<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended October 31, 2000
[ ] TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from to .
---------------------- ----------------------
COMMISSION FILE NUMBER: 0-28307
NESCO INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Nevada 13-3709558
------------------------------- ---------------------------------
(State of other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
12-12 43rd Avenue
Long Island City, NY 11101
(Address of principal executive offices)
212/829-0880
(Registrant's telephone number, including area code)
n.a.
--------------------------------------------------------------------------------
(Former name, former address and former fiscal year
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
[ X ] Yes [ ] No (Registrant has not been a reporting company for 90 days)
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of outstanding shares of the registrant's Common Stock, par value
$.01, was 6,614,963 as of October 31, 2000
Traditional small business issuer format: Yes [ ] No [X]
<PAGE>
NESCO INDUSTRIES, INC.
INDEX
<TABLE>
<S> <C> <C>
PART I: FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets --
October 31, 2000 (unaudited) and April 30, 2000........................................ 3
Consolidated Statements of Operations--(unaudited)
for the three months and six months ended October
31, 2000............................................................................... 4, 5
Consolidated Statements of Cash Flows (unaudited)
for the six months ended October 31, 2000 and 1999..................................... 6
Notes to Consolidated Financial Statements............................................. 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................................................... 10
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8K............................................... 13
Signatures....................................................................................... 13
</TABLE>
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<PAGE>
NESCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
A S S E T S
October 31 April 30
---------- --------
2000 2000
(Unaudited)
<S> <C> <C>
Current Assets:
Cash and equivalents $ 16,088 $ 32,515
Accounts receivable 3,303,852 3,114,220
Unbilled costs and estimated earnings in excess
of billings on uncompleted contracts 390,162 525,606
Prepaid expenses 327,557 205,353
Other current assets 122,793 169,606
---------- ----------
Total current assets 4,160,452 4,047,300
Fixed assets, net 260,262 233,497
Intangibles, net 473,611 502,778
Other assets 92,490 94,331
---------- ----------
$4,986,815 $4,877,906
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
October 31 April 30
2000 2000
---------- ----------
Current Liabilities:
Accounts payable and accrued expenses $2,930,754 $2,965,771
Notes payable, equipment - current portion 8,701
Loans payable, shareholders 664,340 979,000
Billing in excess of costs and estimated
earnings on uncompleted contracts 903,628 594,825
Deferred sublease income current 46,800
---------- ----------
Total current liabilities 4,545,522 4,548,297
Deferred sublease Income 327,600
Notes Payable Equipment 1,577
---------- ----------
Total liabilities 4,873,122 4,549,874
---------- ----------
Stockholders' Equity:
Common stock, $.001 par value
Authorized 25,000,000 shares
Issued and outstanding 6,614,963 6,615 6,615
Capital in excess of par value 883,185 883,185
Accumulated Deficit (776,107) (561,768)
---------- ----------
113,693 328,032
---------- ----------
$4,986,815 $4,877,906
---------- ----------
</TABLE>
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<PAGE>
NESCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDING OCTOBER 31, 2000 AND 1999
<TABLE>
<CAPTION>
October 31
-----------------------------------
2000 1999
--------- ----------
(Unaudited)
<S> <C> <C>
Earned Revenues $2,610,505 $2,947,231
Cost of earned revenues 2,146,546 2,467,288
---------- ----------
Gross profit 463,959 479,943
General and administrative expenses 536,288 626,957
---------- ----------
Operating loss (72,329) (147,014)
---------- ----------
Other Income (Expense):
Sublease income 11,700
Interest expense, net (16,778) (6,526)
---------- ----------
Loss before income taxes (77,407) (153,540)
Income tax benefit (46,288)
---------- ----------
Net loss $ (77,407) $ (107,252)
---------- ----------
Basic and diluted loss per share $ (0.01) $ (0.02)
---------- ----------
Weighted Average Common and dilutive shares outstanding 6,614,963 6,614,278
---------- ----------
</TABLE>
See accompanying notes.
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<PAGE>
NESCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDING OCTOBER 31, 2000 AND 1999
<TABLE>
<CAPTION>
October 31
------------------------------------
2000 1999
---------- ----------
(Unaudited)
<S> <C> <C>
Earned Revenues $5,256,588 $6,267,189
Cost of earned revenues 4,368,097 5,145,153
----------- ---------
Gross profit 888,491 1,122,036
General and administrative expenses 1,089,786 1,237,182
----------- ---------
Operating loss (201,295) (115,146)
----------- ---------
Other Income (Expense):
Sublease income 23,400
Interest expense, net (36,444) (13,881)
----------- ---------
Loss before income taxes (214,339) (129,027)
Income tax benefit (31,502)
----------- ---------
Net Loss $ (214,339) $ (97,525)
----------- ---------
Basic and diluted loss per share $ (.03) $ (.02)
----------- ---------
Weighted Average Common and dilutive shares outstanding 6,614,963 6,474,135
----------- ---------
</TABLE>
See accompanying notes.
-5-
<PAGE>
NESCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDING OCTOBER 31, 2000 AND 1999
<TABLE>
<CAPTION>
October
------------------------------
2000 1999
--------- ---------
(Unaudited)
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss $(214,339) $ (97,525)
Adjustments to reconcile net loss to
net cash provided (used) by operating activities:
Depreciation and amortization 57,603 55,923
Changes in operating assets and liabilities:
Accounts receivable (189,632) 38,717
Prepaid expenses (122,204) (209,963)
Unbilled costs and estimated earnings in excess
of billings on uncompleted contracts 135,444 (618,717)
Other current assets 46,813 (24,341)
Other assets 1,841 (5,175)
Accounts payable and accrued expenses (60,019) 410,032
Income taxes payable 25,001 (91,270)
Billings in excess of costs and estimated
earnings on uncompleted contracts 308,803 216,650
Deferred Sublease Income 374,400
--------- ---------
Net cash provided (used) by operating activities 363,711 (375,669)
--------- ---------
Cash Flows from Investing Activities:
Purchase of fixed assets (55,200) (23,794)
Acquisition of Indoor Air Professionals (151,050)
--------- ---------
Net cash used by investing activities (55,200) (100,844)
--------- ---------
Cash Flows from Financing Activities:
Payment of equipment notes (10,278) (8,527)
Net borrowings (repayment) of shareholder loans (314,660) 400,000
--------- ---------
Net cash provided (used) by financing activities (324,938) 391,473
--------- ---------
Net decrease in cash and equivalents (16,427) (45,040)
Cash and equivalents, beginning of year 32,515 97,765
--------- ---------
Cash and equivalents, ending of period $ 16,088 $ 52,725
--------- ---------
</TABLE>
See accompanying notes.
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<PAGE>
NESCO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
A. Organization, Operations and Significant Accounting Policies
General:
The unaudited consolidated interim financial statements, and
accompanying Notes, included herein have been prepared by NESCO
Industries, Inc., (the Company) pursuant to the rules and regulations
of the Securities and Exchange Commission ("SEC") and reflect all
adjustments which are of a normal recurring nature and which, in the
opinion of management, are necessary for a fair statement of the
results for interim periods. Certain information and footnote
disclosures have been condensed or omitted pursuant to such rules and
regulations. The results of the interim period are not necessarily
indicative of the results for the full year. These consolidated
financial statements should be read in conjunction with the
consolidated financial statements and the notes thereto included in
the Company's latest annual report to stockholders (Form 10-KSB for
the fiscal year ended April 30, 2000).
Basis of Presentation and Principles of Consolidation:
The accompanying financial statements include the accounts of the
Company and its wholly-owned subsidiaries on a consolidated basis. All
significant intercompany accounts and transactions have been
eliminated.
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles, which contemplate
continuation of the Company as a going concern. However, as of October
31, 2000, the Company has an accumulated deficit of $776,107, negative
working capital of $385,070, and has incurred a net loss of $214,339
for the six months ended October 31, 2000.
In view of the matters described in the preceding paragraph,
recoverability of a major portion of the recorded asset amounts shown
in the accompanying balance sheet is dependent upon the Company's
ability to meet its financing requirements on a continuing basis, to
maintain its present financing, and to succeed in its future
operations. The financial statements do not include any adjustments
relating to the recoverability and classification of liabilities that
might be necessary should the Company be unable to continue its
existence.
-7-
<PAGE>
NESCO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Revenue and Cost Recognition:
Earned revenues are recorded using the percentage of completion
method. Under this method, earned revenues are determined by reference
to Company's engineering estimates, contract expenditures incurred,
and work performed. The calculation of earned revenue and the effect
on several asset and liability amounts based on the common industry
standard revenue determination formula of actual costs-to-date
compared to total estimated job costs. Due to uncertainties inherent
in the estimation process, and uncertainties relating to future
performance as the contracts are completed, it is at least reasonably
possible that estimated job costs, in total or on individual
contracts, will be revised. When a loss is anticipated, the entire
amount of the estimated loss is provided for in the period.
The asset, "unbilled costs and estimated earnings in excess of
billings on uncompleted contracts" represents revenues recognized in
excess of amounts billed. The liability, "billings in excess of costs
and estimated earnings on uncompleted contracts" represents billings
in excess of revenues recognized.
B. New Accounting Pronouncements:
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes
accounting and reporting standards for derivative instruments,
including derivative instruments embedded in other contracts, and for
hedging activities. Subsequently, the FASB issued SFAS No. 137 which
deferred the effective date of SFAS No. 133. SFAS No. 137 is effective
for all fiscal quarters or fiscal years beginning after June 15, 2000.
This Company believes that the adoption of SFAS No. 133 will not have a
material impact on the Company's financial statements.
C. Sublease income:
In June 2000, the Company received a payment of $397,800 in connection
with the sublease of its New York City offices from a tenant for
future rent. The payment received will be recognized as "other income"
on a straight-line basis over the life of the lease. The lease expires
on October 31, 2008.
D. Business Segment Information:
The asbestos removal segment provides asbestos abatement including
removal and disposal, enclosure and encapsulation. The environmental
services segment provides environmental remediation, closure, and cost
effectiveness services. Services include Phase I, II, and III
environmental assessments, including underground storage tank removals,
injection well closures, soil and ground water treatment systems,
contaminated soil removal and emergency response. The indoor air
quality services segment provides indoor air quality testing,
monitoring and remediation services.
Identifiable assets by segment are those assets that are used in the
operations of each segment as well as the accounts receivable generated
by each segment. Corporate assets consist primarily of cash and cash
equivalents, prepaid expenses, and corporate furniture, fixtures and
equipment. Capital expenditures are comprised primarily of additions to
data processing equipment, furniture and fixtures, and leasehold
improvements.
-8-
<PAGE>
The following table presents the Company's business segment financial
information:
<TABLE>
<CAPTION>
Three Months Six Months
Ended Oct 31 Ended Oct 31
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues
Asbestos removal $2,177,000 $2,248,675 $4,128,444 $5,288,910
Environmental services 27,116 309,781 335,136 598,704
Indoor air quality services 406,389 388,775 793,008 379,575
---------- ---------- ---------- ----------
Total revenues $2,610,505 $2,947,231 $5,256,588 $6,267,189
---------- ---------- ---------- ----------
Operating income (loss from segments)
Asbestos removal $ 108,825 $ (87,424) $ 108,180 $ 63,298
Environmental services (69,559) 83,945 (127,522) 26,197
Indoor air quality services (45,956) (119,398) (70,282) (163,851)
---------- ---------- ---------- ----------
Operating loss (6,690) (112,877) (86,624) (74,356)
Corporate expenses, net (65,639) (24,137) (111,671) (40,790)
Interest expense, net (16,778) (6,526) (36,444) (13,881)
Other income, net 11,700 - 23,400 -
Income taxes - 46,288 - 31,502
---------- ---------- ---------- ----------
Net loss $ (77,407) $ (107,252) $ (214,339) $ (97,525)
---------- ---------- ---------- ----------
Depreciation and amortization
Asbestos removal $ 4,173 $ 17,482 $ 8,351 $ 34,963
Environmental services 304 - 608 -
Indoor air quality services 21,257 15,720 38,703 20,960
Corporate 4,781 - 9,941 -
---------- ---------- ---------- ----------
Total depreciation and amortization $ 30,515 $ 33,202 $ 57,603 $ 55,923
---------- ---------- ---------- ----------
Capital expenditures
Asbestos removal - - $ 2,148 $ 4,677
Indoor air quality services - $ 19,117 53,052 19,117
---------- ---------- ---------- ----------
Total capital expenditures $ - $ 19,117 $ 55,200 $ 23,794
---------- ---------- ---------- ----------
Identifiable assets
Asbestos removal $3,661,619 $3,581,265
Environmental services 102,934 597,244
Indoor air quality services 1,007,067 909,718
---------- ----------
Total assets for reportable segments 4,771,620 5,088,227
Corporate 215,195 39,692
---------- ----------
Total assets $4,986,815 $5,127,919
---------- ----------
</TABLE>
-9-
<PAGE>
Item 2. Management's Discussion And Analysis Of Financial
Condition And Results Of Operations
When used in this discussion, the words "expect(s)", believe(s)",
"will", "may", "anticipate(s)" and similar expressions are intended to identify
forward-looking statements. Such statements are subject to certain risks and
uncertainties, which could cause actual results to differ materially from the
possible results described in such statements. Readers are cautioned not to
place undue reliance on these forward-looking statements, and are urged to
carefully review and consider the various disclosures elsewhere in this Report
which discuss factors which affect our business, including the discussion under
the caption "Risk Factors" in our Registration Statement on Form 10-SB, filed
November 29, 1999, and amended January 31, 2000.
You should read the following discussion and analysis in conjunction
with the financial statements and related notes that comprise Item I of this
Report.
General
NESCO Industries, Inc. was incorporated in March 1993 as Coronado
Communications Corp. In March 1998, NESCO, which was then inactive, acquired all
of the outstanding capital stock of National Abatement Corp. ("NAC"), a
corporation engaged primarily in asbestos abatement services, and NAC
Environmental Services Corp. ("NES"), a provider of a variety of other
environmental remediation services. As a result of this acquisition, which was
the result of arms length negotiation between previously non-affiliated parties,
the former shareholders of NAC acquired 5,000,000 shares or 80% of the total
outstanding immediately following the acquisition. For accounting purposes, NAC
was treated as the acquiring corporation. Thus, the historical financial
statements of NAC prior to this acquisition date are deemed to be the historical
financial statements of the Company.
In June 1999, we organized NAC/Indoor Air Professionals, Inc.
("NAC/IAP") to carry on and further develop the indoor air quality testing and
remediation activities previously conducted by NES.
Results of Operations
The following table presents selected consolidated financial data for
the periods indicated expressed as a percentage of net sales:
-10-
<PAGE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------- --------------------------------
Three months ended Six months ended
October 31, October 31,
2000 1999 2000 1999
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales 100.00 100.00 100.00 100.00
Cost of sales 82.2 83.7 83.1 82.1
--------------------------------------------------------------------------------------------------------
Gross profit....................... 17.8 16.3 16.9 17.9
General and administra-
tive expense..................... 19.6 20.2 19.7 18.8
Depreciation....................... 1.0 1.1 1.0 .9
--------------------------------------------------------------------------------------------------------
Operating loss....... (2.8) (5.0) (3.8) (1.8)
Other income (expense)....... (.1) .2 (.3) (.2)
Income tax benefit - (1.6) - (.5)
--------------------------------------------------------------------------------------------------------
Net loss (2.9) (3.6) (4.1) (1.5)
--------------------------------------------------------------------------------------------------------
</TABLE>
Three Months and Six months ended October 31, 2000 and 1999
The following table sets forth our revenues by operating area in the periods
indicated:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
Three Months Ended Three Months Ended Six Months Ended Six Months Ended
October 31, 2000 October 31, 1999 October 31, 2000 October 31, 1999
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Asbestos abatement $2,177,000 $2,248,675 $4,128,444 $5,288,910
-------------------------------------------------------------------------------------------------------------------
Indoor air quality services 406,389 388,775 793,008 379,575
-------------------------------------------------------------------------------------------------------------------
Other environmental
services 27,116 309,781 335,136 598,704
-------------------------------------------------------------------------------------------------------------------
TOTAL $2,610,505 $2,947,231 $5,256,588 $6,267,189
-------------------------------------------------------------------------------------------------------------------
</TABLE>
Three months ended October 31, 2000 compared to the three months ended October
31, 1999:
During the three months ended October 31, 2000, our earned revenues declined 11%
due to lower revenues of our asbestos abatement and environmental services
segments, which resulted in a lower gross profit amount.
Our cost of earned revenues, as a percentage of sales, decreased 1.5%, and our
gross profit margins increased. The increase in gross profit percentage is due
to an increase in gross profit percentage for the indoor air quality services
and asbestos segment jobs.
Our general and administrative expenses decreased due to reductions in salaries,
related expenses and rents. The reduction in administrative expenses mitigated
our operating loss in the three months ended October 31, 2000.
Six Months ended October 31, 2000 compared to the six months ended October 31,
1999:
During the six months ended October 31, 2000, our earned revenues declined 16%
due to lower revenues of our asbestos abatement and environmental services
segments, which resulted in a lower gross profit amount.
-11-
<PAGE>
Our cost of earned revenues, as a percentage of sales, increased 1%, and our
gross profit margins declined. The overall declining trend on revenues and
profitability from our asbestos abatement segment is due to an increasingly
competitive market.
Our general and administrative expense decreased due to reductions in salaries,
related expenses and rents. The reduction in administrative expenses mitigated
our operating loss in the six months ended October 31, 2000.
Liquidity and Capital Resources
The following table sets forth our working capital position at the dates
indicated:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
October 31, 2000 April 30, 2000
--------------------------------------------------------------------------------
<S> <C> <C>
Current assets $4,160,452 $4,047,300
--------------------------------------------------------------------------------
Current liabilities $4,545,522 $4,548,297
--------------------------------------------------------------------------------
Working Capital Deficiency ($385,070) ($500,997)
--------------------------------------------------------------------------------
</TABLE>
At October 31, 2000, our working capital deficiency was $385,070 as compared to
the April 30, 2000 deficiency of $500,997. Working capital and cash flows
improved with the collection of $397,800 from the sublease of our NYC offices
which were used to repay $319,390 of outstanding short-term shareholder loans.
Working capital was negatively impacted by our net loss during the six months
ended October 31, 2000 of $214,339 and the purchase of fixed assets of $55,200.
The Company's total stockholders' equity has decreased from $328,032 at April
30, 2000, to $113,693 at October 31, 2000. As of October 31, 2000, the Company
has a negative working capital of $385,070 and has incurred a net loss of
$214,339 for the six months ended October 31, 2000.
In view of the matters described in the preceding paragraph, recoverability of a
major portion of the recorded asset amounts shown in the accompanying balance
sheet is dependent upon the Company's ability to meet its financing requirements
on a continuing basis, to maintain its present financing, and to succeed in its
future operations. The financial statements do not include any adjustments
relating to the recoverability and classification of liabilities that might be
necessary should the Company be unable to continue its existence.
Management has reduced staff, space and overhead expenditures, which it believes
is sufficient to provide the Company with the ability to continue its existence.
New Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including derivative instruments
embedded in other contracts, and for hedging activities. Subsequently, the FASB
issued SFAS No. 137 which deferred the effective date of SFAS No. 133. SFAS No.
137 is effective for all fiscal quarters of fiscal years beginning after June
15, 2000. The Company believes that the adoption of SFAS No. 133 will not have a
material impact on the Company's financial statements.
-12-
<PAGE>
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Exhibit Title
------- -------------
27 Financial Data Schedule
(b) Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned.
NESCO INDUSTRIES, INC.
DATE: December 14, 2000 By: /s/ Lawrence S. Polan
--------------------------------------
Lawrence S. Polan,
Chief Financial Officer
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