_________________________________________________________________
UNITED STATES
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 ended June 30, 2000
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 number 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 offices) (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 July 15, 2000 11,603,963
_________________________________________________________________
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INDEX
OP-TECH Environmental Services, Inc. and Subsidiary
PART I. FINANCIAL INFORMATION Page No.
Item 1. Financial Statements
Consolidated Balance Sheets
-June 30, 2000 (Unaudited) and
December 31, 1999 (Audited).......................3
Consolidated Statements of Operation
-Three months ended June 30, 2000 and
June 30, 1999 (Unaudited)
-Six months ended June 30, 2000 and
June 30, 1999 (Unaudited).........................4
Consolidated Statements of Cash Flows
-Six months ended June 30, 2000 and
June 30, 1999 (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.................................12
SIGNATURES........................................13
2
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ITEM #1 FINANCIAL STATEMENTS PART I - FINANCIAL INFORMATION
OP-TECH ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
JUNE 30, DECEMBER 31,
2000 1999
ASSETS
Current Assets:
Cash and cash equivalents $ 4,194 $ 15,034
Accounts receivable (net of allowance
for doubtful accounts):
Unaffiliated parties 2,888,952 3,049,770
Affiliated parties 60,423 259,181
----------- -----------
2,949,375 3,308,951
Costs on uncompleted projects
applicable to future billings 708,256 479,970
Prepaid expenses and other assets 354,181 333,705
----------- -----------
Total Current Assets 4,016,006 4,137,660
----------- -----------
Property and equipment, net 864,733 990,157
Assets held for sale 780,833 780,000
Other assets 11,334 35,123
----------- -----------
Total Assets $ 5,672,906 $ 5,942,940
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Cash overdraft $ 82,591 $ 110,954
Line of credit borrowing 1,908,576 1,778,989
----------- -----------
1,991,167 1,889,943
Accounts payable:
Unaffiliated parties 1,298,786 1,788,759
Affiliated parties 9,525 21,270
----------- -----------
1,308,311 1,810,029
Billings in excess of costs and
estimated profit 357,746 818,712
Accrued expenses and other liabilities 694,631 380,466
Current portion of long-term debt and
obligations under capital leases 595,400 552,095
----------- -----------
Total Current Liabilities 4,947,255 5,451,245
----------- -----------
Long-term debt and obligations under
capital leases 322,782 313,269
Shareholders' Equity:
Common stock, par value $.01 per
share; authorized 20,000,000 shares;
11,603,963 shares outstanding as of
June 30, 2000 and December 31, 1999 116,040 116,040
Additional paid-in capital 7,787,152 7,787,152
Accumulated deficit (7,500,323) (7,724,766)
----------- -----------
Total Shareholders' Equity 402,869 178,426
----------- -----------
Total Liabilities and
Shareholders' Equity $ 5,672,906 $ 5,942,940
=========== ===========
The accompanying notes are an integral part of the financial statements.
3
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ITEM #1 FINANCIAL STATEMENTS PART I - FINANCIAL INFORMATION
OP-TECH ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
Revenues:
Project billings
and services $ 3,377,878 $ 3,079,195 $ 6,095,037 $ 6,002,305
Project costs 2,461,996 2,375,454 4,400,792 4,488,834
------------ ------------ ------------ ------------
Gross margin 915,882 703,741 1,694,245 1,513,471
Selling, general
and administrative
expenses:
Payroll expense and
related payroll
taxes and benefits 391,093 544,854 806,904 1,087,851
Rent, phone and
utilites expense 88,047 70,991 162,170 130,237
Office expense 45,980 63,354 85,917 114,471
Equipment repair and
maintenance expense 36,571 37,841 57,275 76,248
Equipment operating
lease expense 62,838 54,900 141,140 84,082
Other expense 53,266 78,389 92,396 168,249
----------- ------------- ------------ ------------
Total selling,
general and
administrative
expense 677,795 850,329 1,345,802 1,661,138
Operating
income (loss) 238,087 (146,588) 348,443 (147,667)
Other income and
expense:
Interest expense 61,912 36,147 130,596 67,931
Other expense
(income), net 2,906 163 (6,596) 13,578
------------ ------------- ------------ ------------
64,818 36,310 124,000 81,509
NET INCOME (LOSS) $ 173,269 $ (182,898) $ 224,443 $ (229,176)
============ ============= ============ ============
Earnings (loss) per
common share -
basic and diluted $ 0.01 $ (0.02) $ 0.02 $ (0.02)
Weighted average
shares outstanding:
Basic 11,603,963 11,603,963 11,603,963 11,603,963
Diluted 11,906,463 11,956,463 11,906,463 11,956,463
The accompanying notes are an integral part of the financial statements.
4
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ITEM #1 FINANCIAL STATEMENTS PART I - FINANCIAL INFORMATION
OP-TECH ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED
June 30, June 30,
2000 1999
Operating activities:
Net income (loss) $ 224,443 $ (229,176)
Adjustments to reconcile net income
(loss) to net cash (used in) provided
by operating activities:
Depreciation and amortization 128,422 142,567
(Gain) loss on sale of equipment - (216)
(Increase) decrease in operating assets
and increase (decrease) in operating
liabilities:
Accounts receivable 359,576 (440,291)
Costs on uncompleted projects
applicable to future billings (228,286) (269,862)
Billings and estimated profit in
excess of costs on uncompleted
contracts (460,966) (246,813)
Prepaid expenses and other assets 29,368 51,643
Accounts payable and accrued expenses (187,553) 268,651
----------- -----------
Net cash (used in) operating activities (134,996) (723,497)
----------- -----------
Investing activities:
Proceeds from sale of equipment - 30,131
Purchase of property and equipment (3,833) (123,264)
----------- -----------
Net cash (used in) investing activities (3,833) (93,133)
----------- -----------
Financing activities:
Cash overdraft (28,363) 203,108
Proceeds from notes payable to banks and
current and long-term borrowings,
net of financing costs 2,297,828 2,777,458
Principal payments on current and
long-term borrowings (2,141,476) (2,270,108)
----------- -----------
Net cash provided by financing
activities 127,989 710,458
----------- -----------
Decrease in cash and cash equivalents (10,840) (106,172)
Cash and cash equivalents at beginning
of period 15,034 122,106
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,194 $ 15,934
=========== ===========
Non-cash items:
Non-cash financing of insurance $ 26,053 $ 47,041
Equipment financed through bank and other
financing sources - 82,553
The accompanying notes are an integral part of the financial statements.
5
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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 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 accounting principles
generally accepted in the United States 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 accounting principles
generally accepted in the United States 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 financial statements include the accounts of the
Company and its subsidiary. All material intercompany transactions
and balances have been eliminated in consolidation.
6
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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 $35,013 and
$167,826 for the six months ended June 30, 2000 and 1999,
respectively.
Additionally, the Company provided $70,719 and $546,439 of
remediation, sub-contract support and project services to a
shareholder and its affiliates for the six months ended June 30,
2000 and 1999, respectively. Services provided were at competitive
rates, which were bid on a project-by-project basis.
The Company purchases subcontract labor services from St.
Lawrence Industrial Services, Inc., which is owned by a director of
the Company. The costs for these services amounted to approximately
$356,000 and $534,000 for the six months ended June 30, 2000 and
1999, respectively. The costs for these services were comparable to
those which would have been charged by a provider of labor services
with no relationship to the Company.
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
during the first six months 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.
7
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PART I - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2000, the Company had cash and cash equivalents of
$4,194 as compared to $15,034 at December 31, 1999.
At June 30, 2000, the Company had a working capital deficit of
$931,249 compared to a deficit of $1,313,585 at December 31, 1999,
with a current ratio of .81 to 1 at June 30, 2000 and .76 to 1 at
December 31, 1999. The Company's working capital deficit is
primarily attributable to the fact that the terms of the Company's
revolving loan required the outstanding borrowings on the loan to be
classified as a current liability at June 30, 2000 and December 31,
1999.
For the six months ended June 30, 2000, the Company's net cash
used in operations was $134,996 compared to net cash used in
operations of $723,497 during the six months ended June 30, 1999.
The decrease in cash used in operations was due to the Company's
profitability for the six months ended June 30, 2000 and the
Company's improved performance on projects when compared to the
first six months of 1999.
The Company's net cash used in investing activities of $3,833
during the first six months of the year was mainly attributable to
the purchase of office furniture for a branch office.
Cash provided by financing activities was $127,989, which was
primarily due to the timing of paydowns and cash advances on the
Company's line of credit.
As of June 30, 2000, the Company had a loan agreement that
provided for borrowings up to $2,000,000 on a revolving basis,
collateralized by all accounts receivable, inventory and equipment
now owned or acquired later. The loan is payable on April 30, 2001,
and is guaranteed by a shareholder for an amount not to exceed
$500,000.
During the first six months of 2000, 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., to a director of
the Company. The sale did not have a significant impact on the
Company's financial statements.
8
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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. In January 2000, the Company obtained a
current independent real estate appraisal of the property. Based
upon the results of the appraisal, the Company recognized an
impairment charge of $825,427 during the fourth quarter of 1999. As
of June 30, 2000, the carrying value of the property is $780,833.
9
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RESULTS OF OPERATIONS
BILLINGS
The Company's project billings for the second quarter of 2000
increased 10% to $3,377,878 from $3,079,195 for the second quarter
of 1999. For the six month period ended June 30, 2000, the
Company's billings have increased 2% to $6,095,037 from $6,002,305
for the same period in 1999.
When comparing the six month period ended June 30, 2000 to the
same period in 1999, revenues from underground storage tank removal
and replacement decreased approximately $820,000. The decrease is
attributable to the fact that the Company performed several large
tank removal projects during the early part of 1999. As part of the
Company's plan to refocus its lines of work on projects that are
more profitable, the Company is no longer pursuing tank installation
work. Revenue from remediation projects decreased approximately
$180,000. These decreases were offset by an increase of
approximately $1,600,000 in spill response and transportation and
disposal revenue. The increase in the spill response and
transportation and disposal service lines is primarily due to the
fact that the Company's two-year emergency spill response contract
with the New York State Department of Environmental Conservation
began during the fourth quarter of 1999.
PROJECT COSTS AND GROSS MARGIN
Project costs for the second quarter of 2000 increased 4% to
$2,461,996 from $2,375,454 for the same period in 1999. Project
costs as a percentage of revenues were 73% and 77% for the quarter
ended June 30, 2000 and 1999, respectively. Gross margin for the
second quarter of 2000 increased to 27% from 23% for the same period
in 1999.
For the six month period ended June 30, 2000, project costs
decreased 2% to $4,400,792 from $4,488,834 for the six months ended
June 30, 1999. Project costs as a percentage of revenues were 72%
and 75% for the six months ended June 30, 2000 and 1999,
respectively. Gross margin for the six months ended June 30, 2000
increased to 28% from 25% for the same period in 1999
The decrease in project costs and the increase in gross margin
was partly due to the Company performing fewer public projects,
particularly tank installation projects, when comparing the first
six months of 2000 to the same period in 1999. These projects
typically produce lower gross margins than private projects. The
increase in gross margin is also attributable to the Company
performing more work on a time-and-material basis, which typically
produces higher margins than bid work.
10
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SELLING, GENERAL, ADMINISTRATIVE AND INTEREST EXPENSES
Selling, general and administrative expenses ("SG&A") for the
quarter ended June 30, 2000 decreased 20% to $677,795 from $850,329
for the same period in 1999. For the six month period ended June
30, 2000, SG&A decreased 19% to $1,345,802 from $1,661,138 for the
same period in 1999. SG&A as a percentage of revenues decreased to
22% versus 28% for the six months ended June 30, 2000.
The overall decrease in SG&A was partly due to the fact that
the Company opened a branch office in Buffalo, NY during the first
quarter of 1999, which created additional overhead expense during
1999. Also, the Company has been focusing its efforts on reducing
overhead expenses. Project managers and branch managers have been
meeting or exceeding chargeability goals set by the Company, and the
Company has been monitoring overhead at the branch level through the
use of branch budgets. Several personnel at the administrative and
manager levels were also discharged from the Company during late
1999, primarily due to performance issues. These changes have
resulted in a decrease in payroll expense and related payroll taxes
and benefits of approximately $280,000 when comparing the first six
months of 2000 to the same period in 1999. Equipment operating
lease expense increased approximately $60,000 due to the addition of
several full-service leases of vacuum trucks and tractors in order
to service a major emergency spill contract the Company has with the
New York State Department of Environmental Conservation; however,
this increase was partially offset by a decrease of approximately
$19,000 in repairs and maintenance expense on the Company's owned
equipment. The Company's focus on reducing SG&A expenses has also
resulted in a decrease in office expense of approximately $29,000
due to efforts to reduce supply use and the use of overnight mail.
INTEREST EXPENSE
Interest expense for the six months ended June 30, 2000
increased 92% to $130,596 from $67,931 for the same period in 1999.
The increase in interest expense was primarily due to the increase
in the Company's average outstanding balance on the revolving loan
and higher interest rates when comparing the first six months of
2000 to the first six months of 1999. As of June 30, 2000, the
Company had $2,000,000 in available borrowings on a revolving basis
compared to only $1,500,000 in available borrowings as of June 30,
1999. The increase was also attributable to the financing of new
equipment during 1999, the majority of which was financed during the
second half of 1999.
NET INCOME (LOSS)
The net income for the six months ended June 30, 2000 was
$224,443, or $0.02 per share (basic and diluted), compared to a net
loss of ($229,176), or ($0.02) per share (basic and diluted), for
the same period in 1999.
Item 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 June 30, 2000.
11
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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 and Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter
ended June 30, 2000.
12
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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: August 11, 2000 / s/John R. Loveland
John R. Loveland, Chief Executive Officer
Date: August 11, 2000 /s/ Christopher J. Polimino
Christopher J. Polimino, President and
Chief Accounting Officer
13
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