporting.
In 1998, the AICPA issued Statement of Position (SOP) 98-1, "Accounting for
Costs of Computer Software Developed or Obtained for Internal Use". The Company
believes that the adoption of SOP 98-1 will not have a material impact on the
Company's financial reporting.
Item 2(c) Quantitative and Qualitative Disclosures About Financial Derivative
and Other Market Risks
The Company employs no "hedging" strategies at the present time, and all of our
cash deposits are denominated in US dollars.
ITEM I.3 - DESCRIPTION OF PROPERTY
Our executive and administrative offices are located in leased premises of
approximately 5,100 square feet at 570 Lexington Avenue, Third Floor, New York,
NY 10022. The annual lease costs for these offices is approximately $160,000 for
the first five years, and $180,000 thereafter. The lease expires on October 31,
2008.
We also lease warehouse and office space in Rutherford, NJ (approximately 6,000
square feet) at an annual rent of approximately $38,000, and in Farmingdale, NY
(approximately 500 square feet) at an annual rent of approximately $12,000. We
rent a small amount of storage area in midtown Manhattan (approximately 170
square feet) at an annual rent of approximately $5,800.
We believe our offices and other facilities are adequate for our present needs.
ITEM I.4 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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The following table sets forth information as of October 31, 1999, with respect
to the beneficial ownership of our securities by officers and directors,
individually and as a group, and all holders of more than 5% of our Common
Stock. Unless otherwise indicated, all shares are beneficially owned and sole
investment and voting power is held by the beneficial owners indicated. On
October 31, 1999, there were 6,614,963 shares of Common Stock outstanding, and
no shares of any other class of capital stock were outstanding.
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<CAPTION>
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Percentage of
Outstanding Common
Number of Shares of Common Stock Beneficially
Names and Addresses Stock Beneficially Owned(1) Owned
of Beneficial Owner
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<S> <C> <C>
Santo Petrocelli, Sr. (2) 2,400,000 36.3%
c/o Petrocelli Industries, Inc.
1212 43rd Avenue
Long Island City, NY 11101
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Marshall H. Geller(3) 2,400,000 36.3%
20 Country Ridge Circle
Rybrook, NY 10573
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Michael J. Caputo 100,000 1.5%
c/o Nesco Industries, Inc.
570 Lexington Avenue
Third Floor
New York, NY 10022
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Lawrence S. Polan(4) 100,000 1.5%
c/o Petrocelli Industries, Inc.
1212 43rd Avenue
Long Island City, NY 11101
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Santo Petrocelli, Jr.(5) -0- -0-
c/o Petrocelli Industries, Inc.
1212 43rd Avenue
Long Island City, NY 11101
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All Officers and Directors as a 5,000,000 75.6%
Group (5 persons)
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</TABLE>
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(1) As used herein, the term beneficial ownership with respect to a security is
defined by Rule 13d-3 under the Securities Exchange Act of 1934 as
consisting of sole or shared voting power (including the power to vote or
direct the vote) and/or sole or shared investment power (including the
power to dispose or direct the disposition of) with respect to the security
through any contract, arrangement, understanding, relationship or
otherwise, including a right to acquire such power(s) during the next 60
days. Unless otherwise noted, beneficial ownership consists of sole
ownership, voting and investment rights.
(2) Owned of record by Petrocelli Industries Inc. Mr. Petrocelli is the
President and Chief Executive Officer of Petrocelli Industries, Inc., and
beneficially owns 25% of its outstanding capital stock. The other 75% is
owned by members of Mr. Petrocelli's family.
(3) Owned of record by Gelco Development Corp., a company owned and controlled
by Mr. Geller and members of his family.
(4) Owned of record by LPS Consultants Inc., a company owned and controlled by
Mr. Polan and his wife.
(5) Does not include shares owned by Petrocelli Industries, Inc., in which Mr.
Petrocelli has an economic interest by reason of his equity ownership of
Petrocelli Industries, Inc.
ITEM I.5 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
The Company's executive officers and directors are as follows:
<TABLE>
<CAPTION>
Name of Director Age Positions With Company
- ---------------- --- ----------------------
<S> <C> <C>
Santo Petrocelli, Sr. .............. 64 President and Chief Executive Officer, Chairman
of the Board of Directors
Michael J. Caputo .................. 47 Chief Operating Officer and Director
Marshall H. Geller ................. 61 Executive Vice President and Director
Lawrence S. Polan .................. 69 Chief Financial Officer, Secretary-Treasurer and
Director
Santo Petrocelli, Jr. .............. 32 Director
</TABLE>
12
<PAGE>
Santo Petrocelli, Sr., has served as Chairman and CEO of the Company and
its predecessors since 1988. Mr. Petrocelli is the Chairman and CEO and a
Director of Petrocelli Industries, Inc., Petrocelli Electric Co., Inc., a
privately-owned company based in Long Island City, New York, which is engaged in
the business of electrical and telecommunications contracting. Mr. Petrocelli
devotes less than a majority of his working time (approximately 30%) to the
Company's business.
Michael J. Caputo has served as Chief Operating Officer and a director of
the Company and its predecessors since 1988.
Marshall H. Geller, Executive Vice President and a director of the Company,
has served as a director of the Company since March 1998, and in a variety of
executive and consulting capacities with the Company and its predecessors since
1988. He has owned and operated an exterior maintenance and restoration firm in
New York City since 1962. Mr. Geller devotes less than a majority of his time
(approximately 30%) to the business of the Company.
Lawrence S. Polan has served as Secretary, Treasurer, Chief Financial
Officer and a director of the Company and its predecessors since 1988. Mr. Polan
also is the Chief Financial Officer of Petrocelli Electric Co., Inc. Mr. Polan
devotes less than a majority of his time (approximately 30%) to the Company's
business.
Santo Petrocelli, Jr., has served as a director of the Company since March
1998. Mr. Petrocelli also is President of Petrocelli Communications Company, a
division of Petrocelli Electric Co., Inc., a position he has held since May
1998. From May 1992 to May 1998, Mr. Petrocelli was Executive Vice President of
Petrocelli Communications Company.
Santo Petrocelli, Sr., is the father of Santo Petrocelli, Jr. There are no
other family relationships among the Company's officers and directors.
ITEM I.6 - EXECUTIVE COMPENSATION
(a) Summary Compensation Table:
The following table sets forth information concerning compensation for services
rendered in all capacities awarded to, earned by or paid to Santo Petrocelli,
Sr., the Company's Chairman and Chief Executive Officer, Michael J. Caputo,
Chief Operating Officer, and Marshall Geller, Executive Vice President, in the
year ended April 30, 1999. No other executive officer of the Company received
compensation of $100,000 or more from the Company in the last fiscal year.
Mr. Petrocelli is compensated by the Company through Petrocelli Industries,
Inc., and Mr. Geller is compensated through Gelco Development Corp. Payments to
these companies were classified as "Management Fees" in the Company's Statement
of Operations for the years ended April 30, 1999 and 1998.
13
<PAGE>
<TABLE>
<CAPTION>
=====================================================================================================================
Summary Compensation Table
=====================================================================================================================
Long Term Compensation
-----------------------------------------------------
Annual Compensation Awards Payouts
------------------------------- ------------------------ -------------------------
Other Restricted Securities All
Name and Annual Stock Underlying LTIP Other
Principal Salary Bonus Compensation Award(s) Options/ Payouts Compensation
Position Year ($) ($) ($) ($) SARS(#) ($) ($)
- -------- ---- ------ ----- ------------ ---------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Santo Petrocelli, 1999 104,000 -0- * -0- -0- -0- -0-
Sr., Chairman of
the Board,
President and CEO
Michael J. Caputo, 1999 132,500 40,000 * -0- -0- -0- -0-
COO
Marshall H. Geller, 1999 104,000 -0- * -0- -0- -0- -0-
Executive Vice
President
=====================================================================================================================
</TABLE>
*Less than $50,000
(b) Options/SAR Grants: None.
(c) Aggregated Option/SAR Exercises and Fiscal Year-End Option/SAR Value: None;
not applicable.
(d) Long-Term Incentive Plans: None.
(e) Compensation of Directors:
During the fiscal year ended April 30, 1999, no director of the Company received
any compensation for any services provided in such capacity. Directors of the
Company are reimbursed for expenses incurred by them in connection with their
activities on behalf of the Company.
(f) Employment Contracts and Termination of Employment, and Change in Control
Arrangements:
None of the Company's executive officers have fixed term employment agreements
and there are no agreements relating to severance, change of control or other
similar terms between the Company and any of its executive officers.
(g) Report on Repricing of Options/SARS: Not Applicable.
(h) Supplementary Information on Stock Options. Not applicable.
ITEM I.7 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
14
<PAGE>
There were no transactions between the Company and any of its current executive
officers or holders of 5% or more of its voting securities during either of the
last two fiscal years.
ITEM I.8 - DESCRIPTION OF SECURITIES
The Company's authorized capital stock consists of 25,000,000 shares of Common
Stock, $.001 par value per share, of which 6,614,963 shares were outstanding as
of October 31, 1999, and 1,000,000 shares of Preferred Stock, $.001 par value,
as to which the Board has the power to designate the rights, terms, preferences,
etc. As of October 31, 1999, the Board had not designated or issued any
Preferred Stock.
Common Stock
Holders of Common Stock are entitled to one vote for each share of Common Stock
owned of record on all matters to be voted on by stockholders. The Company's
Articles of Incorporation do not contain any special voting provisions, and no
corporate action requires a greater than majority vote of stockholders.
Cumulative voting is not permitted in the election of directors.
The holders of Common Stock are entitled to receive such dividends, if any, as
may be declared from time to time by the Board of Directors, in its discretion,
from funds legally available therefor.
The Common Stock has no preemptive or other subscription rights, and there are
no conversion rights or redemption provisions. All outstanding shares of Common
Stock are validly issued, fully paid, and nonassessable.
Undesignated Preferred Stock
The Company's Board of Directors presently has the authority by resolution to
issue up to 1,000,000 shares of preferred stock in one or more series and fix
the number of shares constituting any such series, the voting powers,
designations, preferences and relative, participating, optional or other special
rights and qualifications, limitations, or restrictions thereof, including the
dividend rights, dividend rate, terms of redemption (including sinking fund
provisions), redemption price or prices, conversion rights and liquidation
preferences of the shares constituting any series, without any further vote or
action by the stockholders. For example, the Board of Directors is authorized to
issue a series of preferred stock that would have the right to vote, separately
or with any other series of preferred stock, on any proposed amendment to the
Company's Certificate of Incorporation or any other proposed corporate action,
including business combinations and other transactions.
Stock Option Plan
In June 1999, we adopted an Incentive Stock Option Plan:
15
<PAGE>
o to provide incentives and rewards to our employees who are in a
position to contribute to our long term growth and profitability;
o to assist us in attracting, retaining and motivating personnel with
experience and ability we need; and
o to make our compensation program more competitive with those of other
employers.
We also anticipate that we will benefit from the added interest which personnel
who receive options will have in our success as a result of their proprietary
interest. The Plan is administered by our Board of Directors. However, the Board
may establish a stock option committee of at least three (3) directors to
administer the Plan.
The Board or committee is authorized to select from among eligible employees,
directors, advisors and consultants those individuals to whom options are to be
granted. The Board or committee also will to determine the number of shares each
person may acquire and the terms and conditions of the options. The Board or
committee also is authorized to prescribe, amend and rescind terms relating to
options granted under the plan. Generally, the interpretation and construction
of any provision of the Plan or any options granted thereunder is within the
discretion of the Board or committee.
The Plan provides that options may or may not be incentive stock options within
the meaning of Section 422 of the Internal Revenue Code. Only persons classified
as employees are eligible to receive incentive stock options. Non-employee
directors, advisors and consultants are eligible to receive options which do not
qualify as incentive stock options under applicable Internal Revenue Code. The
options granted by the Board in connection with its adoption of the Plan are not
incentive stock options.
The terms of options granted under the Plan are determined by the Board or
committee at the time the option is granted. Each option is evidenced by a
written option document. The option documents, together with the provisions of
the Plan, determine such terms as:
o when options under the Plan become exercisable;
o the exercise price of options, which, for incentive stock options, may
not be less than 100% of the fair market value of our common stock on
the date the option is granted (110% in the case of optionees who own
10% or more of our common stock);
o the term of the option;
o vesting provisions; and
o special termination provisions.
An option may not be transferred, other than to the heirs of the option holder
and is exercisable only by the original option holder during his lifetime or, in
the event of his death, by his heirs.
16
<PAGE>
At April 30, 1999, no options had been granted under the Plan. In the first
quarter of the current year, we granted options to purchase 445,000 shares of
Common Stock to eight individuals, including options to purchase 400,000 to
executive officers and directors as follows:
No. of
Optionee Shares
-------- -------
Santo Petrocelli, Sr. 150,000
Marshal H. Geller 150,000
Lawrence S. Polan 50,000
Michael J. Caputo 50,000
All options granted in the first quarter are 100% vested, are exercisable at a
price of $1.50 per share, and expire on June 13, 2004, subject to earlier
termination under the Plan.
Transfer Agent
Our transfer agent is Interwest Stock Transfer Company, 1981 East 4800 South,
Salt Lake City, UT 84117, telephone 801/272-9294.
Anti-Takeover Provisions
We are not presently aware of any takeover attempt or interest involving the
Company. Our Articles of Incorporation and Bylaws, however, and the Nevada
General Corporation Law (the "NGCL"), do contain certain provisions which may be
deemed to be "anti-takeover" in nature in that such provisions may deter,
discourage or make more difficult the assumption of control of the Company by
another corporation or person through a tender offer, merger, proxy contest or
similar transaction or series of transactions.
Authorized but Unissued Shares: Our authorized capital stock includes 25,000,000
shares of Common Stock and 1,000,000 shares of Preferred Stock. These shares of
capital stock were authorized for the purpose of providing our Board of
Directors with as much flexibility as possible to issue additional shares for
proper corporate purposes, including equity financing, acquisitions, stock
dividends, stock splits, employee stock option plans. Shares of Preferred Stock
could be issued quickly with terms calculated to delay or prevent a change in
control of the Company without any further action by the stockholders. Our
stockholders do not have preemptive rights with respect to the purchase of these
shares. Therefore, such issuance could result in a dilution of voting rights and
book value per share of our Common Stock. No shares of Preferred Stock have been
issued, and we have no present plan to issue any such shares.
No Cumulative Voting: Neither our Articles of Incorporation nor our Bylaws
contain provisions for cumulative voting. Cumulative voting entitles each
stockholder to as many votes as equal the number of shares owned by him
multiplied by the number of directors to be elected. With cumulative voting, a
stockholder may cast all these votes for one candidate or distribute them among
any two or more candidates. Thus, cumulative voting for the election of
17
<PAGE>
directors allows a stockholder or group of stockholders who hold less than 50%
of the outstanding shares voting to elect one or more members of a board of
directors. Without cumulative voting for the election of directors, the vote of
holders of a plurality of the shares voting is required to elect any member of a
board of directors and would be sufficient to elect all the members of the board
being elected.
Control Share Acquisitions: Sections 78.378 et seq. of the Nevada General
Corporation Law (the "NGCL") provide for notice of shareholders of a "control
share acquisition", which is defined as the acquisition of 20% of the voting
power of a Nevada corporation, or of voting power exceeding one-third of such
total voting power by a person who owns 20% or more of such voting power prior
to the acquisition, or a majority or more of such voting power by a person who
already owns one-third or more of the voting power. shareholders have the right
to demand "fair value" for their shares if a control share acquisition occurs.
The "control share" provisions limit the voting power of the acquirer in a
control share acquisition, and permit a corporation to recover profits resulting
from the sale of control shares in certain situations. The control share
acquisition provisions of the NGCL apply only to Nevada corporations with a
minimum of 100 shareholders of record who reside in Nevada and, for that reason,
do not now apply to the Company.
General Effect of Anti-Takeover Provisions: The overall effect of these
provisions may be to deter a future tender offer or other takeover attempt that
some stockholders might view to be in their best interests at that time. In
addition, these provisions may have the effect of assisting current management
in retaining its position and place it in a better position to resist changes
which some stockholders may want to make if dissatisfied with the conduct of our
business.
PART II
ITEM II.1 - MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS
(a) Market Information
Our Common Stock is traded over-the-counter on the electronic bulletin board
operated by the National Association of Securities Dealers under the symbol
"NESK.OB". The following table sets forth the high and low bid prices quoted for
our Common Stock since April 1998:
1998 High Low
-------------- ---- ---
Second Quarter $4 3/4 $3
Third Quarter $3 7/8 $2
Fourth Quarter $2 1/2 $1
18
<PAGE>
1999
--------------
First Quarter $1 1/4 $1 1/8
Second Quarter $1 1/2 $1 1/8
Third Quarter $1.1/4 $ 7/8
Fourth Quarter
(through November 11, 1999) $1 1/8 $ 9/16
The above quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not represent actual transactions.
(b) Holders
As of October 21, 1999, there were 33 record holders of our Common Stock.
(c) Dividends
The Company has never declared or paid any cash dividends on its Common Stock.
We currently anticipate that all future earnings will be retained to support
expansion of our business. Accordingly, we do not anticipate paying cash
dividends on our Common Stock in the foreseeable future.
ITEM II.2 - LEGAL PROCEEDINGS
The Company is a defendant in a number of litigations relating to property
damage and/or bodily injury claims which arise in the ordinary course of its
business operations. We believe that all pending claims are covered by
insurance, and will be settled or otherwise disposed of within policy limits.
The Company is not involved in any other material legal proceedings.
We maintain commercial general liability insurance for claims arising from its
business operations with coverage of $5 million limit per claim and in the
aggregate against loss arising from property damage and bodily injury. The
policy is written on an "occurrence" basis which provides coverage for insured
risks that occur during the policy period, irrespective of when a claim is made.
Higher policy limits are available for individual projects. We also carry
pollution errors and omissions liability insurance ($1 million limit per claim
and in the aggregate), a $15 million commercial umbrella policy, and worker's
compensation insurance within statutory coverage limits. In addition, a
substantial number of NAC's customers require performance and payment bonds and
the registrant maintains a bonding program to satisfy these requirements.
ITEM II.3 - CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS
Not Applicable.
19
<PAGE>
ITEM II.4 - RECENT SALES OF UNREGISTERED SECURITIES
For the two years preceding the date of this Registration Statement, we have
issued the following securities in transactions not registered under the
Securities Act of 1933:
(a) In March 1998, we issued 5,000,000 shares of Common Stock to the then
stockholders of National Abatement Corp. and NAC Environmental Services Corp. in
exchange for all of the outstanding capital stock of those corporations. The
transaction was a negotiated business combination by which the buyer and sellers
were represented by counsel, all the five former shareholders of NAC and NACE
were sophisticated investors who acquired the shares for investment, and the
beneficial owners of the shares, following the transaction, became officers and
directors of the Company. The shares were issued without registration under the
Securities Act in reliance upon Section 4(2) of the Act, and are "restricted
securities" as that term is defined in Rule 144 under the Act. Certificates
representing the shares are legended, and stop orders against unauthorized
transfers of the shares have been entered.
(b) In July 1999, we issued 364,963 shares of Common Stock in partial
payment for certain business assets acquired from IAP, Inc. The transaction was
a negotiated business combination in which both buyer and seller were
represented by counsel. We relied on Section 4(2) of the Securities Act in
issuing the shares without registration under the Act.
ITEM II.5 - INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our Articles of Incorporation contain a provision permitted by the NGCL which
eliminates the personal liability of directors for monetary damages for breach
of their fiduciary duty of care which arises under state law. Although this does
not change the directors' duty of care, it limits legal remedies which are
available for breach of that duty to equitable remedies, such as an injunction
or rescission. This provision has no effect on directors' liability for: (1)
breach of the directors' duty of loyalty; (2) acts or omissions not in good
faith or involving intentional misconduct or known violations of law; and (3)
approval of any transactions from which the directors derive an improper
personal benefit.
The NGCL empowers the Company to indemnify officers, directors, employees and
others from liability in certain circumstances such as where the person
successfully defended himself on the merits or acted in good faith in a manner
reasonably believed to be in the best interests of the corporation. Our Bylaws
require indemnification, to the fullest extent permitted by the NGCL, of any
person who is or was involved in any manner in any investigation, claim or other
proceeding by reason of the fact that such person is or was a director or
officer of the Company, or of another corporation serving at the Company's
request, against all expenses and liability actually and reasonably incurred by
such person in connection with the investigation, claim or other proceeding.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers, and controlling persons of the Company
pursuant to the foregoing provisions or otherwise, we are advised that in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
20
<PAGE>
PART F/S
FINANCIAL STATEMENTS
PAGE
----
Independent Auditor's Report............................................ 22
Consolidated Balance Sheets............................................. 23
Consolidated Statements of Operations................................... 24
Consolidated Statements of Cash Flows................................... 25
Consolidated Statements of Changes in
Shareholders' Equity.................................................... 26
Notes to Consolidated Financial Statements.............................. 27
21
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
NESCO Industries, Inc.
We have audited the accompanying consolidated balance sheet of NESCO Industries,
Inc. and subsidiaries as of April 30, 1999, and the related consolidated
statements of operations, stockholders' equity and cash flows for the two years
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on the financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of NESCO Industries,
Inc. and subsidiaries as of April 30, 1999, and the results of their operations
and cash flows for each of the two years ended April 30, 1999, in conformity
with generally accepted accounting principles.
New York, New York
July 27, 1999
22
<PAGE>
NESCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
July 31,
-------------------------- April 30,
1999 1998 1999
---------- ---------- ----------
(Unaudited)
<S> <C> <C> <C>
Current Assets:
Cash and equivalents $ 16,865 $ 53,281 $ 97,765
Accounts receivable 3,282,715 2,773,244 2,822,824
Investment in joint venture 3,420 15,801 3,420
Unbilled costs and estimated earnings in excess
of billings on uncompleted contracts 695,819 507,037 211,961
Prepaid taxes and expenses 66,004 190,692 40,796
Deferred income taxes 94,600 94,600
---------- ---------- ----------
Total current assets 4,159,423 3,540,055 3,271,366
---------- ---------- ----------
Fixed assets, net 391,256 97,470 367,479
Intangibles, net 545,139
Other assets 109,264 155,615 109,714
---------- ---------- ----------
$5,205,082 $3,793,140 $3,748,559
---------- ---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
1999 1998 1999
---------- ---------- ----------
Current Liabilities:
Accounts payable and accrued expenses $2,515,058 $2,085,540 $2,099,956
Notes payable, equipment 10,958 15,860 15,221
Loans payable, shareholders 538,441 108,847 188,441
Billing in excess of costs and estimated
earnings on uncompleted contracts 664,355 363,564 474,210
Income taxes 148,563 50,419 166,873
Deferred income taxes 199,200
Taxes, other than income 32,687 25,661 18,565
---------- ---------- ----------
Total current liabilities 3,910,062 2,921,091 2,963,266
Notes payable, equipment 10,912 22,091 10,912
---------- ---------- ----------
Total liabilities 3,920,974 2,943,182 2,974,178
---------- ---------- ----------
Stockholders' Equity:
Common stock, $.001 par value
Authorized 25,000,000 shares
Issued and outstanding 6,614,963 shares at
July 31, 1999 and 6,250,000 shares at
April 30, 1999 and July 31, 1998 6,615 6,250 6,250
Capital in excess of par value 883,185 383,550 383,550
Retained earnings 394,308 460,158 384,581
---------- ---------- ----------
1,284,108 849,958 774,381
---------- ---------- ----------
$5,205,082 $3,793,140 $3,748,559
---------- ---------- ----------
</TABLE>
See accompanying Notes.
23
<PAGE>
NESCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDING JULY 31, 1999 AND 1998 (UNAUDITED)
AND YEARS ENDED APRIL 30, 1999 AND 1998
<TABLE>
<CAPTION>
July 31, April 30,
------------------------- ---------------------------
1999 1998 1999 1998
---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C>
Earned Revenues $ 3,319,958 $2,710,972 $11,586,490 $11,994,500
Cost of earned revenues 2,677,865 2,204,603 9,239,824 9,975,115
----------- ---------- ----------- -----------
Gross profit 642,093 506,369 2,346,666 2,019,385
General and administrative expenses 558,225 487,284 2,256,079 1,658,427
----------- ---------- ----------- -----------
Operating income before management fees 83,868 19,085 90,587 360,958
Management fees 52,000 52,000 208,000 142,000
----------- ---------- ----------- -----------
Operating income (loss) 31,868 (32,915) (117,413) 218,958
----------- ---------- ----------- -----------
Other Income (Expense):
Income/(Loss) from Joint Venture (12,381) 296,293
Unrealized gain on investments 18,000
Gain on disposal of fixed asset 736 790
Interest expense, net (7,355) (4,027) (24,285) (18,027)
----------- ---------- ----------- -----------
Income (loss) before income taxes 24,513 (36,942) (135,343) 498,014
Income tax expense (recovery) 14,786 3,809 (19,015) 297,271
----------- ---------- ----------- -----------
Net Income (Loss) $ 9,727 $ (40,751) $ (116,328) $ 200,743
----------- ---------- ----------- -----------
Basic and diluted earnings (loss) per share - (0.01) (0.02) 0.03
----------- ---------- ----------- -----------
Common and dilutive shares 6,333,992 6,250,000 6,250,000 6,250,000
----------- ---------- ----------- -----------
</TABLE>
See accompanying Notes.
24
<PAGE>
NESCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
THREE MONTHS ENDING JULY 31, 1999 AND 1998 (UNAUDITED)
AND YEARS ENDED APRIL 30, 1999 AND 1998
<TABLE>
<CAPTION>
July 31, April 30,
----------------------- ----------------------
1999 1998 1999 1998
---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) $ 9,727 $ (40,751) $(116,328) $ 200,743
Adjustments to reconcile net income (loss) to
net cash provided (used) by operating activities:
Depreciation and amortization 22,721 9,900 50,276 38,516
Amortization of contracts acquired 20,000
Unrealized gain on marketable securities (18,000)
Gain on disposal of fixed asset (736) (790)
Deferred income taxes 418 (293,382) 99,995
Changes in operating assets and liabilities:
Accounts receivable (459,891) (588,728) (638,308) 117,270
Prepaid expenses and taxes (64,200) 38,109 66,408 (65,022)
Unbilled costs and estimated earnings in excess
of billings on uncompleted contracts (483,858) (317,638) (22,562) (56,804)
Other assets 450 (89,355) (85,454)
Accounts payable and accrued expenses 415,102 371,617 396,627 295,660
Income taxes 20,682 (70,436) 167,615 17,641
Taxes other than income 14,122 5,221 (1,875) 1,532
Billings in excess of costs and estimated
earnings on uncompleted contracts 190,145 123,884 234,530 (470,423)
--------- --------- --------- ---------
Net cash provided (used) by operating activities (315,000) (557,759) (261,189) 178,318
--------- --------- --------- ---------
Cash Flows from Investing Activities:
Purchase of fixed assets (3,777) (21,459) (336,785) (38,481)
Acquisition and intangibles (107,860)
Proceeds from disposition of fixed assets 5,676 1,000
Proceeds from refund of investment 60,000
Advances to joint venture, net 12,381 161,057
--------- --------- --------- ---------
Net cash provided (used) by investing activities (111,637) (21,459) (258,728) 123,576
--------- --------- --------- ---------
Cash Flows from Financing Activities:
Payment of equipment notes (4,263) (2,354) (14,171) (10,435)
Borrowings from shareholder loans -- net 350,000 3,000 (9,070)
Proceeds from issuance of stock 75,000
Payments for treasury stock (326,230)
--------- --------- --------- ---------
Net cash provided (used) by financing activities 345,737 646 (14,171) (270,735)
--------- --------- --------- ---------
Net increase (decrease) in cash and equivalents (80,900) (578,572) (534,088) 31,159
Cash and equivalents, beginning 97,765 631,853 631,853 600,694
--------- --------- --------- ---------
Cash and equivalents, ending $ 16,865 $ 53,281 $ 97,765 $ 631,853
--------- --------- --------- ---------
</TABLE>
See accompanying Notes.
25
<PAGE>
NESCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Notes Due
Common Stock Capital in on Common
-------------------- Excess of Retained Stock Treasury Stock
Shares Amount Par Value Earnings Purchases Shares Amount Total
--------- ------- ----------- --------- ----------- ------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at April 30, 1997 60 $314,800 $ 705,166 $ 326,230 20 $(405,000) $ 614,966
---------
Net income for the year
ended April 30, 1998 200,743 200,743
Capital contributed 75,000 75,000
Payments-Treasury shares notes (326,230)
Effect of reverse acquisition
and recapitalization:
March 11, 1998 (See Note 1) 6,250,000 $ 6,250 $ (6,250)
Retirement of Treasury stock (405,000) (20) 405,000
--------- ------- -------- --------- ----------- ------ ---------- ----------
Balance April 30, 1998 6,250,000 6,250 383,550 500,909 0 0 0 890,709
Net loss for the year
ended April 30, 1999 (116,328) (116,328)
--------- ------- -------- --------- ----------- ------ ---------- ----------
Balance April 30, 1999 6,250,000 $ 6,250 $383,550 $ 384,581 0 0 0 $ 774,381
--------- ------- -------- --------- ----------- ------ ---------- ----------
Stock issued in connection
with acquisition 364,963 365 499,635 500,000
Net income for the three months
ended July 31, 1999 (Unaudited) 9,727 9,727
--------- ------- -------- --------- ----------- ------ ---------- ----------
Balance July 31, 1999 6,614,963 $ 6,615 $883,185 $ 394,308 0 0 0 $1,284,108
--------- ------- -------- --------- ----------- ------ ---------- ----------
</TABLE>
See accompanying Notes.
26
<PAGE>
NESCO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED JULY 31, 1999
AND 1998 (UNAUDITED) AND
YEARS ENDED APRIL 30, 1999 AND 1998
1. Organization, Operations and Significant Accounting Policies
Organization:
NESCO Industries, Inc., (the Company) was incorporated in Nevada on March
29, 1993, under the name Coronado Capital Corp. (formerly Coronado
Communications Corp.).
On March 11, 1998, the Company acquired National Abatement Corp. ("NAC")
and NAC Environmental Services Corp. ("NESC") pursuant to an Agreement and
Plan of Reorganization. To effect the reorganization, NESCO issued
5,000,000 shares of its common stock in exchange for the outstanding common
shares of NAC and NESC. Upon consummation of the reorganization, NAC and
NESC became wholly-owned subsidiaries of NESCO. As part of the
reorganization, the Company amended its articles of incorporation to change
its name to NESCO Industries, Inc. and authorized 1,000,000 shares of
preferred stock. For accounting purposes the acquisition has been treated
as a recapitalization of NAC with NAC as the acquirer (reverse
acquisition).
The Company is a holding company and all of its business is conducted
through its three wholly-owned subsidiaries.
NAC was organized under the laws of the state of Delaware on May 15, 1988.
NAC is engaged in the abatement and removal of asbestos materials found in
commercial and industrial structures located in New York, New Jersey, and
Pennsylvania. The work is performed principally in office buildings for
owners of various commercial businesses and other contractors principally
under lump sum contracts.
NESC was organized under the laws of the state of Delaware on May 12, 1993.
NESC is engaged in providing various environmental services including air
quality management, lead abatement services, and management of storage
tanks found in commercial and industrial structures located in New York and
New Jersey.
NAC/Indoor Air Professionals, Inc. was organized under the laws of the
State of New York on June 28, 1999. The Company provides indoor air quality
monitoring, testing and remediation services.
27
<PAGE>
NESCO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED JULY 31, 1999
AND 1998 (UNAUDITED) AND
YEARS ENDED APRIL 30, 1999 AND 1998
1. Organization, Operations and Significant Accounting Policies (continued)
Basis of Presentation and Principles of Consolidation:
The accompanying financial statements include the accounts of the Company
and its wholly-owned subsidiaries on a consolidated basis. All significant
intercompany accounts and transactions have been eliminated.
The financial statements as of July 31, 1999 and 1998 and for the three
months ended July 31, 1999 and 1998 are unaudited; however, in the opinion
of management such statements include all adjustments, consisting solely of
normal recurring adjustments, necessary for a fair presentation of the
results for the periods presented.
The interim financial statements should be read in conjunction with the
financial statements for the fiscal year ended April 30, 1999 and notes
thereto.
The results of operations for the interim periods are not necessarily
indicative of the results that might be expected for the future interim
periods or for the full year ending April 30, 2000.
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the
financial statements, and revenues and expenses during the reporting
period. In these financial statements; assets, liabilities, and earnings
from contracts involve extensive reliance on management's estimates. Actual
results could differ from those estimates.
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 are based on the common industry standard revenue
determination formula of actual
28
<PAGE>
NESCO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED JULY 31, 1999
AND 1998 (UNAUDITED) AND
YEARS ENDED APRIL 30, 1999 AND 1998
1. Organization, Operations and Significant Accounting Policies (continued)
costs-to-date compared to total estimated job costs. Due to uncertainties
inherent in the estimation process, and uncertainties relating to future
performance as the contracts are completed, it is at least reasonably
possible that estimated job costs, in total or on individual contracts,
will be revised. When a loss is anticipated, the entire amount of the
estimated loss is provided for in the period.
The asset, "unbilled costs and estimated earnings in excess of billings on
uncompleted contracts" represents revenues recognized in excess of amounts
billed. The liability, "billings in excess of costs and estimated earnings
on uncompleted contracts" represents billings in excess of revenues
recognized.
Balance Sheet Classification:
In accordance with construction industry practice, the Company includes in
current assets and liabilities those amounts relating to construction
contracts that may be realizable or payable over a period in excess of one
year.
Cash and Equivalents:
The Company classifies highly liquid debt instruments, purchased with a
maturity of three months or less, as cash equivalents. The carrying amount
approximates fair value due to the short maturity of the investments.
29
<PAGE>
NESCO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED JULY 31, 1999
AND 1998 (UNAUDITED) AND
YEARS ENDED APRIL 30, 1999 AND 1998
1. Organization, Operations and Significant Accounting Policies (continued)
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
<TABLE>
<CAPTION>
Three Months
Ending Year Ending
July 31, April 30,
1999 1998 1999 1998
---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C>
Interest $ -- $ 4,968 $ 15,557 $ 27,699
-------- -------- -------- --------
Taxes $ 198 $ -- $ 73,640 $189,518
-------- -------- -------- --------
Non-cash Investing and Financing items:
Debt incurred in connection
with the purchase of property
and equipment $ -- $ 27,578 $ 27,578 $ --
-------- -------- -------- --------
Insurance of Company shares
in connection with asset
purchase $500,000 $ -- $ -- $ --
-------- -------- -------- --------
</TABLE>
Fixed Assets and Depreciation:
Depreciation is computed principally using accelerated methods over the
estimated useful lives of the assets. Expenditures for maintenance,
repairs, and minor renewals are charged to operations. Major renewals and
betterments are capitalized.
Intangible Assets:
Intangible assets represent goodwill and covenant not to compete.
Amortization is provided in a straight line method over 15 years for
goodwill and 2 years for the covenant not to compete.
30
<PAGE>
NESCO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED JULY 31, 1999
AND 1998 (UNAUDITED) AND
YEARS ENDED APRIL 30, 1999 AND 1998
1. Organization, Operations and Significant Accounting Policies (continued)
Joint Venture:
NAC has a joint venture agreement with American Standard Corp. to complete
contracts aggregating $1,276,000 for abatement projects in Pittsburgh,
Pennsylvania. The joint venture projects were substantially complete at
April 30, 1998. The equity method is used to account for the Company's
investment in the venture. The joint venture agreement provides for profit
allocation based on agreed upon formulas applied on a project by project
basis.
Investments:
The Company uses the lower of cost or market method in accounting for its
investments. At April 30, 1999, an allowance for decline in market value of
$20,730 was deducted from the cost of these securities of $38,730.
Income Taxes:
Provisions for income taxes are based on taxes payable or refundable for
the current year and deferred taxes on temporary differences between the
amount of taxable income and pretax financial income and between the tax
bases of assets and liabilities and their reported amounts in the financial
statements. Deferred tax assets and liabilities are included in the
financial statements at enacted income tax rates expected to apply to
taxable income in the years when such temporary differences are expected to
be recovered as prescribed in Statement of Financial Accounting Standards
(SFAS) No. 109, Accounting for Income Taxes. As changes in tax laws or rate
are enacted, deferred tax assets and liabilities are adjusted through the
provision for income taxes.
An allowance for uncollectibles is provided for financial statement
purposes and the direct write off method is used for tax reporting. For
years ending April 30, 1998 and prior, income from construction contracts
was reported for tax purposes on the completed-contract method, and for
financial statement purposes on the percentage-of-completion method. In
accordance with income tax regulations, NAC and NESC are required to report
income from construction contracts using the percentage of completion
method for years beginning May 1, 1998. (See Note 6)
31
<PAGE>
NESCO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED JULY 31, 1999
AND 1998 (UNAUDITED) AND
YEARS ENDED APRIL 30, 1999 AND 1998
1. Organization, Operations and Significant Accounting Policies (continued)
Earnings Per Share:
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard (SFAS) No. 128, "Earnings per Share" which
requires companies to present basic earnings per share and diluted earnings
per share, instead of the primary and fully diluted EPS that was required.
The Company adopted SFAS No. 128, "Earnings per Share," effective December
15, 1997.
2. Accounts Receivable
The Company submits requisitions (invoices) to customers based on work
performed. Pursuant to contract provisions, these requisitions include
amounts, referred to as retainage, which are retained until completion and
acceptance of the contract. Included in accounts receivable are amounts
retained by customers at April 30, 1999 and 1998 of $4,900 and $61,700,
respectively. The allowance for uncollectible accounts at July 31, 1999 and
April 30, 1999 was $146,800 and April 30, 1998 was $116,013.
The Company's principal accounts receivable are due from owners of
commercial real estate and other contractors.
3. Unbilled Costs and Estimated Earnings on Uncompleted Contracts
An analysis of job costs and billings, on a per job basis, reflects the
following:
<TABLE>
<CAPTION>
July 31, April 30,
1999 1998 1999
---------- ---------- ----------
(Unaudited)
<S> <C> <C> <C>
Costs incurred on
uncompleted contracts $4,053,608 $3,386,471 $3,222,013
Estimate earnings 1,293,727 1,043,512 1,026,524
---------- ---------- ----------
5,347,335 4,429,983 4,248,537
Less: Billings to date 5,315,871 4,286,510 4,510,786
---------- ---------- ----------
$ 31,464 $ 143,473 $ (262,249)
---------- ---------- ----------
</TABLE>
32
<PAGE>
NESCO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED JULY 31, 1999
AND 1998 (UNAUDITED) AND
YEARS ENDED APRIL 30, 1999 AND 1998
3. Unbilled Costs and Estimated Earnings on Uncompleted Contracts (continued)
The aforementioned balance is included in the accompanying balance sheet
under the following captions:
July 31, April 30,
1999 1998 1999
---- ---- ----
(Unaudited)
Unbilled costs and
estimated earnings in
excess of billings on
uncompleted contracts $695,819 $507,037 $ 211,961
Less: Billings in excess
of costs and
estimated earnings
on uncompleted
contracts 664,355 363,564 474,210
-------- -------- ---------
$ 31,464 $143,473 $(262,249)
-------- -------- ---------
4. Fixed Assets
The major classes of fixed assets and the range of their useful lives are
as follows:
<TABLE>
<CAPTION>
July 31, April 30, Useful Life
1999 1998 1999 (Years)
-------- -------- -------- -------
(Unaudited)
<S> <C> <C> <C> <C>
Vehicles $133,396 $166,333 $133,396 5
Office equipment 106,759 63,271 104,271 5
Furniture and fixtures 144,612 13,548 112,964 7
Equipment and tools 38,502 27,837 31,002 5
Leasehold improvements 187,304 15,558 187,303 10
-------- -------- --------
610,573 286,547 568,936
Less: Accumulated depreciation 219,317 189,077 201,457
-------- -------- --------
391,256 97,470 367,479
-------- -------- --------
Depreciation and amortization
of leaseholds for the period $ 17,860 $ 9,900 $ 50,276
-------- -------- --------
</TABLE>
33
<PAGE>
NESCO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED JULY 31, 1999
AND 1998 (UNAUDITED) AND
YEARS ENDED APRIL 30, 1999 AND 1998
5. Intangibles
July 31, April 30,
1999 1998 1999
------- ------ ------
(Unaudited)
Amortization expense
for the period $ 4,861 $ -- $ --
------- ------ ------
6. Income Taxes
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
July 31, April 30,
1999 1998 1999 1998
-------- ------- -------- --------
(Unaudited)
<S> <C> <C> <C> <C>
Current:
Federal $ 9,315 $ -- $162,580 $109,738
State and local 5,471 3,809 111,787 87,538
-------- ------- -------- --------
14,786 3,809 274,367 197,276
-------- ------- -------- --------
Deferred:
Federal -- -- (174,182) 65,809
State and local -- -- (119,200) 34,186
-------- ------- -------- --------
-- -- (293,382) 99,995
-------- ------- -------- --------
$ 14,786 $ 3,809 $(19,015) $297,271
-------- ------- -------- --------
</TABLE>
34
<PAGE>
NESCO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED JULY 31, 1999
AND 1998 (UNAUDITED) AND
YEARS ENDED APRIL 30, 1999 AND 1998
6. Income Taxes (continued)
The tax effects of temporary differences and tax credits that give rise to
deferred tax assets and liabilities are as follows:
April 30,
1999
---------
Deferred tax assets:
Accounts receivable allowance $ 56,900
Minimum tax cedits --
Marketable securities allowance 7,700
Valuation allowance --
Net operating loss 27,000
Depreciation 1,800
Deferred rent 1,200
--------
94,600
--------
Deferred tax liabilities:
Deferred income on work
in progress --
--------
Net deferred tax asset (liability) $ 94,600
--------
35
<PAGE>
NESCO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED JULY 31, 1999
AND 1998 (UNAUDITED) AND
YEARS ENDED APRIL 30, 1999 AND 1998
6. Income Taxes (continued)
A reconciliation of the federal statutory tax rate to the effective federal
tax rate is as follows:
July 31, April 30,
1999 1998 1999 1998
---- ---- ---- ----
(Unaudited)
Federal statutory rate (recovery) 34.0% (34.0)% (34.0)% 34.0%
State and local income taxes
net of federal tax benefit (7.6) (3.5) (1.9) (8.3)
Minimum tax credit adjustment -- -- 9.4 --
Non-deductible items 11.6 -- 13.5 13.1
Surtax exemption -- -- 7.4 (3.1)
Provision variance -- -- 6.0 --
Other -- -- 1.6 (0.5)
---- ---- ---- ----
Rate before valuation allowance 38.0 (37.5) 2.0 35.2
Valuation allowance adjustment -- 37.5 (10.6) --
---- ---- ---- ----
38.0% --% (8.6)% 35.2%
---- ---- ---- ----
7. Notes Payable, Treasury Stock
On January 15, 1997, the Company acquired 20 shares of its common stock in
exchange for a $405,000 note bearing interest at 9%. The note provides for
monthly installments of $28,648, and the final payment was in December
1997.
8. Notes Payable, Equipment
At April 30, 1999, notes payable, equipment consisted of the following:
Total Current Long Term
-------- --------- -----------
Notes payable $ 26,832 $ 15,790 $ 11,042
Less: Prepaid interest 699 569 130
-------- --------- --------
$ 26,133 $ 15,221 $ 10,912
-------- --------- --------
36
<PAGE>
NESCO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED JULY 31, 1999
AND 1998 (UNAUDITED) AND
YEARS ENDED APRIL 30, 1999 AND 1998
8. Notes Payable, Equipment (continued)
Equipment notes bear interest at varying rates and are secured by the
related equipment.
Aggregate future minimum payments are as follows:
For the year ending April 30,
2000 $15,221
2001 9,464
2002 1,448
-------
$26,133
-------
9. Loans Payable, Shareholders
The loans payable to shareholders are due on demand, bear interest at
varying or variable rates, and are unsecured. The Company has subordinated
the payment of loans totalling $188,441, pursuant to an agreement with the
Company's surety bonding company.
10. Stock Options
The Company's 1999 Stock Option Plan provides that key employees are
eligible to receive incentive stock options or nonstatutory stock options
and that directors and advisors shall be eligible to receive non-qualified
options. Under the plan, the Company may grant options to purchase up to
1,000,000 shares. In the case of an optionee who beneficially owns more
than ten percent of the Company's outstanding shares as of the time the
option is granted, the purchase price of the optioned stock must be fixed
at not less than one hundred and ten percent of the fair market value.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions; no dividend yield, expected volatility of 196 percent,
risk-free interest rate of 6.04 percent, and 5 year expected lives.
37
<PAGE>
NESCO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED JULY 31, 1999
AND 1998 (UNAUDITED) AND
YEARS ENDED APRIL 30, 1999 AND 1998
10. Stock Options (continued)
Options were granted on June 14, 1999 at 110% of fair market value, $1.50
per share, as determined by the Company's Board of Directors, and these
options were fully vested on granting.
The Company accounts for this program under APB Opinion No. 25, under which
no compensation cost has been recognized.
Transactions during the quarter ended July 31, 1999 involving stock options
are summarized as follows:
<TABLE>
<CAPTION>
Number Non- Price per
of Shares Qualified Qualified Share
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Options outstanding at April 30, 1999 -- -- -- --
1999 option grant on June 14, 1999 445,000 277,000 168,000 $ 1.50
--------- --------- --------- ---------
Options outstanding at July 31, 1999 445,000
---------
Exercisable at July 31, 1999 445,000
---------
</TABLE>
38
<PAGE>
NESCO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED JULY 31, 1999
AND 1998 (UNAUDITED) AND
YEARS ENDED APRIL 30, 1999 AND 1998
10. Stock Options (continued)
Had compensation cost for the Company's stock option plan been determined
based on the fair value at the grant dates for awards under the plan
consistent with the method of FASB Statement 123, Accounting for
Stock-Based Compensation, the Company's net income and earnings per share
would have been reduced to the pro forma amounts indicated below:
Three months
Ended
July 31, 1999
---------------
(Unaudited)
Net income (loss):
As reported $ 9,727
Pro Forma (533,173)
Basic and diluted earnings (loss)
per share:
As reported --
Pro Forma (.08)
11. Preferred Shares
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. To date, no preferred shares have been subscribed to or
issued.
12. Related Party Transactions
During the year ended April 30, 1999, certain stockholders and officers
rendered consulting services totalling $208,000 and subcontractor services
totalling $130,616. Warehouse rental payments totalling $38,325 were paid
to a former stockholder. NAC rendered subcontractor services to related
parties totalling $140,500.
39
<PAGE>
NESCO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED JULY 31, 1999
AND 1998 (UNAUDITED) AND
YEARS ENDED APRIL 30, 1999 AND 1998
12. Related Party Transactions (continued)
During the year ended April 30, 1998, certain stockholders and officers of
the Company rendered consulting services totalling $142,000 and
subcontractor services totalling $51,119. In addition, warehouse rental
payments totalling $36,600 were paid to a former stockholder. Subcontractor
services rendered to affiliates totalled $84,313.
13. Employee Benefit Plans
The Company maintains a profit sharing and a 401(k) plan covering
substantially all full-time, non-union employees who have completed one
year of continuous service and who meet certain other eligibility
requirements. Contributions to the plan are discretionary and are allocated
in proportion to compensation. For the year ended April 30, 1999 and 1998,
the Company contributed $16,146 and $16,518, respectively to the profit
sharing plan.
14. Commitments and Contingencies
Litigation:
The Company is defendant in lawsuits involving personal injury claims
arising from job-site accidents. These plaintiffs' claims exceed the
Company's applicable insurance coverages, therefore, any judgement or
settlement in excess of insurance will require payment by the Company. In
the opinion of management, the amount of ultimate liability with respect to
these actions will not materially affect the financial position of the
Company.
The Company is also defendant in two cases pending involving former
employees of the Company for claims totalling $170,500. The Company has
requested Bill of Particulars for each case, and the plaintiffs' attorney
has not yet responded. Management has accrued $40,000 as its estimate of
potential liability for these claims.
40
<PAGE>
NESCO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED JULY 31, 1999
AND 1998 (UNAUDITED) AND
YEARS ENDED APRIL 30, 1999 AND 1998
14. Commitments and Contingencies (continued)
Leases:
On October 1, 1998, the Company entered into a 10 year lease through
September 30, 2008 for rental of office facilities. The lease provides for
escalations for scheduled rent increases and for the Company's
proportionate share of increases in real estate taxes and maintenance
costs.
Under generally accepted accounting principles, the Company charges rent
expense to operations ratably over the term of the lease. The Company has
charged $2,553 to operations through April 30, 1999, representing its
cumulative lease costs calculated on a straight-line basis in excess of
rent paid. The resulting liability has been included in the accompanying
balance sheet as deferred rent payable. For income tax purposes, the
Company deducts rent expense as it is paid pursuant to lease terms.
Aggregate future minimum rental payments under the principal lease are as
follows:
For the year ending April 30,
2000 $ 158,300
2001 158,300
2002 158,300
2003 158,300
2004 170,200
Subsequent to 2004 789,300
-----------
Total minimum future rental payments $ 1,592,700
-----------
41
<PAGE>
NESCO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED JULY 31, 1999
AND 1998 (UNAUDITED) AND
YEARS ENDED APRIL 30, 1999 AND 1998
14. Commitments and Contingencies (continued)
The Company leases warehouse space from a former stockholder on a
month-to-month basis. The monthly rent is $3,375, and the Company is
required to pay insurance, taxes, and maintain the premises.
Rent expense was charged as follows:
July 31, April 30,
1999 1998 1999 1998
---- ---- ---- ----
(Unaudited)
Cost of earned revenues $ 10,125 $ 9,150 $ 38,325 $ 36,600
General and administrative expenses $ 43,165 $15,236 $127,633 $ 58,561
15. Risk and Uncertainties
The Company is subject to laws and regulations relating to the protection
of the environment. While it is not possible to quantify with certainty the
potential impact of actions regarding environmental matters, particularly
any future remediation and other compliance efforts, in the opinion of
management, compliance with the present environmental protection laws will
not have a material adverse effect on the financial condition, competitive
position or capital expenditures of the Company. However, the Company's
efforts to comply with increasingly stringent environmental regulations may
have an adverse effect on the Company's future earnings.
16. Acquisition
On July 10, 1999 NAC/Indoor Air Professionals, Inc. purchased certain
tangible and intangible assets. The acquisition cost was $637,860, payable
$137,860 in cash and $500,000 in Company stock. The acquisition was
accounted for as a purchase. The excess of the acquisition cost over the
fair value of assets was $500,000 which will be amortized over 15 years
beginning in July 1999.
42
<PAGE>
NESCO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED JULY 31, 1999
AND 1998 (UNAUDITED) AND
YEARS ENDED APRIL 30, 1999 AND 1998
17. Fair Values of Financial Instruments
The following methods and assumptions were used to estimate the fair value
of financial instruments:
Cash and Cash Equivalents:
The carrying amount reported in the balance sheet for cash and cash
equivalents approximates its fair value.
Accounts Receivable and Accounts Payable:
The carrying amounts of accounts receivable and accounts payable in the
balance sheet approximates fair value.
Short-Term and Long-Term Debt
The carrying amount of the notes payable approximates fair value.
43
<PAGE>
PART III
ITEM III.1 - INDEX TO EXHIBITS
Exhibit No. Description
- ----------- -----------
3.1 Articles of Incorporation as amended
3.2 Bylaws as amended
4.1 Common Stock Certificate
4.2 Incentive Stock Option Plan
21 Subsidiaries
27 Financial Data Schedules
44
<PAGE>
SIGNATURES
In accordance with Section 12(g) of the Securities Exchange Act of 1934,
the registrant caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized, this 30th day of November, 1999.
NESCO INDUSTRIES, INC.
By: s/ Santo Petrocelli, Sr.
--------------------------------
SANTO PETROCELLI, SR., President
and Chief Executive Officer
By: s/ Lawrence S. Polan
------------------------------------------
LAWRENCE S. POLAN, Chief Financial Officer
45
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF CORONADO COMMUNICATIONS CORP.
Pursuant to the applicable provisions of the Nevada Business Corporations
Act, Coronado Communications Corp. (the "Corporation") adopts the following
Articles of Amendment to its Articles of Incorporation by stating the following:
FIRST: The present name of the Corporation is Coronado Communications Corp.
SECOND: The following amendments to its Articles of Incorporation were
adopted by majority consent of shareholders of the Corporation in the manner
prescribed by applicable law.
1. The Article entitled FIRST, is amended to read as follows:
The name of the corporation is: NESCO Industries, Inc.
2. The Article entitled FOURTH, is amended to read as follows:
The total number of shares of stock which this corporation is authorized to
issue is:
(a) Common. 25,000,000 shares of Common Stock having a par value of
$.001 per share.
(b) Preferred. 1,000,000 shares of Preferred Stock having a par value
of $.001 per share and to be issued in such series and to have such rights,
preferences and designations as determined by the Board of Directors of the
Corporation.
No stock of the Corporation shall be entitled to pre-emptive rights or
cumulative voting.
THIRD. The number of shares of the Corporation outstanding and entitled to
vote at the time of the adoption of said amendment was 1,250,000.
FOURTH. The number of shares voted for such amendments was 1,167,700 (93%)
and no shares were voted against such amendment.
DATED this 11th day of March, 1998.
CORONADO COMMUNICATIONS CORP.
By: /s/ Glen Ulmer
------------------------------------
Glen Ulmer, President and Secretary
<PAGE>
VERIFICATION
STATE OF UTAH )
: ss.
COUNTY OF SALT LAKE )
The undersigned being first duly sworn, deposes and states: that the
undersigned is the Secretary of Coronado Communications Corp., that the
undersigned has read the Articles of Amendment and knows the contents thereof
and that the same contains a truthful statement of the Amendment duly adopted by
the sole director and stockholders of the Corporation.
By: /s/ Glen Ulmer
-------------------------------
Glen Ulmer
Secretary
2
<PAGE>
STATE OF UTAH )
: ss.
COUNTY OF SALT LAKE )
Before me the undersigned Notary Public in and for the said County and
State, personally appeared the President/Secretary of Coronado Communications
Corp., a Nevada corporation, and signed the foregoing Articles of Amendment as
his own free and voluntary acts and deeds pursuant to a corporate resolution for
the uses and purposes set forth.
IN WITNESS WHEREOF, I have set my hand and seal this 11th day of March
1998.
By: /s/ Thomas G. Kimble
-------------------------------
NOTARY PUBLIC
Notary Seal
3
<PAGE>
CERTIFICATE AMENDING ARTICLES OF INCORPORATION
OF
CORONADO CAPITAL CORP.
The undersigned, being the President and Secretary of CORONADO CAPITAL
CORP., a Nevada Corporation, hereby certify that by majority vote of the Board
of Directors and majority vote of the stockholders at a meeting held on January
13, 1997, it was agreed by unanimous vote that this CERTIFICATE AMENDING
ARTICLES OF INCORPORATION be filed.
The undersigned further certify that the original Articles of Incorporation
of CORONADO CAPITAL CORP. were filed with the Secretary of State of Nevada on
the 29th day of March, 1993. The undersigned further certify that ARTICLES FIRST
of the original Articles of Incorporation filed on the 29th day of March, 1993,
herein is amended to read as follows:
ARTICLE FIRST
FIRST. The name shall be:
CORONADO COMMUNICATIONS CORP.
4
<PAGE>
CERTIFICATE AMENDING ARTICLES OF INCORPORATION
OF
CORONADO CAPITAL CORP.
CONTINUED
The undersigned hereby certify that they have on this 14th day of January,
1997, executed this Certificate Amending the original Articles of Incorporation
heretofore filed with the Secretary of State of Nevada.
/s/ Maureen Abato
-----------------------------------
President
/s/ William Vernick
-----------------------------------
Secretary
STATE OF NEW YORK )
) SS:
COUNTY OF NEW YORK )
On this 14th day of January, 1997, before me, the undersigned, a Notary Public
in and for the County of New York, State of New York, personally appeared:
WLLIAM VERNICK. Known to me to be the person(s) whose name(s) are subscribed to
the foregoing Certificate Amendment Articles of Incorporation and acknowledged
to me that they executed the same.
/s/ Maureen Abato
-----------------------------------
Notary Public
STATE OF NEW YORK
(SEAL) QUALIFIED IN NEW YORK COUNTY
REGISTRATION NUMBER:
02AB5033074
COMMISSION EXPIRE 9/12/98
5
<PAGE>
ARTICLES OF INCORPORATION
OF
CORONADO CAPITAL CORP.
FIRST. The name of the corporation is:
CORONADO CAPITAL CORP.
SECOND. Its registered office in the State of Nevada is located at 2533
North Carson Street, Carson City, Nevada 89706 that this Corporation may
maintain an office, or offices, in such other place within or without the State
of Nevada as may be from time to time designated by the Board of Directors, or
by the Bylaws of said Corporation, and that this Corporation may conduct all
Corporation business of every kind and nature, including the holding of all
meetings of Directors and Stockholders, outside the State of Nevada as well as
within the State of Nevada.
THIRD. The objects for which this Corporation is formed are: To engage in
any lawful activity, including, but not limited to the following:
(A) Shall have such rights, privileges and powers as may be conferred
upon corporations by any existing law.
(B) May at any time exercise such rights, privileges and powers, when
not inconsistent.
(C) Shall have power to have succession by its corporate name for the
period limited in its certificate or articles of incorporation, and when no
period is limited, perpetually, or until dissolved and its affairs wound up
according to law.
(D) Shall have power to sue and be sued in any court of law or equity.
(E) Shall have power to make contracts.
(F) Shall have power to hold, purchase and convey real and personal
estate and to mortgage or lease any such real and personal estate with its
franchises. The power to hold real
<PAGE>
and personal estate shall include the power to take the same by devise or
bequest in the State of Nevada, or in any other state, territory or country.
(G) Shall have power to appoint such officers and agents as the affairs
of the corporation shall require, and to allow them suitable compensation.
(H) Shall have power to make Bylaws not inconsistent with the
constitution or laws of the United States, or of the State of Nevada, for the
management, regulation and government of its affairs and property, the transfer
of its stock, the transaction of its business, and the calling and holding of
meetings of its stockholders.
(I) Shall have power to wind up and dissolve itself, or be wound up or
dissolved.
(J) Shall have power to adopt and use a common seal or stamp, and alter
the same at pleasure. The use of a seal or stamp by the corporation on any
corporate documents is not necessary. The corporation may use a seal or stamp,
if it desires, but such use or nonuse shall not in any way affect the legality
of the document.
(K) Shall have power to borrow money and contract debts when necessary
for the transaction of its business, or for the exercise of its corporate
rights, privileges or franchises, or for any other lawful purpose of its
incorporation; to issue bonds, promissory notes, bills of exchange, debentures,
and other obligations and evidences of indebtedness, payable t a specified time
or times, or payable upon the happening of a specified event or events, whether
secured by mortgage, pledge or otherwise, or unsecured, for money borrowed, or
in payment for property purchased, or acquired, or for any other lawful object.
(L) Shall have power to guarantee, purchase, hold, sell, assign,
transfer, mortgage, pledge or otherwise dispose of the shares of the capital
stock of, or any bonds, securities or evidences of the indebtedness created by,
any other corporation or corporations of the State of Nevada, or any other state
or government, and, while owners of such stock, bonds, securities or evidences
of indebtedness, to exercise all the rights, powers and privileges of ownership,
including the right to vote, if any.
(M) Shall have power to purchase, hold, sell and transfer shares of its
own capital stock, and use therefor its capital, capital surplus, surplus, or
other property or fund.
(N) Shall have power to conduct business, have one or more offices, and
hold, purchase, mortgage and convey real and personal property in the State of
Nevada, and in any of the several states, territories, possessions and
dependencies of the United States, the District of Columbia, and any foreign
countries.
(O) Shall have power to do all and everything necessary and proper for
the accomplishment of the objects enumerated in its certificate or articles of
incorporation, or any amendment thereof, or necessary or incidental to the
protection and benefit of the corporation,. And, in general, to carry on any
lawful business necessary or incidental to the attainment of the objects of the
corporation, whether or not such business is similar in nature to the objects
set forth in the certificate or articles of incorporation of the corporation, or
any amendment thereof.
2
<PAGE>
(P) Shall have power to make donations for the public welfare or for
charitable, scientific or educational purposes.
(Q) Shall have power to enter into partnerships, general or limited, or
joint ventures, in connection with any lawful activities.
FOURTH. That the total number of voting common stock authorized that may be
issued by the Corporation is TWENTY-FIVE MILLION (25,000,000) shares of stock
with $.001 par value and no other class of stock shall be authorized. Said
shares may be issued by the corporation from time to time for such
considerations as may be fixed by the Board of Directors.
FIFTH. The governing board of the corporation shall be known as directors,
and the number of directors may from time to time be increased or decreased in
such manner as shall be provided by the Bylaws of this Corporation, providing
that the number of directors shall not be reduced to fewer than one (1).
The name and post office address of the first Board of Directors shall be
one (1) number and listed as follows:
NAME POST OFFICE ADDRESS
---- -------------------------
Betty J. Elpern 2533 North Carson Street
Carson City, Nevada 89706
SIXTH. The capital stock, after the amount of the subscription price, or
par value, has been paid in, shall not be subject to assessment to pay the debts
of the corporation.
SEVENTH. The name and post office address of the Incorporator signing the
Articles of Incorporation is as follows:
NAME POST OFFICE ADDRESS
---- -------------------------
Betty J. Elpern 2533 North Carson Street
Carson City, Nevada 89706
The address of said agent, and, the registered or statutory address of this
corporation in the state of Nevada, shall be:
2533 North Carson Street
Carson City, Nevada 89706
NINTH. The corporation is to have perpetual existence.
TENTH. In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized:
Subject to the Bylaws, if any, adopted by the Stockholders, to make, alter
or amend the Bylaws of the Corporation.
3
<PAGE>
To fix the amount to be reserved as working capital over and above its
capital stock paid in; to authorize and cause to be executed, mortgages and
liens upon the real and personal property of this Corporation.
By resolution passed by a majority of the whole Board, to designate one (1)
or more committees, each committee to consist of one or more of the Directors of
the Corporation, which, to the extent provided in the resolution, or in the
Bylaws of the Corporation, shall have and may exercise the powers of the Board
of Directors in the management of the business and affairs of the Corporation.
Such committee, or committees, shall have such name, or names, as may be stated
in the Bylaws of the Corporation, or as may be determined from time to time by
resolution adopted by the Board of Directors.
When and as authorized by the affirmative vote of the Stockholders holding
stock entitling them to exercise at least a majority of the voting power given
at a Stockholders meeting called for that purpose, or when authorized by the
written consent of the holders of at least a majority of the voting stock issued
and outstanding, the Board of Directors shall have power and authority at any
meeting to sell, lease or exchange all of the property and assets of the
Corporation, including its good will and its corporate franchises, upon such
terms and conditions as its board of Directors deems expedient and for the best
interests of the Corporation.
ELEVENTH. No shareholder shall be entitled as a matter of right to
subscribe for or receive additional shares of any class of stock of the
Corporation, whether now or hereafter authorized, or any bonds, debentures or
securities convertible into stock, but such additional shares of stock or other
securities convertible into stock may be issued or disposed of by the Board of
Directors to such persons and on such terms as in its discretion it shall deem
advisable.
TWELFTH. No director or officer of the Corporation shall be personally
liable to the Corporation or any of its stockholders for damages for breach of
fiduciary duty as a director or officer involving any act or omission of any
such director or officer; provided, however, that the foregoing provision shall
not eliminate or limit the liability of a director or officer (i) for acts or
omissions which involve intentional misconduct, fraud or a knowing violation of
law, or (ii) the payment of dividends in violation of Section 78.300 of the
Nevada Revised Statutes. Any repeal or modification of this Article by the
stockholders of the Corporation shall be prospective only, and shall not
adversely affect any limitation on the personal liability of a director or
officer of the Corporation for acts or omissions prior to such repeal or
modification.
THIRTEENTH. This Corporation reserves the right to amend, alter, change or
repeal any provision contained in the Articles of Incorporation, in the manner
now or hereafter prescribed by statute, or by the Articles of Incorporation, and
all rights conferred upon Stockholders herein are granted subject to this
reservation.
4
<PAGE>
I, THE UNDERSIGNED, being the Incorporator hereinbefore named for the
purpose of forming a Corporation pursuant to the General Corporation Law of the
State of Nevada, do make and file these Articles of Incorporation, hereby
declaring and certifying that the facts stated are true, and accordingly have
hereunto set my hand this 29th day of March, 1993.
/s/ Betty J. Elpern
-----------------------------------
Betty J. Elpern
STATE OF NEVADA )
) SS:
CARSON CITY )
On this 29th day of March, 1993, in Carson City, Nevada, before me, the
undersigned, a Notary Public in and for Carson City, State of Nevada, personally
appeared:
Betty J. Elpern
Known to me to be the person whose name is subscribed to the foregoing document
and acknowledged to me that he executed the same.
/s/ Betty J. Elpern
-----------------------------------
Betty J. Elpern
I, Laughlin Associates, Inc. hereby accept as Resident Agent for the previously
named Corporation.
3/29/93 /s/ Betty J. Elpern
- ---------------------------------
Date Service Coordinator
5
AMENDED AND RESTATED BY-LAWS
OF
NESCO INDUSTRIES, INC.
<PAGE>
ARTICLE I - Stockholders
1.1 Place of Meetings. All meetings of stockholders shall be held at such
place within or without the State of Nevada as may be designated from time to
time by the Board of Directors (the "Board"), the Chairman of the Board or the
President or, if not so designated, at the registered office of the Corporation.
1.2 Annual Meeting. The annual meeting of stockholders for the election of
directors and for the transaction of such other business as may properly be
brought before the meeting shall be held at a time fixed by the Board or, if not
so fixed by the Board, by the Chairman of the Board or President.
1.3 Special Meeting. Special meetings of stockholders may be called at any
time by the Board, the Chairman of the Board or the President, and shall be
called by the Board upon the request of the holders of twenty percent (20%) of
the outstanding shares of stock of the Corporation entitled to vote at the
meeting. Business transacted at any special meeting of stockholders shall be
limited to matters relating to the purpose or purposes stated in the notice of
meeting.
1.4 Notice of Meetings. Except as otherwise provided by law, written notice
of each meeting of stockholders, whether annual or special, shall be given not
less than ten (10) nor more than sixty (60) days before the date of the meeting
to each stockholder entitled to vote at such meeting. The notices of all
meetings shall state the place, date and hour of the meeting. The notice of a
special meeting shall state, in addition, the purpose or purposes for which the
meeting is called.
1.5 Voting List. The officer who has charge of the stock ledger of the
Corporation shall prepare, at least ten (10) days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten (10) days prior to the meeting, at the place where the meeting is to be held
or, if such place is specified in the notice of the meeting at a place within
the city which the meeting is to be held other than the place of the meeting.
The list shall also be produced and kept at the time and place of the meeting
during the whole time of the meeting, and may be inspected by any stockholder
who is present.
1.6 Quorum and Required Vote. Except as otherwise provided by law or in the
Articles of Incorporation, the holders of a majority of the shares of stock
entitled to vote on a particular matter present in person or represented by
proxy shall constitute a quorum for the purpose of considering such matter.
1.7 Voting and Proxies. Each holder of Common Stock shall have one vote for
each share of such stock entitled to vote and held of record by such
stockholder, and holders of
<PAGE>
shares of capital stock other than Common Stock shall have such voting rights as
are provided in the Articles of Incorporation. Each stockholder of record
entitled to vote at a meeting of the stockholders, or to express consent or
dissent to corporate action in writing without a meeting, may vote or express
such consent or dissent in person or may authorize another person or persons to
vote or act for such stockholder by proxy in accordance with applicable law.
1.8 Business to be Conducted. At any meeting of the stockholders, only such
business shall be conducted as shall have been properly brought before the
meeting. To be properly brought before a meeting of stockholders, such business
must be (a) specified in the notice of the meeting (or any supplement thereto)
given by or at the direction of the Board of Directors, (b) otherwise properly
brought before the meeting by or at the direction of the Board of Directors, or
(c) otherwise properly brought before the meeting by a stockholder. For business
to be properly brought before a meeting by a stockholder, the stockholder must
have given timely notice thereof in writing to the Secretary of the Corporation.
To be timely, a stockholder's notice must be delivered to or mailed and received
at the principal executive offices of the Corporation not less than 60 days nor
more than 90 days prior to the meeting; provided, however, that in the event
that less than 70 days' notice or prior public disclosure of the date of the
meeting is given or made to stockholders, notice by the stockholder to be timely
must be so received not later than the close of business on the 10th day
following the day on which such notice of the date of the meeting was mailed or
such public disclosure was made. A stockholder's notice to the Secretary shall
set forth as to each matter the stockholder proposes to bring before the meeting
(a) a brief description of the business desired to be brought before the meeting
and the reasons for conducting such business at the meeting, (b) the name and
address, as they appear on the Corporation's books, of the stockholder proposing
such business, (c) the class and number of shares of the Corporation's capital
stock which are beneficially owned by the stockholder, and (d) any material
interest of the stockholder in such business. Notwithstanding anything in the
Bylaws to the contrary, no business shall be conducted at any meeting of the
stockholders except in accordance with the procedures set forth in this Section
1.8. The Chair of the meeting shall, if the facts warrant, determine and declare
to the meeting that business was not properly brought before the meeting in
accordance with the Bylaws and, in such event, such business shall not be
transacted.
1.9 Nominations for Election as Directors. Only persons who are nominated
in accordance with the procedures set forth in this Section 1.9 shall be
eligible for election as Directors of the Corporation. Nominations of persons
for election to the Board of Directors of the Corporation may be made at a
meeting of stockholders (a) by or at the direction of the Board of Directors, or
(b) by any stockholder of the Corporation entitled to vote for the election of
Directors at the meeting who gives timely notice of his/her/its intention to
make such nomination at the meeting. Such notice shall be made in writing to the
Secretary of the Corporation, and must be delivered to or mailed and received at
the principal executive offices of the Corporation not less than 60 days nor
more than 90 days prior to the meeting; provided, however, that in the event
that less than 70 days' notice or prior public disclosure of the date of the
meeting is given or made to stockholders, notice by the stockholder to be timely
must be so received not later than the close of business on the 10th day
following the day on which such notice of the date of the meeting was
2
<PAGE>
mailed or such public disclosure was made. Such stockholder's notice shall set
forth (x) as to each person whom the stockholder proposes to nominate for
election or re-election as a Director (i) the name, age, business address and
residence address of such person, (ii) the principal occupation or employment of
such person, (iii) the class and number of shares of the Corporation which are
beneficially owned by such person, and (iv) any other information relating to
such person that is required to be disclosed in solicitations of proxies for the
election of directors or otherwise is required pursuant to Regulation 14A under
the Securities Exchange Act of 1934, as amended (including without limitation
such persons' written consent to being named in any proxy statement as a nominee
and to serving as a Director if elected); and (y) as to the stockholder giving
the notice (i) the name and address, as they appear on the Corporation's books,
of such stockholder and (ii) the class and number of shares of the Corporation
which are beneficially owned by such stockholder. At the request of the Board of
Directors any person nominated by the Board of Directors for election as a
Director shall furnish to the Secretary of the Corporation that information
required to be set forth in a stockholder's notice of nomination which pertains
to the nominee. No person shall be eligible for election as a Director of the
Corporation unless nominated in accordance with the procedures set forth in this
Section 1.9. The Chair of the meeting shall, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
Bylaws and, in such event, the defective nomination shall be disregarded.
1.10 Applicability of Federal Securities Laws and Regulations. At any time
that the Corporation has a class of equity securities registered under the
Securities Exchange Act of 1934, to the extent that any provision of this
Article I shall be in conflict with rules and regulations of the Securities and
Exchange Commission promulgated under such Act with respect to the nomination
and/or election of Directors of the Corporation, or otherwise with respect to
the conduct of business at a meeting of stockholders, such rules and regulations
shall govern and this Article shall be interpreted and limited in its
application, as necessary, to conform with such rules and regulations.
ARTICLE II - Directors
2.1 General Powers. The business and affairs of the Corporation shall be
managed by or under the direction of the Board, which may exercise all of the
powers of the Corporation except as may be otherwise provided by law or the
Articles of Incorporation.
2.2 Number and Term. Except as may be provided in the Articles of
Incorporation, and subject to any resolution of the stockholders, the Board
shall have the authority to determine the number of directors which shall
constitute the Board and the terms of office of directors.
2.3 Nomination by Stockholders. Nominations for election to the Board of
Directors may be made by the Board of Directors or by any stockholder of any
outstanding class of
3
<PAGE>
capital stock of the Corporation entitled to vote for the election of directors
in accordance with the procedures set forth in Article I hereof.
2.4 Regular Meetings. Regular meetings of the Board may be held without
notice at such time and place, either within or without the State of Delaware,
as shall be determined from time to time by the Board.
2.5 Special Meeting. Unless the Board shall otherwise direct, special
meetings of the Board may be held at any time and place, within or without the
State of Nevada, and shall be called at any time by or at the request of the
President and shall be called by or at the written request of one-third of the
directors, or by one director in the event that there is only a single director
in office. Notice, which need not be written, of the time and place of special
meetings shall be given to each director at least twenty-four (24) hours before
the time for which the meeting is scheduled. A notice or waiver of notice of a
meeting of the Board need not specify the purposes of the meeting. Any business
may be transacted at a special meeting.
2.6 Meetings by Telephone Conference Calls. Directors or any members of any
committee designated by the Directors may participate in a meeting of the Board
or such committee by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation by such means shall constitute presence in person
at such meeting.
2.7 Quorum. A majority of all the directors in office shall constitute a
quorum at all meetings of the Board.
2.8 Committees. The Board may, by resolution passed by a majority of the
whole Board, designate one or more committees, each committee to consist of one
or more of the directors of the Corporation. The Board may designate one or more
directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members of the
committee present at any meeting and not disqualified from voting, whether or
not such member or members constitute a quorum, may unanimously appoint another
member of the Board to act at the meeting in the place of any such absent or
disqualified member. Any such committee, to the extent provided in the
resolution of the Board and subject to the provisions of the General Corporation
Law of the State of Nevada, shall have and may exercise all the powers and
authority of the Board in the management of the business and affairs of the
Corporation.
ARTICLE III - Officers of the Corporation
3.1 Officers. The officers of the Corporation shall consist of a President,
a Secretary, a Treasurer and such other officers with such other titles as the
Board may determine.
4
<PAGE>
3.2 Election. Officers shall be elected annually by the Board at its first
meeting following the annual meeting of stockholders.
3.3 Duties and Powers. Except as otherwise provided by the Board, the
officers shall have, exercise and perform the duties and powers usually incident
to their offices and as set forth herein:
(i) Chief Executive Officer. The Chief Executive Officer of the
Corporation shall, subject to the direction of the Board, have general charge
and supervision of the business of the Corporation. Unless otherwise provided by
the Board, the Chief Executive Officer of the Corporation also shall preside at
all meetings of the stockholders, and if he is a director, at all meetings of
the Board.
(ii) Chief Operating Officer. The Chief Operating Officer of the
Corporation shall, subject to the direction of the Chief Executive Officer of
the Corporation and the Board, have general charge and supervision of the
day-to-day ordinary business operations of the Corporation.
(iii) President. The President shall be the Chief Executive Officer of
the Corporation unless the Board shall elect a Chairman and vest in such
Chairman the authority of Chief Executive Officer of the Corporation. The
President also shall be the Chief Operating Officer of the Corporation unless
the Board shall otherwise so provide. If the Board of Directors shall appoint
its Chairman as Chief Executive Officer and shall appoint someone other than the
President as Chief Operating Officer, the President shall perform such duties
and possess such powers as the Board of Directors may from time to time
prescribe.
(iv) Vice President. Any Vice President shall perform such duties and
possess such powers as the Board or the Chief Executive Officer of the
Corporation from time to time prescribe.
(v) Secretary. The Secretary shall give notices of all meetings of
stockholders and special meetings of the Board, to attend all meetings of
stockholders and the Board and keep a record of the proceedings, to maintain a
stock ledger and prepare lists of stockholders and their addresses as required,
to be custodian of corporate records and the corporate seal and to affix and
attest to the same on documents, and shall perform such duties and shall have
such powers as the Board or the President may from time to time prescribe.
(vi) Treasurer. The Treasurer shall perform such duties and shall have
such powers as may from time to time be assigned to him by the Board or the
Chief Executive Officer of the Corporation, including without limitation the
duty and power to keep and be responsible for all funds and securities of the
Corporation, to deposit funds of the Corporation in depositories selected by the
Board, to disburse such funds as ordered by the Board, to make proper
5
<PAGE>
accounts of such funds, and to render as required by the Board statements of all
such transactions and of the financial condition of the Corporation.
3.4 Salaries. Officers of the Corporation shall be entitled to such
salaries, compensation or reimbursement as shall be fixed or allowed from time
to time by the Board.
ARTICLE IV - Transfer of Share Certificates
4.1 General. Except as otherwise established by rules and regulations
adopted by the Board and subject to applicable law, shares of stock may be
transferred on the books of the Corporation only by the registered holder or by
duly authorized attorney. Transfers shall be made only on surrender to the
Corporation or its transfer agent of the certificate representing such shares
properly endorsed or accompanied by a written assignment or power of attorney
properly executed, and with such proof of authority of the authenticity of
signature as the Corporation or its transfer agent may reasonably require.
Except as may be otherwise required by law, by the Articles of Incorporation or
by these By-Laws, the Corporation shall be entitled to treat the record holder
of stock as shown on its books as the owner of such stock for all purposes,
including the payment of dividends and the right to vote with respect to such
stock, regardless of any transfer, pledge or other disposition of such stock
until the shares have been transferred on the books of the Corporation in
accordance with the requirements of these By-Laws.
4.2 Restriction on Certain Transfers. Whenever shares of the Corporation's
capital stock are issued pursuant to exemptions from registration under the
Securities Act of 1933 or regulations adopted under that Act which require or
impose limitations on the resale or other transfers of such shares by the
holders thereof, no resale or other transfer of such shares shall be permitted
except in compliance with the terms and conditions of the exemption or
regulation pursuant to which the shares were issued.
ARTICLE V - Indemnification
5.1 Right to Indemnification. The Corporation shall indemnify any person
who was or is a party or threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (collectively, a "proceeding"), by reason of the
fact such person is or was (a) a director or executive officer of the
Corporation or a constituent corporation absorbed in a consolidation or merger
(hereinafter, a "constituent corporation"), or, (b) is or was serving at the
request of the Corporation or a constituent corporation as a director, officer,
partner, employee or agent of another corporation, partnership, joint venture or
other enterprise or entity, or (c) is or was a director or officer of the
Corporation serving at its request as an administrator, trustee or other
fiduciary of one or more of the employee
6
<PAGE>
benefit plans, if any, of the Corporation or another entity which may be in
effect from time to time, against all expenses, liability and loss actually and
reasonably incurred or suffered by such person in connection with such
proceeding, whether or not the indemnified liability arises or arose from any
proceeding by or in the right of the Corporation, to the extent that such person
is not otherwise indemnified and to the extent that such indemnification is not
prohibited by law as it presently exists or may hereafter be amended.
5.2 Advance of Expenses. The Corporation shall advance all expenses
reasonably incurred by a person entitled to indemnification pursuant to Section
5.1 above, in defending a proceeding in advance of the final disposition of such
proceeding, and may, but shall not be obligated to, advance expenses of other
persons entitled to indemnification pursuant to any other agreement or provision
of law.
5.3 Procedure for Determining Permissibility. To determine whether any
indemnification under this Article V is permissible, the Board by a majority
vote of a quorum consisting of directors not parties to such proceeding may, and
on request of a person seeking indemnification shall be required to, determine
in each case whether the applicable standards in any applicable statute have
been met, or such determination shall be made by independent legal counsel if
such quorum is not obtainable, or, even if obtainable, a majority vote of a
quorum of disinterested directors so directs. If a claim for indemnification
under this Article is not paid in full within ninety (90) days after a written
claim therefor has been received by the Corporation, the claimant may file suit
to recover the unpaid amount of such claim, and the Corporation shall have the
burden of proving that the claimant was not entitled to the requested
indemnification under applicable law. The reasonable expenses of any person in
prosecuting a successful claim for indemnification hereunder, and the fees and
expenses of any independent legal counsel engaged to determine permissibility of
indemnification, shall be borne by the Corporation. For purposes of this
paragraph, "independent legal counsel" means legal counsel other than that
regularly or customarily engaged by or on behalf of the Corporation.
5.4 Proceedings Initiated by Indemnitee. Notwithstanding any other
provision of this Article V, the Corporation shall be required to indemnify a
person in connection with a proceeding initiated by such person only if the
proceeding was authorized by the Board.
5.5 Indemnification Not Exclusive; Inuring of Benefit. The indemnification
provided by this Article V shall not be deemed exclusive of any other right to
which one seeking indemnification may have or hereafter acquire under any
statute, provision of the Articles of Incorporation, these By-Laws, agreement,
vote of stockholders or disinterested directors or otherwise, and shall inure to
the benefit of the heirs, executors and administrators of any such person.
5.6 Insurance and Other Indemnification. The Board shall have the power to
(i) authorize the Corporation to purchase and maintain, at the Corporation's
expenses, insurance on behalf of the Corporation and on behalf of others to the
extent that power to do so has not been
7
<PAGE>
prohibited by applicable law, and (ii) give other indemnification to the extent
not prohibited by applicable law.
5.7 Modification or Repeal. Any modification or repeal of any provision of
this Article V shall not adversely affect any right or protection of an
Authorized Representative existing hereunder with respect to any act or omission
occurring prior to such modification or repeal.
ARTICLE VI - Amendments
6.1 By the Board of Directors. These By-Laws may be altered, amended or
repealed or new By-Laws may be adopted by the affirmative vote of a majority of
the directors present at any regular or special meeting of the Board at which a
quorum is present.
6.2 By the Stockholders. These By-Laws may be altered, amended or repealed
or new By-Laws may be adopted by the affirmative vote of the holders of a
majority of the shares of the capital stock of the Corporation entitled to vote
at any regular meeting of stockholders, or at any special meeting of
stockholders, provided such change shall have been set forth, or a summary
thereof shall have been provided, in the notice of such special meeting.
8
[FRONT SIDE OF CERTIFICATE]
NOT VALID UNLESS COUNTERSIGNED BY TRANSFER AGENT
INCORPORATED UNDER THE LAWS OF THE STATE OF NEVADA
____________ ____________
NUMBER SHARES
NESCO
INDUSTRIES
INC.
AUTHORIZED COMMON STOCK: 25,000,000 SHARES
PAR VALUE: $.001
THIS CERTIFIES THAT _____________________________________________________, THE
RECORD HOLDER OF _______________________________________________________ Shares
of NESCO INDUSTRIES, INC. Common Stock, transferable on the books of the
Corporation in person or by duly authorized attorney upon surrender of this
Certificate properly endorsed. This Certificate is not valid until countersigned
by the Transfer Agent and registered by the Registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
_________________________________ ____________________________________
Secretary President
<PAGE>
[REVERSE SIDE OF CERTIFICATE]
NOTICE: Signature must be guaranteed by a firm which is a member of a
registered national stock exchange, or by a bank (other than a saving
bank), or a trust company. The following abbreviations, when used in
the inscription on the face of this certificate, shall be construed
as though they were written out in full according to applicable laws
or regulations:
<TABLE>
<S> <C> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - Custodian
TEN ENT - as tenants by the entireties -----------------------------
JT TEN - as joint tenants with right of (Cust) (Minor)
survivorship and not as tenants under Uniform Gifts to Minors
in common Act
-------------------------
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, __________________________________ hereby sell, assign
and transfer unto
_______________________________________
(PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE)
________________________________________________________________________________
(PLEASE PRINT NAME OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF
ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________________________ Shares
of the capital stock represented by the within certificate, and do hereby
irrevocably constitute and appoint
____________________________________________________________________ Attorney to
transfer the said stock on the books of the within named Corporation with full
power of substitution in the premises.
Dated ________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE
NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR WITHOUT ALTERATION OR ENLARGEMENT OR ANY
CHANGE WHATEVER
NESCO INDUSTRIES, INC.
1998 STOCK OPTION PLAN
1. Purpose. The Plan is intended as an additional incentive to key
employees, consultants, advisors and members of the Board of Directors
(together, the "Optionees") to enter into or remain in the service or employ of
NESCO INDUSTRIES, INC., a Nevada corporation (the "Company"), or any Affiliate
(as defined below) of the Company, and to devote themselves to the Company's
success by providing them with an opportunity to acquire or increase their
proprietary interest in the Company through receipt of rights (the "Options") to
acquire the Company's Common Stock, $.001 par value (the "Common Stock"). Each
Option granted under the Plan to a person who is employed by the Company or an
Affiliate is intended to be an incentive stock option ("ISO") within the meaning
of section 422(b) of the Internal Revenue Code of 1986, as amended (the "Code"),
for federal income tax purposes, except to the extent (i) any such ISO grant
would exceed the limitation of subsection 6(a) below, or (ii) any Option is
specifically designated at the time of grant (the "Grant Date") as not being an
ISO. No Option granted to a person who is not an employee of the Company or any
Affiliate on the Grant Date, or is not identified as an ISO in the Option
Documents (as hereinafter defined), shall be an ISO.
For purposes of the Plan, the term "Affiliate" shall mean a corporation
which is a parent corporation or a subsidiary corporation with respect to the
Company within the meaning of section 424(e) or (f) of the Code.
2. Administration. The Plan shall be administered by the Board of Directors
of the Company, without participation by any director on any matter pertaining
to him, provided that any director may join in a written consent to action
signed by all directors notwithstanding that such action pertains to such
director, in whole or in part. The Board of Directors may appoint a Stock Option
Committee composed of three or more of its members to operate and administer the
Plan in its stead. The Stock Option Committee or the Board of Directors in its
administrative capacity with respect to the Plan is referred to herein as the
"Committee."
The Committee shall hold meetings at such times and places as it may
determine. Acts approved at a meeting by a majority of the members of the
Committee or acts approved in writing by the unanimous consent of the members of
the Committee shall be the valid acts of the Committee.
The Committee shall from time to time at its discretion grant Options
pursuant to the terms of the Plan. The Committee shall have plenary authority to
determine the Optionees to whom and the times at which Options shall be granted,
the number of Option Shares (as defined in Section 4 below) to be covered by
such Options and the price and other terms and conditions thereof, including a
specification with respect to whether an Option is intended to be an ISO,
subject, however, to the express provisions of the Plan. In making such
determinations the Committee may
<PAGE>
take into account the nature of the Optionee's services and responsibilities,
the Optionee's present and potential contribution to the Company's success and
such other factors as it may deem relevant. The interpretation and construction
by the Committee of any provision of the Plan or of any Option granted under it
shall be final, binding and conclusive.
No member of the Board of Directors or the Committee shall be personally
liable for any action or determination made in good faith with respect to the
Plan or any Option granted under it. No member of the Committee shall be liable
for any act or omission of any other member of the Committee or for any act or
omission on his own part, including but not limited to the exercise of any power
and discretion given to him under the Plan, except those resulting from (i) any
breach of such member's duty of loyalty to the Company or its stockholders, (ii)
acts or omissions not in good faith or involving intentional misconduct or a
knowing violation of law, (iii) acts or omissions that would result in liability
under Section 78.300 of the General Corporation Law of Nevada, as amended, and
(iv) any transaction from which the member derived an improper personal benefit.
In addition to such other rights of indemnification as he may have as a
member of the Board of Directors or the Committee, and with respect to the
administration of the Plan and the granting of Options under it, each member of
the Board of Directors and of the Committee shall be entitled without further
action on his part to indemnity from the Company for all expenses (including the
amount of judgment and the amount of approved settlements made with a view to
the curtailment of costs of litigation, other than amounts paid to the Company
itself) reasonably incurred by him in connection with or arising out of any
action, suit or proceeding with respect to the administration of the Plan or the
granting of Options under it in which he may be involved by reason of his being
or having been a member of the Board of Directors or the Committee, whether or
not he continues to be such member of the Committee at the time of the incurring
of such expenses; provided, however, that such indemnity shall not include any
expenses incurred by such member of the Board of Directors or Committee: (i) in
respect of matters as to which he shall be finally adjudged in such action, suit
or proceeding to have been guilty of gross negligence or willful misconduct in
the performance of his duties as a member of the Board of Directors or the
Committee; or (ii) in respect of any settlement amount in excess of an amount
approved by the Company on the advice of its legal counsel; and provided further
that no right of indemnification hereunder shall be available to or accessible
by any such member of the Committee unless within a reasonable time after
institution of any such action, suit or proceeding (which shall be no later than
the earlier of ten (10) days prior to the date that any responsive pleading or
other action in response to the institution of any such proceeding is due, or
ten (10) days after he has actual notice of the institution of such proceeding)
he shall have offered the Company in writing the opportunity to handle and
defend such action, suit or proceeding at its own expense. The foregoing right
of indemnification shall inure to the benefit of the heirs, executors or
administrators of each such member of the Board of Directors or the Committee
and shall be in addition to all other rights to which such member of the Board
of Directors or the Committee would be entitled to as a matter of law, contract
or otherwise.
3. Eligibility. All key employees of the Company or its Affiliates (who may
also be directors of the Company or its Affiliates) shall be eligible to receive
Options hereunder, and such
-2-
<PAGE>
Options may be either ISOs or Options which are not ISOs (hereinafter,
"Nonqualified Options"). Consultants, advisors and directors of the Company
shall be eligible to receive Nonqualified Options hereunder. The Committee, in
its sole discretion, shall determine whether an individual qualifies as an
employee or an Optionee. An Optionee may receive more than one Option.
4. Option Shares. The aggregate maximum number of shares of the Common
Stock for which Options may be granted under the Plan is one million (1,000,000)
shares (the "Option Shares"), which number is subject to adjustment as provided
in Section 8(b). Option Shares shall be issued from authorized and unissued
Common Stock or Common Stock held in or hereafter acquired for the treasury of
the Company. If any outstanding Option granted under the Plan expires, lapses or
is terminated for any reason, the Option Shares allocable to the unexercised
portion of such Option may again be the subject of an Option granted pursuant to
the Plan.
5. Term of Plan. The Plan is adopted by the Board of Directors effective on
June 14, 1998, but shall terminate (a) on the first anniversary of the
Effective Date unless the Plan is approved by the stockholders of the Company as
set forth in section 422(b)(1) of the Code, and (b) if the Plan is so approved,
on the tenth anniversary of the Effective Date.
6. Terms and Conditions of Options. Options granted pursuant to the Plan
shall be evidenced by written documents (the "Option Documents") in such form as
the Committee shall from time to time approve, which Option Documents shall
comply with and be subject to the following terms and conditions and with any
other terms and conditions (including vesting schedules for the exercisability
of Options) which the Committee shall from time to time provide which are not
inconsistent with the terms of the Plan.
a. Number of Option Shares. Each Option Document shall state the number
of Option Shares to which it pertains. In no event shall the aggregate fair
market value, as of the Grant Date, of Option Shares with respect to which an
ISO is exercisable for the first time by the Optionee during any calendar year
(under all incentive stock option plans of the Company or its Affiliates) exceed
$100,000.
b. Option Price. Each Option Document shall state the price at which
Option Shares may be purchased (the "Option Price"), which, for any ISO, shall
be at least 100% of the fair market value of the Common Stock on the date the
option is granted as determined by the Committee; provided, however, that if an
ISO is granted to an Optionee who then owns, directly or by attribution under
section 424(b) of the Code, shares possessing more than ten percent of the total
combined voting power of all classes of stock of the Company or an Affiliate,
then the ISO Option Price shall be at least 110% of the fair market value of the
Option Shares on the Grant Date. The Option Price of Nonqualified Options may be
below 100% of the fair market value of the Common Stock on the Grant Date. The
fair market value of the Common Stock shall be as determined by the Committee,
provided that the fair market value of the Common Stock on the Grant Date in
respect of the grant of an ISO shall be determined in accordance with Section
422(b)(4) of the Code and Regulations hereunder.
-3-
<PAGE>
c. Medium of Payment. An Optionee shall pay for Options Shares (i) in
cash, (ii) by certified check payable to the order of the Company, (iii) in
whole or in part in shares of Common Stock, including shares of Common Stock
acquired upon the contemporaneous exercise of Options, or (iv) by such other
mode of payment as the Committee may approve, including payment through a broker
in accordance with procedures permitted by Regulation T of the Federal Reserve
Board. If payment is made in whole or in part in shares of Common Stock acquired
upon exercise of an Option, the value of the Common Stock for such purpose shall
be the fair market value of the shares so applied as of the date of exercise of
the Option. The Committee may set forth in the Option Documents at the time of
Grant, and thereby impose, such limitations or prohibitions on the use of shares
of Common Stock to exercise an Option as it deems appropriate.
d. Termination of Options. No Option shall be exercisable after the
first to occur of the following:
(i) Expiration of the Option term specified in the Option Document,
which shall not exceed ten years from the date of grant (or five years from the
date of grant in the case of an ISO if, on such date the Optionee owns, directly
or by attribution under section 424(b) of the Code, shares possessing more than
ten percent (10%) of the total combined voting power of all classes of stock of
the Company or an Affiliate);
(ii) Expiration of three months (or such shorter period as the
Committee may select) from the date the Optionee's employment with the Company
or its Affiliates terminates for any reason other than (a) disability (within
the meaning of section 22(e)(3) of the Code) or death, or (b) circumstances
described by subsection (d)(vi), below;
(iii) Expiration of one year from the date the Optionee's employment
with the Company or its Affiliates terminates for any reason of the Optionee's
disability (within the meaning of section 22(e)(3) of the Code) or death;
(iv) The date, if any, fixed by the Committee as an accelerated
expiration date in the event of a "Change in Control" described in sub-Section
6(e)(i) and (ii) below, provided an Optionee who holds an Option affected by
such acceleration of expiration date is given written notice at least sixty (60)
days before the date so fixed;
(v) The date set by the Committee to be an accelerated expiration
date after a finding by the Committee that a change in the financial accounting
treatment for Options from that in effect on the date the Plan was adopted
adversely affects or, in the determination of the Committee, may adversely
affect in the foreseeable future, the Company, provided that (x) an Optionee who
holds an Option affected by such acceleration of expiration date is given
written notice at least sixty (60) days before the date so fixed, and (y) the
Committee may take whatever other action, including acceleration of any exercise
provisions, it deems necessary or appropriate should it make the determination
referred to hereinabove; or
-4-
<PAGE>
(vi) A finding by the Committee, after full consideration of the
facts presented on behalf of both the Company and the Optionee, that the
Optionee has been discharged from employment or service with the Company or an
Affiliate for Cause. For purposes of this Section, "Cause" shall mean: (A) a
breach by Optionee of his employment or service agreement with the Company or an
Affiliate, (B) a breach of Optionee's duty of loyalty to the Company or an
Affiliate, including without limitation any act of dishonesty, embezzlement or
fraud with respect to the Company or an Affiliate, (C) the commission by
Optionee of a felony, a crime involving moral turpitude or other act causing
material harm to the Company's or an Affiliate's standing and reputation, (D)
Optionee's continued failure to perform his duties to the Company or an
Affiliate or (E) unauthorized disclosure of trade secrets or other confidential
information belonging to the Company or an Affiliate. In the event of a finding
that the Optionee has been discharged for Cause, in addition to immediate
termination of the Option, the Optionee shall automatically forfeit all Option
Shares for which the Company has not yet delivered the share certificates upon
refund of the Option Price; provided, however, that, with respect to any
Non-Qualified Option, the Committee may provide other and additional terms and
conditions in the Option Document which are expressly or by implication at
variance with the above terms and conditions, in which case the terms and
conditions set forth in the Option Documents shall be controlling.
e. Change of Control. In the event of a Change in Control (as defined
below), the Committee may take whatever action with respect to the Options
outstanding it deems necessary or desirable, including, without limitation,
accelerating the vesting, expiration or termination dates in the respective
Option Documents to a date no earlier than thirty (30) days after notice of such
acceleration is given to the Optionee; provided, however, that (x) the Committee
shall not accelerate the expiration or termination date of any outstanding
option except in the case of a Change in Control as described in sub-Sections
(i) or (ii) below, and (y) the Committee may provide in the Option Documents
other and additional terms and conditions of such Option which are applicable if
a Change of Control occurs, including terms and conditions which limit the
Committee's discretion under this section. A Change of Control shall be deemed
to have occurred upon the earliest to occur of the following events:
(i) the date the stockholders of the Company (or the Board of
Directors, if stockholder action is not required) approve a plan or other
arrangement pursuant to which the Company will be dissolved or liquidated;
(ii) the date the stockholders of the Company (or the Board of
Directors, if stockholder action is not required) approve a definitive agreement
to sell or otherwise dispose of substantially all of the assets of the Company;
(iii) the date the stockholders of the Company (or the Board of
Directors, if stockholder action is not required) and the stockholders of the
other constituent corporation (or its board of directors if stockholder action
is not required) have approved a definitive agreement to merge or consolidate
the Company with or into such other corporation, other than, in either case, a
-5-
<PAGE>
merger or consolidation of the Company in which holders of shares of the Common
Stock immediately prior to the merger or consolidation will hold at least a
majority of the ownership of common stock of the surviving corporation (and, if
one class of common stock is not the only class of voting securities entitled to
vote on the election of directors of the surviving corporation, a majority of
the voting power of the surviving corporation's voting securities) immediately
after the merger or consolidation, which common stock (and, if applicable,
voting securities) is to be held in the same proportion as such holders'
ownership of Common Stock immediately before the merger or consolidation;
(iv) the date any entity, person or group, (within the meaning of
Section 13(d)(3) or Section 14(d)(2) of the Securities Exchange Act of 1934, as
amended), other than (A) the Company or any of its subsidiaries or any employee
benefit plan (or related trust) sponsored or maintained by the Company or any of
its subsidiaries or (B) any person who, on the date the Plan is effective, shall
have been the beneficial owner of at least twenty percent (20%) of the
outstanding Common Stock, shall have become the beneficial owner of, or shall
have obtained voting control over, more than fifty percent (50%) of the
outstanding shares of the Common Stock; or
(v) the first day after the first anniversary of the adoption of this
Plan by the Board of Directors a majority of the directors comprising the Board
of Directors shall have been members of the Board of Directors for less than
twenty-four (24) months, unless each director who was not a director at the
beginning of such twenty-four (24) month period was either appointed or
nominated for election with the approval of at least two-thirds of the directors
then still in office who were directors at the beginning of such period.
f. Transfers. No Option granted under the Plan may be transferred,
except by will or by the laws of descent and distribution and, in the case of a
Non-Qualified Option, as expressly set forth in the Option Documents. During the
lifetime of the person to whom an Option is granted, such Option may be
exercised only by the Optionee.
g. Other Provisions. The Option Documents shall contain such other
provisions including, without limitation, additional restrictions upon the
exercise of the Option or additional limitations upon the term of the Option, as
the Committee shall deem advisable.
h. Amendment. Subject to the provisions of the Plan, the Committee shall
have the right to amend Option Documents issued to such Optionee, subject to the
Optionee's consent if such amendment is not favorable to the Optionee except
that the consent of the Optionee shall not be required for any amendment made
under subsection 6(e) above.
7. Exercise. No Option shall be deemed to have been exercised prior to the
receipt by the Company of written notice of such exercise and of payment in full
of the Option Price for the Option Shares to be purchased. Each such notice
shall specify the number of Option Shares to be purchased and shall satisfy the
securities law requirements set forth in this Section 7.
-6-
<PAGE>
Each exercise notice shall (unless the Option Shares are covered by a then
current registration statement or a Notification under Regulation A under the
Securities Act of 1933 (the "Act")), contain the Optionee's acknowledgment in
form and substance satisfactory to the Company that (i) such Option Shares are
being purchased for investment and not for distribution or resale (other than a
distribution or resale which, in the opinion of counsel satisfactory to the
Company, may be made without violating the registration provisions of the Act),
(ii) the Optionee has been advised and understands that (A) the Option Shares
have not been registered under the Act and are "restricted securities" within
the meaning of Rule 144 under the Act and are subject to restrictions on
transfer and (B) the Company is under no obligation to register the Option
Shares under the Act or to take any action which would make available to the
Optionee any exemption from such registration, (iii) such Option Shares may not
be transferred without compliance with all applicable federal and state
securities laws, and (iv) an appropriate legend referring to the foregoing
restrictions on transfer and any other restrictions imposed under the Option
Documents may be endorsed on the certificates. Notwithstanding the above, should
the Company be advised by counsel that the issuance of Option Shares upon the
exercise of an Option should be delayed pending (A) registration under federal
or state securities laws or (B) the receipt of an opinion that an appropriate
exemption therefrom is available, (C) the listing or inclusion of the shares on
any securities exchange or in an automated quotation system or (D) the consent
or approval of any governmental regulatory body whose consent or approval is
necessary in connection with the issuance of such Option Shares, the Company may
defer the exercise of any Option granted hereunder until either such event in A,
B, C or D has occurred.
8. Adjustments on Changes in Common Stock.
a. In case the Company shall (i) declare a dividend or make a
distribution on outstanding shares of its Common Stock in shares of Common
Stock, (ii) subdivide or reclassify the outstanding shares of its Common Stock
into a greater number of shares, or (iii) combine or reclassify the outstanding
shares of its Common Stock into a lesser number of shares, the number of Option
Shares subject to outstanding Options shall be increased or decreased in
proportion to the increase or decrease, as the case may be, in the total number
of outstanding shares of Common Stock of the Company as a result of such
subdivision, combination or reclassification. Such adjustment shall be effective
as of the record date of such subdivision, combination or reclassification.
Adjustments hereunder shall be made successively whenever any event specified
above shall occur.
b. The aggregate number of shares of Common Stock as to which Options
may be granted hereunder shall be adjusted in proportion to any adjustment made
in the number of Option Shares covered by outstanding Options pursuant to
Section 8(a) above.
c. In case of any reclassification, recapitalization or other change in
the capital structure of the Company affecting its Common Stock, other than a
change in par value, or from par value to no par value, or as a result of a
subdivision or combination, but including any change in the Common Stock into
two or more classes or series of shares), the Optionee shall have the right
-7-
<PAGE>
thereafter to receive upon exercise of this Option solely the kind and amount of
shares of stock and other securities, property, cash or any combination thereof
receivable in connection with such reclassification, recapitalization or other
change by a holder of a number of shares of Common Stock equal to the number of
Option Shares for which this Option might have been exercised immediately prior
to such event.
d. In case of a Change of Control of the Company involving a
consolidation with or merger of the Company into another corporation (other than
a merger of consolidation in which the Company is the continuing or surviving
corporation) or the acquisition of voting control of more than 50% of the
Company's Common Stock in a transaction within the scope of Section 12(b) below,
the Optionee shall have the right thereafter to receive upon exercise of the
Option solely the kind and amount of shares of stock and other securities,
property, cash or any combination thereof receivable upon such consolidation,
merger, sale, lease or conveyance by a holder of a number of shares of Common
Stock equal to the number of Option Shares for which this Option might have been
exercised immediately prior to such consolidation or merger.
9. Amendment of the Plan. The Board of Directors may amend the Plan from
time to time in such manner as it may deem advisable, subject to compliance with
applicable corporate laws, securities laws and exchange requirements.
Notwithstanding the foregoing, any amendment which would change the class of
individuals eligible to receive an ISO, extend the expiration date of the Plan,
decrease the Option Price of an ISO granted under the Plan or increase the
maximum number of shares as to which Options may be granted will only be
effective if such action is approved by a majority of the outstanding voting
stock of the Company within twelve months before or after such action.
10. Continued Employment. The grant of an Option pursuant to the Plan shall
not be construed to imply or to constitute evidence of any agreement, express or
implied, on the part of the Company or any Affiliate to retain the Optionee in
the employ of the Company or an Affiliate, as a member of the Board of
Directors, as an independent contractor or in any other capacity.
11. Withholding of Taxes. Whenever the Company proposes or is required to
issue or transfer Option Shares, the Company shall have the right to (a) require
the recipient or transferee to remit to the Company an amount sufficient to
satisfy any federal, state and/or local withholding tax requirements prior to
the delivery or transfer of any certificate or certificates for such Option
Shares or (b) take whatever action it deems necessary to protect its interests.
12. Assumption by Successors. In the event of a Change of Control involving
(a) a consolidation with or merger into another corporation (other than a merger
or consolidation in which the Company is the continuing or surviving
corporation) or (b) the acquisition of voting control over 50% or more of the
Company's outstanding Common Stock by a corporation which has a class of equity
securities registered under the Securities Exchange Act of 1934 through the
issuance of equity securities of the acquiring corporation, then, in any such
case, Company shall require the surviving or acquiring corporation to make
express, effective provisions for the
-8-
<PAGE>
assumption of the Company's obligations under this Plan by the surviving or
continuing corporation, and/or by the parent of the surviving or continuing
corporation in the case of a "triangular" merger in which holders of the
Company's Common Stock receive securities of such parent corporation in exchange
for or in conversion of the Company's Common Stock.
-9-
EXHIBIT 21
SUBSIDIARIES OF THE COMPANY
---------------------------
Name Place of Incorporation
- ---- ----------------------
National Abatement Corp. Delaware
NAC Environmental Services Corp. Delaware
NAC/Indoor Air Professionals, Inc. New York
All subsidiaries conduct business only under their respective corporate names.
All subsidiaries are 100% owned unless otherwise indicated.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 12-MOS
<FISCAL-YEAR-END> APR-30-2000 APR-30-1999
<PERIOD-START> MAY-01-1999 MAY-01-1998
<PERIOD-END> JUL-31-1999 APR-30-1999
<CASH> 16,865 97,765
<SECURITIES> 0 0
<RECEIVABLES> 3,429,515 2,969,624
<ALLOWANCES> (146,800) (146,800)
<INVENTORY> 695,819 211,961
<CURRENT-ASSETS> 4,159,423 3,271,366
<PP&E> 810,573 568,936
<DEPRECIATION> (219,317) (201,457)
<TOTAL-ASSETS> 5,205,082 3,748,559
<CURRENT-LIABILITIES> 3,910,062 2,963,266
<BONDS> 10,912 10,912
0 0
0 0
<COMMON> 6,615 6,250
<OTHER-SE> 1,277,493 768,131
<TOTAL-LIABILITY-AND-EQUITY> 5,205,082 3,748,559
<SALES> 3,319,958 11,586,490
<TOTAL-REVENUES> 3,319,958 11,586,490
<CGS> 2,677,865 9,239,824
<TOTAL-COSTS> 3,288,090 11,703,903
<OTHER-EXPENSES> 0 (6,355)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 7,355 24,285
<INCOME-PRETAX> 24,513 (135,343)
<INCOME-TAX> 14,786 (19,015)
<INCOME-CONTINUING> 24,513 (135,343)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 9,727 (116,328)
<EPS-BASIC> 0 (0.02)
<EPS-DILUTED> 0 (0.02)
</TABLE>
