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 March 31, 1997
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. 4,850,058
INDEX
OP-TECH Environmental Services, Inc. and Subsidiaries
Part I. FINANCIAL INFORMATION Page No.
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets
- -March 31, 1997 and December 31, 1996 (Audited) . . . . . . . . . 3
Condensed Consolidated Statements of Operation
- -Three months ended March 31, 1997 and March 31, 1996.. . . . . . 4
Condensed Consolidated Statements of Cash Flows
- -Three months ended March 31, 1997 and March 31, 1996. .. . . . . 5
Notes to Condensed Consolidated Financial Statements
Unaudited). . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . . . . . . 8
Part II. OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . 10
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
ITEM #1 FINANCIAL STATEMENTS PART I - FINANCIAL INFORMATION
OP-TECH ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
March 31, December 31,
1997 1996
Assets
Cash and Cash equivalents $26,092 $19,077
Accounts Receivable, Net
Unaffiliated Parties 931,978 890,028
Affiliated Parties 320,654 658,690
1,252,632 1,548,718
Costs on Uncompleted Projects Applicable
to Future Billings 94,522 100,941
Prepaid Expenses and Other Ass 105,076 165,633
Total Current Assets 1,478,322 1,815,292
Property and Equipment, net 1,151,143 1,234,949
Assets Held for Sale 1,923,435 2,011,544
Other Assets 65,049 74,547
Total Assets $4,617,949 $5,155,409
Liabilities and Shareholders' Equity
Current Liabilities
Notes Payable
To Banks $971,000 $971,000
Unsecured Note to Shareholder 1,000,000 -
Accounts Payable
Unaffiliated Parties 671,742 954,066
Affiliated Parties 119,629 112,997
791,371 1,067,063
Billings in Excess of Costs and Estimated
Profit on Uncompleted Contracts 242,361 238,063
Accrued Expenses and Other Liabilities 411,785 441,947
Current Portion of Long Term Debt and
Obligations Under Capital Leases 2,050,724 2,198,121
Total Current Liabilities 5,467,241 4,916,194
Long-term notes payable - Shareholder - 875,000
Shareholders' Deficit
Common Stock, Par Value $.01 Per
Share Authorized 7,500,000; 4,850,058
Shares Outstanding as of
March 31, 1997 and December 31, 1996 48,535 48,535
respectively
Additional Paid in Capital 4,491,773 4,491,773
Retained Deficit (5,389,600) (5,176,093)
Total Shareholders' Deficit (849,292) (635,785)
Total Liabilities and
Shareholders' Deficit $4,617,949 $5,155,409
The accompanying note are an integral part of the financial statements
ITEM #1 FINANCIAL STATEMENTS PART I - FINANCIAL INFORMATION
OP-TECH ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED
March 31, March 31,
1997 1996
Revenues:
Project Billings and Services $1,642,605 $908,678
Project Costs 1,160,120 519,326
Gross Margin 482,485 389,352
Selling, General and Administrative Expenses 604,653 677,546
Operating Loss (122,168) (288,194)
Other Income and Expense
Interest Expense 92,175 88,429
Other (Income) Expense, Net (836) 381
91,339 88,810
Loss Before Income Taxes (213,507) (377,004)
State Income Taxes - 367
Net Loss ($213,507) ($377,371)
Net Loss per share ($0.04) ($0.08)
Weighted Average Shares Outstanding 4,850,058 4,848,589
The accompanying notes are an integral part of the financial statements.
ITEM #1 FINANCIAL STATEMENTS PART I - FINANCIAL INFORMATION
OP-TECH ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
March 31, March 31,
1997 1996
Operating Activities
Net Loss ($213,507) ($377,371)
Adjustments to Reconcile Net Loss to
Cash (Used In) Provided by Operating Activities
Depreciation and Amortization 91,329 133,493
Gain on Sale of Equipment (870) -
(Increase) Decrease in Operating Assets and
Increase (Decrease) in Operating Liabilities:
Accounts Receivable 296,086 379,681
Costs on Uncompleted Projects Applicable
to Future Billings 6,419 (17,699)
Billings and Estimated Profit in Excess
of Costs of Uncompleted Contracts 4,298 (10,122)
Prepaid Expenses and Other Assets 60,557 38,113
Accounts Payable and Accrued Expenses (305,854) (131,689)
Net Cash (Used in) Provided by Operating Activities (61,542) 14,406
Investing Activities
Proceeds from Sale of Equipment 115,500 -
Purchase of Property and Equipment (24,546) (34,026)
Net Cash Provided by (Used in) Investing Activities 90,954 (34,206)
Financing Activities
Proceeds from Short-Term Borrowings 395,000 127,000
Principal Payments on Long-Term Borrowings (147,397) (105,804)
Principal Payments on Short-Term Borrowings (270,000) -
Net Cash (Used in) Provided by Financing Activities (22,397) 21,196
Increase in Cash and Cash Equivalents 7,015 1,576
Cash and Cash Equivalents at Beginning of Period 19,077 12,647
Cash and Cash Equivalents at End of Period $26,092 $14,223
The accompanying notes are an integral part of the financial statements.
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 principals
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 second
and third quarters. Although the Company believes that the historical trend
in quarterly revenues for the second and third 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. As reflected in the accompanying financial statements, the Company has
suffered recurring losses from operations since inception, has a working
capital deficiency at March 31, 1997, and a negative capital deficiency that
raise substantial doubt about its ability to continue as a going concern.
Substantially all of the Company's debt is with one financial
institution, and such agreements have cross default provisions. As a result
of non compliance with covenants on certain of the debt, all of the debt is
deemed to be in default and callable by the Bank. Though the Bank has not,
as of this date, called the obligations, there can be no assurances they will
not exercise their right in the future. In addition, the Company's $1,000,000
revolving loan is subject to annual renewal in May 1997. Accordingly, all
debt related to this Bank has been classified as current.
Management's plans with respect to its ability to continue as a going
concern cover the following significant areas. First of all, there has been
a change in the leadership at the Company intended to refocus the Company on
growth and profitability. Secondly, the new leadership has put together a
budget for 1997 that, if achieved, will provide sufficient cash flow to meet
its obligations when they come due, when considered in connection with the
financing plans discussed below. This budget includes three main points of
focus: increasing revenues, maintaining its gross profit margin, and continued
reduction in operating expenses.
In order to achieve its budgeted revenue goals, the Company is
focusing on developing relationships with large industrial customers to ensure
the Company is on their preferred vendor lists. The Company believes this
will allow for more recurring core service revenue from this base of
companies. In additions, the Company is aggressively pursuing public projects,
a market segment not pursued in the past.
With respect to gross margin, the Company has eliminated certain
product lines not able to generate sufficient margins to warrant continued
management focus. All efforts are now being focused on those services whereby
the Company is able to be both competitive and be able produce levels of gross
margins consistent with the 1997 operating budget margin levels.
The Company has been engaged in continuous efforts to reduce its fixed
operating expenses. The 1997 budget includes goals to reduce fixed costs by a
further ten percent. The Company is also looking at under utilized assets
that could be sold to raise additional funds.
With respect to its financing agreement, the Company has entered into
a modification agreement with the Bank deferring principal payments on the
first and second mortgages until February 1998. This amendment has reduced
the Company's cash flow requirements for 1997. If the Bank, and other
creditors, do not call their debt, as a result of the covenant defaults, then
the principal payments due for the remainder of 1997 on all debt obligations
will be $173,942.
The Company's largest shareholder has committed to advance an
additional $200,000 in convertible debentures immediately, and another
$200,000 in convertible debentures after June 30, 1997, contingent upon the
occurrence of certain events. Subsequent to March 31, 1997, the Company has
borrowed $125,000 against these debentures.
Based on achieving the Company's 1997 budget, availability of
additional financing from a Shareholder, renewal, under similar terms, of the
Company's revolving loan and anticipating the Bank will not call its debt
obligations, management believes that there will be sufficient cash flow to
meet its obligations when they come due. However, there can be no assurances
the Company will be able to increase its revenues, maintain its gross margin
and achieve its cost reductions to achieve its 1997 budget, nor that the Bank
will renew its revolving loan and not call its debt obligations during 1997.
In the event any one or combination of the above events do not occur, the
Company may not be able to meet its obligations as they come due.
4. The Company purchases technical, accounting and consulting services
and rented certain office space from a shareholder and its affiliates. The
costs for these services amounted to $92,903 for the quarter ended March 31,
1997.
Additionally, the Company provided $686,366 of remediation,
sub-contract support and project services to a shareholder and its affiliates
for the quarter ended March 31, 1997.
Interest expense on an unsecured line of credit with a shareholder was
approximately $23,724 for the quarter ended March 31, 1997 are interest
payments on the not with the sharholder have been deferred until February 1998.
PART I - FINANCIAL INFORMATION
IItem No. 2
Management's Discussion and Analysis of
Financial Condition and Results of Operations.
Liquidity and Capital Resources
At March 31, 1997, the Company had cash and cash equivalents of $26,092 as
compared to $19,077 at December 31, 1996.
At March 31, 1997, the Company had a working capital deficit of $3,988,919
compared to a deficit of $3,100,902 at December 31, 1996, with a current ratio
of .27 to 1 at March 31, 1997 compared to .31 to 1 at December 31, 1996. The
increase in the working capital deficit is primarily attributable to a note
payable to a shareholder.
For the quarter ended March 31, 1997, the Company's net cash used in operations
was $61,542 compared to cash provided by operations of $14,406 during the
quarter ended March 31, 1996.
The Company's cash provided by investing activities of $90,954 during the
first quarter was attributable to the sale of several pieces of equipment,
proceeds were used to paydown $89,000 in long-term debt.
The Company has available a collateralized borrowing facility that provides
for borrowing up to $1,000,000 on a revolving basis. Additionally, at March
31, 1997, the Company has an unsecured line of credit with an affiliated party
with maximum borrowings of $1,000,000 due on March 31, 1998. Borrowings
against the collateralized and unsecured lines of credit aggregated $971,000
and $1,000,000 respectively at March 31, 1997.
The Company's $1,000,000 collateralized line of credit with a bank expires on
May 31, 1997. The Company expects to satisfy its liquidity requirements
during the next twelve months which are expected to consist of working capital
requirements, principal and interest payments on debt and some small capital
expenditures. In order for the Company to achieve these cash requirements, it
will be necessary for the bank to renew the line of credit in May 1997.
Although, there can be no guarantees of its renewal, management believes that
the bank will renew this credit facility at the same availability.
In March of 1997, O'Brien & Gere Limited, a shareholder, approved an additional
$400,000 advance, $200,000 which was immediately available to the Company and
an additional $200,000 which will become available in June 1997 contingent
upon the occurence of certain events. Subsequent to March 31, 1997, the
Company borrowed $125,000 against the additional advance.
Substantially all of the Company's debt is with one financial institution, and
such agreements have cross default provisions. As a result of non-compliance
with covenants on certain of the debt, all of the debt is deemed to be in
default and callable by the Bank. Though the Bank, nor any other creditors,
has not at this date called the obligations, there can be no assurances that
they will not exercise this right in the future.
During the first quarter all principal payments on the Company's debt have
been made timely.
1997 Business Plan
During 1996, management formulated a business plan which was intended to
achieve a higher sales volume and reduce overhead in 1997. During the first
quarter of 1997, management has achieved the following goals as it relates to
this plan.
The Master Service Agreement Plan (MSA) is well underway and the Company is
aggressively marketing this product throughout its service areas. Since
January 1, 1997, the Company has introduced the MSA to over 32 prospective
customers, twelve of which have signed the agreement. In addition, the
Company has been successful on several public projects and will continue to
aggressively pursue the public market.
The Company's gross margin of 29% during the first quarter was within its
expected guidelines, however revenues were below budget which resulted in
lower gross margin dollars for the quarter.
As discussed above, the Company is trying to increase its revenue base
through increased marketing efforts and introduction of its MSA plan.
The Company's overhead reduction plan is progressing as planned as
demonstrated by the reduction in overhead over the same quarter last year.
Results of Operations
Billings:
The Company's project billings for the first quarter of 1997 have increased
81% to $1,642,605 from $908,678 during the first quarter of 1996. The
Company's increase in revenues during the first quarter of 1997 is primarily
attributable to large remediation projects and increased spill response
activity. Emergency Spill Response billings during the first quarter of 1997
amounted to approximately $253,000 versus $84,000 for the same quarter in 1996,
In addition, increased marketing efforts have contributed to increased volume
as the Company has added many new clients to its customer base.
Project Costs and Gross Profit:
Project costs for the three months ended March 31, 1997 increased 123% to
$1,160,120 from $519,326 for the same period in 1996 primarily due to
increased revenues and an overall lower gross profit margin. Project costs
as a percentage of revenues was 71% and 57% for the three months ended March
31, 1997 and 1996 respectively.
The gross profit margin for the three months ended March 31, 1997 was 29%
versus 43% for the same period in 1996. The Company's gross profit margin
fluctuates with the mix of work during a given quarter and although the gross
margin percent was within expected guidelines, lower than expected revenues
contributed to lower gross margin dollars overall. Typically, projects which
are labor and equipment intensive generate a higher gross profit margin than
projects that consist primarily of costs that are passed through to clients
with a minimal amount of markup such as disposal costs, equipment rentals and
subcontract costs. In addition, the overall increase in competitive conditions
in the environmental services market resulted in the Company to competitively
bid jobs at a lower gross margin in order to gain market share.
Selling, General and Administrative Expenses:
Selling, general and administrative expenses (SG&A) for the three months ended
March 31, 1997 decreased 10% to $604,653 from $677,546 for the same period in
1996. This decrease is attributable to the Company's overhead reduction plan
which was implemented late in 1996.
Net Loss:
The net loss for the three months ended March 31, 1997 was $213,507 or $.04
per share compared to a net loss of $377,371 or $.08 per share for the same
period in 1996. As discussed above, the lower than expected revenues
contributed to a greater net loss than anticipated for the first quarter
of 1997.
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
March 31, 1997.
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)
Date: /s/ John R. Loveland
John R. Loveland, Chief Executive Officer
Date: /s/ Joseph M. McNulty
Joseph M. McNulty, Treasurer
May 15, 1996
