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, 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. 4,852,983
INDEX
OP-TECH Environmental Services, Inc. and Subsidiaries
Part I. FINANCIAL INFORMATION Page No.
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
- - September 30, 1997 (Unaudited) and December 31, 1996 (Audited). . 3
Condensed Consolidated Statements of Operations (Unaudited)
- - Three months ended September 30, 1997 and September 30, 1996
- - Nine months ended September 30, 1997 and September 30, 1996 . . . 4
Condensed Consolidated Statements of Cash Flows (Unaudited)
- - Nine months ended September 30, 1997 and September 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 . . . . . . . . . . . . . . . . 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)
September 30, December 31,
1997 1996
Assets
Cash and Cash equivalents $47,764 $19,077
Accounts Receivable, Net
Unaffiliated Parties 1,473,992 890,028
Affiliated Parties 76,096 658,690
1,550,088 1,548,718
Costs on Uncompleted
Projects Applicable
to Future Billings 181,904 100,941
Prepaid Expenses and
Other Assets 254,487 165,633
Total Current Assets 2,034,243 1,834,369
Property and Equipment, net 625,053 1,234,949
Assets Held for Sale 1,980,349 2,011,544
Other Assets 0 74,547
Total Assets $4,639,645 $5,155,409
Liabilities and Shareholders' Deficit
Current Liabilities
Notes Payable
To Banks $906,000 $971,000
Unsecured Note to Shareholder 1,400,000 -
2,306,000 971,000
Accounts Payable
Unaffiliated Parties 1,045,223 954,066
Affiliated Parties 119,200 112,997
1,164,423 1,067,063
Billings in Excess of
Costs and Estimated Profit
on Uncompleted Contracts 394,070 238,063
Accrued Expenses and Other
Liabilities 512,176 441,947
Current Portion of Long
Term Debt and Obligations
Under Capital Leases 2,016,476 2,198,121
Total Current Liabilities 6,393,145 4,916,194
Long-term notes payable -
Shareholder - 875,000
Shareholders' Deficit
Common Stock, Par Value
$.01 Per Share Authorized
7,500,000; 4,852,983 Shares
Outstanding as of
September 30, 1997 and
4,854,497 Outstanding as of
December 31, 1996 48,530 48,535
Additional Paid in Capital 4,489,507 4,491,773
Retained Deficit (6,291,537) (5,176,093)
Total Shareholders' Deficit (1,753,500) (635,785)
Total Liabilities and
Shareholders' Deficit $4,639,645 $5,155,409
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 OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
September 30,September 30, September 30 September 30,
1997 1996 1997 1996
Revenues:
Project Billings
and Services $1,518,997 $1,441,300 $5,216,166 $3,759,294
Project Costs 1,101,314 1,033,351 3,712,242 2,483,341
Gross Margin 417,683 407,949 1,503,924 1,275,953
Selling, General
and Administrative
Expenses 605,144 606,103 1,811,636 1,872,293
Provision for Impairment
of Long Lived Assets 539,441 240,594 539,441 240,594
Operating (Loss) (726,902) (438,748) (847,153) (836,934)
Other Income and Expense
Interest Expense 76,911 102,167 264,484 285,864
Other Expense, Net 3,706 2,575 3,807 2,877
80,617 104,742 268,291 288,741
State Income Taxes 0 0 0 367
Net Loss ($807,519) ($543,490) ($1,115,444) ($1,126,042)
Net Loss per share ($0.17) ($0.11) ($0.23) ($0.23)
Weighted Average
Shares Outstanding 4,853,482 4,854,497 4,853,482 4,854,497
The accompanying notes are an integral part of the financial statements.
ITEM #1 F PART I - FINANCIAL INFORMATION
OP-TECH ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED
September 30, September 30,
1997 1996
Operating Activities
Net Loss ($1,115,444) ($1,126,042)
Adjustments to Reconcile
Net Loss to
Cash Used In Operating Activities
Depreciation and Amortization 261,291 380,161
Gain on Sale of Equipment (870) -
Provision for Impairment of
Long Lived Assets 539,441 240,594
(Increase) Decrease in
Operating Assets and
Increase (Decrease) in
Operating Liabilities
Accounts Receivable (1,370) 76,943
Costs on Uncompleted Projects
Applicable
to Future Billings (80,963) (278)
Billings and Estimated
Profit in Excess
of Costs of Uncompleted Contracts 156,007 36,089
Prepaid Expenses and Other Assets (88,854) (111,419)
Accounts Payable and Accrued
Expenses 167,589 166,069
Net Cash Used in Operating
Activities (163,173) (337,883)
Investing Activities
Proceeds from Sale of Equipment 115,500 -
Purchase of Property
and Equipment (154,495) (112,312)
Net Cash Used in
Investing Activities (38,995) (112,312)
Financing Activities
Proceeds from Short-Term
Borrowings 460,000 696,000
Principal Payments on
Debt Obligations (229,145) (254,487)
Proceeds from Issuance
of Common Stock - 6,651
Net Cash Provided by
Financing Activities 230,855 448,164
Increase (Decrease) in
Cash and Cash Equivalents 28,687 (2,031)
Cash and Cash Equivalents
at Beginning of Period 19,077 12,647
Cash and Cash Equivalents
at End of Period $47,764 $10,616
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 andits 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 $0 and $367 as of September 30, 1997 and 1996 respectively. No
provision for federal taxes has been made due to the Company's available
net operating loss carry forwards.
4. On 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 certain non-operating
equipment from operating assets to assets held for sale. During the
third quarter of 1996, the Company recognized an impairment on the non-
operating equipment to be disposed of in the amount of $240,594.
5. As reflected in the accompanying financial statements, the Company
has suffered recurring losses from operations since inception, has a
working capital deficiency at September 30, 1997, and a negative capital
deficiency that raised substantial doubt about its ability to continue
as a going concern. As of September 30, 1997 the Company was unable to
meet its current obligations as they became due. Regarding the future
of the Corporation, management considered seeking protection under the
United States Bankruptcy Code or entering into a voluntary workout with
its two largest creditors, OnBank & Trust CO.("OnBank") and O'Brien &
Gere Limited ("OBG Limited").
After careful consideration of the above, and believing the Company
could continue as a going concern without the heavy debt burden,
management was able to negotiate a workout with its two largest
creditors to convert all or part of their indebtedness and accrued
interest into Common Stock of the Corporation, and to forgive the
remaining balance. OBG Limited, to which the Corporation is indebted
for $1,400,000 plus accrued interest, will forgive $1,000,000 of debt
and exchange the balance including accrued interest into approximately
1,000,000 shares of Common Stock. OnBank to which the Corporation is
indebted for approximately $2,800,000 plus accrued interest, will
exchange the entire amount of indebtedness for approximately 5,700,000
shares of Common Stock. The actual number of shares will be determined
on the closing date at an exchange rate of $.50 per share. The exchange
price per share was negotiated with the two creditors based on the price
of recent sales and their estimates of future risks.
OBG Limited and OnBank have advised the Corporation that they intend to
hold their shares as investors of the Corporation. The Corporation is
not obligated to file a registration statement providing for the sale of
shares owned by OnBank and OBG Limited. Pursuant to Rule 144 of the
Securities Act of 1933, after a holding period of one year, OnBank and
OBG Limited could commence the sale of their shares. Other than that as
described above or as provided for pursuant to the Corporation's stock
option plan there are no existing understandings or agreements for the
issuance of any shares of Common Stock. If the amendment is adopted by
the stockholders, the Board of Directors will have authority to issue
shares of Common Stock without the necessity of further stockholder
action. Holders of the Common Stock have no preemptive rights with
respect to any share which may be issued in the future. The above
transactions are subject to shareholder approval for the increase in
authorized shares from 7,500,000 to 20,000,000 which will be sought
at a special meeting of the shareholders in December of 1997.
6. On October 13, 1997, the Company entered into an agreement with a
new bank to provide a line of credit of $1,000,000. Upon the completion
of the conversion of debt to equity by the Company's existing bank, the
Company will have the ability to borrow up to $ 750,000 immediately and
an additional $250,000 pending approval of the bank's loan committee.
7. 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 $276,336 and $113,065 for the
nine months ended September 30, 1997 and 1996 respectively.
Interest expense on an unsecured line of credit with a shareholder was
approximately $75,390 for the nine months ended September 30, 1997. As
discussed in footnote #5, $1,000,000 of the unsecured line of credit
with a shareholder was forgiven on October 14, 1997 and the $400,000
plus accrued interest will be converted to the Company's Common Stock
in December 1997.
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, 1997, the Company had cash and cash equivalents of
$47,764 as compared to $19,077 at December 31, 1996.
At September 30, 1997, the Company had a working capital deficit of
$4,358,842 compared to a working capital deficit of $3,100,902 at
December 31, 1996. The deterioration of the working capital is
attributable to increased borrowings on a convertible debenture from a
shareholder during 1997, and a note payable to a shareholder which is
classified as current in 1997 due its maturity date.
As reflected in the accompanying financial statements, the Company has
suffered recurring losses from operations since inception, has a working
capital deficiency at September 30, 1997, and a negative capital
deficiency that raised substantial doubt about its ability to continue
as a growing concern. As of September 30, 1997 the Company was unable
to meet its current obligations as they became due. Regarding the
future of the Corporation, management considered seeking protection
under the United States Bankruptcy Code or entering into a voluntary
workout with its two largest creditors, OnBank & Trust CO. ("OnBank")
and O'Brien & Gere Limited ("OBG Limited").
After careful consideration of the above, and believing the Company
could continue as a going concern without the heavy debt burden,
management was able to negotiate a workout with its two largest
creditors to convert all or part of their indebtedness and accrued
interest into Common Stock of the Corporation, and to forgive the
remaining balance. OBG Limited, to which the Corporation is indebted
for $1,400,000 plus accrued interest, will forgive $1,000,000 of debt
and exchange the balance including accrued interest into approximately
1,000,000 shares of Common Stock. OnBank to which the Corporation is
indebted for approximately $2,800,000 plus accrued interest, will
exchange the entire amount of indebtedness for approximately 5,700,000
shares of Common Stock. The actual number of shares will be
determined on the closing date at an exchange rate of $.50 per share.
The exchange price per share was negotiated with the two creditors
based on the price of recent sales and their estimates of future risks.
The above transactions are subject to shareholder approval for the increase
in authorized shares from 7,500,000 to 20,000,000 which will be sought at a
special meeting of shareholders in December of 1997.
OBG Limited and OnBank have advised the Corporation that they intend
to hold their shares as investors of the Corporation. The Corporation
is not obligated to file a registration statement providing for the
sale of shares owned by OnBank and OBG Limited. Pursuant to Rule 144
of the Securities Act of 1933, after a holding period of one year,
OnBank and OBG Limited could commence the sale of their shares. Other
than that as described above or as provided for pursuant to the
Corporation's stock option plan there are no existing understandings or
agreements for the issuance of any shares of Common Stock. If the
amendment is adopted by the stockholders, the Board of Directors will
have authority to issue shares of Common Stock without the necessity of
further stockholder action. Holders of the Common Stock have no
preemptive rights with respect to any share which may be issued in the
future.
Currently, the Company has a collateralized borrowing facility with a
bank that provides for borrowing up to $1,000,000. On October 13, 1997
the Company entered into a new borrowing agreement with another bank,
and upon the completion of the conversion of debt to equity by the
Company's existing bank, the Company will have a new collateralized
borrowing facility that provides for borrowing up to $750,000 immediately
and an additional $250,000 pending approval of the new bank's loan
committee.
Currently, the Company's existing credit facilities are sufficient to
meet its cash flow requirements for the next twelve months.
Massena Property
In 1996, the Company reclassified its Massena Property (a former oil
tank farm located on the St. Lawrence River) which is used for the
Company's operations in Massena, NY, to assets held for sale. The
property has a carrying value of approximately $1.9 million as of
September 30, 1997.
Management is currently reviewing several options relative to the sale
and or lease of the property. During the third quarter of 1996,
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. In March
of 1997, management obtained an independent appraisal of the Massena
property and found it to be stated at its appraised value.
Results of Operations
Billings:
The Company's project billings and services for the third quarter of
1997 have increased 6% over the third quarter of 1996. For the nine
month period ended September 30, 1997, the Company's project billings
have increased 38% over the same period in 1996. The Company's overall
increase in revenues during 1997 is attributable to a large remediation
project which was completed in the second quarter. In addition, the
Company has been successful in winning several public projects which
is a new industry focus.
Project Costs and Gross Profit:
Project costs for the third quarter of 1997 increased 6% over the same
period in 1996. Project costs as a percentage of revenues was 73% and
72% for the three months ended September 30, 1997 and 1996 respectively.
Gross profit margin for the third quarter of 1997 decreased to 27% from
28% for the same period in 1996. For the nine month period ended
September 30, 1997, Project costs increased 50% from $2,483,341 to
$3,712,642 primarily due to increased revenues. Project costs as a
percentage of revenues was 71% for the nine month periods ended
September 30, 1997 and 1996. The gross profit margin for the nine month
periods ended September 30, 1997 and 1996 was 28% and 33% respectively.
The decrease in the gross profit margin during the third quarter and for
the nine months ended 1997, is the result of an increasingly competitive
environmental services market and an increase in public project revenue
which typically yields a lower gross profit margin.
Selling, General and Administrative Expenses:
Selling, General and Administrative Expenses (SG&A) for the three months
ended September 30, 1997, remained steady at $605,144 from $606,103 for
the same period in 1996. For the nine month period ended September 30,
1997, SG&A decreased 3% to $1,811,636 from $1,872,293 for the same
period in 1996.
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
The Company held its annual meeting on September 9,
1997. The following directors were re-elected to a
one year term. Terry L. Brown, Richard L. Elander,
John R. Loveland, Cornelius B. Murphy Jr., and
Steven A. Sanders. Coopers and Lybrand, the
Company's independent auditors, were re-appointed
for 1998.
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, 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:November 15, 1997
/s/ Joseph M. McNulty
Joseph M. McNulty, Treasurer
Date:November 15, 1997
