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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 MARCH 31, 1996
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[ ] 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
NATIONAL ENVIRONMENTAL SERVICE CO.
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(Exact name of small business issuer as specified in its charter)
Oklahoma 73-1296420
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12331 East 60th Street, Tulsa, Oklahoma 74l46
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(Address of principal executive offices)
(918)-250-2227
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(Insurer'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 .
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State the number of shares outstanding of each of the issuer's classes of common
equity, as of March 31, 1996:
Number of shares
Title of Class Outstanding
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Common Stock, $.01 Par Value 5,757,627
Traditional Small Business Issuer Format (Check one): Yes No X
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NATIONAL ENVIRONMENTAL SERVICE CO.
TABLE OF CONTENTS
PAGE
FINANCIAL INFORMATION:
Consolidated Balance Sheet
March 31, 1996 3
Consolidated Statements of Income
Three Months Ended March 31, 1996 and 1995 4
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1996 and 1995 5
Notes to Consolidated Financial Statements 6
Management's Discussion and Analysis of the
Financial Condition and Results of Operation 7
PART II
OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K 8
Signatures 9
2
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NATIONAL ENVIRONMENTAL SERVICE CO.
CONSOLIDATED BALANCE SHEET
MARCH 31, 1996
(In Thousands)
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
<S> <C>
Current assets:
Cash $ 13
Accounts receivable:
Trade, net of allowance for doubtful accounts of $44 2,217
Refundable income taxes 145
Costs in excess of billings and estimated earnings on
uncompleted contracts 590
Inventories 767
Prepaid Expenses 69
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Total current assets 3,801
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Property and equipment, at cost 2,675
Less accumulated depreciation (912)
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Property and equipment, net 1,763
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Other assets 28
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Total assets $5,592
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long term obligations $ 693
Accounts payable 1,264
Accrued liabilities 57
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Total current liabilities 2,014
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Long-term obligations 1,613
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Deferred income taxes 30
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Shareholders' equity:
Preferred stock: 1,000,000 shares authorized;
none issued
Common stock, par value $.01; authorized 20,000,000 shares;
issued and outstanding 5,786,143 shares, including treasury
shares 58
Additional paid-in capital 1,790
Retained Earnings 161
Common stock in Treasury, at cost, 28,516 shares (74)
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Total shareholders' equity 1,935
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Total liabilities and shareholders' equity $5,592
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</TABLE>
The accompanying notes are an integral part of the financial statements.
3
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NATIONAL ENVIRONMENTAL SERVICE CO.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(In thousands except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
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<S> <C> <C>
Revenues $1,327 $2,063
Costs and Expenses 975 1,210
Selling, general and administrative expenses 762 591
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Income (loss) from operations (410) 262
Other income 11 12
Interest expense ( 50) (21)
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Income (loss) before provision for income taxes (449) 253
Provision for (benefit from) income taxes (145) 98
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Net Income (loss) $ (304) $ 155
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Net Income (loss) per share $(0.05) $0.03
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</TABLE>
The accompanying notes are an integral part of the financial statements.
4
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NATIONAL ENVIRONMENTAL SERVICE CO.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
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<S> <C> <C>
Operating activities
Net Income (loss) $ (304) $ 155
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 34 67
Change in:
Accounts receivable 52 (369)
Costs and estimated earnings in excess of
billings on uncompleted contracts (51) -
Inventories (314) (83)
Prepaid expenses 35 30
Accounts payable 265 185
Accrued liabilities (127) 77
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Net cash provided by (used in) operating activities (410) 62
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Investing activities
Increase in accounts receivable from
stockholders and affiliates - (132)
Purchases of property, plant and equipment (82) (345)
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Net cash used in investing activities (82) (477)
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Financing activities:
Proceeds from notes payable and long-term obligations 1,066 910
Principal payments on notes and long term obligations (394) (512)
Proceeds from common stock - 92
Purchase of treasury stock (3) -
Cash dividends paid (173) -
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Net cash provided by financing activities 496 490
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Increase in cash 4 75
Cash, beginning of period 9 212
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Cash, end of period $ 13 $ 287
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</TABLE>
The accompanying notes are an integral part of the financial statements.
5
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NATIONAL ENVIRONMENTAL SERVICE CO.
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 March 31, 1996 and
the results of operations and cash flows for the three month periods ended March
31, 1996 and 1995. Results of operations and cash flows are not necessarily
indicative of the results which will be achieved for the full year.
2. ACQUISITION
Acquisition of the Remedial Services Division of Leigh Engineering, Inc.
occurred on February 29, 1996. The acquisition of the assets and assumption of
certain liabilities were obtained in exchange for cash of $326,892 and 15,000
shares of NESCO common stock. The acquisition is expected to expand NESCO's
presence in the Dallas market which began with the acquisition of the assets and
certain liabilities of Chenco, Inc. on December 29, 1995. The Remedial Services
Division acquisition is expected to expand NESCO's customer base and services.
6
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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 MARCH 31, 1996
AND MARCH 31, 1995.
Revenue for the three months ended March 31, 1996 decreased 36% from
the corresponding period of 1995 ($1,327,000 compared to $2,063,000). The
decrease is primarily due to the completion of two federal contracts, delays in
the start of new contracts, and seasonal declines in some revenue categories due
to winter weather. Additionally, the NESCO Iowa and Nebraska offices were
closed in the first quarter. Substantially all of the fueling systems upgrades
and related environmental work were completed in Iowa. Nebraska placed a
moratorium on funding additional clean-up work on contaminated fueling facility
sites. Construction and repair revenues declined $424,000 in the first quarter
of 1996 as compared to the first quarter of 1995. Site assessment revenues
increased $87,000. Declines in revenues in the other categories accounted for
the remainder of the reduction.
Cost and expenses declined 19% ($975,000 for the first three months of
1996 compared to $1,210,000 for the first three months of 1995). The cost and
expenses did not decline as much as revenues due to the temporary loss of
productivity in closing the Iowa and Nebraska offices and the consolidation of
the two Texas companies acquired to establish NESCO's Dallas office in the first
quarter.
General, selling and administrative expenses increased $171,000 or 29%
over 1995. Of this $171,000 increase, approximately $155,000 is due to
increased compensation expense resulting from a larger number of employees,
increased payroll related taxes, and compensation increases. A number of
salesmen were on the payroll during the first quarter of 1996 which were not on
the payroll in the same quarter of 1995. Advertising expense accounted for the
remainder of the increase.
Interest expense increased 138% due to larger loan balances outstanding.
Loans were increased for operating capital, acquisition of equipment, and to
finance the acquisition of the two Dallas companies mentioned above.
The Company's provision for Federal income tax reflect a $145,000 tax
benefit due to the 1996 first quarter loss compared to a provision for income
taxes of $98,000 for the first quarter of 1995.
7
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CHANGES IN CAPITAL RESOURCES AND LIQUIDITY
The company obtained a loan secured by equipment in December, 1995 in
the amount of $355,000. This loan was funded in early January, 1996. The
interest rate on the loan is prime plus 1 percent, and the loan is repayable in
36 monthly installments of principal and interest. Maturity is December 29, 1998
The Company obtained a loan secured by proceeds to be received from
work performed on a contract. The loan amount was $295,000 and funded in
January, 1996. The loan is payable in nine equal installments plus interest
with a maturity of October 29, 1996. The interest rate is prime plus 1 percent.
The Company renewed its Revolving line of credit in February, 1996, and the
new loan maturity is April, 1997. The amount of the line was increased from $1.2
million to $1.75 million. The interest rate on the loan remained at prime plus 1
percent.
In conjunction with its acquisition of certain assets from Leigh
Engineering, Inc. of Dallas, Texas, the Company obtained two loans. The Company
obtained a $117,000 loan secured by equipment at an interest rate of prime plus
1 percent. The loan is repayable in twenty-four installments of principal and
interest and matures in March of 1998. Additionally, the Company negotiated a
$150,000 short-term line of credit loan secured by accounts receivable obtained
from Leigh Engineering. The interest rate is prime plus 1 percent, and the
maturity is June 18, 1996. The loan was not funded as of the end of the quarter.
The Company continued to make periodic debt repayments during the
period. The un-used portion of the bank line of credit ($300,000 at March 31,
1996) is available, should it be needed. Due to funding problems at a state
agency, reimbursements for more than $169,000 from Nebraska have been delayed
and are in trade accounts receivable. The Company expects to receive the
reimbursements with interest as soon as funding is available. As these
reimbursements are received, funds will be available to reduce the line of
credit balances.
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
None
(b) Reports on Form 8-K:
None
8
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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.
NATIONAL ENVIRONMENTAL SERVICE CO.
Date: May 3, 1996 /s/ EDDY L. PATTERSON
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EDDY L. PATTERSON, President
Date: May 3, 1996 /s/ LARRY G. JOHNSON
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LARRY G. JOHNSON, Vice President &
Secretary-Treasurer &
Chief Financial Officer
9
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<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 13
<SECURITIES> 0
<RECEIVABLES> 2,290
<ALLOWANCES> 44
<INVENTORY> 767
<CURRENT-ASSETS> 3,801
<PP&E> 2,675
<DEPRECIATION> 912
<TOTAL-ASSETS> 5,592
<CURRENT-LIABILITIES> 2,014
<BONDS> 0
0
0
<COMMON> 58
<OTHER-SE> 1,870
<TOTAL-LIABILITY-AND-EQUITY> 5,592
<SALES> 177
<TOTAL-REVENUES> 1,327
<CGS> 116
<TOTAL-COSTS> 975
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 15
<INTEREST-EXPENSE> 50
<INCOME-PRETAX> (449)
<INCOME-TAX> (145)
<INCOME-CONTINUING> (221)
<DISCONTINUED> (83)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (304)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
</TABLE>
