SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ending September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file No. 0-19761
OP-TECH Environmental Services, Inc.
(Exact name of registrant as specified in its charter)
Delaware 91-1528142
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6392 Deere Road, Syracuse, NY 13206
(Address of principal executive office) (Zip Code)
(315) 463-1643
Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed 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.
Yes X or No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
4,854,497
<PAGE>
INDEX
OP-TECH Environmental Services, Inc. and Subsidiaries
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
- September 30, 1996 (Unaudited) and December 31, 1995 (Audited). .3
Condensed Consolidated Statements of Operation (Unaudited)
- Three months ended September 30, 1996 and September 30, 1995
- Nine months ended September 30, 1996 and September 30, 1995 . . 5
Condensed Consolidated Statements of Cash Flows (Unaudited)
- Nine months ended September 30, 1996 and September 30, 1995 . . .6
Notes to Condensed Consolidated Financial Statements
(Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . .7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . .8
Part II. OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . 10
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . 11
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<TABLE>
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ITEM #1 FINANCIAL STATEMENTS PART I - FINANCIAL INFORMATION
OP-TECH ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED) (AUDITED)
September 30, December 31,
1996 1995
<S> <C> <C>
Assets
Cash and Cash equivalents $10,616 $12,647
Accounts Receivable, Net
Unaffiliated Parties 1,079,808 1,064,689
Affiliated Parties 104,208 196,270
1,184,016 1,260,959
Costs on Uncompleted Projects Applicable
to Future Billings 102,477 102,199
Prepaid Expenses and Other Assets 283,262 171,843
Total Current Assets 1,580,371 1,547,648
Property and Equipment
Land and Improvements 0 1,117,761
Building 0 833,833
Furniture and Fixtures 35,033 34,334
Office Machines 132,688 120,567
Utility Vehicles 184,941 164,600
Field Equipment 2,040,253 2,586,632
Aqueous Treatment System 332,909 329,176
2,725,824 5,186,903
Less Accumulated Depreciation (1,313,347) (1,421,886)
1,412,477 3,765,017
Assets Held for Sale 1,876,083 0
Covenant not to Compete 170,192 193,862
Other 12,704 21,020
182,896 214,882
Total Assets $5,051,827 $5,527,547
<FN>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<CAPTION>
ITEM #1 FINANCIAL STATEMENTS PART I - FINANCIAL INFORMATION
OP-TECH ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED) (AUDITED)
September 30, December 31,
1996 1995
Liabilities and Shareholders' Equity
<S> <C> <C>
Current Liabilities
Notes Payable
To Banks $971,000 $780,000
Unsecured Note to Affiliate 750,000 0
1,721,000 780,000
Accounts Payable
Unaffiliated Parties 635,491 661,764
Affiliated Parties 90,942 10,242
726,433 672,006
Billings in Excess of Costs and Estimated Profit
on Uncompleted Contracts 185,291 149,202
Accrued Expenses and Other Liabilities 384,555 272,913
Current Portion of Long Term Debt and Obligations
Under Capital Leases 349,713 416,083
Total Current Liabilities 3,366,992 2,290,204
Long Term Debt and Obligations Under Capital Leases
Less Current Portion 1,893,342 2,081,459
Long-term notes payable - affiliate 245,000
Shareholders' Equity (Deficit)
Common Stock, Par Value $.01 Per Share
Authorized 7,500,000; 4,854,497 Shares
Outstanding as of September 30, 1996 and
4.850,058 as of December 31, 1995 48,544 48,500
Additional Paid in Capital 4,491,764 4,485,157
Retained Earnings (Deficit) (4,748,815) (3,622,773)
Total Shareholders' Equity (Deficit) (208,507) 910,884
Commitments and Contingencies
Total Liabilities and
Shareholders' Equity (Deficit) $5,051,827 $5,527,547
<FN>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<CAPTION>
4
ITEM #1 FINANCIAL STATEMENTS PART I - FINANCIAL INFORMATION
OP-TECH ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
Sept. 30 Sept. 30 Sept. 30 Sept. 30
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Revenues:
Project Billings and Services $1,441,300 $2,004,420 $3,759,294 $5,833,554
Project Costs 1,033,351 1,309,707 2,483,341 3,897,246
Gross Margin 407,949 694,713 1,275,953 1,936,308
Selling, General and Administrative Expense 606,103 743,220 1,872,293 1,888,501
Operating (Loss) Income (198,154) (48,507) (596,340) 47,807
Other Income and Expense
Interest Expense 102,167 88,723 285,864 259,937
Other Expense, Net 2,575 839 2,877 9,485
104,742 89,562 288,741 269,422
Provision for Impairment of Long Lived As (240,594) (240,594)
State Income Taxes 0 0 367 3,366
Net Loss ($543,490) ($138,066) ($1,126,042) ($224,981)
Net Loss per share ($0.11) ($0.03) ($0.23) ($0.05)
Weighted Average Shares Outstanding 4,854,497 4,850,058 4,854,497 4,848,243
<FN>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<CAPTION>
5
ITEM #1 FINANCIAL STATEMENTS PART I - FINANCIAL INFORMATION
OP-TECH ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED
SEPT. 30, SEPT. 30,
1996 1995
<S> <C> <C>
Operating Activities
Net (Loss) ($1,126,042) ($224,981)
Adjustments to Reconcile Net (Loss) to
Cash (Used in) Provided by Operating Activities
Depreciation and Amortization 380,161 448,695
Provision for Impairment of Long Lived Assets 240,594
(Increase) Decrease in Operating Assets and
Increase (Decrease) in Operating Liabilities:
Accounts Receivable 76,943 (119,936)
Costs on Uncompleted Projects Applicable
to Future Billings (278) (24,293)
Billings and Estimated Profit in Excess
of Costs of Uncompleted Contracts 36,089 (25,500)
Prepaid Expenses and Other Assets (111,419) (90,275)
Accounts Payable and Accrued Expenses 166,069 39,416
Net Cash (Used in) Provided by Operating Activities (337,883) 3,126
Investing Activities
Purchase of Property and Equipment (112,312) (343,556)
Financing Activities
Proceeds from Short-Term Borrowings 696,000 53,463
Principal Payments on Long-Term Borrowings (188,117) 329,660
Principal Payments on Short-Term Borrowings (66,370) (185,076)
Proceeds from Issuance of Common Stock 6,651 4,503
Net Cash Provided by Financing Activities 448,164 202,550
(Decrease) in Cash and Cash Equivalents (2,031) (137,880)
Cash and Cash Equivalents at End of Period $10,616 $18,268
<FN>
The accompanying notes are an integral part of the financial statements.
<PAGE>
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6
PART I - FINANCIAL INFORMATION
Item No. 1 Financial Statements
OP-TECH ENVIRONMENTAL SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with
the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management,
quarterly results include all adjustments (consisting of only
normal recurring adjustments) that the Company considers necessary
for a fair presentation of such information for interim periods.
The unaudited consolidated condensed financial statements
include the accounts of the Company and its subsidiaries. All
material intercompany transactions and balances have been
eliminated in consolidation.
2. The timing of revenues is dependent on the Company's backlog,
contract awards, and the performance requirements of each contract.
The Company's revenues are also affected by the timing of its
clients planned remediation work as well as the timing of unplanned
emergency spills. Historically, planned remediation work generally
increases during the third and fourth quarters. Although the
Company believes that the historical trend in quarterly revenues
for the third and fourth quarters of each year are generally higher
than the first and second quarters, there can be no assurance that
this will occur in future periods. Accordingly, quarterly or other
interim results should not be considered indicative of results to
be expected for any quarter or for the full year.
3. The Company has made a provision for New York State Franchise
income taxes of $367 and $4,796 as of September 30, 1996 and 1995
respectively. No provision for federal taxes has been made due to
the Company's available net operating loss carry forwards.
4. On August 1, 1996, the Company restructured its mortgage and
long-term equipment note with the bank. Principal payments on the
Company's mortgage have been deferred until February 1998 and the
long-term equipment note has been extended and will mature on
September 1, 2000. In addition, interest payments on the Company's
unsecured line of credit with an affiliated party have been
deferred until February of 1998.
5. Effective January 1, 1996 the Company implemented FASB 121
"Accounting for the impairment of Long-Lived Assets" at that time
there were no identified impairments to such assets. Subsequent to
June 1, 1996 and as a result of liquidity issues, the Company has
reclassified land, land improvements, buildings (the Massena
Property) and some non-operating equipment from operating assets to
assets held for sale. During the third quarter, the Company
recognized an impairment on non operating equipment to be disposed
of in the amount of $240,594. In addition to the Massena
Property,and the non-usable equipment, management is continuing its
process of evaluating all operating assets to determine what is
essential to the core business.<PAGE>
PART I - FINANCIAL INFORMATION
Item No. 2
Management's Discussion and Analysis of
Financial Condition and Results of Operations.
Liquidity and Capital Resources
At September 30, 1996, the Company had cash and cash equivalents of
$10,616 as compared to $12,647 at December 31, 1995.
At September 30, 1996, the Company had a working capital deficit of
$1,786,608 compared to a working capital deficit of $742,556 at
December 31, 1995. The increase in the working capital deficit is
attributable to increased borrowings from short-term lines of
credit from a bank and an affiliated party during 1996.
The Company has available a collateralized borrowing facility with
a bank that provides for borrowing up to $1,000,000 on a revolving
basis due on May 31, 1997. Additionally, at September 30, 1996,
the Company has an unsecured line of credit with an affiliated
party with maximum borrowings of $1,000,000 due on March 31, 1997.
Borrowings against the collateralized and unsecured lines of credit
aggregated $971,000 and $750,000 respectively at September 30,
1996. As of the date of this report, the Company has $125,000 of
available borrowings with the affiliated party.
As of August 1, 1996, the Company has restructured two of its long
term obligations with a bank. In addition, interest payments on
its unsecured line of credit with the affiliated party have been
deferred for eighteen months. (see footnote #4 on page 7)
Currently, the Company's credit facilities are near the maximum
limits. Management has addressed this issue very aggressively by
restructuring its debt and cutting costs. There can be no
assurances however that the Company will meet all of its cash
requirements over the next twelve months.
On October 14, 1996, a new President was hired to manage the
operations of the Company. As a result, management is
strategically reviewing its client base to achieve a growth in
sales volume. In addition, management will continue to review and
control overhead costs.
Massena Property
As of September 30, 1996, the Company has reclassified its Massena
Property (a former oil tank farm located on the St. Lawrence River)
to assets held for sale. The property has a carrying value of
approximately $1.9 million as of September 30, 1996.
Currently, the Company uses the property for its continuing
operations in Massena.
Management is currently reviewing several options relative to the
sale and or lease of the property. During the third quarter,
management retained a real estate broker and is aggressively
marketing the property throughout the United States and Canada.
Due to the uniqueness of the asset and the absence of quoted market
prices on similar properties, management anticipates it will take
a prolonged period of time to consummate a sale or lease of the
property. Management will continue to assess the proper valuation
of the property as it relates to its carrying value.
Equipment
As of September 30, 1996, the Company has taken a write down on
certain equipment resulting in a charge of $240,594. The equipment
which had a carrying value of approximately $320,594 primarily
consists of non-useable equipment which has been reduced to
$80,000, the estimated net realizable value, and has been
reclassified to assets held for sale. The Company expects the sale
of the equipment to be complete during the fourth quarter of 1996.
Results of Operations
Billings:
The Company's project billings and services for the third quarter
of 1996 have decreased 28% over the third quarter of 1995. For the
nine month period ended September 30, 1996, the Company's billings
have decreased 36% over the same period in 1995. The Company's
overall decrease in revenues during 1996 as compared to the same
period last year is attributable to fewer available New York State
Environmental projects, a lower volume of emergency spill response
activity, and a general downturn in the environmental services
market.
Project Costs and Gross Profit:
Project Costs for the third quarter of 1996 decreased 21% to
$1,033,351 from $1,309,707 for the same period in 1995. Project
Costs as a percentage of revenues was 71% and 65% for the three
months ended September 30, 1996 and 1995 respectively. Gross
profit margin for the third quarter of 1996 decreased to 29% from
35% for the same period in 1995. For the nine month period ended
September 30, 1996, Project Costs decreased 36% from $3,897,246 to
$2,483,341 primarily due to decreased revenues. Project Costs as
a percentage of revenues was 66% for the nine month periods ended
September 30, 1996 and 1995. The gross profit margin for the nine
month periods ended September 30, 1996 and 1995 was 33%.
The decrease in the gross profit margin during the third quarter of
1996 is the result of an increasingly competitive environmental
services market.
Selling, General and Administrative Expenses:
Selling, General and Administrative Expenses (SG&A) for the three
months ended September 30, 1996, decreased 18% to $606,103 from
$743,220 for the same period in 1995. For the nine month period
ended September 30, 1996, SG&A decreased 1% to $1,872,293 from
$1,888,501 for the same period in 1995.
The decrease is attributable to a higher utilization of the
operations staff as well as a general reduction of corporate
overhead.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits
None
Item 7. Reports on Form 8-K
No reports on Form 8-K were filed during the quarter
ended September 30, 1996.
<PAGE>
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 thereunto duly authorized.
OP-TECH Environmental Services, Inc.
(Registrant)
/s/ John R. Loveland
John R. Loveland, Chief Executive Officer
Date: November 15, 1996
/s/ Joseph M. McNulty
Joseph M. McNulty, Treasurer
Date: November 15, 1996
