_________________________________________________________________
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, 1999
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 May 1, 1999.
11,603,963
_________________________________________________________________
INDEX
OP-TECH Environmental Services, Inc. and Subsidiaries
Part I. FINANCIAL INFORMATION Page No.
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets
-March 31, 1999 (Unaudited) and
December 31, 1998 (Audited)...................3
Consolidated Statements of Operation
-Three months ended March 31, 1999 and
March 31, 1998 (Unaudited)......................4
Consolidated Statements of Cash Flows
-Three months ended March 31, 1999 and
March 31, 1998 (Unaudited)......................5
Notes to 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
ITEM # 1 FINANCIAL STATEMENTS PART I - FINANCIAL INFORMATION
OP-TECH ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
MARCH 31, DECEMBER 31,
1999 1998
ASSETS
Current Assets:
Cash and cash equivalents $ 23,746 $ 122,106
Accounts receivable (net of
allowance for doubtful
accounts):
Unaffiliated parties 2,252,515 2,847,001
Affiliated parties 359,616 109,190
2,612,131 2,956,191
Costs on uncompleted
projects applicable to
future billings 372,736 289,768
Prepaid expenses and
other assets 320,152 316,882
Total Current Assets 3,328,765 3,684,947
Property and equipment, net 1,115,962 1,199,635
Assets held for sale 1,605,427 1,605,427
Other assets 133,442 142,744
Total Assets $ 6,183,596 $ 6,632,753
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current Liabilities:
Bank overdraft $ 142,671 $ 45,085
Accounts payable:
Unaffiliated parties 1,186,425 1,350,204
Affiliated parties 45,080 51,184
1,231,505 1,401,388
Billings in excess of costs
and estimated profit on
uncompleted projects 422,695 569,393
Accrued expenses and
other liabilities 272,509 298,018
Current portion of long-term
debt and obligations 320,396 351,751
Total Current Liabilities 2,389,776 2,665,635
Long-term debt 1,047,789 1,174,809
Shareholders' Equity:
Common stock, par value $.01
per share; authorized
20,000,000 shares; 11,603,963
shares outstanding as of
March 31, 1999 and December 31,
1998, respectively 116,040 116,040
Additional paid-in capital 7,787,152 7,787,152
Accumulated deficit (5,157,161) (5,110,883)
Total Shareholders' Equity 2,746,031 2,792,309
Total Liabilities and
Shareholders' Equity $ 6,183,596 $ 6,632,753
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
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31, MARCH 31,
1999 1998
Revenues:
Project billings and services $ 2,923,110 $ 1,974,535
Project costs 2,113,381 1,385,895
Gross margin 809,729 588,640
Selling, general and administrative
expenses 810,808 482,078
Operating (loss) income (1,079) 106,562
Other income and expense:
Interest expense 31,783 21,013
Other expense (income), net 13,416 (8,333)
NET (LOSS) INCOME $ (46,278) $ 93,882
Earnings (loss) per common
share - basic and diluted $ 0.00 $ 0.01
Weighted average shares
outstanding 11,603,963 11,555,123
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
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31, MARCH 31,
1999 1998
Operating activities:
Net (loss) income $ (46,278) $ 93,882
Adjustments to reconcile net
(loss) income to net cash
(used in) provided by
operating activities:
Depreciation and amortization 68,925 33,734
(Gain) loss on sale of
equipment 6,762 0
(Increase) decrease in operating
assets and increase (decrease)
in operating liabilities:
Accounts receivable 344,060 373,597
Costs on uncompleted projects
applicable to future billings (82,968) (57,406)
Billings and estimated profit
in excess of costs of
uncompleted contracts (146,698) (80,057)
Prepaid expenses and
other assets 3,458 96,858
Accounts payable and
accrued expenses (195,392) (316,707)
Net cash (used in) provided by
operating activities (48,131) 143,901
Investing activities:
Proceeds from sale of equipment 17,131 0
Purchase of property and
equipment (37,882) (103,068)
Net cash used in investing
activities (20,751) (103,068)
Financing activities:
Cash overdraft 97,586 0
Proceeds from notes payable to
banks and current and long-term
borrowings, net of financing
costs 1,272,171 196,630
Principal payments on current and
long-term borrowings (1,399,235) (252,840)
Net cash (used in) financing
activities (29,478) (56,210)
(Decrease) increase in cash and
cash equivalents (98,360) (15,377)
Cash and cash equivalents at
beginning of period 122,106 81,517
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 23,746 $ 66,140
The accompanying notes are an integral part of the financial statements.
PART I - FINANCIAL INFORMATION
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.
Item No. 1 Financial Statements
OP-TECH ENVIRONMENTAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. The accompanying unaudited 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 condensed financial statements include the accounts
of the Company and its subsidiary. 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 purchased technical, accounting and consulting
services and rented certain office space from a shareholder and its
affiliates. The costs for these services amounted to $71,131 and
$73,324 for the three months ended March 31, 1999 and 1998
respectively.
Additionally, the Company provided $279,015 and $90,556 of
remediation, sub-contract support and project services to a
shareholder and its affiliates for the three months ended March 31,
1999 and 1998 respectively. Services provided were at competitive
rates, which were bid on a project-by-project basis.
4. Earnings per Share
Basic earnings per share is computed based on the weighted
average shares outstanding. Diluted earnings per share is computed
based on the weighted average shares outstanding adjusted for the
dilutive effect of the assumed exercise of stock options and stock
warrants during the year. Due to the loss incurred by the Company
in the first quarter of 1999, the impact of the outstanding options
and warrants is anti-dilutive and, therefore, their impact has not
been included in the diluted earnings per share disclosure for the
quarter.
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, 1999, the Company had cash and cash equivalents of
$23,746 as compared to $122,106 at December 31, 1998.
At March 31, 1999, the Company had a working capital surplus of
$938,989 compared to a surplus of $1,019,312 at December 31, 1998,
with a current ratio of 1.4 to 1 at March 31, 1999 and December 31,
1998.
For the three months ended March 31, 1999, the Company's net
cash used in operations was $48,131 compared to net cash provided by
operations of $143,901 during the three months ended March 31, 1998.
The increase in cash used in operating activities during the first
three months of 1999 was substantially due to the Company's
continued expansion and growth.
The Company's cash used in investing activities of $20,751
during the first three months of the year was attributable to the
purchase of two utility vehicles, a pressure washer, and computer
and office equipment.
Cash used in financing activities was $29,478, which was
primarily due to the timing of paydowns and cash advances on the
Company's line of credit.
The Company has a loan agreement that provides for borrowings
up to $1,500,000 on a revolving basis, collateralized by all
accounts receivable, inventory and equipment now owned or acquired
later. As of March 31, 1999, the Company had $661,014 of available
borrowings on the revolving loan. The revolving loan is subject to
renewal at the bank's option and is payable on April 30, 2000. The
revolving loan is guaranteed by a shareholder for an amount not to
exceed $500,000.
During the first three months of 1999, 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.
Effective January 1, 1999, the Company sold its wholly-owned
subsidiary, St. Lawrence Industrial Services, Inc. The sale did not
have a significant impact on the Company's financial statements.
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. The
Company is in the process of reviewing its major suppliers for year
2000 compliance. In 1998, the company 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 September 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 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 a 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 March 31, 1999, 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
required the Company to remediate its Massena, NY property. As a
result, 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 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 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. 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 1999
increased 48% to $2,923,110 from $1,974,535 for the first quarter of
1998. Approximately $750,000 of the increase in revenues was due to
underground storage tank removals, which was attributable to the
Federal Government deadline to remove all underground storage tanks
("USTs") that are not in compliance with the EPA guidelines for
USTs. The deadline to remove out of compliance USTs was December
22, 1998. The Company expects to see a continued rise in this
service line during the remainder of 1999, due to the number of
organizations that are not yet in compliance with the Federal
Government deadline. During the three months ended March 31, 1999,
the Company's newly expanded geographic areas generated revenue of
approximately $1,500,000 all of which was core service revenue
resulting from competitive bidding in both the public and private
markets.
PROJECT COSTS AND GROSS PROFIT
Project costs for the first quarter of 1999 increased 52% to
$2,113,381 from $1,385,895 for the same period in 1998 due to the
significant increase in billings. Project costs as a percentage of
revenues were 72% and 71% for the three months ended March 31, 1999
and 1998 respectively. Gross profit margin for the first quarter of
1999 decreased to 28% from 29% for the same period in 1998.
The decrease in the gross margin was due to the Company
performing a greater number of public tank removal and installation
projects, which typically produce a lower profit margin. In
addition, the Company had several large first quarter projects,
which were substantially completed by March 31, 1999, that did not
contribute the expected gross margin. In 1998, the Company had a
major emergency cleanup contract that was performed on a time and
materials basis, which produced a higher gross profit margin than
bid work.
SELLING, GENERAL, ADMINISTRATIVE AND INTEREST EXPENSES
Selling, general and administrative expenses ("SG&A") for the
quarter ended March 31, 1999 increased 68% to $810,808 from $482,078
for the same period in 1998. SG&A as a percentage of revenues
increased to 28% versus 24% for the three months ended March 31,
1999. The increase in SG&A was due to the Company's branch
expansion. Since the first quarter of 1998, the Company opened
branches in Athens, PA, Edison, NJ, Buffalo, NY, and significantly
increased the operations of the Albany, NY branch. The Company also
increased the number of administrative personnel in order to
accommodate the higher volume of billing, payroll, and other
administrative functions created by the new branches. In addition,
depreciation expense for the quarter ended March 31, 1999, was
approximately $31,000 higher than for the first quarter of 1998
primarily due to the purchase of a vacuum truck valued at
approximately $247,000, eight utility vehicles valued at
approximately $147,000, and other equipment.
INTEREST EXPENSE
Interest expense for the three months ended March 31, 1999
increased 51% to $31,783 from $21,013 for the same period in 1998.
The increase was primarily attributable to the financing of utility
vehicles, a vacuum truck, a backhoe, various other equipment and
computer equipment.
NET (LOSS) INCOME
The net loss for the three months ended March 31, 1999 was
($46,278), or ($.00) per share (basic and diluted), compared to a
net income of $93,882, or $.01 per share (basic and diluted), for
the same period in 1998.
Item No. 3 Quantitative and Qualitative Disclosure
About Market Risk
There were no material changes in the Company's market risk or
market risk strategies during the quarter ended March 31, 1999.
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, 1999.
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)
Date: May 14, 1999 /s/ John R. Loveland
John R. Loveland, Chief Executive Officer
Date: May 14, 1999 /s/ Christopher J. Polimino
Christopher J. Polimino, Executive Vice
President and Chief Accounting Officer
