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, 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
incorporation or I.R.S Employee
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. 11,555,123
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, 1998 and December 31, 1997 (Audited)....3
Condensed Consolidated Statements of Operation
Three months ended March 31, 1998 and March 31,1997 ........4
Condensed Consolidated Statements of Cash Flows
Three months ended March 31, 1998 and March 31,1997.........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 ...............................12
SIGNATURES ......................................13
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 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.
The restructuring has had a significant impact not only on
the company's financial position, but also on its operations and
cash flows. Interest cost will be reduced from the $300,000 -
$400,000 per year level to less than $150,000 per year based on
the new capitalization of the Company.
The Company is focusing on growing its operations
throughout the Northeastern United States and Pennsylvania, two
areas not pursued by the Company in the past. Secondly, a new
sales force has been put in place to aggressively market its core
business areas as well as expansion areas. Third, the Company is
continuing its focus on its core service lines with industrial
and governmental customers which is expected to lead to an
increase in recurring work.
In order to achieve its 1998 budgeted revenue and profit
goals, the Company believes it can develop core service revenues
throughout the Northeastern United States and Pennsylvania. The
Company has relocated two of its senior employees to the Eastern
New York and Massachusetts regions to build a client base that
will provide recurring core
service revenue. With respect to its sales force, the Company
has hired several sales representatives throughout the New
England and Pennsylvania areas to pursue both private industrial
and governmental opportunities.
Based on its 1998 budget and first quarter results, the
Company will have adequate cash flow to meet its obligations as
they come due, however, there can be no assurance that the
Company will be able to continue to meet its budgets and maintain
adequate cash flows.
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 $73,324
and $92,903 for the quarters ended March 31, 1998 and 1997
respectively.
Additionally, the Company provided $90,556 and $686,366 of
remediation, sub-contract support and project services to a
shareholder and its affiliates for the quarters ended March 31,
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 March 31, 1998, the Company had cash and cash equivalents
of $66,140 as compared to $81,517 at December 31, 1997.
At March 31, 1998, the Company had a working capital deficit
of $164,036 compared to a deficit of $217,156 at December 31,
1997, with a current ratio of .93 to 1 March 31, 1998 compared to
.92 to 1 at December 31, 1997.
For the quarter ended March 31, 1998, the Company's net cash
provided by operations was $143,901 compared to cash used in
operations of $61,542 during the quarter ended March 31, 1997.
The Company's cash used in investing activities of $103,068
during the first quarter was attributable to the purchase of
several utility vehicles and a high pressure water truck.
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. 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.
A wholly-owned subsidiary of the same shareholder currently has
an option to purchase the Massena Port Facility for $2,000,000.
During the first quarter all principal payments on the
Company's debt have been made timely.
1998 Business Plan
The Company is focusing on growing its operations throughout
the Northeastern United States and Pennsylvania, two areas not
pursued by the Company in the past. Secondly, a new sales force
has been put in place to aggressively market its core business
areas as well as expansion areas. Third, the Company is
continuing its focus on its core service lines with industrial
and governmental customers which is expected to lead to an
increase in recurring work.
In order to achieve its 1998 budgeted revenue and profit
goals, the Company believes it can develop core service revenues
throughout the Northeastern United States and Pennsylvania. The
Company has relocated two of its senior employees to the Eastern
New York and Massachusetts regions to build a client base that
will provide recurring core service revenue. With respect to its
sales force, the Company has hired several commissioned sales
representatives throughout the New England and Pennsylvania areas
to pursue both private industrial and governmental opportunities.
Based on its 1998 budget and first quarter results, the
Company will have adequate cash flow to meet its obligations as
they come due, however, there can be no assurance that the
Company will be able to continue to meet its budgets and maintain
adequate cash flows.
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. The total cost of these system upgrades is estimated to
be $50,000 over the next 12 to 18 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 inccurred. Currently, the Company uses the
property for its Massena branch office headquarters, equipment
storage and its Aqueous Treatment/360 Facility.
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 concluded that there
was no impairment of the property's value at that time.
Management is currently reviewing several options relative to the
sale and or lease of the property, however, due to the uniqueness
of the asset and the absence of current quoted market prices on
similar properties, management anticipates it will take a
prolonged period of time to consummate such a sale or lease of
the property. Therefore, during 1997, the Company recognized an
impairment of $308,377, reducing the property's carrying value to
$1,675,000 as of December 31, 1997.
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 financial 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.
Results of Operations
Billings:
The Company's project billings for the first quarter of 1998
have increased 20% to $1,974,535 from $1,642,605 during the first
quarter of 1997. The Company's increase in revenues during the
first quarter of 1998 is primarily attributable to a large
emergency spill response contract for a utility customer as a
result of a major ice storm. Emergency Spill Response billings
during the first quarter of 1998 amounted to approximately
$863,981 versus $253,000 for the same quarter in 1997. 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:
Three Months Ended March 31, 1998
Project costs for the three months ended March 31, 1998
increased 19% to $1,385,895 from $1,160,120 for the same period
in 1997 primarily due to increased revenues. Project costs as a
percentage of revenues was 71% for the three months ended March
31, 1998 and 1997 respectively.
The gross profit margin for the three months ended March 31,
1998 and 1997 was 29%. 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,
higher than expected revenues contributed to more 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 minimal amount of markup such as disposal costs,
equipment rentals and subcontract costs.
Selling, General, Administrative and Interest Expenses:
Selling, general and administrative expenses (SG&A) for the
three months ended March 31, 1998 decreased 21% to $482,078 from
$604,653 for the same period in 1997. Interest expense for the
three months ended March 31, 1998 decreased 77% to $21,013 from
$92,175 for the same period in 1997. The decrease in these
expenses is primarily attributable to the Company's restructuring
plan which significantly reduced depreciation, amortization and
interest expense.
Net Income (Loss):
The net income for the three months ended March 31, 1998 was
$93,882 or $.01 per share compared to a net loss of $213,507 or
$.04 per share for the same period in 1997. As discussed above,
the higher than expected revenues compared to the Company's
budget contributed to a larger net income than budgeted for the
first quarter of 1998.
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, 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 Evironmental Services, Inc.
(Registrant)
Date: May 15, 1998 /s/ John R. Loveland
John R. Loveland, Chief Executive Officer
Date: May 15, 1998 /s/ Joseph M. McNulty
Joseph M. McNulty, Treasurer
Date: May 15, 1998 /s/ Christopher J. Polimino
Christopher J. Polimino, GeneralManager/
Asst. Treasurer
OP-TECH ENVIRONMENTAL SERVICES, INC. AND
SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
MARCH 31, DECEMBER 31,
1998 1997
Assets
Cash and Cash equivalents $66,140 $81,517
Acccout Receivable, Net
Unaffiliated Parties 1,680,267 1,948,102
Affiliated Parties 20,485 126,247
1,700,752 2,074,349
Costs on Uncompleted Projects
Applicable
To Future Billings 189,996 132,590
Prepaid Expenses and
Other Assets 89,102 184,445
Total Current Assets 2,045,990 2,472,901
Property and Equipment, net 761,886 622,979
Assets Held for Sale 1,605,427 1,675,000
Other Assets 4,076 5,591
Total Assets $4,417,379 $4,776,471
Liabilities and Shareholders' Equity
Current Liabilities
Notes Payable
Bank Overdraft $224,458
Notes Payable to Bank $643,443 500,000
Accounts Payable
Unaffiliated Parties 768,497 1,008,236
Affiliated Parties 45,140 118,159
813,637 1,126,395
Billings in Excess of Costs
and Estimates Profit
On Uncompleted Contracts 229,870 309,927
Accrued Expenses and
Other Liabilites 417,417 421,366
Current Portion of Long
Term Debt and Obligations
Under Capital Leases 105,659 107,911
Total Current Liabilities 2,210,026 2,690,057
Long-term debt 148,001 120,944
Shareholders' Equity
Common stock, Par Value $.01
Per Share Authorized
20,000,000; 11,155,123
Shares Outstanding as of
March 31,1998 and
December 31, 1997
respectively 115,551 115,551
Additional Paid in Capital 7,773,555 7,773,555
Retained Deficit (5,829,754) (5,923,636)
Total Shareholders' Equity 2,059,352 1,965,470
Total Liabilities and
Shareholders' Equity $4,417,379 $4,776,471
The accompanying notes are an intergral part of the financial
statements.
OP-TECH ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31, MARCH 31,
1998 1997
Project Billing and Services $1,974,535 $1,642,605
Project Costs 1,385,895 1,160,120
Gross Margin 588,640 482,485
Selling, General and
Administrative Expenses 482,078 604,653
Operating Income/(Loss) 106,562 (122,168)
Other Income and Expenses
Interest Expense 21,013 92,175
Other (Income) Expense, Net (8,333) (836)
12,680 91,339
Income (Loss) Before Income Taxes 93,882 (213,507)
State Income Taxes - -
Net Income(Loss) 93,882 (213,507)
Net Income(Loss) per share-
basic and diluted $0.01 ($0.04)
Weighted Average Shares
Outstanding 11,555,123 4,850,058
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)
THREE MONTHS ENDED
March 31, March 31,
1998 1997
Operating Activities
Net Income(Loss) $93,882 ($213,507)
Adjustments to Reconcile
Net Income(Loss) to Cash
Provided by (Used In)
Operating Activities
Depreciation and Amortization 33,734 91,329
Gain on Sale of Equipment - (870)
(Increase) Decrease in
Operating Assets and Increase
(Decrease) in Operating
Liabilities:
Accounts Receivable 373,597 296,086
Costs on Uncompleted Projects
Applicable
to Future Billings (57,406) 6,419
Billings and Estimated
Profit in Excess
of Costs of Uncompleted
Contracts (80,057) 4,298
Prepaid Expenses and
Other Assets 96,858 60,557
Accounts Payable and
Accrued Expenses (316,707) (305,854)
Net Cash Provided by
(Used in) Operating
Activities 143,901 (61,542)
Investing Activities
Proceeds from Sale
of Equipment - 115,500
Purchase of Property
and Equipment (103,068) (24,546)
Net Cash (Used in)
Provided by Investing
Activities (103,068) 90,954
Financing Activities
Proceeds from
Short-Term Borrowings 143,443 395,000
Proceeds from Long-
Term Borrowings 53,187 -
Principal Payments on
Long-Term Borrowings (28,382) (147,397)
Principal Payments on
Short-Term Borrowings (224,458) (270,000)
Net Cash (Used in)
Financing Activities (56,210) (22,397)
Decrease(Increase) in Cash
and Cash Eqivalents (15,377) 7,015
Cash and Cash Equivalents
at Beginning of Period 81,517 19,077
Cash and Cash Equivalents
at End of Period $66,140 $26,092
The accompanying notes are an integral part of the financial
statements.
