_________________________________________________________________
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 September 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 October 31, 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
-September 30, 2000 (Unaudited) and
December 31, 1999 (Audited)................3
Consolidated Statements of Operation
-Three months ended September 30, 2000 and
September 30, 1999 (Unaudited)
-Nine months ended September 30, 2000 and
September 30, 1999 (Unaudited)...............4
Consolidated Statements of Cash Flows
-Nine months ended September 30, 2000 and
September 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
Item 3. Quantitative and Qualitative Disclosure
About Market Risk............................12
PART II. OTHER INFORMATION............................13
SIGNATURES...................................14
2
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ITEM #1 FINANCIAL STATEMENTS PART I - FINANCIAL INFORMATION
OP-TECH ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
September 30, December 31,
2000 1999
------------- ------------
ASSETS
Current Assets:
Cash and cash equivalents $ 6,638 $ 15,034
Accounts receivable (net of allowance
for doubtful accounts)
Unaffiliated parties 2,851,437 3,049,770
Affiliated parties 21,505 259,181
----------- -----------
2,872,942 3,308,951
Costs on uncompleted projects
applicable to future billings 893,914 479,970
Prepaid expenses and other assets 317,785 333,705
----------- -----------
Total Current Assets 4,091,279 4,137,660
----------- -----------
Property and equipment, net 842,196 990,157
Assets held for sale 780,000 780,000
Other assets 11,334 35,123
----------- -----------
Total Assets $ 5,724,809 $ 5,942,940
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Cash overdraft $ 256,439 $ 110,954
Line of credit borrowing 1,894,299 1,778,989
----------- -----------
2,150,738 1,889,943
Accounts payable:
Unaffiliated parties 1,518,063 1,788,759
Affiliated parties 11,970 21,270
----------- -----------
1,530,033 1,810,029
Billings in excess of costs and
estimated profit on uncompleted
projects 362,052 818,712
Accrued expenses and other
liabilities 521,859 380,466
Current portion of long-term debt and
obligations under capital leases 288,598 552,095
----------- -----------
Total Current Liabilities 4,853,280 5,451,245
Long-term debt and obligations under
capital leases 306,740 313,269
Shareholders' Equity:
Common stock, par value $.01 per share;
authorized 20,000,000 shares;
11,603,963 shares outstanding as of
September 30, 2000 and
December 31, 1999 116,040 116,040
Additional paid-in capital 7,787,152 7,787,152
Accumulated deficit (7,338,403) (7,724,766)
----------- -----------
Total Shareholders' Equity 564,789 178,426
----------- -----------
Total Liabilities and
Shareholders' Equity $ 5,724,809 $ 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 NINE MONTHS ENDED
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
------------- ------------- ------------- -------------
Revenues:
Project billings
and services $ 3,358,271 $ 3,746,540 $ 9,453,308 $ 9,748,846
Project costs 2,422,621 3,075,201 6,823,414 7,564,035
------------ ------------ ------------ ------------
Gross margin 935,650 671,339 2,629,894 2,184,811
Selling, general
and administrative
expenses:
Payroll expense
and related payroll
taxes and benefits 406,254 560,293 1,226,349 1,675,402
Rent, phone and
utilities expense 85,035 80,806 247,205 211,043
Travel and subsistence 17,263 24,397 46,957 79,230
Professional services 50,563 50,578 130,583 117,666
Office expense 50,783 61,604 136,700 176,075
Fuel expense 21,326 38,987 97,095 107,952
Equipment repair and
maintenance expense 33,691 42,777 90,966 119,025
Equipment operating
lease expense 70,357 64,217 211,497 148,299
Depreciation expense 64,211 78,399 192,633 215,818
Equipment usage (220,600) (202,539) (669,523) (607,067)
Other expense 122,366 126,049 336,588 343,263
----------- ----------- ----------- -----------
Total selling, general
and administrative
expense 701,249 925,568 2,047,050 2,586,706
Operating
income (loss) 234,401 (254,229) 582,844 (401,895)
Other income and
expense:
Interest expense 70,826 58,527 201,422 126,458
Other expense
(income), net 1,655 21,691 (4,941) 35,270
---------- ----------- ---------- ----------
72,481 80,218 196,481 161,728
NET INCOME (LOSS) $ 161,920 $ (334,447) $ 386,363 $ (563,623)
========== =========== ========== ==========
Earnings (loss) per
common share - basic
and diluted $ 0.01 $ (0.03) $ 0.03 $ (0.05)
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)
NINE MONTHS ENDED
September 30, September 30,
2000 1999
------------- -------------
Operating activities:
Net income (loss) $ 386,363 $ (563,623)
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 192,633 223,540
(Gain) loss on sale of equipment - 134
(Increase) decrease in operating
assets and increase (decrease) in
operating liabilities:
Accounts receivable 436,009 (714,089)
Costs on uncompleted projects
applicable to future billings (413,944) (358,986)
Billings and estimated profit in
excess of costs on uncompleted
contracts (456,660) (93,775)
Prepaid expenses and other
assets 65,764 21,956
Accounts payable and accrued
expenses (138,603) 580,896
----------- ----------
Net cash provided by (used in)
operating activities 71,562 (903,947)
----------- ----------
Investing activities:
Proceeds from sale of equipment - 30,531
Purchase of property and equipment (8,596) (65,885)
----------- ----------
Net cash (used in) investing activities (8,596) (35,354)
----------- ----------
Financing activities:
Cash overdraft 145,485 56,619
Proceeds from notes payable to banks
and current and long-term borrowings,
net of financing costs 3,197,312 4,090,139
Principal payments on current and
long-term borrowings (3,414,159) (3,321,871)
----------- -----------
Net cash (used in) provided by
financing activities (71,362) 824,887
----------- -----------
Decrease in cash and cash equivalents (8,396) (114,414)
Cash and cash equivalents at
beginning of period 15,034 122,106
----------- -----------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 6,638 $ 7,692
=========== ===========
Non-cash items:
Non-cash financing of insurance $ 26,055 $ 47,041
Equipment financed through bank and
other financing sources $ 36,076 $ 256,818
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. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. Basis of Presentation
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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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.
2. Related Party Transactions
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 $43,161 and
$263,190 for the nine months ended September 30, 2000 and 1999,
respectively.
Additionally, the Company provided $121,636 and $929,883 of
remediation, sub-contract support and project services to a
shareholder and its affiliates for the nine months ended September
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
$531,000 and $860,000 for the nine months ended September 30, 2000
and 1999, respectively. This decrease was primarily due to St.
Lawrence Industrial Services, Inc. employees meeting chargeability
goals and the fact that the Company performed fewer asbestos
projects requiring union labor when comparing the first nine months
of 2000 to the same period in 1999. 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.
3. 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 nine 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.
For the nine months ended September 30, 2000, the calculation of
diluted earnings per share excludes the effect of incremental common
stock equivalents aggregating 302,500 shares since they would have
been anti-dilutive.
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 September 30, 2000, the Company had cash and cash
equivalents of $6,638 as compared to $15,034 at December 31, 1999.
At September 30, 2000, the Company had a working capital
deficit of $762,001 compared to a deficit of $1,313,585 at December
31, 1999, with a current ratio of .84 to 1 at September 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 September 30, 2000
and December 31, 1999.
For the nine months ended September 30, 2000, the Company's net
cash provided by operations was $71,562 compared to net cash used in
operations of $903,947 during the nine months ended September 30,
1999. The increase in cash provided by operations was due to the
Company's profitability for the nine months ended September 30, 2000
and the Company's improved performance on projects when compared to
the first nine months of 1999.
The Company's net cash used in investing activities of $8,596
during the first nine months of the year was mainly attributable to
the purchase of office furniture for a branch office and the repair
of a piece of equipment.
Cash used in financing activities was $71,362, which was
primarily due to the timing of paydowns and cash advances on the
Company's line of credit.
As of September 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. As of September 30, 2000, borrowings
against the revolving loan aggregated $1,894,299. 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 nine months of 2000, all principal payments on
the Company's debt were made on a timely basis.
The Company expects, based on its efforts to improve operating
results and the continued availability of its line of credit, the
Company will be able to meet its obligations as they come due.
8
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ASSET HELD FOR SALE
Assets Held for Sale consist of the Massena Port Facility, a
former oil tank farm, 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 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 September 30,
2000, the carrying value of the property is $780,000.
9
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RESULTS OF OPERATIONS
BILLINGS
The Company's project billings for the third quarter of 2000
decreased 10% to $3,358,271 from $3,746,540 for the third quarter of
1999. For the nine month period ended September 30, 2000, the
Company's billings have decreased 3% to $9,453,308 from $9,748,846
for the same period in 1999.
When comparing the nine month period ended September 30, 2000
to the same period in 1999, revenues from underground storage tank
removal and replacement decreased approximately $1,000,000. This
decrease is attributable to the performance of several large tank
removal and installation 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 $380,000 and revenue from demolition projects
decreased approximately $180,000. These decreases were offset by an
increase of approximately $1,800,000 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 Company's two-year emergency spill response contract with
the New York State Department of Environmental Conservation and the
addition of several large railroad spill response contracts during
the fourth quarter of 1999.
PROJECT COSTS AND GROSS MARGIN
Project costs for the third quarter of 2000 decreased 21% to
$2,422,621 from $3,075,201 for the same period in 1999. Project
costs as a percentage of revenues were 72% and 82% for the quarter
ended September 30, 2000 and 1999, respectively. Gross margin for
the third quarter of 2000 increased to 28% from 18% for the same
period in 1999.
For the nine month period ended September 30, 2000, project
costs decreased 10% to $6,823,414 from $7,564,035 for the nine
months ended September 30, 1999. Project costs as a percentage of
revenues were 72% and 78% for the nine months ended September 30,
2000 and 1999, respectively. Gross margin for the nine months ended
September 30, 2000 increased to 28% from 22% 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 and large asbestos removal projects,
when comparing the first nine 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's focus on pursuing projects that produce a higher
gross margin.
10
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SELLING, GENERAL, ADMINISTRATIVE AND INTEREST EXPENSES
Selling, general and administrative expenses ("SG&A") for the
quarter ended September 30, 2000 decreased 24% to $701,249 from
$925,568 for the same period in 1999. For the nine month period
ended September 30, 2000, SG&A decreased 21% to $2,047,050 from
$2,586,706 for the same period in 1999. SG&A as a percentage of
revenues decreased to 22% versus 27% for the nine months ended
September 30, 2000.
The overall decrease in SG&A when comparing the first nine
months of 2000 to the same period in 1999 was primarily due to the
Company's continuous efforts to reduce 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 $450,000 for the nine month period ended September
30, 2000 compared to the same period in 1999. The Company's focus on
reducing SG&A expenses has also resulted in a decrease in office
expense of approximately $40,000 due to efforts to reduce supply use
and the use of overnight mail. Travel and subsistence expense
decreased approximately $32,000 due to efforts to eliminate
nonessential travel between branch locations. These decreases were
partially offset by increases in other SG&A expenses. Rent, phone
and utilities expense increased approximately $36,000 due mainly to
the relocation of the Albany, New York, and Braintree,
Massachusetts, branches to new offices with higher rent than the
previous locations. Professional services expense increased
approximately $13,000 due to additional computer consultant support
needed for the relocated branch offices, increased audit and legal
fees, and fees for outsourced payroll processing which started in
April of 1999.
The Company's expenses related to its equipment showed an
overall decrease when comparing the first nine months of 2000 to the
same period in 1999. Depreciation expense decreased approximately
$23,000 due to a write-off and an impairment of equipment the
Company was not utilizing in the fourth quarter of 1999. Fuel
expense decreased by approximately $10,000. Due to the significant
increases in fuel prices during 2000, the Company implemented a 3%
fuel surcharge on customer invoices. The Company collected
approximately $66,000 in billed fuel surcharges through September of
2000, which is offset against fuel expense. Equipment operating
lease expense increased approximately $63,000 due to the addition of
several full-service leases of vacuum trucks and tractors in order
to service several major emergency spill contracts. This increase
was partially offset by a decrease of approximately $28,000 in
repairs and maintenance expense on the Company's owned equipment.
Usage of the Company's equipment increased approximately $62,000.
This increase was due to the addition of equipment in late 1999, and
due to the Company's project managers meeting or exceeding
utilization goals set for each piece of equipment. The costs
associated with using the equipment are shown in the income
statement as a reduction in SG&A expense and as an increase in
project costs. Equipment costs related to equipment utilized on
projects are then billed to customers.
11
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INTEREST EXPENSE
Interest expense for the nine months ended September 30, 2000
increased 59% to $201,422 from $126,458 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 nine months of
2000 to the first nine months of 1999. As of September 30, 2000, the
Company had $2,000,000 in available borrowings on a revolving basis.
As of September 30, 2000, borrowings against the revolving loan
aggregated $1,894,299. 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 nine months ended September 30, 2000 was
$386,363, or $0.03 per share (basic and diluted), compared to a net
loss of ($563,623), or ($0.05) 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 September 30, 2000.
12
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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.
A report on Form 8-K was filed on July 27, 2000 to
announce the resignation of a Director from the Company's Board
of Directors.
13
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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: November 14, 2000 /s/ John R. Loveland
John R. Loveland, Chief Executive Officer
Date: November 14, 2000 /s/ Christopher J. Polimino
Christopher J. Polimino, President and
Chief Accounting Officer
14
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