SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q/A
[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 & Svcs $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
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 Equipmen (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 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 $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 going concern. 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 share holder 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.
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.
As a result of the debt to equity conversion by the Company's two
largest creditors, the Company believes its new credit facilities
are sufficient to meet its cash flow requirements for the next twelve
months.
Property, Plant & Equipment
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.
During the third quarter of 1997, the Company wrote down certain
equipment and intangible assets to their fair value resulting
in a charge of $539,441. The equipment consisted of various trucks
and specialized vacuum equipment. In addition, the Company wrote off
loan origination fees associated with its restructured debt.
NYSDEC Consent Order
In the second quarter of 1997, the Company began digging test pits on
the Massena property to determine the extent of ground contamination.
A total of ten test pits were dug. Eight of the pits were found to
have no contamination and were closed out by New York State. The
remaining two pits had low level hits of contamination. These areas
were excavated late in the third quarter of 1997. The Company
removed approximately 40 cubic yards of contaminated material from
the two pits and is currently awaiting final closure of the site by
New York State. The Company also tested its groundwater monitoring
wells which were also found to be free of contamination therefore
posing no threat to the groundwater supply in the area. The Company
has spent approximately $60,000 to clean this site which has been
expensed in 1997.
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: January 9, 1998
/s/ Joseph M. McNulty
Joseph M. McNulty, Treasurer
Date: January 9, 1998
