________________________________________________________________________
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 March 31, 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 April 30, 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
-March 31, 2000 (Unaudited) and December 31, 1999 (Audited).........3
Consolidated Statements of Operation
-Three months ended March 31, 2000 and March 31, 1999
(Unaudited)........................................................4
Consolidated Statements of Cash Flows
-Three months ended March 31, 2000 and March 31, 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
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ITEM #1 FINANCIAL STATEMENTS PART I - FINANCIAL INFORMATION
OP-TECH ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
March 31, December 31,
2000 1999
ASSETS
Current Assets:
Cash and cash equivalents $ 8,267 $ 15,034
Accounts receivable (net of allowance
for doubtful accounts):
Unaffiliated parties 2,727,889 3,049,770
Affiliated parties 94,136 259,181
2,822,025 3,308,951
Costs on uncompleted projects
applicable to future billings 492,277 479,970
Prepaid expenses and other assets 312,978 333,705
Total Current Assets 3,635,547 4,137,660
Property and equipment, net 928,944 990,157
Assets held for sale 780,000 780,000
Other assets 25,381 35,123
Total Assets $ 5,369,872 $ 5,942,940
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Cash overdraft $ 191,926 $ 110,954
Line of credit borrowing 1,644,783 1,778,989
1,836,709 1,889,943
Accounts payable:
Unaffiliated parties 1,615,921 1,788,759
Affiliated parties 14,724 21,270
1,630,645 1,810,029
Billings in excess of costs and
estimated profit on uncompleted
projects 461,172 818,712
Accrued expenses and other liabilities 461,426 380,466
Current portion of long-term debt
and obligations under capital leases 501,303 552,095
Total Current Liabilities 4,891,255 5,451,245
Long-term debt 249,017 313,269
Shareholders' Equity:
Common stock, par value $.01 per
share; authorized 20,000,000 shares;
11,603,963 shares issued and
outstanding as of March 31, 2000 and
December 31, 1999, respectively 116,040 116,040
Additional paid-in capital 7,787,152 7,787,152
Accumulated deficit (7,673,592) (7,724,766)
Total Shareholders' Equity 229,600 178,426
Total Liabilities and Shareholders'
Equity $ 5,369,872 $ 5,942,940
The accompanying notes are an integral part of the financial statements.
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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
March 31, March 31,
2000 1999
Revenues:
Project billings and services $ 2,717,158 $ 2,923,110
Project costs 1,938,795 2,113,381
Gross margin 778,363 809,729
Selling, general and administrative
expense:
Payroll expense and related payroll
taxes and benefits 415,811 542,998
Other expense 252,196 267,810
Total selling, general and
administrative expense 668,007 810,808
Operating income (loss) 110,356 (1,079)
Other income and expense:
Interest expense 68,684 31,783
Other (income) expense, net (9,502) 13,416
59,182 45,199
NET INCOME (LOSS) $ 51,174 $ (46,278)
Earnings (loss) per common share:
Basic and diluted $ 0.00 $ (0.00)
Weighted average shares outstanding:
Basic 11,603,963 11,603,963
Diluted 11,906,463 11,956,463
The accompanying notes are an integral part of the financial statements.
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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)
THREE MONTHS ENDED
March 31, March 31,
2000 1999
Operating activities:
Net income (loss) $ 51,174 $ (46,278)
Adjustments to reconcile net income
(loss) to net cash provided by (used
in) operating activities:
Depreciation and amortization 64,213 68,925
Loss on sale of equipment 6,762
(Increase) decrease in operating
assets and increase (decrease) in
operating liabilities:
Accounts receivable 486,926 344,060
Costs on uncompleted projects
applicable to future billings (12,307) (82,968)
Billings and estimated profit in
excess of costs on uncompleted
projects (357,540) (146,698)
Prepaid expenses and other assets 30,469 3,458
Accounts payable and accrued expenses (98,424) (195,392)
Net cash provided by (used in) operating
activities 164,511 (48,131)
Investing activities:
Proceeds from sale of equipment 17,131
Purchase of property and equipment (3,000) (37,882)
Net cash used in investing activities (3,000) (20,751)
Financing activities:
Cash overdraft 80,972 97,586
Proceeds from notes payable to banks and
current and long-term borrowings, net of
financing costs 821,485 1,272,171
Principal payments on current and long-
term borrowings (1,070,735) (1,399,235)
Net cash used in financing activities (168,278) (29,478)
(Decrease) in cash and cash equivalents (6,767) (98,360)
Cash and cash equivalents at beginning
of period 15,034 122,106
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 8,267 $ 23,746
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.
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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 $26,764 and $71,131 for the three months ended
March 31, 2000 and 1999, respectively.
Additionally, the Company provided $34,292 and $279,015 of remediation,
sub-contract support and project services to a shareholder and its affiliates
for the three months ended March 31, 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 $206,000 and $272,000 for the three
months ended March 31, 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 three 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.
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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 March 31, 2000, the Company had cash and cash equivalents of $8,267 as
compared to $15,034 at December 31, 1999.
At March 31, 2000, the Company had a working capital deficit of $1,255,708
compared to a deficit of $1,313,585 at December 31, 1999, with a current
ratio of .74 to 1 at March 31, 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 March 31, 2000 and
December 31, 1999.
For the three months ended March 31, 2000, the Company's net cash provided by
operations was $164,511 compared to net cash used in operations of $48,131
during the three months ended March 31, 1999. The increase in operating cash
is primarily due to the Company's profitability for the quarter ended
March 31, 2000 and the Company's improved performance on projects when
compared to the first quarter of 1999.
The Company's net cash used in investing activities of $3,000 during the
first three months of the year was attributable to the purchase of office
furniture for a branch office.
Cash used in financing activities was $168,278, which was primarily due to
the timing of paydowns and cash advances on the Company's line of credit.
As of March 31, 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.
Subsequent to March 31, 2000, the loan was renewed and is payable on
April 30, 2001. The loan is guaranteed by a shareholder for an amount not
to exceed $500,000.
During the first three 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
March 31, 2000, the carrying value of the property is $780,000.
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RESULTS OF OPERATIONS
BILLINGS
The Company's project billings for the first quarter of 2000 decreased 7% to
$2,717,158 from $2,923,110 for the first quarter of 1999. When comparing the
first three months of 2000 to the same period in 1999, the overall decrease
in billings is due to several factors. Revenues from underground storage
tank removal and replacement decreased approximately $590,000. The decrease
is attributable to the fact that the Company performed several large tank
removal projects during the first quarter of 1999. As part of the Company's
plan to refocus its lines of work on projects which are more profitable, the
Company is no longer pursuing tank installation work. Revenue from
remediation projects decreased approximately $274,000. These decreases were
offset by an increase in tank cleaning revenue of approximately $187,000 and
an increase of approximately $450,000 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 first quarter of 2000 decreased 8% to $1,938,795 from
$2,113,381 for the same period in 1999. Project costs as a percentage of
revenues were 71% and 72% for the three months ended March 31, 2000 and 1999,
respectively. Gross margin for the first quarter of 2000 increased to 29%
from 28% for the same period in 1999.
As a result of decreased billings, project costs also decreased. The
increase in the gross margin is partly due to the Company performing fewer
public projects, particularly tank installation projects, when comparing the
first quarter of 2000 to the same period in 1999. These projects typically
produce lower gross margins. The increase in the gross margin is also
attributable to the Company performing more work on a time-and-material
basis. Time-and-material work typically produces higher margins than bid
work.
SELLING, GENERAL, ADMINISTRATIVE AND INTEREST EXPENSES
Selling, general and administrative expenses ("SG&A") for the quarter ended
March 31, 2000 decreased 18% to $668,007 from $810,808 for the same period in
1999. SG&A as a percentage of revenues decreased to 25% versus 28% for the
three months ended March 31, 2000. The 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. 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.
10
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INTEREST EXPENSE
Interest expense for the three months ended March 31, 2000 increased 116% to
$68,684 from $31,783 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 quarter of 2000 to the first quarter of 1999. As of
March 31, 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
March 31, 1999. The increase was also attributable to the financing of new
equipment during 1999.
NET INCOME (LOSS)
The net income for the three months ended March 31, 2000 was $51,174, or
$0.00 per share (basic and diluted), compared to a net loss of ($46,278), or
($0.00) 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 March 31, 2000.
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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
March 31, 2000.
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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: May 12, 2000 /s/ John R. Loveland
John R. Loveland, Chief Executive Officer
Date: May 12, 2000 /s/ Christopher J. Polimino
Christopher J. Polimino, President and
Chief Accounting Officer
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