<PAGE>
U.S. Securities & Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 2000
------------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
for the transition period................to................
Commission file number.................000-24470
NESCO, INC.
-------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Oklahoma 73-1296420
-------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12331 East 60th Street, Tulsa, Oklahoma 74146
---------------------------------------------
(Address of principal executive offices)
(918)-250-2227
---------------------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports to be filed by Section 13 or
15(d) of the Exchange Act during the past 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. Yes____X____No_________.
State the number of shares outstanding of each of the issuer's classes of common
equity, as of September 30, 2000:
Number of shares
Title of Class Outstanding
-------------------------------- -----------
Common Stock, $.01 Par Value 9,325,855
Transitional Small Business Issuer Format (Check one): Yes____No__X_
-1-
<PAGE>
NESCO, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
PART I - FINANCIAL INFORMATION
FINANCIAL INFORMATION:
<S> <C> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheet
September 30, 2000 3
Consolidated Statements of Income
Three Months Ended September 30, 2000 and 1999 4
Consolidated Statements of Income
Nine Months Ended September 30, 2000 and 1999 5
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 2000 and 1999 6
Notes to Consolidated Financial Statements 7
Item 2.
Management's Discussion and Analysis of the
Financial Condition and Results of Operation 10
PART II
OTHER INFORMATION:
Item 2. Changes in Securities and Use of Proceeds 15
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
</TABLE>
-2-
<PAGE>
NESCO, INC.
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2000
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current assets:
Cash $ 351
Accounts receivable 10,869
Cost in excess of billings 8,881
Materials and supplies 2,715
Prepaid expenses 300
--------
Total current assets 23,116
--------
Property and equipment, at cost 10,549
Less accumulated depreciation (3,644)
--------
Property and equipment, net 6,905
--------
Lease contract agreements 7,948
--------
Intangible cost 9,553
--------
Total assets $ 47,522
========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long term obligations
and revolving line of credit $ 3,246
Accounts payable 6,002
Accrued income taxes and liabilities 4,237
--------
Total current liabilities 13,485
--------
Long-term obligations 22,616
Deferred income taxes 424
--------
Total Liabilities 36,520
--------
Shareholders' equity:
Preferred stock: 1,000,000 shares authorized;
none issued
Common stock, par value $.01; authorized 20,000,000 shares; issued
9,488,643 shares, including treasury
shares 95
Additional paid-in capital 4,499
Retained Earnings 6,729
Common stock in Treasury, at cost, 162,788 shares (326)
--------
Total shareholders' equity 10,997
--------
Total liabilities and shareholders' equity $ 47,522
========
</TABLE>
The accompanying notes are an integral part of the financial statements.
-3-
<PAGE>
NESCO, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(In thousands except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
------- ------
<S> <C> <C>
Revenues $12,138 $8,279
Costs and Expenses 6,733 5,316
Selling, general and administrative expenses 2,670 1,671
------- ------
Income from operations 2,735 1,292
Other income 107 97
Interest expense 614 223
------- ------
Income before provision for income taxes 2,228 1,166
Provision for income taxes 831 442
------- ------
Net Income $ 1,397 $ 724
======= ======
Basic Net Income per share $ 0.15 $ 0.08
======= ======
Diluted Net Income per share $ 0.15 $ 0.08
======= ======
</TABLE>
The accompanying notes are an integral part of the financial statements.
-4-
<PAGE>
NESCO, INC.
CONSOLIDATED STATEMENT OF INCOME
FOR NINE MONTHS ENDED SEPTEMBER 30, 2000 AND
1999 (In thousands except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
------- -------
<S> <C> <C>
Revenues $31,111 $22,116
Cost and expenses 17,988 13,991
Selling, general and administrative expenses 6,328 4,737
------- -------
Income from operations 6,795 3,388
Other Income 193 280
Interest Expense 1,319 460
------- -------
Income before provision for income taxes 5,669 3,208
Provision for taxes on income 2,154 1,220
------- -------
Net Income $ 3,515 $ 1,988
------- -------
Basic Net Income per share $ 0.38 $ 0.22
======= =======
Diluted Net Income per share $ 0.37 $ 0.22
======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
-5-
<PAGE>
NESCO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
Operating activities
Net Income $ 3,515 $ 1,988
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 523 435
Change in:
Accounts receivable (8,475) (1,481)
Cost and estimated earnings in excess of
billings on uncompleted contracts (6,489) --
Materials and supplies (95) (164)
Prepaid expenses (142) (115)
Accounts payable 3,981 638
Accrued income taxes and liabilities 2,610 (506)
-------- --------
Net cash provided by (used in) operating activities (4,572) 795
-------- --------
Investing activities
Business Acquisitions (8,024) (3,791)
Purchases of property, plant and equipment (1,162) (1,717)
Other (357) (1,139)
-------- --------
Net cash provided by (used in) investing activities (9,543) (6,647)
-------- --------
Financing activities:
Proceeds from notes payable and long-term obligations 15,040 17,075
Principal payments on notes and long term obligations (1,555) (10,466)
Issuance of common stock 352 --
Proceeds from sale (purchase) of treasury stock -- (184)
Summit owners distributions net of tax -- (463)
-------- --------
Net cash provided by financing activities 13,837 5,962
-------- --------
Decrease in cash (278) 110
Cash, beginning of period 629 331
-------- --------
Cash, end of period $ 351 $ 441
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
-6-
<PAGE>
NESCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. GENERAL
In the opinion of management, the accompanying condensed financial
statements contain all adjustments of a normal recurring nature necessary to
present fairly the financial position of the Company as of September 30, 2000
and the results of operations and cash flows for the nine month periods ended
September 30, 2000 and 1999. Results of operations and cash flows are not
necessarily indicative of the results which will be achieved for the full
year.
2. EARNINGS PER SHARE
Basic and diluted EPS for the nine months ended Septmeber 30, 2000
and 1999, were computed as follows:
<TABLE>
<CAPTION>
Nine Months Ended June 30
--------------------------
2000 1999
--------------------------
<S> <C> <C>
Basic EPS Computation:
Net income $ 3,515 $ 1,988
==========================
Weighted average shares outstanding 9,259,188 9,055,166
==========================
Basic EPS $ .38 $ .22
==========================
Diluted EPS Computation:
Net income $ 3,515 $ 1,988
==========================
Weighted average shares outstanding 9,259,188 9,055,166
Incremental shares for assumed exercise of securities:
Warrants 79,459 14,748
Options 131,077 22,714
--------------------------
9,469,725 9,092,628
==========================
Diluted EPS $ .37 $ .22
==========================
</TABLE>
-7-
<PAGE>
3. SEGMENT INFORMATION
The Company's business segments have been grouped as follows:
<TABLE>
<CAPTION>
Thousands of Dollars
----------------------------------------------------------
Inter-
Segment Pre-tax
Segment Sales Sales Income Assets
------- ----------------------------------------------------------
<S> <C> <C> <C> <C>
2000
Fueling Installations $ 18,021 $ $ 4,021 $ 28,407
Environmental 11,313 4,106 14,017
Miscellaneous 1,777 367 378 3,423
Corporate Overhead (2,836) 1,675
----------------------------------------------------------
$ 31,111 $ 367 $ 5,669 $ 47,522
==========================================================
1999
Fueling Installations $ 12,596 $ $ 2,115 $ 10,085
Environmental 8,814 2,628 8,454
Miscellaneous 706 821 223 2,556
Corporate Overhead (1,758) 1,779
----------------------------------------------------------
$ 22,116 $ 821 $ 3,208 $ 22,874
==========================================================
</TABLE>
4. ACQUISITIONS IN 2000
On June 12, 2000, the Company acquired all of the issued and
outstanding shares of Hopkins Appraisal Services, Inc. for $3,000,000 cash.
Hopkins Appraisal Services, located in Independence, Missouri, is a provider
of service station and convenience store appraisals and feasibility studies
to major oil companies, major banks, and other smaller lenders and fueling
facility owners. On June 12, 2000, the Company entered into an agreement with
David E. Hopkins and Marie L. Hopkins to acquire the office building occupied
by Hopkins Appraisal Services, Inc. for 100,000 shares of NESCO common stock.
The acquisition was accounted for as a purchase.
The following information presents certain income statement data of the
separate companies for the periods preceding the acquisition:
<TABLE>
<CAPTION>
9 months ended
------------------------------
Net Sales 2000 1999
--------- ------- -------
<S> <C> <C>
NESCO $31,111 $22,116
Hopkins 1,723 1,750
------- -------
Total $32,834 $23,866
</TABLE>
-8-
<PAGE>
<TABLE>
<CAPTION>
9 months ended
------------------------------
Net Income 2000 1999
---------- ------- -------
<S> <C> <C>
NESCO $ 3,515 $ 1,988
Hopkins 259 110
------- -------
Total $ 3,774 $ 2,098
</TABLE>
Until the merger, Hopkins was operated as a limited liability
company which is taxed as a partnership. Accordingly, Hopkins incurred no
income taxes until the merger. For purposes of presenting the combined
operation of the Company and Hopkins on a retroactive basis, Hopkin's income
has been adjusted by $97,000 in 2000 and $67,000 in 1999 representing a
provision for income taxes at an effective 38% combined federal and state tax
rate.
On August 31, 2000, NESCO acquired certain assets and assumed
certain liabilities of Trust Environmental Services Company, LLC, located in
Norman, Oklahoma. The purchase price was $1,000,000 cash. Additionally,
warrants to purchase 120,000 shares of NESCO common stock at $4.00 per share
were issued to the sellers. The warrants expire August 31, 2005. Trust is a
provider of environmental and related services to the owners and operators of
fueling systems. NESCO retained the majority of Trust's employees.
On September 28, 2000, NESCO acquired all of the shares of
membership interests of the owners of Kentucky Environmental Network, LLC,
located in Betsy Lane, Kentucky. The purchase price was $600,000 cash.
Additionally, the sellers will receive five percent of the gross revenues
invoiced and collected by NESCO for environmental consulting and remediation
services provided by NESCO in the State of Kentucky during the five year
period following the date of acquisition. Kentucky Environmental Network is a
provider of environmental and related services to the owners and operators of
fueling systems. NESCO retained all of the employees of the Company.
On September 29, 2000, NESCO acquired all of the issued and
outstanding shares of Atlanta Petroleum Equipment Company, Inc. located in
Tucker, Georgia. The purchase price was $2,800,000. Additionally, options to
purchase 80,000 shares of NESCO common stock were issued to sellers. The
options are exercisable at $4.00 per share for a period of five years
following closing. Cash of $1,400,000 was paid at closing. The remainder of
the purchase price will be paid as follows: $700,000 on September 30, 2001
and $700,000 on September 30, 2002. Atlanta Petroleum is a provider of
petroleum fueling systems equipment sales, installation, service,
maintenance, and related services. NESCO retained all of the employees of the
Company.
5. SUBSEQUENT EVENTS
On October 30, 2000, NESCO sold and leased back four of its
office/warehouse facilities located in Tulsa, Oklahoma (the corporate
headquarters building and warehouse); Independence, Missouri; Columbia, South
Carolina; and San Antonio, Texas. The sales price was $2,850,000. The four
facilities were leased back at a combined monthly rent of $27,674. The leases
expire on
-9-
<PAGE>
November 30, 2012, and the leases provide for a fixed increase of
approximately 3% at the end of the fourth and eighth years.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
financial statements and notes thereto and other financial information
relating to the Company.
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30,
2000 AND SEPTEMBER 30, 1999.
Revenue for the three months ended September 30, 2000 increased 47%,
or $3,859,000, compared to the same period in 1999 ($12,138,000 compared to
$8,279,000). Revenues increased due to growth from existing operating
locations and new acquisitions The fueling installations segment increased
91% or $3,969,000 for the third quarter of 2000 compared to the same quarter
in 1999 ($8,343,000 compared to $4,374,000). During the third quarter of
1999, the Company began installation of turn-key fueling facilities under the
NESCO Acceptance Corporation program for providing design, permitting,
installation, and financing of such facilities. Since the beginning of the
program through September 30, 2000, seven fueling facilities have been
completed or are under construction. Fueling facilities for other clients
continue to be installed. Atlanta Petroleum Equipment Company, Inc. was
acquired on September 29, 2000, and there were no additions of revenues from
this company to NESCO's third quarter fueling installation revenues.
Environmental services revenue were relatively unchanged for the third
quarter of 2000 compared to the same quarter in 1999 ($3,304,000 compared to
$3,336,000). The acquisition of Trust Environmental Services, Inc. was
completed on August 31, 2000, and the acquisition of Kentucky Environmental
Network, LLC was completed on September 28, 2000. The addition of
environmental revenues from these acquired companies to NESCO's third quarter
results was insignificant. Miscellaneous revenues decreased $78,000, or 14%,
for the third quarter of 2000 compared to the same quarter the previous year
($491,000 compared to $569,000). The decrease was due to a reduction in the
number of Encompass Tank Gauging units shipped. The third quarter of 1999
included large stocking shipments to NESCO's European distributors.
Cost and expenses increased 27%, or $1,417,000 ($6,733,000 for the
third quarter of 2000 compared to $5,316,000 for the same quarter in of
1999). Cost of sales as a percent of revenues for the third quarter of 2000
was 55% compared to 64% for the same quarter in 1999. Direct labor increased
6% to $1,386,000 in the third quarter of 2000 compared to $1,311,000 for the
third quarter of 1999. Costs of supplies and materials increased, 38% or
$645,000, for the third quarter of 2000 compared to the same quarter in 1999
($2,357,000 compared to $1,712,000). The increase in the cost of direct labor
and supplies and materials was due to the increased work performed by the
Company. The 38% growth in supplies and materials reflect
-10-
<PAGE>
the change in the type of the projects being installed by NESCO. NESCO has
increased the number of turn key installations provided. These turn key
installations require greater amounts of equipment and materials as compared
to smaller upgrades of existing facilities and installations where the owner
provides equipment and materials to be installed by NESCO. Subcontractor
expense increased $472,000 ($1,825,000 for the third quarter of 2000 compared
to $1,353,000 in the third quarter of 1999). The 35% increase in the use of
subcontractors resulted from the greater amount of work performed and the
increased use of subcontractors for turn key installation of fueling
facilities.
Selling, general and administrative expenses increased $999,000 for
the third quarter of 2000 as compared to the third quarter of 1999
($2,670,000 compared to $1,671,000). The 60% increase was a result of the
Company's growth through acquisitions, the establishment of new offices, and
increased business activities in its ongoing operations. Selling, general and
administrative expenses as a percent of revenues was 22% for the third
quarter of 2000 compared to 20% for the same quarter in 1999. During the
third quarter of 2000 there were six division offices that did not exist
during the third quarter of 1999. This does not include the acquisitions in
Kentucky and Georgia made during the last week of September, 2000. Officers,
management and administrative salaries increased $551,000 or 74% for the
third quarter of 2000 compared with the same quarter in 1999 ($1,295,000
compared to $744,000). The increase is attributable to the addition of new
personnel at the six offices, increase in the number of sales personnel, and
normal salary increases. Professional fees for accounting and legal
representation decreased $51,000 or 50% for the third quarter of 2000
compared to the same quarter in 1999 ($50,000 compared to $101,000). Legal
fees for the third quarter of 1999 included significant expense incurred in a
lawsuit and trial in which NESCO did not prevail. The decision is on appeal.
Bad debt expense increased $104,000 in the third quarter of 2000 compared to
the same quarter in 1999 ($206,000 compared to $102,000) due to provision for
possible write off of receivables upon settlement of certain litigation
matters. General insurance expense increased $44,000 for the third quarter of
2000 ($114,000 compared to $70,000). The 63% increase resulted from greater
amounts of plant and equipment to be insured, greater number of employees
covered by workers compensation insurance, and increased business activity.
Employee insurance increased 116% or $43,000 for the third quarter of 2000
compared to the same period in 1999 ($80,000 compared to $37,000). The
increase resulted from an increase in the number of employees covered by
health insurance.
Interest expense increased $391,000 in the third quarter of 2000
compared to the same quarter in 1999 ($614,000 compared to $223,000) due to
increases in the line of credit for operations and term loans for the
acquisition of companies and equipment. A portion of the increase resulted
from an increase in interest rates paid by the Company. The line of credit
adjusts as the national prime rate adjusts. The Company has the option to fix
the interest rate for specified periods at the Eurodollar rate for such
period plus a margin previously established. The prime rate at the end of the
third quarter of 1999 was 8.25%. By the end of the third quarter of 2000, the
rate had increased to 9.5%.
-11-
<PAGE>
COMPARISON OF RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30,
2000 AND SEPTEMBER 30, 1999.
Revenue for the nine months ended June 30, 2000 increased 41%, or
$8,995,000, compared to the same period in 1999 ($31,111,000 compared to
$22,116,000). Revenues increased due to growth from existing offices and new
acquisitions. The fueling installations segment increased 55%, or $6,515,000,
for the first nine months of 2000 compared to the same period in 1999
($18,338,000 compared to $11,822,000). The company increased the number of
installations of turnkey fueling facilities under the NESCO Acceptance
Corporation program for providing design, permitting, installation, and
financing of such facilities. The fueling systems installation under the site
development program was not begun until the third quarter of 1999. Since the
beginning of the program through September 30, 2000, seven fueling facilities
have been completed or are under construction.Fueling facilities for other
clients continue to be installed. Atlanta Petroleum Equipment Company, Inc.
was acquired on September 29, 2000, and there were no additions of revenues
from this company to NESCO's fueling installation revenues for the first nine
months of 2000. Environmental services revenue increased $2,333,000, or 26%,
for the first nine months of 2000 compared to the same period in 1999
($11,250,000 compared to $8,917,000). The acquisition of a company in South
Carolina in May, 1999, added significant environmental contracts and
personnel to the South Carolina division office. The growth of that office
and the receipt of benefits for the entire nine-month period in 2000 compared
to the same period in 1999 contributed to the increase. Additionally, the
revenues from Trust Environmental Services, Inc. acquired by NESCO on August
31, 2000 contributed to the increase. This addition and the growth in
pay-for-performance environmental revenues from the Company's other offices
accounted for the growth in environmental revenues. Miscellaneous revenues
increased 11% or $145,000 in the first nine months of 2000 compared to the
same period in 1999 ($1,523,000, or to $1,378,000). The increase was due to
increased sales of Encompass tank gauging systems and an increase in service
revenues from the Dallas office.
Cost and expenses increased 29%, or $3,997,000, ($17,988,000 for the
first nine months of 2000 compared to $13,991,000 for the same period in of
1999). Cost and expenses as a percent of revenues was 58% for the first nine
months of 2000 compared to 63% for the same period in 1999. Direct labor
increased 19%, or $660,000 ($4,078,000 for the first nine months of 2000
compared to $3,418,000 for the same period in1999). Costs of supplies and
materials increased 24% or $1,178,000 for the first nine months of 2000
compared to the same period in 1999 ($6,025,000 compared to $4,847,000). The
increase in the cost of direct labor and supplies and materials was due to
the increased work performed by the Company. Subcontractor expense increased
54% or $1,571,000 ($4,489,000 for the first nine months of 2000 compared to
$2,918,000 in the same period of 1999). The increase in the use of
subcontractors resulted from the greater amount of work performed and the
increased use of subcontractors for turnkey installation of fueling
facilities. Equipment rental expense increased $121,000 or 44% for the first
nine months of 2000 compared to the same period in 1999 ($397,000 compared to
$276,000) due to increased business activity. Vehicle expense except
depreciation increased 33% or $104,000 in the first nine months of 2000
compared to the same period in 1999 ($419,000 compared to
-12-
<PAGE>
$315,000). This expense increased because NESCO began leasing vehicles added
to its fleet during 2000 as opposed to acquiring the vehicles as had been
done in prior years.
Selling, general and administrative expenses increased $1,591,000
for first nine months of 2000 as compared to the same period of 1999
($6,328,000 compared to $4,737,000). The 34% increase was a result of the
Company's growth through acquisitions and increased business activities in
its ongoing operations. Selling, general and administrative expenses as a
percent of revenues was 20% for the first nine months of 2000 compared to 21%
for the same period in 1999. During the first nine months of 2000 there were
four division offices that did not exist during the same period of 1999, and
the four offices do not include the acquisitions in Kentucky and Georgia made
during the last week of September, 2000. Officers, management and
administrative salaries increased 47% or $971,000 for the first nine months
of 2000 compared with the same period in 1999 ($3,051,000 compared to
$2,080,000). The increase is attributable to the addition of new personnel at
the four additional offices, addition of sales personnel, and normal salary
increases. Salesmen's travel expenses increased $70,000 in the first nine
months of 2000 compared to the same period in 1999 due to the increase in
number of sales personnel employed ($108,000 compared to $38,000). Office
rent and telephone expense also increased due to the addition of the four
offices. The office rent expense increased $81,000 in the first nine months
of 2000 compared to the same period in 1999 ($269,000 compared to $188,000).
Telephone expense increased $70,000 in the first nine months of 2000 compared
to the same period in 1999 ($315,000 compared to $245,000). Professional fees
for accounting and legal representation decreased $86,000 first nine months
of 2000 compared to the same period in 1999 ($171,000 compared to $257,000).
Legal fees during the first nine months of 1999 included significant expense
incurred in a lawsuit and trial in which NESCO did not prevail. The decision
is on appeal. General insurance increased 33% or $79,000 in the first nine
months of 2000 compared to the same period in 1999 ($321,000 compared to
$242,000). The 33% increase resulted from greater amounts of plant and
equipment to be insured, greater number of employees covered by workers
compensation insurance, and increased business activity. Employee insurance
increased 73% or $98,000 for the first nine months of 2000 compared to the
same period in 1999 ($232,000 compared to $134,000). The increase resulted
from an increase in the number of employees covered by health insurance.
Interest expense increased $859,000 in the first nine months of 2000
compared to the same period in 1999 ($1,319,000 compared to $460,000) due to
increases in the line of credit for operations and term loans for the
acquisition of companies and equipment. A portion of the increase resulted
from an increase in interest rates paid by the Company. The line of credit
adjusts as the national prime rate adjusts. The Company has the option to fix
the interest rate for specified periods at the Eurodollar rate for such
period plus a margin previously established. The prime rate at the end of the
second quarter of 1999 was 8.25%. By the end of the second quarter of 2000,
the rate had increased to 9.5%.
-13-
<PAGE>
CHANGES IN CAPITAL RESOURCES AND LIQUIDITY
On February 15, 2000, the Company obtained an increase in its line
of credit loan from the Bank of Oklahoma. The line was increased from $7
million to $9 million. All other terms and conditions remained unchanged.
On May 12, 2000, the Company obtained a new credit facility from
Bank One, Oklahoma, N.A. The existing line of credit and term loan with
another lender and a series of purchase financing and other loans were paid
off with the proceeds of the new credit facility. The new credit facility
comprised three loans. The term loan of $13,300,000 included $2,500,000 for
the acquisition of a Florida company and a Kentucky company. The funds were
placed in the revolving line of credit facility pending the closing of the
acquisitions. When the Florida acquisition was terminated, $1,900,000 of the
$2,500,000 borrowed for that acquisition was applied to the purchase of
Hopkins Appraisal Services, Inc. The second loan of $4,000,000 line of credit
was for future acquisitions. As of June 30, 2000, $1,390,000 was borrowed
against the acquisition line of credit to fund the remainder of the Hopkins
acquisition. The third loan was a revolving line of credit for $8,000,000 to
be used for working capital. Interest rates on the loans float at the Bank
One prime rate. The Company has the option to fix the interest rate for
specified periods at the Eurodollar rate for such period plus a margin
previously established. The working capital revolving line of credit loan
matures April 30, 2002, and requires monthly payment of interest accrued. The
acquisition line of credit matures April, 30, 2002, and requires a monthly
principal payment of 1/60th of the acquisition loan principal balance and
accrued interest. The term loan matures April 30, 2003, and requires a
monthly principal payment of 1/60th of the original principal balance and
accrued interest to be paid monthly.
On September 29, 2000, the Company obtained a temporary increase in
working capital revolving credit commitment to increase the amount available
for borrowing under the Working Capital Revolving Credit Facility. The
facility was increased from $8,000,000 to $10,500,000 for the period
beginning on September 29, 2000 and ending on December 31, 2000.
The Company continued to make periodic debt repayments during this
period.
FORWARD LOOKING STATEMENTS
Certain statements included in this report which are not historical
facts are forward looking statements, including the information provided with
respect to the projected or future business opportunities, expansions and
diversification; contract completions, expected financing sources and related
matters. These forward looking statements are based on current expectations,
estimates, assumptions and beliefs of management; and words such as
"expects," "anticipates," "intends," "believes," "estimates" and similar
expressions are intended to identify such forward looking statements. These
forward looking statements involve risks and uncertainties, including, but
not limited to, changes in governmental regulations, the Company?s ability to
effectively and efficiently absorb its newly acquired businesses and assets
and any additional businesses and/or assets it may acquire in the near
future, general economic conditions and conditions affecting the
-14-
<PAGE>
industries which utilize the Company?s services and products, the
availability of experienced personnel, raw materials and equipment and the
Company?s ability to comply with its obligations under its existing contracts
and to obtain new contracts. Accordingly, actual results may differ
materially from those expressed in the forward-looking statements.
PART II
OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
Common Stock
In connection with the Company's acquisition of all of the issued
and outstanding shares of Hopkins Appraisal Services, Inc., it also entered
into a Real Estate Contract pursuant to which it committed to and did,
acquire the real property and improvements which serve as the headquarters
for Hopkins Appraisal Services in Independence, Missouri for a purchase
consideration of 100,000 shares of the Company's common stock. For a more
detailed description of this transaction and the property acquired, reference
is made to the description of the transaction in the Current Report on Form
8-K listed below.
The issuance of the common stock issuable to the sellers of the
property was exempt from the registration requirements of the Securities Act
of 1933, as amended (the "Securities Act"), pursuant to the exemption from
the registration requirements provided by Section 4(2) thereof for
transactions not involving a public offering and by Regulation D promulgated
under such Act. The sellers of the property are sophisticated individuals
capable of evaluating the risks of an investment in the Company's stock and
bearing the financial risks of the investment. The persons acquiring the
shares are accredited investors as that term is defined in Regulation D. Such
persons had access to all material information regarding the Company that
would have been included in a registration statement covering the securities
if the shares had been offered publicly. No advertising or general
solicitation was involved in the offering of the securities. The shares were
acquired for investment purposes and not with a view to the distribution
thereof. The certificates evidencing the shares contained the appropriate
legend indicating the restrictive nature of the shares.
Warrants
On August 31, 2000, the Company issued warrants to purchase up to
120,000 shares of the Company's common stock to Trust Environmental Services
Company, L.L.C., an Oklahoma limited liability company ("Trust"), as part of
the consideration for the Company's acquisition of the business and
intangible assets of Trust. Each of the warrants is immediately exercisable
at an exercise price of $4.00 per share for a term of five years. The
purchase price for the business and assets of Trust consisted of (1) cash in
the amount of $1,000,000, (2) warrants to purchase
-15-
<PAGE>
120,000 shares of the Company's common stock, and (3) the assumption by the
Company of the obligations of Trust under certain contracts.
The warrants were issued in reliance on the exemption from the
registration requirements of the Securities Act of 1933, as amended, provided
by Section 4(2) thereof for transactions not involving a public offering.
Trust is a sophisticated investor capable of evaluating the risks of an
investment in the Company's securities and bearing the financial risks of the
investment. Trust had access to all material information regarding the
Company that would have been included in a registration statement covering
the securities if the securities had been offered publicly. No advertising or
general solicitation was involved in the offering of the securities. Trust
represented to the Company that the securities were acquired for investment
purposes and not with a view to the distribution thereof. The warrant
agreement representing the warrants contained the appropriate legend
indicating the restrictive nature of the shares to be issued pursuant to the
exercises of any of the warrants.
Options
On September 29, 2000, the Company issued options to purchase, in
the aggregate, up to 80,000 shares of common stock of the Company to Robert
D. Dutcher, Raymond M. DeLorenzo, Bruce K. Patterson and Scott E. Cathers
("Sellers") as part of the consideration for the Company's acquisition of all
of the issued and outstanding common stock of Atlanta Petroleum Equipment
Company, Inc., a Georgia corporation ("APEC"). Each of the options is
immediately exercisable at an exercise price of $4.00 per share for a term of
five years. The purchase price for the common stock of APEC consisted of (1)
cash in the amount of $1,400,000, (2) options to purchase, in the aggregate,
up to 80,000 shares of the Company's common stock, (3) and additional
payments of cash, subject to adjustment, in the aggregate amount of
$1,400,000.
The options were issued in reliance on the exemption from the
registration requirements of the Securities Act of 1933, as amended, provided
by Section 4(2) thereof for transactions not involving a public offering.
Each of Sellers is a sophisticated investor capable of evaluating the risks
of an investment in the Company's securities and bearing the financial risks
of the investment. Each of Sellers had access to all material information
regarding the Company that would have been included in a registration
statement covering the securities if the securities had been offered
publicly. No advertising or general solicitation was involved in the offering
of the securities. Sellers represented to the Company that the securities
were acquired for investment purposes and not with a view to the distribution
thereof. The option agreement representing the options contained the
appropriate legend indicating the restrictive nature of the shares to be
issued pursuant to the exercises of any of the options.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
10.15 Copy of First Amendment to Credit Agreement dated
August 4, 2000 between the Company and Bank One,
Oklahoma, N.A.
-16-
<PAGE>
10.16 Copy of Second Amendment to Credit Agreement dated
September 30, 2000 between the Company and Bank One,
Oklahoma, N.A.
10.17 Copy of Asset Purchase Agreement dated August 31,
2000 between the Company and Trust Environmental
Services Company, LLC
10.18 Copy of Membership Interest Purchase, Sale, and
Redemption Agreement dated September 28, 2000 between
George Stamper, Glenn Michael Blackburn, Kelly Combs,
and Paul Wathen.
10.19 Copy of Stock Purchase Agreement dated September 29,
2000 between the Company and Robert G. Dutcher,
Raymond M. Delorenzo, Bruce K. Patterson, and Scott
E. Cathers.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K:
On August 22, 2000, we filed an Form 8-K/A No. 1
describing the June 12, 2000, acquisition of Hopkins
Appraisal Services, Inc.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
NESCO, Inc.
Date: November 9, 2000 BY: /s/ Larry G. Johnson
-----------------------------------------------
LARRY G. JOHNSON, Vice President &
Secretary-Treasurer & Chief Financial Officer
(Authorized Officer and Principal Financial Officer)
-17-
<PAGE>
EXHIBITS
10.15 Copy of First Amendment to Credit Agreement dated
August 4, 2000 between the Company and Bank One,
Oklahoma, N.A.
10.16 Copy of Second Amendment to Credit Agreement dated
September 30, 2000 between the Company and Bank One,
Oklahoma, N.A.
10.17 Copy of Asset Purchase Agreement dated August 31,
2000 between the Company and Trust Environmental
Services Company, LLC
10.18 Copy of Membership Interest Purchase, Sale, and
Redemption Agreement dated September 28, 2000 between
George Stamper, Glenn Michael Blackburn, Kelly Combs,
and Paul Wathen.
10.19 Copy of Stock Purchase Agreement dated September 29,
2000 between the Company and Robert G. Dutcher,
Raymond M. Delorenzo, Bruce K. Patterson, and Scott
E. Cathers.
27.1 Financial Data Schedule.
-18-
