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, 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 (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 thelatest 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
June 30, 1998 and December 31,1997 (Audited) 3
Condensed Consolidated Statements of
Operations
Three months ended June 30, 1998
and June 1997
Six months ended
June 30, 1998 and June 30, 1997 4
Condensed
Consolidated Statements of Cash
Flows
Six months ended June 30, 1998
and June 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 7
Part II
OTHER
INFORMATION. 10
SIGNATURES 11
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 instructionsto 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
normalrecurring 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 of 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 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. In
addition, the Company 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 $149,084 and $218,807
for the six months ended June 30,
1998 and 1997 respectively.
Additionally, the Company
provided $139,944 and
$1,450,778 of remediation,
subcontract support and project
services to a shareholder and its
affiliates for the six months ended
June 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 June 30, 1998, the Company
had cash and cash
equivalents of $65,896 as compared
to $81,517 at December 31, 1997.
At June 30, 1998, the Company had
a working capital surplus of $42,954
compared to a deficit of $217,156
at December 31, 1997. The
improvement in working capital is
primarily attributable to
increased accounts receivable and
unbilled costs on certain projects
which were not complete at June 30,
1998.
For the six months ended
June 30, 1998, the Company's net
cash provided by operations was
$147,287 compared to cash used in
operations of $322,894 during the
six months ended June 30, 1997.
The Company's cash used in
investing activities of
$138,418 during the first six
months of the year was attributable
to the purchase of several utility
vehicles, a trailer and a high
pressure water truck.
On July 27, 1998, the Company
purchased a new Vacuum Truck for
$213,000 which was financed by the
Company's bank.
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 six months of
1998, all principal
payments on the Company's debt have
been made timely.
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
accounting systems to comply with
the year 2000 requirements and has
also undertaken an upgrade of its
headquarters information and
decision support systems. The
total of these system upgrades is
estimated to be $50,000 over the
next 9 to 15 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.
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 and impairment of
$308,377 on the property during
1997.As of June 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.
RESULTS OF OPERATIONS
BILLINGS
The Company's project billings
and services for the second quarter
of 1998 have increased 23% to
$2,531,527 from $2,054,564
for the same quarter of 1997.
For the six month period ended June
30, 1998 the Company's billings
have increased 22% to $4,506,062
from $3,697,169 over the same
period in 1997. The Company's overall
increase in revenues during 1998
as compared to the same period last
year is attributable to a large
emergency spill response contract
for a utility customer as a result
of a major ice storm as well as a
large industrial cleaning/remediation
project. In addition, billings from the
Company's newly expanded geographic
areas generated revenues of
$233,000 for the six months ended
June 30, 1998.
PROJECT COSTS AND GROSS PROFIT
Project costs for the
second quarter of 1998 increased
20% to $1,735,074 from $1,450,808
for the same period in 1997.
Project costs as a percentage of
revenues was 69% and 71% for the
three months ended June 30, 1998
and 1997 respectively. Gross profit
margin for the second quarter of
1998 increased to 31% from 29%
for the same period in 1997. The
increase in the gross profit margin during
the second quarter of 1998 is the
result of the Company's increased
spill response and industrial
cleaning contracts which produce a
higher gross profit margin and
contain fewer pass through costs.
For the six month period
ended June 30, 1998, profit
costs increased 20% from
$2,610,928 to $3,120,969
primarily due to the increase
in the Company's billings. Project
costs as a percentage of revenues
was 71% and 70% for the six month
periods ended June 30, 1998 and
1997 respectively. Overall, the
Company's gross profit margin for
1998 is higher due largely in
part to increased spill
response activities as a result
of a major ice storm, and a large
industrial cleaning/remediation project at
its Massena location.
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES
Selling, general and
administrative expenses (SG&A) for
the three months ended June 30,
1998 decreased 9.5% to $544,500
from $601,839 for the same period
in 1997. For the six month period
ended June 30, 1998, SG&A decreased
15% from $1,206,492 to $1,026,578
for the same period in 1997.
The decrease in SG&A is
attributable to
the financial restructuring of
the Company in October of 1997
which significantly reduced
depreciation and amortization
expenses. Additionally, the
Company was able to secure lower
general business insurance rates
as well as trimming various other
SG&A expenses.
INTEREST EXPENSE
Interest expense for the six
months ended June 30, 1998
decreased to $52,046 compared to
$187,573 for the same period last
year. The decrease is 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 June 30, 1998 was $225,645,
$.02 per share, (basic and diluted) compared
to a net loss of ($94,420),
($.02) per share, (basic and
diluted) for the same period last
year. For the six months ended June
30, 1998, the net income was
$319,526, $.03 per share, (basic
and diluted) compared to a net loss
of ($307,927) ($.06) 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
June 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 under
signed thereunto duly authorized.
OP-TECH Environmental Services Inc. (Registrant)
Date: August 14, 1998 /s/ John R. Loveland
Chief Executive Officer
Date: August 14, 1998 /s/ Joseph M. McNulty
Treasurer
Date: August 14, 1998 /s/Christopher J. Polimino
Asst. Treasurer
ITEM #1 FINANCIAL STATEMENTS PART I- FINANCIAL INFORMATION
(UNAUDITED)
JUNE 30, 1998 DECEMBER 31, 1997
ASSETS
CURRENT ASSESTS
CASH AND CASH EQUIVALENTS $65,896 $81,517
ACCOUNTS RECEIVABLE,NET
UNAFFILIATED PARTIES 2,092,168 1,948,102
AFFILIATED 13,719 126,247
2,105,887 2,074,349
COSTS ON UNCOMPLETED PROJECTS
APPLICABLE TO FUTURE BILLINGS 341,957 132,590
PREPAID EXPENSES AND OTHER ASSETS 365,153 184,445
TOTAL CURRENT ASSETS 2,878,893 2,472,901
PROPERTY AND EQUIPMENT, NET 763,961 622,979
ASSETS HELD FOR SALE 1,605,427 1,675,000
OTHER ASSETS 3,378 5,591
TOTAL ASSETS $5,251,659 $4,776,471
LIABILITIES AND SHAREHOLDERS'EQUITY
CURRENT LIABILITIES
BANK OVERDRAFT $224,458
NOTES PAYABLE TO BANK 708,162 500,000
708,162 971,000
ACCOUNTS PAYABLE
UNAFFILIATED PARTIES 784,969 1,008,236
AFFILIATED PARTIES 31,761 118,159
816,730 1,126,395
BILLINGS IN EXCESSS OF COST AND
ESTIMATED PROFIT ON UNCOMPLETED
CONTRACTS 552,792 309,927
ACCRUED EXPENSES AND OTHER LIABILITIES 668,318 421,366
CURRENT AND LONG TERM DEBT AND
OBLIGATIONS UNDER CAPITAL LEASES 89,757 107,911
TOTAL CURRENT LIABILITIES 2,835,759 2,690,057
LONG TERM DEBT 130,904 120,944
SHAREHOLDERS' EQUITY
COMMON STOCK, PAR VALUE $.01 PER SHARE
AUTHORIZED 20,000,000; 11,555,123 SHARES
OUTSTANDING AS OF JUNE 30, 1998 AND
DECEMBER 31, 1997 RESPECTIVELY 115,551 115,551
ADDITIONAL PAID IN CAPITAL 7,773,555 7,773,555
RETAINED DEFICIT (5,604,110) (5,923,636)
TOTAL SHAREHOLDERS' EQUITY 2,284,996 1,965,470
TOTAL LIABILITIES AND
SHARESHOLDERS' EQUITY $5,251,659 $4,776,471
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 SIX MONTHS ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1998 1997 1998 1997
REVENUES:
PROJECT BILLINGS AND
SERVICES $2,531,527 $2,054,564 $4,506,062 $3,697,169
PROJECT COSTS 1,735,074 1,450,808 3,120,969 2,610,928
GROSS MARGIN 796,453 603,756 1,385,093 1,086,241
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 544,498 601,839 1,026,578 1,206,492
OPERATING INCOME (LOSS) 251,955 1,917 358,517 (120,251)
OTHER INCOME AND EXPENSES
INTEREST EXPENSE 31,033 95,398 52,046 187,573
OTHER (INCOME) EXPENSES,NET (4,723) 939 (13,057) 103
26,310 96,337 38,989 187,676
INCOME(LOSS)BEFORE INCOME
TAXES 225,645 (96,420) 319,526 (307,927)
STATE INCOME TAXES 0 0 0 0
NET INCOME(LOSS) $225,645 (94,420) 319,526 (307,927)
NET INCOME(LOSS) PER SHARE
BASIC & DILUTED $0.02 ($0.02) $0.03 ($0.06)
WEIGHTED AVERAGE SHARES
OUTSTANDING 11,555,123 4,850,058 11,555,123 4,850,058
THE ACCOMPANYING NOTES ARE AND 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 CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30, JUNE 30,
1998 1997
OPERATING ACTIVITIES
NET INCOME(LOSS) 319,526 (307,927)
ADJUSTMENTS TO RECONCILE NET
INCOME(LOSS)TO CASH PROVIDED
BY(USED IN) OPERATING ACTIVITIES
DEPRECIATION AND AMORTIZATION 71,435 174,915
GAIN ON SALE OF EQUIPMENT 0 (870)
(INCREASE)DECREASE IN OPERATING
ASSETS AND INCREASE(DECREASE) IN
OPERATING LIABILITIES:
ACCOUNTS RECEIVABLE (31,538) (209,452)
COSTS ON UNCOMPLETED PROJECTS
APPLICALBLE TO FUTURE BILLINGS (209,367) ( 73,743)
BILLINGS AND ESTIMATED PROFIT IN
EXCESS OF COST OF UNCOMPLETED
CONTRACTS 242,865 80,370
PREPAID EXPENSES AND OTHER ASSETS (182,921) (152,093)
ACCOUNTS PAYABLE AND ACCRUED
EXPENSES ( 62,713) 165,906
NET CASH PROVIDED BY(USED IN)
OPERATING ACTIVITIES 147,287 (322,894)
INVESTING ACTIVITIES
PROCEEDS FROM SALE OF EQUIPMENT 0 115,500
PURCHASES OF PROPERTY AND
EQUIPMENT (138,418) (122,844)
NET CASH USED IN INVESTING
ACTIVITIES (138,418) ( 7,344)
FINANCING ACTIVITIES
CASH OVERDRAFT (224,458)
NET PROCEEDS FROM CURRENT &
LONG-TERM BORROWINGS 199,968 328,414
NET CASH (USED IN) PROVIDED BY
FINANCING ACTIVITIES (24,490) 328,414
DECREASE IN CASH AND CASH
EQUIVALENT (15,621) (1,824)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 81,517 19,077
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $65,896 $17,253
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
