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 June 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:
ndicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date. 4,850,058
INDEX
OP-TECH Environmental Services, Inc. and Subsidiaries
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets
June 30, 1996 and December 31, 1995 (Audited). . . . . . . . . . 3
Condensed Consolidated Statements of Operation
Three months ended June 30, 1996 and June 30, 1995
Six months ended June 30, 1996 and June 30, 1995 . . . . . . . 5
Condensed Consolidated Statements of Cash Flows
Six months ended June 30, 1996 and June 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>
ITEM #1 FINANCIAL STATEMENTS PART I - FINANCIAL INFORMA
<CAPTION>
OP-TECH ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
June 30, December 31,
1996 1995
<S>
Assets
<C> <C>
Cash and Cash equivalents $24,610 $12,647
Accounts Receivable, Net
Unaffiliated Parties 1,282,085 1,064,689
Affiliated Parties 114,647 196,270
1,396,732 1,260,959
Costs on Uncompleted Projects Applicable
to Future Billings 123,567 102,199
Prepaid Expenses and Other Assets 313,720 171,843
Total Current Assets 1,858,629 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 2,599,098 2,586,632
Aqueous Treatment System 332,909 329,176
3,284,669 5,186,903
Less Accumulated Depreciation (1,572,979) (1,421,886)
1,711,690 3,765,017
Assets Held for Sale 1,875,822 0
Covenant not to Compete 178,082 193,862
Other 15,591 21,020
193,673 214,882
Total Assets $5,639,814 $5,527,547
<FN>
The accompanying notes are an integral part of the financial statements.
ITEM #1 FINANCIAL STATEMENTS PART I - FINANCIAL INFORMATION
<CAPTION>
OP-TECH ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
June 30, December 31,
<S> 1996 1995
Liabilities and Shareholders' Equity
Current Liabilities
Notes Payable <C> <C>
To Banks $968,000 $780,000
Unsecured Note to Affiliate 740,000 0
1,708,000 780,000
Accounts Payable
Unaffiliated Parties 607,497 661,764
Affiliated Parties 55,520 10,242
663,017 672,006
Billings in Excess of Costs and Estimated Profit
on Uncompleted Contracts 204,890 149,202
Accrued Expenses and Other Liabilities 433,411 272,913
Current Portion of Long Term Debt and Obligations
Under Capital Leases 374,366 416,083
Total Current Liabilities 3,383,684 2,290,204
Long Term Debt and Obligations Under Capital Leases
Less Current Portion 1,927,795 2,081,459
Long-term notes payable - affiliate 0 245,000
Shareholders' Equity
Common Stock, Par Value $.01 Per Share
Authorized 7,500,000; 4,850,058 Shares
Outstanding as of June 30, 1996 and
December 31, 1995 respectively 48,500 48,500
Additional Paid in Capital 4,485,157 4,485,157
Retained Earnings (Deficit) (4,205,313) (3,622,773)
Total Shareholders' Equity 328,335 910,884
Commitments and Contingencies
Total Liabilities and
Shareholders' Equity $5,639,814 $5,527,547
<FN>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
<CAPTION>
ITEM #1 FINANCIAL STATEMENTS PART I - FINANCIAL INFORMATION
OP-TECH ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
June 30, June 30, June 30, June 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Revenues:
Project Billings and Services $1,409,316 $1,664,611 $2,317,995 $3,829,133
Project Costs 903,829 1,001,707 1,449,991 2,398,733
Gross Margin 505,487 662,904 868,004 1,430,400
Selling, General and Administrative Expense 615,475 699,503 1,266,189 1,334,087
Operating (Loss) Income (109,988) (36,559) (398,185) 96,313
Other Income and Expense
Interest Expense 95,729 85,410 184,157 171,215
Other Expense, Net (537) 7,858 160 8,646
95,192 93,268 183,997 179,861
Loss Before Income Taxes (205,180) (129,867) (582,182) (83,548)
State Income Taxes 0 1,430 367 3,367
Net Loss ($205,180) (128,437) (582,549) (86,915)
Net Loss per share ($0.04) ($0.03) ($0.12) ($0.02)
Weighted Average Shares Outstanding 4,850,058 4,852,100 4,850,058 4,852,100
<FN>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
<CAPTION>
ITEM #1 FINANCIAL STATEMENTS PART I - FINANCIAL INFORMATION
OP-TECH ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30, JUNE 30,
1996 1995
<S> <C> <C>
Operating Activities
Net (Loss) ($582,549) ($86,915)
Adjustments to Reconcile Net (Loss) to
Cash Provided by (Used in) Operating Activities
Depreciation and Amortization 273,395 283,404
(Increase) Decrease in Operating Assets and
Increase (Decrease) in Operating Liabilities:
Accounts Receivable (135,773) 447,989
Costs on Uncompleted Projects Applicable
to Future Billings (21,368) (50,005)
Billings and Estimated Profit in Excess
of Costs of Uncompleted Contracts 55,688 22,211
Prepaid Expenses and Other Assets (141,877) (133,306)
Accounts Payable and Accrued Expenses 151,509 (99,551)
Net Cash (Used in) Provided by Operating Activities (400,975) 383,827
Investing Activities
Purchase of Property and Equipment (74,681) (130,285)
Financing Activities
Proceeds from Short-Term Borrowings 683,000 9,138
Principal Payments on Long-Term Borrowings (153,664) (129,113)
Principal Payments on Short-Term Borrowings (41,717) (273,000)
Proceeds from Issuance of Common Stock 0 4,503
Net Cash Provided by (Used in) Financing Activities 487,619 (388,472)
Increase (Decrease) in Cash and Cash Equivalents 11,963 (134,930)
Cash and Cash Equivalents at End of Period $24,610 $21,218
<FN>
The accompanying notes are an integral part of the financial statements.
</TABLE>
6
<PAGE>
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 of 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 June 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. Currently, the Company's credit facilities are at maximum limits which
raises substantial doubt about its ability to meet cash requirements as well
as continue as a going concern. Management is addressing this issue very
aggressively and has begun discussions with the bank and affiliated party
regarding forbearance of principal and interest payments as well as an
overall restructuring of the Company's short and long-term debt.
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 January 1,
1996 and as a result of liquidity issues, the Company has reclassified land,
land improvements, and buildings (the Massena Property) from operating
assets to assets held for sale. In addition to the Massena Property,
management is in the process of evaluating all operating assets to
determine what is essential to the core business versus what should be
made available for sale.
PART I - FINANCIAL INFORMATION
Item No. 2
Management's Discussion and Analysis of
Financial Condition and Results of Operations.
Liquidity and Capital Resources
At June 30, 1996, the Company had cash and cash equivalents of $24,610 as
compared to $21,218 at December 31, 1995.
At June 30, 1996, the Company had a working capital deficit of $1,525,055
compared to a 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 affiliated party during the second
quarter of 1996.
The Company used cash from operations of $400,975 for the six month
period ended June 30, 1996, compared to cash provided by operations of
$383,827 during the six month period ended June 30, 1995.
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 June 30, 1996, the Company has an unsecured
line of credit with an affiliated party with maximum borrowings of $750,000
due on March 31, 1997. Borrowings against the collateralized and unsecured
lines of credit aggregated $968,000 and $740,000 respectively at June 30,
1996. As of the date of this report, the Company's credit facilities are at
maximum limits. Management is addressing this issue through discussions
with the bank and the affiliated party relative to forbearance of principal
and interest payments on debt as well as overall debt restructuring (refer
to Footnote #4 of the Consolidated Financial Statements). In addition, the
Company has committed to the sale of the Massena Property and is
reviewing other assets to be sold as well as additional cost savings (refer to
Footnote #5 of the Consolidated Financial Statements).
The Company has not made the August 1, 1996, principal and interest
payments on two of its long-term obligations to the bank and has not made
interest payments on its unsecured line of credit to the affiliated party for
the month of June and July 1996. As a result of not making these payments,
the Company stands in default on these obligations and is currently in
discussions with these parties to remedy such default.
Massena Property:
As of June 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
June 30, 1996.
Currently, the Company uses the property for its Massena Branch Office
headquarters, equipment storage and its Aqueous Treatment/360 facility.
Management is currently reviewing several options relative to disposing of
the property and is obtaining information on its value. Due to the
uniqueness of the asset and the absence of quoted market prices on similar
properties, obtaining information on the current value of the property may
take several months. Upon completion of this process, management will be
in a position to determine what is the most appropriate action as it relates
to the proper valuation of the Massena Property.
Results of Operations
Billings:
The Company's project billings and services for the second quarter of 1996
have decreased 15% over the second quarter of 1995. For the six month
period ended June 30, 1996, the Company's billings have decreased 39%
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 second quarter of 1996 decreased 10% to $903,829
from $1,007,707 for the same period in 1995. Project Costs as a percentage
of revenues was 64% and 60% for the three months ended June 30, 1996
and 1995 respectively. Gross profit margin for the second quarter of 1996
decreased to 36% from 40% for the same period in 1995.
The decrease in the gross profit margin during the second quarter of 1996
is the result of an increasingly competitive environmental services market.
During the second quarter of 1996, the Company bid jobs at a lower margin
in an effort to maintain as well as increase its market share in the New York
State area. For the six month period ended June 30, 1996, project costs
decreased 40% from $2,398, 733 to $1,449,991 primarily due to decreased
revenues. Project costs as a percentage revenues was 63% for the six
month periods ended June 30, 1996 and 1995. The gross profit margin for
the six month periods ended June 30, 1996 and 1995 was 37%. Overall,
despite a lower second quarter gross profit margin, the Company was able
to maintain a consistent gross profit due to a higher than usual 1st quarter
gross profit.
Selling, General and Administrative Expenses:
Selling, General and Administrative Expenses (SG&A) for the three months
ended June 30, 1996, decreased 12% to $615,475 from $699,503 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. For the six month
period ended June 30, 1996, SG&A decreased 5% to $1,266,189 from
$1,334,087 for the same period in 1995.
Net Loss:
The net loss for the three months ended June 30, 1996, was $205,437
compared to a net loss of $128,437 for the same period last year. For the
six months ended June 30, 1996, the net loss was $582,549 compared to a
net loss of $86,915 for the same period in 1995.
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
June 30, 1996.
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: August 15, 1996
/s/ Joseph M. McNulty
Joseph M. McNulty, Treasurer
Date: August 15, 1996
