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, 1998
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. Employee
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. 11,601,023
INDEX
OP-TECH Environmental Services, Inc. and Subsidiaries
Part I. FINANCIAL INFORMATION Page No.
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets
September 30, 1998 and
December 31, 1997 (Audited)..............3
Condensed Consolidated Statements of Operation
Three months ended September 30, 1998
and September 30, 1997
Nine months ended September 30, 1998
and September 30, 1997.......................4
Condensed Consolidated Statements of Cash Flows
Nine months ended September 30, 1998
and September 30,1997........................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 ...........................13
SIGNATURES...................................14
PART I - FINANCIAL INFORMATION
Item No. 1 Financial Statements
OP-TECH ENVIRONMENTAL SERVICES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30 December 31,
ASSETS 1998 1997
Current Assets
Cash & Cash Equivalents $ 18,338 $ 81,517
Accounts receivable
(net of allowance for
doubtful accounts)
Unaffiliated parties 2,463,776 1,948,102
Affiliated parties 21,693 126,247
2,485,469 2,074,349
Costs on uncompleted projects applicable
to future billings 189,085 132,590
Prepaid expenses & other assets 304,302 184,445
Total Current Assets 2,997,194 2,472,901
Property and equipment, net 1,062,571 622,979
Assets held for sale 1,605,427 1,675,000
Other Assets 23,494 5,591
Total Assets 5,688,686 4,776,471
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Bank Overdraft 51,348 224,458
Notes payable to bank 757,171 500,000
808,519 724,458
Accounts payable:
Unaffiliated parties 807,359 1,008,236
Affiliated parties 40,655 118,159
848,014 1,126,395
Billings in excess of costs and estimated
profit on uncompleted projects 533,613 309,927
Accrued expenses and other liabilities 475,995 421,366
Current portion of long-term debt
and obligations under capital leases 204,641 107,911
Total Current Liabilities 2,870,782 2,690,057
Long-term debt 259,757 120,944
Stockholders' Equity:
Common stock, par value $.01 per share
authorized 20,000,000 shares;
11,601,023 and 11,555,123 shares
outstanding as of September 30, 1998
and Decemver 31, 1997 respectively 116,010 115,551
Additional paid-in-capital 7,801,747 7,773,555
Accumulated deficit (5,359,610) (5,923,636)
Total Shareholders' Equity 2,558,147 1,965,470
Total Liabilities and
Shareholders' Equity 5,688,686 4,776,471
The accompanying notes are an integral part of the financial statements.
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,
1998 1997 1998 1997
Revenues:
Project billings
and services $ 3,025,542 $ 1,518,997 $ 7,531,604 $ 5,216,166
Project costs 2,181,844 1,101,314 5,302,814 3,712,242
Gross Margin 843,698 417,683 2,228,790 1,503,924
Selling, general
and administrative
expenses 571,995 605,144 1,594,016 1,811,636
Provision for
impairment of long-
lived assets - 539,441 - 539,441
Operating income (loss) 271,703 (726,902) 634,774 (847,153)
Other income and
expense:
Interest expense 31,930 76,911 83,977 264,484
Other (income)
expense, net (175) 3,706 (13,229) 3,807
31,755 80,617 70,748 268,291
NET INCOME (LOSS) $ 239,948 $ (807,519) $ 564,026 $(1,115,444)
Earnings per common
share -
basic and dilutive $ 0.02 $ (0.17) $ 0.05 $ (0.23)
Weighted average
shares outstanding 11,565,379 4,853,482 11,565,379 4,853,482
The accompanying notes are an integral part of the financial statements.
OP-TECH ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Operating activities:
Net income (loss) $ 564,026 $(1,115,444)
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 121,032 261,291
Gain (loss) on sale of equipment 0 (870)
Provision for impairment of
long-lived assets 0 539,441
(Increase) decrease in operating
assets and increase (decrease)
in operating liabilities:
Accounts receivable (411,120) (1,370)
Costs on uncompleted projects
applicable to future billings (56,495) (80,963)
Billings and estimated profit in
excess of costs on uncompleted
contracts 223,686 156,007
Prepaid expenses and other assets (139,857) (88,854)
Accounts payable and accrued expenses (195,101) 167,589
Net cash provided by (used in)
operating activities 106,171 (163,173)
Investing activities:
Proceeds from sale of equipment 0 115,500
Purchase of property and
equipment (178,965) (154,495)
Net cash used in
investing activities (178,965) (38,995)
Financing Activities:
Cash overdraft (173,110) 0
Net proceeds from current and
long-term borrowings 182,725 230,855
Net cash provided by
financing activities 9,615 230,855
(Decrease) increase in cash
and cash equivalents (63,179) 28,687
Cash and cash equivalents
at beginning of period 81,517 19,077
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 18,338 $ 47,764
Non-cash items:
Financed equipment $ 309,989
Issuance of common stock 28,651
The accompanying notes are an integral part of the 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 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 entered into letter agreements with its two
largest creditors, OnBank & Trust Co. ("OnBank") and O'Brien & Gere
Limited ("OBG Limited"), a shareholder, on October 14, 1997, which
were executed as of December 31, 1997, whereas OnBank and OBG
Limited agreed to convert all or part of their indebtedness,
including accrued interest, into Common Stock of the Company, and to
forgive the remaining balance. OBG Limited, to which the Company
was indebted for $1,540,000, including accrued interest of $140,000,
forgave $1,000,000 of the debt and converted the balance into
1,080,000 shares of the Company's Common Stock. OnBank, to which
the Company was indebted for $2,811,070, including accrued interest
of $75,332, converted their debt and accrued interest for 5,622,000
shares of the Company's Common Stock. The price per share, of $.50,
was negotiated with the two creditors and the Company based on the
price of recent sales and their estimates of future risk.
As a result of these transactions the Company has positive
shareholders' equity, and has obtained a revolving loan agreement
that provides for borrowings up to $1,000,000 from another financial
institution.
The revolving loan is subject to renewal at the bank's option
and is payable on demand, or if no demand is made, outstanding
advances are due on February 16, 1999 and are guaranteed by a
shareholder for an amount not to exceed $500,000.
4. The Company purchased technical, accounting and consulting
services and rented certain office space from a shareholder and its
affiliates. The costs for these services amounted to $253,619 and
$276,336 for the nine months ended September 30, 1998 and 1997
respectively.
Additionally, the Company provided $208,546 and $1,206,289 of
remediation, sub-contract support and project services to a
shareholder and its affiliates for the nine months ended September
30, 1998 and 1997 respectively.
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, 1998, the Company had cash and cash
equivalents of $18,338 as compared to $81,517 at December 31, 1997.
At September 30, 1998, the Company had a working capital
surplus of $126,412 compared to a deficit of $217,156 at December
31, 1997, with a current ratio of 1.04 to 1 September 30, 1998
compared to .92 to 1 at December 31, 1997.
For the nine months ended September 30, 1998, the Company's net
cash provided by operations was $106,171 compared to cash used in
operations of $163,173 during the nine months ended September 30,
1997.
The Company's cash used in investing activities of $178,965
during the first nine months of the year was attributable to the
purchase of several utility vehicles, a trailer, a high pressure
water truck, computer equipment, and the purchase of tank
installation equipment valued at $80,000.
The Company financed approximately $310,000 of new equipment
during the nine months ended September 31, 1998, consisting of a new
vacuum truck, several utility vehicle vehicles and excavation
equipment.
The Company has a loan agreement that provides for borrowings
up to $1,000,000 on a revolving basis, collateralized by all
accounts receivable, inventory and equipment now owned or acquired
later. As of September 30, 1998, the Company had $191,481 of
available borrowings on the loan. The revolving loan is subject to
renewal at the bank's option and is payable on demand, or if no
demand is made outstanding advances are due on February 16, 1999,
and are guaranteed by a shareholder for an amount not-to-exceed
$500,000.
During the first nine months of 1998, all principal payments on
the Company's debt were made timely.
Management believes that the Company will have adequate cash
flow to meet its obligations during the next twelve months.
In August of 1998, the Board of Directors of the Company
authorized the sale of its wholly-owned subsidiary, St. Lawrence
Industrial Services, Inc. Although the sale has not yet been
completed, it is not expected to have a significant impact on the
Company's financial position.
YEAR 2000
The Company recognizes the need to ensure its operations will
not be adversely impacted by year 2000 software failures. The
company is addressing the risk to the availability and integrity of
financial systems and the reliability of operational systems. In
1998, the company has upgraded its financial systems to comply with
year 2000 requirements and has also undertaken an upgrade of its
headquarters information and decision support systems, which is
expected to be complete by March of 1999. The Company has spent
approximately $40,000 to date on these system upgrades and estimates
spending approximately $15,000 over the next 6 to 12 months.
THE MASSENA PORT FACILITY
The Massena Port Facility is a former oil tank farm which is
located on the St. Lawrence River in Massena, NY. The property is
improved with several buildings and a deep water docking facility
for large ocean going ships. The property is still a viable
location for a petroleum distribution facility and could still
function as one pending upgrades of tanks and diking systems to
current state and federal guidelines. Any improvements such as
these would be treated as a capital expense in the year they were
incurred. Currently, the Company uses the property for its Massena
branch office headquarters, equipment storage and its Aqueous
Treatment/360 Facility. A wholly-owned subsidiary of the same
shareholder currently has an option to purchase the Massena Port
Facility for $2,000,000.
In 1996, the Company reclassified the Massena Property to
Assets Held for Sale. The property at that time had a carrying
value of approximately $1.9 million. Due to the significance of the
carrying value of the property, in March of 1997, management
obtained an independent third party appraisal to support its
carrying value. Such appraisal included an evaluation of similar
sales plus a pending transaction at the time. The appraisal also
included an evaluation of the time frame during which a sale would
be expected. Based upon the appraisal report and an estimate of the
costs to sell, management recognized an impairment of $308,377 on
the property during 1997. As of September 30, 1998, the carrying
value of the property is $1,605,427.
N.Y.S.D.E.C. CONSENT ORDER
In March of 1997, the Company signed a consent order issued by
the New York State Department of Environmental Conservation which
requires the Company to remediate its Massena, NY property.
In the second quarter of 1997, the Company began digging test
pits on the 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 indications 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 supply in the area. The Company has spent
approximately $60,000 to clean this site, which was expensed in
1997. As of the date of this report, the Company is awaiting final
closure of the consent order by the New York State Department of
Environmental Conservation and the Company believes the extent of
the contamination is minimal and will not impair its ability to sell
the property.
SPECIAL NOTICE REGARDING FORWARD-LOOKING STATEMENTS
The Company is including the following cautionary statement in
this Form 10-Q to make applicable and take advantage of the "safe
harbor" provisions of the Private Securities Litigation Reform Act
of 1995 for any forward-looking statement made by, or on behalf of,
the Company. This 10-Q, press releases issued by the Company, and
certain information provided periodically in writing and orally by
the Company's designated officers and agents contain statements
which constitute forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. The words expect, believe, goal,
plan, intend, estimate, and similar expressions and variations
thereof used are intended to specifically identify forward-looking
statements. Where any such forward-looking statement includes a
statement of the assumptions or basis underlying such forward-
looking statement, the Company cautions that, while it believes such
assumptions or basis to be reasonable and makes them in good faith,
assumed facts or basis almost always vary from actual results, and
the differences between assumed facts or basis and actual results
can be material, depending on the circumstances. Where, in any
forward-looking statement, the Company, or its management, expresses
an expectation or belief as to future results, such expectation or
belief is expressed in good faith and believed to have a reasonable
basis, but there can be no assurance that the statement of
expectation or belief will result or be achieved or accomplished.
RESULTS OF OPERATIONS
BILLINGS
The Company's project billings for the third quarter of 1998
increased 99% to $3,025,542 from $1,518,997 for the third quarter of
1997. For the nine month period ended September 30, 1998 the
Company's billings increased 44% to $7,531,604 from $5,216,166 for
the same period in 1997. The Company's increase in revenues during
the first six months of 1998 was primarily attributable to a large
emergency spill response contract for a utility customer. Since
July, the Company's core service revenues increased due to several
large industrial cleaning contracts as well as various tank removal
and tank installation projects. During the three months ended
September 30, 1998, the Company's newly expanded geographic areas
generated revenue of approximately $520,000, all of which was core
service revenue resulting from competitive bidding in both the
public and private markets. The expanded areas produced revenue of
approximately $750,000 for the nine months ended September 30, 1998.
PROJECT COSTS AND GROSS PROFIT
Project costs for the third quarter of 1998 increased 98% to
$2,181,844 from $1,101,314 for the same period in 1997 due to the
significant increase in billings. Project costs as a percentage of
revenues was 72% and 73% for the three months ended September 30,
1998 and 1997 respectively. Gross profit margin for the third
quarter of 1998 increased to 28% from 27% for the same period in
1997.
For the nine month period ended September 30, 1998, project
costs increased 43% to $5,302,814 from $3,712,242 for the nine
months ended September 30, 1997, primarily due to the increase in
the Company's billings. Project costs as a percentage of revenues
were 70% and 71% for the nine month periods ended September 30, 1998
and 1997, respectively. The Company was able to maintain its focus
on meeting its budgeted gross margin goals, even with the sharp
increase in sales. Management was able to control the mix of work
pursued by the Company, which enabled the Company to focus its
efforts in service areas that produced a higher gross margin
percentage.
SELLING, GENERAL, ADMINISTRATIVE AND INTEREST EXPENSES
Selling, general and administrative expenses ("SG&A") for the
quarter ended September 30, 1998 decreased 5% to $571,995 from
$605,144 for the same period in 1997. For the nine month period
ended September 30, 1998, SG&A decreased 12% to $1,594,016 from
$1,811,636 for the same period in 1997. SG&A as a percentage of
revenues decreased to 19% versus 40% for the three months ended
September 30, 1998. For the nine month period ended September 30,
1998, SG&A decreased to 21% of revenues versus 35% for the same
period in 1997. The decrease in SG&A is due to the Company's
ability to increase the utilization of its existing staff while
simultaneously increasing revenues dramatically. The Company added
five additional project managers and supervisors during the last
five months and has kept them focused on bidding and managing
projects. Additionally, SG&A decreased due to the corporate
restructuring of the Company in October of 1997, which significantly
reduced depreciation and amortization expenses. In June of 1998, the
Company was able to secure lower general business insurance rates as
well as cut various other SG&A expenses.
INTEREST EXPENSE
Interest expense for the nine months ended September 30, 1998
decreased 68% to $83,977 from $264,484 for the same period in 1997.
The decrease is primarily attributable to the Company's financial
restructuring, which significantly reduced the Company's debt.
NET INCOME (LOSS)
The net income for the three months ended September 30, 1998
was $239,948, or $.02 per share (basic and diluted), compared to a
net loss of $807,519, or $.17 per share (basic and diluted), for the
same period in 1997. For the nine months ended September 30, 1998,
the net income was $564,026, or $.05 per share (basic and diluted),
compared to a net loss of ($1,115,444), or ($.23) per share (basic
and diluted), for the same period in 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 September 30, 1998.
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 Environm ental Services, Inc.
(Registrant)
Date: November 13, 1998 /s/ John R. Loveland
John R. Loveland, Chief Executive
Officer
Date: November 13, 1998 /s/ Christopher J. Polimino
Christopher J. Polimino, Vice President
Date: November 13, 1998 /s/ Joseph M. McNulty
Joseph M. McNulty, Treasurer
