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, 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
- June 30, 1997 and December 31, 1996 (Audited). . . . . . . . . 3
Condensed Consolidated Statements of Operation
- Three months ended June 30, 1997 and June 30, 1996
- Six months ended June 30, 1997 and June 30, 1996 . . . . . . 4
Condensed Consolidated Statements of Cash Flows
- Six months ended June 30, 1997 and June 30, 1996 . . . . . . 5
Notes to Condensed Consolidated Financial Statements
(Unaudited). . . . . . . . . . . . . . . . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . . . . 7
Part II. OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . 9
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . .10
ITEM #1 FINANCIAL STATEMENTS PART I - FINANCIAL INFORMATION
OP-TECH ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
June 30, December 31,
1997 1996
Assets
Cash and Cash equivalents $17,253 $19,077
Accounts Receivable, Net
Unaffiliated Parties 1,610,666 890,028
Affiliated Parties 147,504 658,690
1,758,170 1,548,718
Costs on Uncompleted Projects Applicable
to Future Billings 174,684 100,941
Prepaid Expenses and Other 317,726 165,633
Assets
Total Current Assets 2,267,833 1,815,292
Property and Equipment, net 1,123,534 1,234,949
Assets Held for Sale 1,973,215 2,011,544
Other Assets 57,591 74,547
Total Assets $5,422,173 $5,155,409
Liabilities and Shareholders' Deficit
Current Liabilities
Notes Payable
To Banks $971,000 $971,000
Unsecured Note to Shareholder 1,400,000 -
2,371,000 971,000
Accounts Payable
Unaffiliated Parties 908,340 954,066
Affiliated Parties 104,055 112,997
1,012,395 1,067,063
Billings in Excess of Costs and Estimated Profit
on Uncompleted Contracts 318,433 238,063
Accrued Expenses and Other Liabilities 662,521 441,947
Current Portion of Long Term Debt and Obligations
Under Capital Leases 2,001,535 2,198,121
Total Current Liabilities 6,365,884 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
June 30, 1997 and December 48,535 48,535
31, 1996 respectively.
Additional Paid in Capital 4,491,773 4,491,773
Retained Deficit (5,484,019) (5,176,093)
Total Shareholders' Deficit (943,711) (635,785)
Total Liabilities and
Shareholders' Deficit $5,422,173 $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 SIX MONTHS ENDED
June 30, June 30, June 30, June 30,
1997 1996 1997 1996
Revenues:
Project Billings $2,054,564 $1,409,316 $3,697,169 $2,317,995
Project Costs 1,450,808 903,829 2,610,928 1,449,991
Gross Margin 603,756 505,487 1,086,241 868,004
Selling, General Adm Exp 601,839 615,475 1,206,492 1,266,189
Operating Income (Loss) 1,917 (109,888) (120,251) (398,185)
Other Income and Expense
Interest Expense 95,398 95,729 187,573 184,157
Other (Income) Expense, Net 939 (537) 103 160
96,337 95,192 187,676 183,997
Loss Before Income Taxes (94,420) (205,180) (307,927) (582,182)
State Income Taxes 0 0 0 367
Net Loss (94,420) (205,180) (307,927) (582,549)
Net Loss per share ($0.02) ($0.04) ($0.06) ($0.12)
Weighted Average Shares
Outstanding 4,850,058 4,850,058 4,850,058 4,850,058
The accompanying notes are an integral part of the financial statements.
ITEM #1 PART I - FINANCIAL INFORMATION
OP-TECH ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED
June 30, June 30,
1997 1996
Operating Activities
Net Loss ($307,927) ($582,549)
Adjustments to Reconcile Net Loss to
Cash Used In Operating Activities
Depreciation and Amortization 174,915 273,395
Gain on Sale of Equipment (870) -
(Increase) Decrease in Operating Assets and
Increase (Decrease) in Operating Liabilities
Accounts Receivable (209,452) (135,773)
Costs on Uncompleted Projects Applicable
to Future Billings (73,743) (21,368)
Billings and Estimated Profit in Excess
of Costs of Uncompleted Contracts 80,370 55,688
Prepaid Expenses and Other Assets (152,093) (141,877)
Accounts Payable and Accrued Expenses 165,906 151,509
Net Cash Used in Operating Activities (322,894) (400,975)
Investing Activities
Proceeds from Sale of Equipment 115,500 -
Purchase of Property and Equipment (122,844) (74,681)
Net Cash Used in Investing Activities (7,344) (74,681)
Financing Activities
Proceeds from Short-Term Borrowings 1,385,000 683,000
Principal Payments on Debt Obligations (1,056,586) (153,664)
Net Cash Provided by Financing Activities 328,414 487,619
(Decrease) Increase in Cash and Cash Equivalents (1,824) 11,963
Cash and Cash Equivalents at End of Period $17,253 $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 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.
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 and has a working
capital and equity deficiency at June 30, 1997 which raise substantial doubt
about its ability to continue as a going concern. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
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 and other creditors. Though the
Bank or any other creditor has not, as of this date, called the obligations,
there can be no assurances they will not exercise their right in the future.
Accordingly, all debt related to this Bank and other creditors has been
classified as current.
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 $98,822.
As of June 30, 1997, the Company has been unable to achieve the necessary
sales volume and gross margin to meet its 1997 budgeted goals. As a result,
the Company has not produced sufficient cash flow to meet its obligations
as they become due.
The Company is exploring the possibilities of acquisitions, affiliations and
joint ventures in an effort to produce a higher sales volume sufficient to
meet its obligations as they become due. In addition, the Company is trying
to secure additional borrowings from various lending institutions to provide
additional operating cash. In the event none of these events take place, the
Company may have to cease operations altogether.
As of June 30, 1997, the Company's largest shareholder had advanced an
additional $400,000 through the issuance of convertible debentures.
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 $218,807 for the six months ended June 30,
1997.
Additionally, the Company provided $1,450,778 of remediation, sub-contract
support and project services to a shareholder and its affiliates for the six
months ended June 30, 1997.
Interest expense on an unsecured line of credit with a shareholder was
approximately $52,524 for the six months ended June 30, 1997. Interest
payments on the note with the shareholder have been deferred until
February 1998.
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, 1997, the Company had cash and cash equivalents of $17,253 as
compared to $19,077 at December 31, 1996.
At June 30, 1997, the Company had a working capital deficit of $4,098,051
compared to a deficit of $3,100,902 at December 31, 1996. The increase in
the working capital deficit is primarily attributable to increased borrowings
on a convertible debenture from a shareholder and an installment note
used to finance the Company's insurance policies.
For the six months ended June 30, 1997, the Company's net cash used in
operations was $322,894 compared to cash used in operations of $400,975
during the six months ended June 30, 1996.
The Company has available a collateralized borrowing facility that provides
for borrowing up to $1,000,000 on a revolving basis. Additionally, at June
30, 1997, the Company has an unsecured line of credit with an affiliated
party with maximum borrowings of $1,400,000 due on March 31, 1998.
Borrowings against the collateralized and unsecured lines of credit
aggregated $971,000 and $1,400,000 respectively at June 30, 1997.
The Company's $1,000,000 collateralized line of credit with a bank was
renewed on May 31, 1997. The Company does not expect 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 to secure additional
borrowings beyond the Company's current limits.
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 and other creditors. Though the
Bank, or 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 six months of 1997, all principal payments on the Company's
debt have been made timely, however, there can be no assurances that the
Company can meet its principal payments on debt for the remainder of the
year.
1997 Business Plan
During 1996, management formulated a business plan which was intended
to achieve a higher sales volume and reduce overhead in 1997.
As discussed in the notes to the financial statements, during the first six
months of 1997 revenues and total gross margin dollars were below
managements expectations. As a result of these factors, the Company faces
a significant cash strain and is not able to meet its current obligations as
they become due.
The Company, however, is still actively trying to increase its revenue base
through aggressive marketing efforts throughout its service areas and is
continually reducing overhead as evidenced by the 5% overhead reduction
over the same period last year. In addition, the Company is exploring the
possibilities of acquisitions, affiliations and joint ventures in an effort to
produce a higher sales volume sufficient to meet its obligations as they
become due. In the event none of theses events take place, the Company
may have to cease operations altogether.
Results of Operations
Billings:
The Company's project billings and services for the second quarter of 1997
have increased 46% over the second quarter of 1996. For the six month
period ended June 30, 1997, the Company's billings have increased 60% over
the same period in 1996. The Company's increase in revenues during 1997
as compared to the same period last year is attributable to a large
remediation contract, increased spill response activity and increased volume
due to a larger customer base.
Project Costs and Gross Profit:
Project Costs for the second quarter of 1997 increased 61% to $1,450,808
from $903,829 for the same period in 1996. Project Costs as a percentage of
revenues was 71% and 64% for the three months ended June 30, 1997 and
1996 respectively. Gross profit margin for the second quarter of 1997
decreased to 29% from 36% for the same period in 1996.
The decrease in the gross profit margin during the second quarter of 1997
is the result of an increasingly competitive environmental services market.
During the second quarter of 1997, 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 and surrounding areas. For the six month period ended June 30, 1997,
project costs increased 80% from $1,449,991 to $2,610,928 primarily due to
increased revenues. Project costs as a percentage revenues was 70% for the
six month period ended June 30, 1997 and 1996. The gross profit margin for
the six month periods ended June 30, 1997 and 1996 was 29% and 37%
respectively.
Selling, General and Administrative Expenses:
Selling, General and Administrative Expenses (SG&A) for the three months
ended June 30, 1997, decreased 2% to $601,839 from $615,475 for the same
period in 1996.
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, 1997, SG&A decreased 5% to $1,206,492 from
$1,266,189 for the same period in 1996.
Net Loss:
The net loss for the three months ended June 30, 1997, was $94,420
compared to a net loss of $205,180 for the same period last year. For the
six months ended June 30, 1997, the net loss was $307,927 compared to a
net loss of $582,549 for the same period in 1996.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is party to a legal action which is deeemed to
be immaterial at this time.
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, 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)
/s/ John R. Loveland
John R. Loveland, Chief Executive Officer
Date: August 15, 1997
/s/ Joseph M. McNulty
Joseph M. McNulty, Treasurer
Date: August 15, 1997
