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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, 1997
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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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(Issurer's telephone number)
Check whether the issuer (1) filed all reports required 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, 1997:
Number of shares
Title of Class Outstanding
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Common Stock, $.01 Par Value 5,781,927
Transitional Small Business Issuer Format (Check one): Yes No X
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NATIONAL ENVIRONMENTAL SERVICE CO.
TABLE OF CONTENTS
PART I
PAGE
FINANCIAL INFORMATION:
Item 1 - Financial Statements
Consolidated Balance Sheet
March 31, 1997 3
Consolidated Statements of Income
Three Months Ended March 31, 1997 and 1996 4
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1997 and 1996 5
Notes to Consolidated Financial Statements 6
Item 2 - Management's Discussion and Analysis
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 8
2
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NATIONAL ENVIRONMENTAL SERVICE CO.
CONSOLIDATED BALANCE SHEET
MARCH 31, 1997
(In Thousands)
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
<S> <C>
Current assets:
Cash $ 11
Accounts receivable:
Trade, net of allowance for doubtful accounts of $80 3,900
Refundable income taxes 167
Costs in excess of billings and estimated earnings on
uncompleted contracts 970
Inventories 876
Prepaid Expenses 65
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Total current assets 5,989
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Property and equipment, at cost 2,821
Less accumulated depreciation (1,222)
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Property and equipment, net 1,599
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Other assets 23
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Total assets $ 7,611
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<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C>
Current liabilities:
Current maturities of long term obligations $2,409
Notes payable - related parties 289
Accounts payable 1,891
Income tax payable 191
Accrued liabilities 360
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Total current liabilities 5,140
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Long-term obligations 285
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Deferred income taxes 16
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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 5,801,143 shares, including treasury shares 58
Additional paid-in capital 1,746
Retained Earnings 442
Common stock in Treasury, at cost, 19,216 shares (76)
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Total shareholders' equity 2,170
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Total liabilities and shareholders' equity $7,611
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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, 1997 AND 1996
(In thousands except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
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<S> <C> <C>
Revenues $3,586 $1,327
Costs and Expenses 2,220 1,115
Selling, general and administrative expenses 783 762
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Income (loss) from operations 583 (550)
Other income 21 11
Interest expense (65) (50)
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Income (loss) before provision for income taxes 539 (589)
Provision for (benefit from) income taxes 191 (194)
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Net Income (loss) $ 348 $ (395)
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Net Income (loss) per share $ 0.06 $(0.07)
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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, 1997 AND 1996
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
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<S> <C> <C>
Operating activities
Net Income (loss) $ 348 $ (395)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 87 34
Deferred Taxes - (22)
Change in:
Accounts receivable (702) 106
Costs and estimated earnings in excess of
billings on uncompleted contracts (341) (51)
Inventories (251) (183)
Prepaid and other expenses (32) 7
Accounts payable 529 265
Accrued liabilities 199 (127)
Income tax payable 191 -
Billings in excess of cost and estimated
earnings on uncompleted contracts (68) -
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Net cash provided by (used in) operating activities (40) (366)
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Investing activities
Purchases of property, plant and equipment (77) (170)
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Net cash used in investing activities (77) (170)
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Financing activities:
Proceeds from notes payable and long-term obligations 357 1,066
Principal payments on notes and long term obligations (348) (394)
Proceeds from common stock - 44
Purchase of treasury stock - (3)
Cash dividends paid - (173)
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Net cash provided by financing activities 9 540
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Decrease in cash (108) 4
Cash, beginning of period 119 9
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Cash, end of period $ 11 $ 13
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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, 1997 and
the results of operations and cash flows for the three month periods ended March
31, 1997 and 1996. Results of operations and cash flows are not necessarily
indicative of the results which will be achieved for the full year.
6
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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 MARCH 31, 1997
AND MARCH 31, 1996.
Revenue for the three months ended March 31, 1997 increased 170% from
the corresponding period of 1996 ($3,586,000 compared to $1,327,000). The
increase is primarily due to the 293% increase in fuel systems installation
revenue ($1,919,000 for the first quarter of 1997 compared to $488,000 for the
first quarter of 1996). Revenues for the first quarter of 1996 were low due to
the delays in the start of new contracts scheduled to begin in the first quarter
and declines due to extreme weather conditions. Revenues for the first quarter
of 1997 increased significantly due to the efforts in 1996 in developing a
cathodic protection distributor network and subsequent sales of cathodic
protection kits to these distributors in the first quarter of 1997, sales
generated by additional sales personnel in late 1996, increases in the number of
fuel systems installed by the company, and increases in the amount of cathodic
protection systems installed by the Company. Cathodic protection revenue
increased 239% in the first quarter of 1997 compared to the same period a year
ago ($1,112,000 compared to $328,000). System upgrade revenues increased
$97,000 in the first quarter of 1997 compared to the first quarter of 1996
($132,000 compared to $35,000).
Cost and expenses increased 99% ($2,220,000 for the first three months
of 1997 compared to $1,115,000 for the first three months of 1996). Costs of
supplies and materials increased from $184,000 for the first quarter of 1996 to
$1,073,000 for the same quarter in 1997. This increase resulted from the
significant increase in revenue in 1997 compared to the same period in 1996, the
increase in cathodic protection installations, and the increase in fuel systems
installations. Supplies and materials are a larger percentage of the job cost
in cathodic protection and fuel system installation in comparison to other
services provided by the Company.
Selling, general and administrative expenses increased $21,000 or 3%
over 1996 ($783,000 compared to $762,000). These expenses were 22% of revenues
for the first quarter of 1997 compared to 57% for the first quarter of 1996.
First quarter revenues for 1996 were unusually low and accounts for the high
percentage for that quarter. The Company incurred a considerable amount of
additional selling, general and administrative expense in 1996 in preparation
for the anticipated increase in sales in 1997 and beyond. As these anticipated
sales increases began in the first quarter of 1997, only minor additional
selling, general and administrative expenses were required.
7
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Interest expense increased 30% due to larger loan balances outstanding.
Loans were increased for operating capital, acquisition of equipment, and to
finance the costs and expenses of certain jobs on which customers were given
extended payment terms.
CHANGES IN CAPITAL RESOURCES AND LIQUIDITY
The Company entered into a $1,200,000 revolving line of credit in 1996,
and the line was increased to $2,100,000 in September of 1996. The credit line
was further modified and reduced to $2,000,000 effective April 15, 1997 with an
extension of maturity to May 31, 1997 at which time the entire balance of the
outstanding principal and accrued but unpaid interest will be due and payable.
The Company is actively seeking other financing sources to replace the existing
line of credit and fund anticipated growth.
The company obtained a loan secured by equipment in January 1997 in the
amount of $40,218. The interest rate on the loan is 8.45 percent, and the loan
is repayable in 36 monthly installments of principal and interest. Maturity is
January 10, 2000.
The Company continued to make periodic debt repayments during this period.
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
None
(b) Reports on Form 8-K:
None
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: April 10, 1997 /s/ LARRY G. JOHNSON
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LARRY G. JOHNSON, Vice President &
Secretary-
Treasurer &
Chief Financial
Officer
8
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<PAGE>
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<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 11
<SECURITIES> 0
<RECEIVABLES> 3,900
<ALLOWANCES> 80
<INVENTORY> 876
<CURRENT-ASSETS> 5,989
<PP&E> 2,821
<DEPRECIATION> 1,222
<TOTAL-ASSETS> 7,611
<CURRENT-LIABILITIES> 5,140
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<OTHER-SE> 2,112
<TOTAL-LIABILITY-AND-EQUITY> 7,611
<SALES> 514
<TOTAL-REVENUES> 3,586
<CGS> 233
<TOTAL-COSTS> 3,033
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<LOSS-PROVISION> 22
<INTEREST-EXPENSE> 65
<INCOME-PRETAX> 539
<INCOME-TAX> 191
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<DISCONTINUED> 0
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<NET-INCOME> 348
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
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