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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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. Employer
incorporation or organization) Identification No.)
6392 Deere Road, Syracuse, NY 13206
(Address of principal executive office) (Zip Code)
(315) 463-1643
Registrant's telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of Class)
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
Indicate by check mark if disclosure of delinquent filers pursuant to item
405 of regulation S-K (Section 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K [X].
The aggregate market value of the voting stock held by non-affiliates of
the Company as of March 27, 2001 was $580,198 based upon the average bid and
ask price of such stock on such day.
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the Company's classes
of common stock, as of March 27, 2001. Common stock, $.01 par value. 11,603,963
PART I
SPECIAL NOTICE REGARDING FORWARD-LOOKING STATEMENTS
The Company is including the following cautionary statement in this Form
10-K 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-K, 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.
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ITEM 1. BUSINESS
General
OP-TECH Environmental Services, Inc. and Subsidiary (the "Company"), a
Delaware corporation, provides comprehensive environmental services
predominately in Western, Central, Northern, and Eastern New York,
Massachusetts, Pennsylvania, and New Jersey. The Company performs industrial
cleaning of hazardous and non-hazardous materials and provides varying
services relating to plant facility closure, including interior and exterior
demolition and asbestos removal. In addition, the Company provides remediation
services for sites contaminated by hazardous and non-hazardous materials and
provides 24-hour emergency spill response services. The majority of the
Company's revenues are derived from industrial companies and municipalities
facing complex environmental clean-up problems associated with hazardous and
non-hazardous materials as required by various governmental agencies. The
Company's services include assessing the regulatory, technical, and
construction aspects of the environmental issue, and performing the necessary
remediation activities. The Company seeks to provide its clients with remedial
solutions which integrate the various aspects of a project and are well-
documented, practical, cost effective, and acceptable to regulatory agencies
and the public.
SERVICES
Transportation and Disposal Services
The Company provides transportation of hazardous and non-hazardous wastes
from customer sites to customer-designated landfills, disposal facilities, and
the Company's own aqueous treatment/Part 360 facility. The Company also
provides liquid tank truck transports equipped with vacuum pumps.
Aqueous Treatment/Part 360 Facility
The Company operates an aqueous treatment/Part 360 facility at the
Company's Massena, New York location. The facility provides for the
consolidation of non-hazardous solids and liquids as well as the clean-up of
contaminated water and its eventual discharge into the St. Lawrence River.
The facility services the Company, its clients, and outside vendors.
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24-Hour Emergency Spill Response
The Company undertakes environmental remediation projects on both a
planned and emergency basis. Emergency response actions may develop into
planned remedial action projects when soil, groundwater, buildings, or
facilities are extensively contaminated. The Company has established
specially trained emergency response teams. Many of the Company's
decontamination and mitigation activities result from a response to an
emergency situation by one of its response teams. These incidents can result
from transportation accidents involving chemical or petroleum substances,
fires at chemical facilities or hazardous waste sites, transformer fires or
explosions involving PCBs, and other unanticipated events. The substances
involved may pose an immediate threat to public health or the environment,
such as possible groundwater contamination. The Company also has an agreement
with the New York State Department of Environmental Conservation (NYSDEC) to
provide emergency response services in Northern, Central, Eastern, and Western
New York, payment of which is guaranteed by the NYSDEC.
Emergency response projects require trained personnel who are equipped
with protective gear and specialized equipment and are prepared to respond
promptly whenever these situations occur. The Company's health and safety
specialists and other skilled personnel closely supervise these projects
during and subsequent to the clean-up process. The steps performed by the
Company include rapid response, containment and control procedures, sampling
for analytical testing and assessment, neutralization and treatment, and
collection and transportation of the substance to an appropriate treatment or
disposal facility.
Asbestos Abatement
The Company provides asbestos abatement contracting services to both the
public and private sectors. The Company has expertise in all types of asbestos
abatement including removal, disposal and enclosure, and encapsulation.
Asbestos removal is performed in commercial buildings, industrial facilities,
and governmental buildings.
Interior Demolition/Structural Dismantling
The Company provides interior demolition services such as removing walls,
ceilings, and flooring. In addition, the Company offers structural dismantling
services and has experience in razing concrete, wood and steel structures,
concrete and brick chimneys, and concrete piers and foundations.
4
On-Site Industrial and Waste Management Services
The Company provides on-site industrial cleaning and waste management
services. Specialized services for the handling, processing and disposal of
hazardous wastes are performed by vacuuming, soda blasting, hydroblasting,
dredging, dewatering and sludge processing, sludge pumping, chemical cleaning,
and tank cleaning.
Excavation and Site Remediation Services
The Company provides excavation and soil blending services for treatment
of contaminated soil using heavy equipment such as excavators and loaders.
The Company primarily provides on-site soil blending to public utilities and
municipal customers.
Hydrogeological/Drilling Services
The Company provides hydrogeological services to petroleum companies,
engineering firms and local and state public entities through the use of
qualified subcontractors. Through performing hydrogeological assessments,
the Company evaluates and determines the need for ground water remediation
systems, pump and treatment systems and sub-surface petroleum
product recovery. In addition, the Company provides air sparging systems,
long-term remediation system operations and maintenance as well as monitoring
well and recovery well installations.
Overall Site Assessment and Implementation of Remediation Services
Hazardous Waste: The Company's hazardous waste projects include the design
and construction of on-site facilities to monitor, isolate, or contain
hazardous wastes existing in surface and subsurface water, the transport of
contaminated soils, the decontamination of equipment and facilities related to
the production and use of hazardous materials, industrial cleaning, building
demolition and asbestos removal. Although the Company's projects vary widely
in objective, scope, and duration, each project involves the Company providing
one or more of the following services through the use of its own resources or
the resources of selected subcontractors: strategic planning, site
reconnaissance and security, remedial evaluation, clean-up evaluation, design,
construction, and operation of facilities to treat, stabilize, or isolate the
hazardous materials, and closure planning and monitoring.
Strategic Planning: On each of its projects, the Company attempts as early
as possible, to formulate a complete strategy for directing all efforts toward
solving the hazardous waste problem. The Company's strategic plans are
designed to satisfy the demands of regulatory agencies and the public,
sometimes under emergency conditions. Additionally, the Company attempts to
balance the cost of the alternatives against risks to the client associated
with potential litigation or unfavorable publicity. Through strategic
planning, the Company attempts to minimize expenditures that will not lead to
appropriate solutions, and to enhance the client's credibility with regulatory
agencies and the public.
5
Site Reconnaissance and Security: In conducting a site reconnaissance, the
Company makes a general assessment to determine the basic characteristics of a
site and the limitations imposed thereby, climatological considerations and the
proximity and degree of residential development. In providing site security,
the Company's services include assessing the hazardous condition, restricting
access to the affected area, assisting in the preparation of any necessary
evacuation plans, eliminating or reducing potential risks of fire or explosion,
containing or removing hazardous materials which might pose additional risk,
and implementing measures to reduce or halt the spread of hazardous substances
into adjacent areas.
Remedial Evaluation: A remedial investigation involves the detailed
assessment of an affected area to determine the nature and extent of hazardous
materials present. This is often done at the request of one or more regulatory
agencies. In conducting such investigations, the Company often reviews the
construction of a facility and past storage and handling practices regarding
hazardous materials.
Clean-up Evaluation: A feasibility study addresses measures which may be
implemented to remove hazardous wastes from a site, to treat, stabilize, or
contain such wastes on-site or to otherwise mitigate their effects. Such
studies take into account, among other things, available technology, regulatory
considerations, and the cost-benefit relationship of alternative measures.
Additionally, the Company reviews the project and alternative remedial measures
in light of legitimate public concerns.
Construction and Operation of Remedial Facilities: Based on the results
of remedial investigations and feasibility studies, the Company uses its
expertise directly, or through subcontractors, to design an appropriate
structure or system for use at a particular site, and performs the necessary
remediation activities. These remediation activities might include such
diverse measures as construction of a slurry wall to contain the hazardous
materials, construction and operation of a pumping and filtration system to
decontaminate surface or subsurface waters or construction and operation of an
integrated system to excavate contaminated soil and remove it to a licensed
disposal facility.
Closure Planning and Site Monitoring: The Resource Conservation and
Recovery Act of 1976 ("RCRA") requires the planning of closure and postclosure
monitoring for all licensed secure hazardous landfills, treatment facilities,
and on-site hazardous waste storage areas. The Company plans and performs
facility closures and postclosure monitoring programs. While certain
monitoring requirements are mandated by RCRA, many sites have, at some time,
contained hazardous wastes which also frequently require monitoring. The
Company provides monitoring for sites and the corresponding data management
services.
The Company usually contracts for and manages all aspects of the work
related to the completion of a particular project. In addition, the Company
performs all aspects of the work and certain other specialized operations,
some of which are subcontracted to other parties. The Company does, however,
occasionally, contract to perform only certain aspects of a particular
project.
6
Technologies Employed
The Company utilizes a wide variety of physical and chemical treatment
technologies in performing its remediation activities. Physical treatment
technologies generally involve filtration and aeration techniques and are used
to separate contaminants from soils, slurries, or water. Chemical treatment
technologies generally involve flocculation, clarification, precipitation,
polymer addition, chemical oxidation, chemical absorption, and stabilization.
Depending on the contaminants present and the site characteristics, these
technologies are combined into integrated treatment systems which reduce
contaminant concentrations to levels consistent with prescribed regulatory
standards.
Regulation
The business of the Company and its clients is subject to extensive,
stringent, and evolving regulation by the EPA and various other federal,
state, and local environmental authorities. These regulations directly impact
the demand for the services offered by the Company. In addition, the Company
is subject to the Federal Occupational Safety and Health Act, which imposes
requirements for employee safety and health. The Company believes it is in
compliance with all federal, state, and local regulations governing its
business.
RCRA. The Resources Conservation and Recovery Act of 1976 is the
principal federal statute governing hazardous waste generation, treatment,
storage, and disposal. RCRA, or EPA-approved state programs may govern any
waste handling activities of substances classified as "hazardous." The 1984
amendments to RCRA substantially expanded its scope by, among other things,
providing for the listing of additional wastes as "hazardous" and providing of
the regulation of hazardous wastes generated in lower quantities than
previously had been regulated. Additionally, the amendments impose
restrictions on land disposal of certain hazardous wastes, prescribe more
stringent standards for hazardous waste land disposal sites, set standards for
underground storage tanks and provide for "corrective" action at or near sites.
of waste management units. Under RCRA, liability and stringent operating
requirements may be imposed on a person who is either a "generator" or a
"transporter" of hazardous waste, or an "owner" or "operator" of a waste
treatment, storage, or disposal facility. The Company does not believe its
hazardous waste remediation services cause it to fall within any of these
categories, although it might be considered an "operator" of a waste management
facility or a "generator" of hazardous waste if it were to control the
collection, source, separation, storage, transportation, processing,
treatment, recovery, or disposal of hazardous wastes, including operation of a
treatment unit for remedial purposes.
Regulation of underground storage tanks (UST) legislation, in particular
Subtitle I of RCRA, focuses on the regulation of underground tanks in which
liquid petroleum or hazardous substances are stored and provides for the
regulatory setting for the principal portion of the Company's work. Subtitle I
of RCRA requires owners of all existing underground tanks to list the age,
size, type, location, and use of each tank with a designated state agency.
The EPA has published performance standards and financial responsibility
requirements for storage tanks
7
over a five year period. These regulations also require all new tanks which
are installed to have protection against spills, overflows, and corrosion.
Subtitle I of RCRA provides civil penalties of up to $15,000 per violation for
each day of non-compliance with tank requirements and $10,000 for each tank
for which notification was not given or was falsified. RCRA also imposes
substantial monitoring obligations on parties which generate, transport,
treat, store, or dispose of hazardous waste.
Superfund Act. The Comprehensive Environmental Response Compensation
and Liability Act of 1980 ("Superfund Act") generally addresses clean-up of
inactive sites at which hazardous waste treatment, storage, or disposal took
place. The Superfund Act assigns joint and several liability for cost of
clean-up and damages to natural resources to any person who, currently, or at
the time of disposal of a hazardous substance who by contract, agreement, or
otherwise arranged for disposal or treatment, or arranged with a transporter
for transport of hazardous substances owned or possessed by such person for
disposal or treatment; and to any person who accepts hazardous substances for
transport to disposal or treatment facilities or sites from which there is a
release or threatened release. Among other things, the Superfund Act
authorized the federal government either to clean up these sites itself or to
order persons responsible for the situation to do so. The Superfund Act
created a fund, financed primarily from taxes on oil and certain chemicals, to
be used by the federal government to pay for the clean-up efforts. Where the
federal government expends money for remedial activities, it may seek
reimbursement from the Potentially Responsible Parties ("PRPs").
In October 1986, the Superfund Amendment and Reauthorization Act ("SARA")
was enacted and has increased environmental remediation activities
significantly. SARA authorizes federal expenditures of $8.5 billion over five
years, while imposing more stringent clean-up standards and accelerated
timetables. The requirements of SARA are expected to add 1,600 to 2,000 sites
to the national priority list. Within 36 months of the enactment of SARA,
remedial investigation and feasibility studies were to be conducted for at
least 275 national priority list sites, and were this not achieved for at
least 650 sites within five years. Physical on-site remedial work was to be
commenced for at least 175 new sites in the 36 months after enactment
and for an additional 200 sites in the following 24 months. SARA also contains
provisions which expand the EPA's enforcement powers and which are expected to
encourage and facilitate settlements with PRPs. The Company believes that,
even apart from funding authorized by SARA, industry and governmental entities
will continue to try to resolve hazardous waste problems due to their need to
comply with other statutory and regulatory requirements and to avoid
liabilities to private parties.
The liabilities provided by the Superfund Act could, under certain factual
circumstances, apply to a broad range of possible activities by the Company,
including generation of transportation of hazardous substances, releases of
hazardous substances, failure to properly design a clean-up, removal or
remedial plan and failure to achieve required clean-up standards, leakage of
removed wastes in transit or at the final storage site, and remedial operations
on ground water. Such liabilities can be joint and several where other parties
are involved.
8
Other. The Company's operations are subject to other federal laws
protecting the environment, including the Clean Water Act and the Toxic
Substances Control Act.
Many states have also enacted statutes regulating the handling of
hazardous substances, some of which are broader and more stringent than the
federal laws and regulations.
Competitive Conditions
The markets for environmental remediation, as well as demolition and
asbestos removal, have become increasingly competitive. The Company competes
with many different firms ranging from small local firms to large national
firms, some of which have greater financial and marketing resources than the
Company. Competition in environmental services is based largely on
competitive pricing and quality of service provided. Other competitive
factors include geographic location as well as reputation. Management
believes the Company is one of the few firms based in its market areas
throughout the Northeastern United States that offers a high quality
combination of environmental services at the most competitive prices. In
addition, through its wide range of environmental services, good reputation,
and competitive pricing, the Company hopes to maintain a competitive edge in
the environmental services business.
The Company operates field offices in Syracuse, Massena, Rochester,
Albany, Plattsburgh, and Buffalo, New York, as well as Rockland, Massachusetts,
Edison, New Jersey, and Athens, Pennsylvania. While operations in the
Syracuse, Massena, Albany, Buffalo, Braintree, and Athens offices are
substantial, the Rochester and Plattsburgh operate at a lower volume.
Seasonality
Typically during the first quarter of each calendar year there is less
demand for environmental remediation due to the cold weather, particularly in
the Northeast and Midwest regions. In addition, factory closings for the
year-end holidays reduce the volume of industrial waste generated, which
results in lower volumes of waste handled by the Company during the first
quarter of the following year.
Customers
The Company's client base includes state agencies, industrial companies,
railroads, real estate developers, auto parts manufacturers, aluminum
producers, utility companies, waste disposal firms, municipalities, and
engineering firms. During 2000, the Company performed services for more than
300 clients. These projects ranged from short-term (three months or less)
to projects which were on-going for 12 months or more. The majority of the
projects were short-term in nature and continue to provide a substantial
amount of revenue for the Company. During 2000, the Company had sales of
approximately $1,730,000 to a state agency and sales of approximately
$1,260,000 to an aluminum producer, which together totaled approximately 22%
of the Company's revenues.
9
Insurance
The Company maintains commercial general liability insurance which
provides aggregate coverage limits of $5 million. The Company also maintains
asbestos liability and contractors pollution legal liability which provide
aggregate coverage limits of $5 million. In addition, the Company also
maintains workers compensation, comprehensive automobile, and Directors and
Officers liability insurance. The Company's insurance coverage is consistent
with the insurance requirements found in the environmental remediation
industry.
Backlog
As of December 31, 2000, the Company had a backlog of orders it believed
to be firm of approximately $2,870,000.
Employees
As of March 15, 2001, the Company had a total of 87 full-time employees
The Company's ability to retain and expand its staff will be an important
factor in determining the Company's future success. The Company maintains
employment contracts with its key managers in its branch offices. Manager
contracts are negotiated on an annual basis and encompass items such as
salary, bonuses, and non-compete clauses. The Company does not maintain key-
person insurance for such personnel. The Company considers its relations with
its employees to be good, and the Company has never had a work stoppage or
threat of a work stoppage.
10
ITEM 2. PROPERTIES
Syracuse, New York Branch and Corporate Headquarters
The Company leased approximately 17,000 square feet from O'Brien &
Gere Property Development (an affiliated party) at a monthly rate of $6,840,
including utilities, through February 28, 2000. O'Brien & Gere Property
Development sold the building to a third party; however, the original lease
terms remained in effect. The current term of the lease extends through
June 30, 2001, and the lease does not contain an escalation clause. Subsequent
to December 31, 2000, the Company renewed the lease through June 30, 2006. The
monthly rate under the renewed lease will be $6,375, not including utilities or
real estate taxes.
Massena, New York Branch
The Company owns a 13.93 acre parcel of land located in the Town of
Massena, St. Lawrence County, New York. This parcel, which has approximately
1,300 feet of frontage on the St. Lawrence River, is located in a protected
area where the water is forty-five feet deep. This provides excellent dockage
for local ships and ocean-going ships utilizing the St. Lawrence Seaway.
The land is improved with a well-maintained concrete and creosote timbered
dock that extends about 90 feet into the river and about 260 feet along the
river bed. It is equipped with the necessary piping, valves, and fittings to
serve the former Metropolitan Oil Petroleum Tank Farm. The land is improved
with seven petroleum tanks that have a capacity of 472,000 barrels.
There were four support buildings on the premises, consisting of an office
building, a combination office, shop and boiler room building, and two storage
sheds. On January 21, 2001, there was a fire in the main office building, and
the building and the majority of its contents were either destroyed or
damaged. Copies of any project related or payroll related records that were
destroyed were also kept on file at the Company's corporate office. The
building and its contents were insured, and the Company is in the process of
constructing new office space and replacing the lost items with the insurance
proceeds. The branch employees are currently working out of two temporary
office trailers, and branch operations continued with minimal interruption
after the fire.
The Company is currently pursuing the sale of all or part of its Massena
property and is currently discussing its sale with several parties. On
November 5, 1997, the Company entered into an option with O'Brien & Gere
Property Development (an affiliated party) for the sale of the eastern portion
of the property, the tanks and the dock for $2 million. (See additional
discussion under ITEM 7 of this report).
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Rockland, Massachusetts Branch
The Company leased approximately 300 square feet of office space in
Braintree, Massachusetts, from O'Brien & Gere Engineers (an affiliated party)
at a rate of $2,000 per month through March 31, 2000. The Company relocated
the Massachusetts branch to Rockland in April of 2000. The Company currently
leases approximately 4,500 square feet of office space from a third party at a
rate of $2,950 per month plus utilities. The term of the lease extends
through March 31, 2003. The lease payment is scheduled to increase $125 per
month in April of 2001, and an additional $125 per month in April of 2002.
Buffalo, New York
The Company leases approximately 2,500 square feet of office and garage
Space at a current rate of $2,200 per month plus utilities. The term of the
Lease extends through March 31, 2002. The lease payment is scheduled to
increase $100 per month in June of 2001.
Rochester, New York
The Company leases approximately 250 square feet of office space at a
Current rate of $300 per month. The term of the lease is on a month-to-month
basis.
Athens, Pennsylvania Branch
The Company leases approximately 4,000 square feet of office space at a
current rate of $700 per month plus utilities. The term of the office lease
extends through December 31, 2001, and does not contain an escalation clause.
The Company also leases approximately 6,400 square feet of garage space in
Waverly, New York, at a monthly rate of $1,800. The garage space lease extends
through December 31, 2003, and does not contain an escalation clause.
Albany, New York Branch
The Company leased approximately 300 square feet of office space from
O'Brien & Gere Engineers (an affiliated party) until January 31, 2000, at a
rate of $1,278 per month. In February of 2000, the Company relocated its
Albany branch to a space that is approximately 5,000 square feet, which
includes office and garage space. The Company leases the location from a
third party at a rate of $2,292 per month plus utilities, and the lease term,
which does not contain an escalation clause, extends through January 31, 2003.
12
Edison, New York Branch
The Company leases approximately 300 square feet of office space from
O'Brien & Gere Engineers (an affiliated party) at a current rate of $443 per
month. The term of the lease is on a month-to-month basis.
Plattsburgh, New York Branch
The Company leases approximately 400 square feet of office and garage
space at a current rate of $280 per month including utilities. The term of
the lease extends through January 31, 2002, and does not contain an escalation
clause.
Equipment
The Company's owned equipment consists primarily of construction equipment
such as vacuum trucks, tankers, excavation equipment, pumps, generators, and
compressors, some of which have been specially modified for the Company's use.
Chemical trailers and other specialized equipment for short-term projects are
typically leased from local equipment contractors.
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ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any litigation or governmental proceedings
that management believes could result in any judgements or fines against it or
that would have a material adverse effect on the Company's cash flows, results
of operations, or its financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its annual shareholders meeting on November 16, 2000. The
shareholders voted on the ratification of PricewaterhouseCoopers LLP as the
Company's auditors and the election of five directors. The following votes
were cast for each:
For Against
Ratification of PricewaterhouseCoopers LLP as
the Company's auditors 8,770,340 -0-
Election of Directors:
Robert J. Berger Director 8,770,340 -0-
Richard L. Elander Director 8,770,340 -0-
John R. Loveland Director 8,770,340 -0-
Cornelius B. Murphy, Jr. Director 8,770,340 -0-
Steven A. Sanders Director 8,770,340 -0-
There were no other matters submitted to a vote of the Company's shareholders.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) The shares of the Company's common stock are listed in the "Pink Sheets"
and on the NASDAQ Bulletin Board under the symbol OTES.
The high and low bid prices for the shares of the Company's common stock were
as follows:
Quarter Ended High Bid Low Bid
March 31, 1999 $0.75 $0.25
June 30, 1999 $0.75 $0.25
September 30, 1999 $0.625 $0.375
December 31, 1999 $0.4375 $0.3125
March 31, 2000 $0.40625 $0.3125
June 30, 2000 $0.3125 $0.125
September 30, 2000 $0.21875 $0.125
December 31, 2000 $0.13 $0.05
First quarter through
March 27, 2001 $0.10 $0.05
The aforementioned prices reflect inter-dealer prices, without retail
mark-up, mark-down, or commission and may not necessarily represent actual
transactions.
(b) At March 27, 2001, there were 168 holders of record of the Company's common
stock.
(c) The Company has never paid any dividends and does not anticipate paying
dividends in the foreseeable future.
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ITEM 6. SELECTED FINANCIAL DATA
Statement of Operations Data
Year Ended December 31
2000 1999 1998 1997 1996
Project Billings $13,671,025 $12,517,772 $10,917,903 $6,993,221 $5,792,548
Net Income (Loss)
from Continuing
Operations $539,876 ($2,613,883) $812,753 ($1,747,543)($1,553,320)
Extraordinary
Gain 0 0 0 $1,000,000 0
Net Income (Loss)
Per Share from
Continuing
Operations
(Basic &
Diluted) $.05 ($.23) $.07 ($.32) ($.32)
Balance Sheet Data
As of December 31
2000 1999 1998 1997 1996
(1)
Total Assets $5,734,277 $5,942,940 $6,632,753 $4,776,471 $5,155,409
Long-Term
Obligations $653,059 $865,364 $1,526,560 $228,855 $875,000
(1) On October 14, 1997, the Company entered into an agreement with its two
largest creditors to convert all or part of its indebtedness into common
stock of the Company. The agreement included forgiveness of $1,000,000
of debt by O'Brien & Gere Limited (a shareholder) and the conversion of
$540,000 of convertible debentures, plus accrued interest, into 1,080,000
shares of the Company's common stock. In addition, the Company's then
financial institution converted $2,811,070 of principal and interest into
5,622,140 shares of the Company's common stock.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2000, the Company had cash and cash equivalents of $6,249
as compared to $15,034 at December 31, 1999.
At December 31, 2000, the Company had a working capital deficit of
$660,418 compared to a working capital deficit of $1,313,585 at December 31,
1999. The Company had a current ratio of approximately .86 to 1 at the end of
2000 compared to .76 to 1 at the end of 1999. The decrease in the working
capital deficit and the increase in the Company's current ratio was primarily
attributable to the significant decrease in trade accounts payable and billings
in excess of costs and estimated profit on uncompleted projects, which was a
result of improved project cost management and the overall improvement in
profitability. In addition, the current portion of long-term debt at year-end
decreased due to the continued pay down of the Company's equipment and other
installment obligations.
Cash used in financing activities was $320,591 in 2000, compared to cash
provided by financing activities of $882,260 in 1999. The change was due to
the timing of paydowns and advances on the Company's line of credit and due to
the Company's improved cash flow, which was primarily a result of the Company's
profitable year. In addition, the Company's available line of credit was
increased from $1,500,000 to $2,000,000 during 1999. The Company's losses
in 1999 necessitated borrowing against the additional availability on the line
of credit, which significantly increased cash provided by financing activities
during that year.
Cash provided by operating activities during 2000 was $368,529 compared
to cash used in operating activities of $905,886 during 1999. The increase in
cash provided by operating activities in 2000 was mostly attributable to two
factors. First, the Company was profitable for the year ended December 31,
2000 and improved its gross margin, as discussed in the "Results of
Operations - 2000 Compared to 1999" section of this report. Second, the
Company's focus on accounts receivable collection succeeded in reducing
accounts receivable by approximately $250,000 though revenue increased by
$1,153,253 .
During 1999, the Company had cash used in operating activities of $905,886
due to several factors. The Company was completing the implementation of its
expansion and growth plan during the first quarter of 1999, and had cash
outlays of approximately $95,000 related to the opening of its new office in
Buffalo, NY. The Company had cash outlays of approximately $80,000 preparing
for an emergency spill contract which covers 75% of the land area in New York
State. The contract, which the Company had anticipated would begin in July of
1999, did not begin until October 17, 1999 as a result of delays in the
approval of the New York State budget. In addition, the Company incurred
losses of approximately $330,000 on several tank installation projects. As a
result of these losses in 1999, the Company stopped pursuing tank installation
work. Finally, the Company had approximately $400,000 in losses on several
asbestos projects and an industrial cleaning project during the third and
fourth quarters of 1999. These losses were the result of incomplete bidding
practices and poor project management. The Company refined its approach to
17
asbestos projects, revised its estimating practices, and started an education
program for branch managers in better project execution. The Company also
replaced several project managers with more experienced personnel from other
firms.
Cash used in investing activities of $56,723 during 2000, was primarily
attributable to capital expenditures for the purchase of additional spill
response equipment, computer equipment, an upgrade for the Company's accounting
system, and office furniture.
On October 14, 1997, the Company entered into a borrowing agreement with
a new bank that provided for borrowings on a revolving basis. On July 1,
1999, the agreement was amended to provide borrowings up to $2,000,000. The
revolving loan is subject to renewal at the Bank's option and is payable on
April 30, 2001. The Company is in current ongoing discussions with the Bank,
and based on these discussions, the Company believes that the line of credit
will be renewed through April of 2002; however, there can be no assurances
that this will occur. The revolving loan is guaranteed by a shareholder for
an amount not to exceed $500,000. Under the terms of the guarantee, should
the Bank be unable to recover the full amount of outstanding balances from the
Company's collateralized assets, the shareholder agrees to purchase the
Massena Port Facility for the unrecovered balance up to a maximum of $500,000.
Borrowings against the revolving loan aggregated $1,779,315 at December 31,
2000.
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
During 1998 and 1999, the Company upgraded its financial systems and
decision support systems in anticipation of possible hardware and software
failures related to the year 2000. The Company did not experience any
problems from the date change from 1999 to 2000, and all aspects of the
Company's operations continued without interruption.
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.
Currently, the Company uses the property for its Massena branch office
headquarters, equipment storage and its Aqueous Treatment/360 Facility.
O'Brien & Gere Property Development, a subsidiary of a shareholder of the
Company, had an option to purchase the Massena Port Facility for $2,000,000.
The option expired on December 31, 2000.
In 1996, the Company reclassified the Massena Property to Assets Held for
Sale, at which time the property had a carrying value of approximately $1.9
million. Due to the uniqueness of the Facility, it has been difficult to find
an alternative use for it or to sell the property. 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
18
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. The Company
obtained a current independent real estate appraisal of the property in
January of 2000. Based upon the results of the appraisal, the Company
recognized an impairment of $825,427 during the fourth quarter of 1999. As of
December 31, 2000, the carrying value, which management believes is properly
stated at fair market value less disposal costs, of the property is $780,000.
CAPITAL RESTRUCTURING & BUSINESS OPERATIONS
The Company entered into letters of agreement with its then two largest
creditors, its then financial institution, OnBank & Trust Co. ("OnBank"), and
O'Brien & Gere Limited ("OBG Limited"), a shareholder, on October 14, 1997,
which were executed as of December 31, 1997, whereas OnBank and OBG Limited
agreed to convert all or part of their indebtedness, including accrued
interest, into Common Stock of the Company, and to forgive the remaining
balance. OBG Limited, to which the Company was indebted for $1,540,000,
including accrued interest of $140,000, forgave $1,000,000 of the debt and
converted the balances into 1,080,000 shares of the Company's Common Stock.
OnBank, to which the Company was indebted for $2,811,070, including accrued
interest of $75,332, converted their debt and accrued interest for 5,622,000
shares of the Company's Common Stock. The price per share of $.50 was
negotiated with the two creditors and the Company based on the price of recent
sales and their estimates of future risk. The OnBank ownership of the Company
transferred to M&T Bank as a result of the merger of those financial
institutions in 1998.
RESULTS OF OPERATIONS
This financial review should be read in conjunction with the accompanying
Consolidated Financial Statements and accompanying notes.
FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company's future operating results may be affected by a number of
factors, including the Company's ability to successfully increase market share
in its existing service territory while expanding its services into other
markets, realize benefits from cost reduction programs, sell all or part of
the Massena Property, and utilize its facilities and work force profitably in
the face of intense price competition.
19
2000 COMPARED TO 1999
Revenues
During the year ended December 31, 2000, the Company's revenues increased
9% to $13,671,025 as compared to $12,517,772 reported for the year ended
December 31, 1999. The change in revenues was due to an increase of
approximately $1.25 million in spill response revenue and an increase of
approximately $900,000 in transportation and disposal revenue. The change in
the spill response service line was mainly attributable to the NYSDEC spill
response contract, which went into effect in October of 1999, and to several
spill response contracts the Company secured with various rail companies
during the year. The increase in transportation and disposal was attributable
to several large projects the Company had during 2000. These increases were
offset by a decrease in revenue of approximately $800,000 from underground
storage tank installation projects, as the Company discontinued this service
line in late 1999. The Company also had a large demolition project in 1999
that it did not have in 2000, which caused a decrease in revenue from this
service line of approximately $120,000.
As a result of both the NYSDEC and railroad spill response contracts,
revenue from several of the Company's branches increased when comparing 2000
to 1999. Athens increased sales by approximately $700,000, Rochester by
approximately $155,000, and Buffalo by approximately $643,000. In addition,
Albany increased revenues by approximately $950,000 due to several large
asbestos projects performed during the year. These increases were offset by
decreases in the Company's Rockland and Edison branches. Rockland's sales
decreased by approximately $1,000,000 due to the Company's loss of its bonding
capacity for public projects, which was a result of the Company's poor results
for the year ended December 31, 1999. Rockland's core revenue during 1999 was
attributable to public projects, and the branch personnel continue to develop
core service work outside of the public market. The decrease of approximately
$208,000 in Edison's revenue was due to the fact that the branch had a large
demolition project in 1999 that it did not have during 2000. The Edison branch
manager is continuing to develop a core customer base in New Jersey.
Project Costs and Gross Margin
Project costs for the year ended December 31, 2000 decreased 3% to
$10,059,070 from $10,355,805 for the year ended December 31, 1999. Project
costs as a percentage of revenues decreased to 74% for the year ended
December 31, 2000 compared to 83% for the same period in 1999. The gross
profit margin for the year ended December 31, 2000 was 26% versus 17% for the
year ended December 31, 1999.
The increase in gross margin was a result of the reduction in project
costs, which was a result of improved project management during 2000 as
compared to 1999. The Company also performed fewer public projects and large
asbestos jobs in 2000 than in 1999, which typically produce lower margins than
bid work and spill response projects. Project labor and project labor burden
expense decreased approximately $220,000 combined because of the Company's
increase in spill response and transportation and disposal projects, which are
less labor intensive than
20
other types of projects, such as large asbestos projects. The Company had
fewer large asbestos jobs during 2000 than in 1999, which helped to reduce the
Company's labor requirement. Project meals and lodging expense also decreased
approximately $73,000 from 1999 to 2000 as a result of the Company's increased
revenue from spill contracts. Branches typically staff emergency spills
with its personnel rather than borrowing personnel from other branches within
the Company, which reduced the need for project employee travel.
Selling, General, and Administrative Expenses
During the year ended December 31, 2000, selling, general, and
administrative ("SG&A") expenses decreased 19% to $2,800,661 compared to
$3,439,654 reported for the previous year. SG&A expenses were approximately
20% of sales for the year ended December 31, 2000 compared to approximately
27% for the previous year.
The significant decrease in SG&A when comparing the year ended
December 31, 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 $530,000 for
the year ended December 31, 2000 compared to 1999. The Company's focus on
reducing SG&A expenses has also resulted in a decrease in office expense of
approximately $29,000, in part because of efforts to reduce office
supply use and the use of overnight mail. Travel and subsistence expense
decreased approximately $34,000 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 $41,000 due mainly to the relocation of the Albany, New York,
and Rockland, Massachusetts, branches to new offices with higher rent than the
previous locations. Professional services expense increased approximately
$32,000 due to additional computer consultant support needed for the relocated
branch offices, increased audit and legal fees, and fees for outsourced payroll
processing which began in April of 1999.
The Company's expenses related to its equipment showed an overall decrease
when comparing 2000 to 1999. Depreciation expense decreased approximately
$25,000 due to a write-off and an impairment of equipment the Company was not
utilizing in the fourth quarter of 1999. Fuel expense decreased overall by
approximately $20,000. Due to the significant increases in fuel prices during
2000, the Company implemented a 4% fuel surcharge on customer invoices. The
Company collected approximately $96,000 in billed fuel surcharges through
December of 2000, which was offset against fuel expense. Equipment operating
lease expense increased approximately $58,000 due to the addition of several
full-service leases of vacuum trucks and tractors in order to service the
Company's major emergency spill contracts. Usage of the Company's equipment
increased approximately $104,000. This change was attributable to the
addition of equipment in late 1999, and to the Company's project managers
21
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.
Provision for Impairment of Long-Lived and Other Assets
During the fourth quarter of 1999, the Company recognized a provision for
impairment of long-lived and other assets of $1,109,877. Included in this
provision was a loss of $825,427 recognized in order to reflect the carrying
value of the Massena Port Facility at the lower of cost or market. The
remainder of the impairment was due to a loss recognized on equipment and
other assets the Company was no longer utilizing.
Operating Income
For the year ended December 31, 2000, the Company reported operating
income of $811,294 compared to an operating loss of $2,387,564 for the
previous year. This change was due to several factors. First, the Company
grew revenues while maintaining the gross margins realized on projects.
Second, total SG&A expense decreased dramatically when comparing the year
ended December 31, 2000 to the prior year as a result of the Company's
continued focus on reducing SG&A expense. Third, 1999 included the impairment
charges discussed above. Finally, the Company incurred significant losses on
several tank installation and asbestos projects during 1999. The Company
responded to the problems encountered in 1999 by replacing several project
managers with more experienced personnel, discontinuing the pursuit of tank
installation projects, and refocusing its efforts in the asbestos service line
to obtain projects of a size that the Company has successfully completed in
the past.
Interest Expense
Interest expense increased 46% to $278,651 in 2000 compared to $191,180
in 1999. The increase in interest expense was primarily due to the increase
in the Company's average outstanding balance on its revolving line of credit,
which was approximately $1,800,000 in 2000 and approximately $1,400,000 in
1999. The line of credit availability was increased from $1,500,000 to
$2,000,000 in mid 1999. Higher interest rates when comparing 2000 to 1999
also contributed to the increase in interest expense. As of December 31, 2000,
the Company had $2,000,000 in available borrowings on a revolving basis, and
borrowings against the revolving loan aggregated $1,779,315. The increase was
also attributable to the financing of new equipment during the second half of
1999.
Net Income
The net income for the year ended December 31, 2000 was $539,876 ($.05 per
share basic & diluted) compared to a net loss of ($2,613,883) (($.23) per share
basic and diluted).
22
1999 COMPARED TO 1998
Revenues
During the year ended December 31, 1999, the Company's revenues increased
15% to $12,517,772 as compared to $10,917,903 reported for the previous year
ended December 31, 1998. Revenues from underground storage tank removals and
installations increased approximately $360,000, which was primarily
attributable to the Federal Government deadline to remove all underground
storage tanks ("USTs") that are not in compliance with the EPA guidelines for
USTs. Due to losses incurred on several tank installation projects in 1999,
the Company is no longer pursuing tank installation work. Billings from
asbestos projects increased approximately $1,000,000, while billings from
remediation projects increased approximately $900,000. Revenues from spill
response increased approximately $530,000. Approximately $200,000 of the
increase in spill response work was due to the emergency spill response
contract the Company has with the NYSDEC, which went into effect during
October of 1999. The increase in these service lines was offset by a decrease
of approximately $2,400,000 in the transportation and disposal and industrial
cleaning service lines combined. This decrease was due to a major emergency
spill contract and a large industrial cleaning contract the Company had during
1998, but not in 1999.
In addition, during 1999, the Company's branches that were opened during
the last half of 1998 generated revenue of approximately $2,800,000, all of
which was core service revenue resulting from competitive bidding in both the
public and private markets. The Company's Braintree, MA, and Albany, NY,
branches also showed an increase of approximately $1,900,000 in revenue when
compared to 1998.
Project Costs and Gross Margin
Project costs for the year ended December 31, 1999 increased 36% to
$10,355,805 from $7,596,788 for the year ended December 31, 1998. The
increase in project costs is attributable to the significant increase in
revenues. Project costs as a percentage of revenues increased to 83% for the
year ended December 31, 1999 compared to 70% for the same period in 1998. The
gross profit margin for the year ended December 31, 1999 was 17% versus 30%
for the year ended December 31, 1998.
As a result of increased billings, project costs also increased. The
decrease in gross margin was due to the significant losses taken on several
tank installation, several asbestos projects, and an industrial cleaning
project during 1999. As a result of these projects, the Company had
approximately $640,000 in cash outlays and lost gross margin dollars. Most of
this loss was absorbed by the Company during the third and fourth quarters of
1999. Also, in 1998, the Company had a major emergency cleanup contract and a
large industrial cleaning project that were performed on a time and materials
basis, which produced a higher gross margin than bid work.
23
Selling, General, and Administrative Expenses
During the year ended December 31, 1999, selling, general, and
administrative ("SG&A") expenses increased 43% to $3,439,654 compared to
$2,399,988 reported for the previous year. SG&A expenses were approximately
27% of sales for the year ended December 31, 1999 compared to approximately
22% for the previous year. The increase in SG&A was due to the Company's
branch expansion. During the last half of 1998 and during 1999, the Company
opened branches in Edison, NJ, Buffalo, NY, and Rochester, NY, and
significantly increased the operations of the Athens, PA branch. The
following items increased during 1999 due to this expansion: Payroll expense
increased approximately $475,000 from 1998 to 1999 because of the additional
administrative personnel required in order to accommodate the higher volume of
billing, payroll, and other administrative functions created by the Company's
growth. The Company also hired several sales people in early 1999, and added
several project managers. Workers' compensation expense increased
approximately $180,000 due to the overall increase in payroll and due to the
higher number of asbestos projects performed during the year. Asbestos projects
have the highest workers' compensation rate of all of the workers' compensation
classifications used by the Company. Office rent expense, telephone expense,
and rental expense for copiers and other office equipment increased a total of
approximately $166,000 during 1999 due to the opening of branch offices and
the growth within the existing branches. The Company's operating lease expense
showed an increase of approximately $165,000 due to the addition of four vacuum
trucks, two tractors, and three box vans during the year. In addition,
depreciation expense in 1999 was approximately $148,000 higher than in 1998.
Approximately $40,000 of this increase was related to the purchase of eight
utility vehicles, seven spill trailers, and other equipment, valued at
approximately $300,000, in 1999.
Provision for Impairment of Long-Lived and Other Assets
During the fourth quarter of 1999, the Company recognized a provision for
impairment of long-lived and other assets of $1,109,877. Included in this
provision was a loss of $825,427 recognized in order to reflect the carrying
value of the Massena Port Facility at the lower of cost or market. The
remainder of the impairment was due to a loss recognized on equipment and
other assets the Company was no longer utilizing.
Operating Loss
For the year ended December 31, 1999, the Company reported an operating
loss of $2,387,564 compared to operating income of $921,127 for the previous
year. This change was due to the nonrecurring impairment charges discussed
above, a significant increase in selling, general and administrative expenses,
and due to the losses incurred on several tank installation and asbestos
projects. The Company made several changes in response to the problems
encountered during 1999. Several managers who were responsible for losses on
certain projects have been replaced with more experienced personnel, the
Company is no longer pursuing tank installation projects, and the Company
refocused its efforts in the asbestos service line to obtain projects of a
size that the Company has completed successfully in the past.
24
Interest Expense
Interest expense increased 72% to $191,180 in 1999 compared to $111,099
in 1998. The increase in interest expense was primarily due to the increase
in the Company's average outstanding balance on its revolving line of credit.
The increase was also attributable to the financing of new equipment.
Net Loss
The net loss for the year ended December 31, 1999 was ($2,613,883) (($.23)
per share basic & diluted) compared to net income of $812,753 ($.07 per share
basic and diluted).
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Due to the fact that the interest rate associated with the Company's
revolving line of credit is based on the prime interest rate, the Company is
exposed to interest rate risk. If the prime rate increases, the Company's
monthly interest payments on its line of credit also increase, which could
impact cash flow; however, past fluctuations in the prime rate, whether an
increase or decrease, have not had a material effect on the Company's cash
flow. Although the Company does not anticipate any material effects from
interest rate risk, the Company attempts to keep its outstanding balance on
its line of credit as low as possible at all times.
The Company is aware that if the economy were to slow down, the Company's
business could be affected by other companies closing operations or reducing
production, which could reduce the amount of waste generated or industrial
cleaning projects available. In order to try to mitigate this market risk,
the Company continues to make every effort to secure more emergency spill
response contracts and long-term environmental remediation and industrial
cleaning projects.
For more information regarding market risk, see the audited financial
statements submitted under Item 14 of this report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company and the report of
PricewaterhouseCoopers LLP are submitted under Item 14 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None
25
PART III
ITEM 10. DIRECTORS AND OFFICERS OF THE COMPANY
The following table sets forth certain information about the directors of
the Company, all of whom were unanimously elected at the Annual Meeting of
Stockholders of the registrant on November 16, 2000 for a term of one year.
Year
Name, Age First
Principal Occupation Elected Certain Other Information
Robert J. Berger (54) 1998 Mr. Berger has served in his present
Director and Chairman position as Director since November
of the Board 1998, and as Chairman of the Board
since February 2000. Mr. Berger was
employed in various positions for
OnBank from 1978 through March 31,
1998, his last position being Senior
Vice President, Treasurer, and Chief
Financial Officer. From April
through August 1998, he served as
consultant to First Empire State
Corp. pursuant to its merger
agreement with OnBank. Since August
1998, he has been an Adjunct
Professor and Director of the Madden
Institute of Business Education at
LeMoyne College in Syracuse, New
York. Mr. Berger is also Chairman,
President, and Chief Executive
Officer of St. Lawrence Industrial
Services, Inc.
26
Richard L. Elander (59) 1991 Mr. Elander has served in his present
Director position as a Director since November
of 1991. He served as Vice President
and General Manager from June 1994
to December 1996. He also served as
Chief Executive Officer from November
1991 to June 1994. Mr. Elander
served as a Director of O'Brien &
Gere Limited from August 1991 to
September 1995. From 1983 to 1995,
Mr. Elander served as President of
O'Brien & Gere Operations. Mr.
Elander currently operates his own
construction management consulting
business, and he has been appointed
to the position of Onondaga County
Department of Drainage and
Sanitation Commissioner.
John R. Loveland (63) 1994 Mr. Loveland has served in his
Director, Chief Executive present position since August 1994.
Officer He has been a director of O'Brien &
Gere Engineers, Inc. since 1973, and
he also served as President of
O'Brien & Gere Engineers, Inc. from
1980 to December 1992. He served as
Chairman of the Board of O'Brien &
Gere Limited from 1989 to March
1999, and as President of O'Brien
and Gere Property Development from
March 1999 until July 2000.
Effective January 31, 2001, Mr.
Loveland resigned as Chief Executive
Officer and Director of the Company.
Cornelius B. Murphy, Jr. (56) 1991 Dr. Murphy has served in his current
Director position since November 1991. He
previously served as the Company's
President from June 1994 to December
1996 and as Chariman of the Board
from November of 1991 to June 1994.
Dr. Murphy has been a director of
O'Brien & Gere Limited since 1985
and O'Brien & Gere Engineers, Inc.
from 1982 to date. Dr. Murphy served
as President of O'Brien & Gere
Engineers from 1992 to 1997. From
1982 to 1992, he served as President
of O'Brien & Gere Technical
Services, Inc. Dr. Murphy also
served as Chairman of the Board of
O'Brien & Gere Limited from April
1999 to May 2000, and as Chief
Scientist of O'Brien & Gere
Engineers from January 1998 to
December 1999. Dr. Murphy currently
serves as President of the State
University of New York College of
Environmental Science and Forestry,
which is located in Syracuse, New
York.
Steven A. Sanders (55) 1991 Mr. Sanders has served in his present
Director position as a Director since 1991.
Since January 1, 2001, he has been
of counsel to the law firm of
Spitzer & Feldman PC. Mr. Sanders
served as a partner in the law firm
of Beckman, Millman & Sanders LLP
from October 1997 to December 2000
and has also been President of the
Law Office of Steven A. Sanders PC
since 1992. Prior to that, he
served as Counsel to Jacobs,
Persinger & Parker from 1987 to
1992. Prior thereto, Mr. Sanders
served as Senior Partner of the
law firm Sanders and Siercho.
27
EXECUTIVE OFFICERS OF THE COMPANY
Name Age Position Held
Christopher J. Polimino 35 President and Chief Executive Officer
Anthony R. Pongonis 48 Executive Vice President
Dennis S. Lerner 58 Secretary
Kelly B. Ardoin 26 Assistant Treasurer
Mr. Polimino was named Chief Executive Officer in January of 2001, and has
been President of the Company since the first quarter of 2000. He has been
with the Company since December of 1994 and has previously served as Executive
Vice President, General Manager, and Controller.
Mr. Pongonis was hired during the fourth quarter of 1996. He previously
served as the Company's President and is currently the Company's Eastern
Region Manager and Executive Vice President. He has over twenty-five years of
experience in the environmental services industry.
Mr. Lerner has served in his present position since February of 1994.
Mr. Lerner was Assistant Secretary of O'Brien & Gere Engineers, Inc., a
wholly-owned subsidiary of O'Brien & Gere Limited, from 1992 to March 1999.
He also served as O'Brien & Gere Engineers' in-house legal counsel from 1990
to 1999. Mr. Lerner also serves as outside counsel to the Company.
Ms. Ardoin was hired during the third quarter of 1998, and currently
serves as the Company's Controller. Ms. Ardoin previously worked for a public
accounting firm as a staff accountant.
28
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth summary information concerning compensation
paid or accrued by the Company for services rendered during the last three
fiscal years.
Summary Compensation Table
Annual Compensation Long Term Compensation
Awards Payments
Name and Other Annual # of LTIP All Other
Principal Position Year Salary Compensation Options Payouts Compensation
John R. Loveland 2000 $21,390 -0- -0- -0- -0-
Chief Executive 1999 $35,880 -0- -0- -0- -0-
Officer 1998 $13,920 -0- -0- -0- -0-
Anthony R. Pongonis 2000 $106,542 -0- -0- -0- -0-
Executive Vice 1999 $107,220 -0- -0- -0- -0-
President 1998 $92,220 $17,500 (1) -0- -0- -0-
(1) Includes stock bonus with a market value of $2,500 at the time of award.
Year End Option Table
There were no outstanding stock options held as of December 31, 2000 by the
named executive officers.
Compensation of Directors
Directors of the Company are paid $500 for each quarter plus reimbursement
for their actual expenses incurred in attending meetings.
29
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of the company's common stock at March 15, 2001 by
persons who, to the knowledge of the Board of Directors, beneficially own more
than five percent of the outstanding shares of common stock of the
Corporation.
All voting power of the Corporation is vested in its common stock. As of
the close of business on March 15, 2001, 11,603,963 shares of common stock par
value $.01 per share were outstanding. Each share of common stock is entitled
to one vote.
Name and Address Number of Shares of Common Percentage
of Beneficial Owner Stock Beneficially Owned (1) of Class
M&T Bank 5,622,140 48%
101 S. Salina Street
Syracuse, NY 13202
O'Brien & Gere Limited 3,148,200 27%
5000 Brittonfield Parkway
Syracuse, NY 13220
Richard L. Elander 329,565 (3) 3%
Cornelius B. Murphy, Jr. 1,424 (3) less than 1%
Steven A. Sanders 25,752 (2) (3) less than 1%
Robert J. Berger 20,000 (3) less than 1%
All Officers & Directors (2)(3) less than 4%
as a group (8 persons)
(1) The beneficial owners have sole voting and investment power over the
shares owned.
(2) Includes 200 shares, which are owned by Mr. Sanders' wife as custodian for
his son, as to which Mr. Sanders disclaims beneficial ownership.
(3) Director
30
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company had several month-to-month office rental agreements in place
during 2000 with an O'Brien & Gere Limited subsidiary. Total rent expense
incurred due to these leases in 2000 amounted to approximately $26,700.
On November 5, 1997, the Company entered into an option with O'Brien &
Gere Property Development (an affiliate) to sell the eastern portion of the
Massena Property, the tanks, and the dock for $2 million. This option expired
on December 31, 2000.
During 2000, the Company provided approximately $143,000 of remediation,
sub-contract support, and project services to subsidiaries O'Brien & Gere
Limited, a shareholder. Services provided to O'Brien & Gere Limited
subsidiaries were at competitive rates which were bid on a project by project
basis.
The Company purchases technical, and consulting services from subsidiaries
of O'Brien & Gere Limited, a shareholder. The costs for these services
amounted to $50,000 in 2000.
The Company's revolving loan agreement is guaranteed by O'Brien & Gere
Limited, a shareholder, for an amount not to exceed $500,000.
Steven A. Sanders, a director of the Company, is of counsel to Spitzer &
Feldman PC, which provides professional services to the Company, and it is
anticipated that it will continue to do so.
On January 1, 1999, the Company sold its wholly-owned subsidiary, St.
Lawrence Industrial Services, Inc., to a director of the Company.
The Company purchases subcontract labor services from St. Lawrence
Industrial Services, Inc., which is owned by Robert J. Berger, a director of
the Company. The costs for these services amounted to approximately $735,000
in 2000.
31
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
Page
(a) Financial Statements and Exhibits
(1) Report of Independent Auditors F-1
Consolidated Balance Sheets at December 31, 2000 and 1999 F-2
Consolidated Statement of Operations for the years ended
December 31, 2000, 1999, and 1998 F-3
Consolidated Statements of Shareholders' Equity (Deficit)
for the years ended December 31, 2000, 1999, and 1998 F-4
Consolidated Statements of Cash Flows for the years ended
December 31, 2000, 1999, and 1998 F-5
Notes to Consolidated Financial Statements F-7
(2) Schedule II, Valuation and Qualifying Accounts for the Years
Ended 2000, 1999, and 1998 F-14
(3) Subsidiary of the Company:
OP-TECH Environmental Services Limited - Ontario, Canada
(b) Reports on Form 8-K
The Company did not file any Current Reports on Form 8-K during the three
months ended December 31, 2000.
(c) Exhibits
10.1 Union and Employment Contracts (1) Incorporated herein by reference to
the Company's Form 10-K F/Y/E December 31, 1997.
10.2 Voting Agreement (1) Incorporated herein by reference to the Company's
Form 10-K F/Y/E December 31, 1997.
10.3 Memorandum of Agreement and Exchange (1) Incorporated herein by reference
to the Company's Form 10-K F/Y/E December 31, 1997.
10.4 Revolving Loan Promissory Note (1) Incorporated herein by reference to
the Company's Form 10-Q for the period ended June 30, 1999.
32
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
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)
By:/s/ Christopher J. Polimino
Christopher J. Polimino, President, Chief
Executive Officer, and Chief Accounting
Officer
March 30, 2001
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on the 30th day of March 2001.
/s/ Robert J. Berger Director and Chairman of the Board
Robert J. Berger
/s/ Richard L. Elander Director
Richard L. Elander
/s/ Cornelius B. Murphy, Jr. Director
Cornelius B. Murphy, Jr.
/s/ Steven A. Sanders Director
Steven A. Sanders
/s/ Christopher J. Polimino President, Chief Executive Officer, and Chief
Christopher J. Polimino Accounting Officer
/s/ Anthony R. Pongonis Executive Vice President
Anthony R. Pongonis
/s/ Kelly B. Ardoin Assistant Treasurer
Kelly B. Ardoin
/s/ Dennis S. Lerner Secretary
Dennis S. Lerner
33
Report of Independent Accountants
Shareholders and Board of Directors
OP-TECH Environmental Services, Inc. and Subsidiary
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) on page 32, present fairly, in all material
respects, the financial position of OP-TECH Environmental Services, Inc. and
its Subsidiary at December 31, 2000 and 1999, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 2000, in conformity with accounting principles generally
accepted in the United States of America. In addition, in our opinion, the
financial statement schedule listed in the index appearing under Item 14(a)(2)
on page 32, present fairly, in all material respects, the information set
forth therein when read in conjunction with the related consolidated financial
statements. These financial statements and financial statement schedule are
the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements and financial statement
schedule based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States of
America which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to
the financial statements, the Company's operating results and financial
position raise substantial doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note 2. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ PricewaterhouseCoopers LLP
March 15, 2001
1
OP-TECH Environmental Services, Inc. and Subsidiary
Consolidated Balance Sheets
December 31, 2000 and 1999
Assets 2000 1999
Current assets:
Cash and cash equivalents $6,249 $15,034
Accounts receivable (net of allowance
for doubtful accounts of approximately
$149,000 in 2000 and $132,000 in 1999):
Unaffiliated parties 3,032,746 3,049,770
Affiliated parties 23,250 259,181
--------- ---------
3,055,996 3,308,951
Costs on uncompleted projects in
excess of billings 633,178 479,970
Prepaid insurance 48,697 107,043
Other assets 217,120 226,662
--------- ---------
Total current assets 3,961,240 4,137,660
Property and equipment, net 993,037 990,157
Assets held for sale 780,000 780,000
Other assets - 35,123
---------- ----------
Total Assets $5,734,277 $5,942,940
========== ==========
Liabilities and Shareholders' Equity
Current liabilities:
Bank overdraft $205,208 $110,954
Notes payable to bank 1,779,315 1,778,989
--------- ---------
1,984,523 1,889,943
Accounts payable:
Unaffiliated parties 1,380,010 1,788,759
Affiliated parties 21,484 21,270
--------- ---------
1,401,494 1,810,029
Billings in excess of costs and
Estimated profit on uncompleted
Contracts 552,174 818,712
Accrued payroll and other expenses 424,725 380,466
Current portion of long-term debt
and obligations under capital leases 258,742 552,095
--------- ---------
Total current liabilities 4,621,658 5,451,245
Long-term debt, net of current portion 394,317 313,269
--------- ---------
Shareholders' equity:
Common stock, par value $.01 per share;
Authorized 20,000,000 shares;
11,603,963 shares outstanding as of
December 31, 2000 and 1999 116,040 116,040
Additional paid-in capital 7,787,152 7,787,152
Accumulated deficit (7,184,890) (7,724,766)
----------- -----------
Shareholders' equity, net 718,302 178,426
---------- ----------
Total Liabilities and
Shareholders' Equity $5,734,277 $5,942,940
========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
2
OP-TECH Environmental Services, Inc. and Subsidiary
Consolidated Statements of Operations
Years Ended December 31, 2000, 1999 and 1998
2000 1999 1998
Project billings and services $13,671,025 $12,517,772 $10,917,903
Project costs 10,059,070 10,355,805 7,596,788
----------- ----------- -----------
Gross margin 3,611,955 2,161,967 3,321,115
Selling, general and
administrative expenses 2,800,661 3,439,654 2,399,988
Provision for impairment
of long-lived assets - 1,109,877 -
---------- ------------ ----------
Operating income (loss) 811,294 (2,387,564) 921,127
---------- ------------ ----------
Other income and expense:
Interest expense (278,651) (191,180) (111,099)
Other (expense) income, net (4,767) 8,841 20,925
----------- ------------ -----------
(283,418) (182,339) (90,174)
----------- ------------ -----------
Net income (loss) before
income taxes 527,876 (2,569,903) 830,953
Income taxes (12,000) 43,980 18,200
---------- ------------ ----------
Net Income (Loss) $539,876 $(2,613,883) $812,753
========== ============ ==========
Earnings (loss) per common
share - basic and diluted $0.05 $(0.23) $0.07
The accompanying notes are an integral part of the consolidated financial
statements.
3
OP-TECH Environmental Services, Inc. and Subsidiary
Consolidated Statements of Shareholders' Equity
Years Ended December 31, 2000, 1999 and 1998
Additional
Common Common Paid-In Accumulated
Shares Stock Capital Deficit Total
Balances at
December 31, 1997 11,555,100 $115,551 $7,773,555 $(5,923,636) $1,965,470
Issuance of
48,863 shares 48,863 489 13,597 - 14,086
Net income - - - 812,753 812,753
---------- -------- ---------- ------------ ----------
Balances at
December 31, 1998 11,603,963 116,040 7,787,152 (5,110,883) 2,792,309
Net loss - - - (2,613,883) (2,613,883)
---------- -------- ---------- ------------ -----------
Balances at
December 31, 1999 11,603,963 116,040 7,787,152 (7,724,766) 178,426
Net income (loss) - - - 539,876 539,876
---------- -------- ---------- ----------- ----------
Balance at
December 31, 2000 11,603,963 $116,040 $7,787,152 $(7,184,890) $718,302
========== ======== ========== ============ ==========
The accompanying notes are an integral part of the consolidated financial
statements.
4
OP-TECH Environmental Services, Inc. and Subsidiary
Consolidated Statements of Cash Flows
Years Ended December 31, 2000, 1999 and 1998
2000 1999 1998
Operating activities:
Net income (loss) $539,876 $(2,613,883) $812,753
Adjustments to reconcile net
income (loss) to net cash
provided by (used in)
operating activities:
Provision for loss on
accounts receivable 116,500 108,700 105,350
Depreciation and amortization 266,709 303,287 161,201
Provision for impairment of
long-lived assets - 1,109,877 -
(Gain) loss on sale of
equipment (10,000) 216 -
(Increase) decrease in
operating assets and
increase (decrease) in
operating liabilities:
Accounts receivable 136,455 (461,460) (987,192)
Costs on uncompleted
projects applicable to
future billings (153,208) (190,202) (157,178)
Prepaid expenses and
other assets 103,011 97,171 14,862
Billings and estimated
profit in excess of
costs of uncompleted
contracts (266,538) 249,319 259,466
Accounts payable and
other accrued expenses (364,276) 491,089 165,731
---------- ---------- ----------
Net cash provided by (used in)
operating activities 368,529 (905,886) 374,993
---------- ---------- ----------
Investing activities:
Purchases of property
and equipment (66,723) (113,976) (207,617)
Proceeds from sale of
property and equipment 10,000 30,530 -
---------- ---------- ----------
Net cash used in
investing activities (56,723) (83,446) (207,617)
---------- ---------- ----------
The accompanying notes are an integral part of the consolidated financial
statements.
(Continued)
5
OP-TECH Environmental Services, Inc. and Subsidiary
Consolidated Statements of Cash Flows (Continued)
Years Ended December 31, 2000, 1999 and 1998
2000 1999 1998
Financing activities:
Cash overdrafts $94,254 $65,869 $(179,373)
Proceeds from notes payable
to banks and long-term
borrowings, net of financing
costs 4,350,593 4,998,188 4,792,163
Principal payments on
Current and long-term
Borrowings (4,765,438) (4,181,797) (4,739,577)
----------- ----------- -----------
Net cash (used in) provided
by financing activities (320,591) 882,260 (126,787)
----------- ----------- -----------
(Decrease) increase in cash
and cash equivalents (8,785) (107,072) 40,589
Cash and cash equivalents at
beginning of year 15,034 122,106 81,517
----------- ----------- ----------
Cash and Cash Equivalents
at End of Year $6,249 $15,034 $122,106
=========== =========== ==========
Non-cash items:
Equipment purchased through
bank and other financing
sources $202,866 $285,702 $-
Debt transfer upon sale
of asset - 31,341 -
The accompanying notes are an integral part of the consolidated financial
statements.
6
OP-TECH Environmental Services, Inc. and Subsidiary
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Basis of Presentation
OP-TECH Environmental Services, Inc. and Subsidiary (the "Company"), provides
comprehensive environmental services predominately in Upstate and Central New
York. The Company performs industrial cleaning of non-hazardous materials,
provides varying services relating to plant facility closure including
demolition and asbestos services, provides remediation services for sites
contaminated by hazardous materials and provides emergency spill response
services. The Company has an inactive Canadian subsidiary, OP-TECH
Environmental Services, Ltd.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiary. All significant intercompany
accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at he date of the financial statements. Estimates also affect the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
One of the more significant estimates includes the evaluation of impairment
of the Company's long-lived assets. As more fully described in Note 6, the
Company has had certain property held for sale appraised by an independent
third party. Such appraisals are dependent upon various assumptions and
estimates, which are subject to change over time. Future changes in these
estimates, or other assumptions utilized by management to evaluate the asset
carrying value, may have a material effect on the conclusions reached and the
ultimate determination of impairment.
Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents. The carrying amount
reported in the balance sheet for cash and cash equivalents approximates its
fair value.
Project Income Recognition and Unbilled Project Costs
Contracts are predominately short-term in nature (less than three months) and
revenue is recognized as costs are incurred and billed. Income on long-term
fixed-priced contracts greater than three months is recognized on the
percentage-of-completion method. Project costs are generally billed in the
month they are incurred and are shown as current assets.
Revenues recognized in excess of amounts billed are recorded as an asset. In
the event interim billings exceed costs and estimated profit, the net amount
of deferred revenue is shown as a current liability. Estimated losses are
recorded in full when identified.
7
OP-TECH Environmental Services, Inc. and Subsidiary
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies (Continued)
Concentration of Business Risk - Significant Customers
Sales to one customer, other than an affiliated party, amounted to
approximately $1,728,000, $1,025,700 and $2,537,000 in 2000, 1999 and 1998,
respectively. Accounts receivable at December 31, 2000 and 1999 include
$463,000 and $234,100, respectively, from this customer.
For the year ended December 31, 2000 and 1999 two individual customers
generated approximately $2,990,000, or 22% and $1,609,000 or 13% of the
Company's sales, respectively.
Property and Equipment
Property and equipment are stated at cost. Expenditures for repairs and
maintenance are charged to expense as incurred. Depreciation and amortization
of assets including those recorded under capital leases is provided for using
the straight-line method.
Assets Held for Sale
Assets held for sale are stated at the lower of carrying amount or fair value,
determined by an independent appraisal, less cost to sell.
Long and Short-Term Debt
The carrying amounts of the Company's short-term collateralized and unsecured
borrowing and non-traded variable-rate long-term debt agreements approximate
fair value.
Income Taxes
The Company provides for income taxes in accordance with the liability method
as set forth in Statement of Financial Accounting Standards No. 109 "Accounting
for Income Taxes". Under the liability method, deferred tax assets and
liabilities are determined based on the difference between the financial
statement and tax basis of assets and liabilities and are measured using the
enacted tax rates and laws that may be in effect in the years in which the
differences are expected to reverse.
Earnings Per Share
Basic earnings per share is computed by dividing net income by the weighted
average shares actually outstanding for the period. Diluted earnings per
share includes the potentially dilutive effect of shares issuable under the
employee stock purchase and incentive stock option plans.
2. Business Operations
During fiscal 2000, the Company generated net income of $540,000 and cash flow
from operations of $369,000. The Company's improvement in operating
performance during 2000 was the result of management's actions to improve
project profitability and reduce selling, general and administrative
expenses. The Company expects these operating improvements to result in
positive cash flow from operations in 2001 as well. However, at December 31,
2000, the Company had a working capital deficit of $660,000 due principally to
classification of its revolving credit facility as a current obligation. The
credit facility expires on April 30, 2001, and management believes, based upon
on-going discussions with its lender, that the credit facility will be
renewed.
8
OP-TECH Environmental Services, Inc. and Subsidiary
Notes to Consolidated Financial Statements
3. Related Party Transactions
The Company purchases technical, accounting, and consulting services and
rented certain office and warehouse space from a shareholder and its
affiliates. The cost for these services amounted to approximately $50,000,
$299,000 and $325,000 in 2000, 1999 and 1998, respectively.
Additionally,the Company provided approximately $143,000, $970,000 and
$283,000 of remediation, sub-contract support and project services to a
shareholder and its affiliates for the years ending December 31, 2000, 1999
and 1998,respectively.
During 2000, the Company purchased approximately $735,000 of subcontract labor
services from St. Lawrence Industrial Services, Inc. which is owned by a
director of the Company.
4. Property, Plant and Equipment
Property, plant and equipment consisted of the following at December 31:
2000 1999
Furniture and fixtures $42,743 $40,143
Office machines 79,282 94,901
Utility vehicles 74,303 98,140
Field equipment 1,622,951 1,853,130
Aqueous treatment system 98,330 100,002
---------- -----------
1,917,609 2,186,316
Less: Accumulated depreciation (924,572) (1,196,159)
---------- -----------
$993,037 $990,157
========== ==========
Depreciation expense approximated $267,000, $294,000 and $157,000 for 2000,
1999 and 1998, respectively.
5. Long-Lived Assets
Assets Held for Sale
The Company continues to pursue the disposal of its Massena Port Facility
("Facility"), which was acquired in 1991 for the purpose of developing a large
aqueous treatment facility. Management's estimation of fair value is based
upon an evaluation of existing facts and circumstances, including current real
estate market conditions, a January 2000 independent appraisal and certain
other factors. During the fourth quarter of 1999, the Company, based upon an
independent appraisal of the Facility, recognized an impairment loss on the
carrying value of the Facility of approximately $825,000.
In 1999, the Company wrote down the carrying value of equipment and other
long-lived assets of approximately $284,500 as they are no longer used in the
Company's operations.
9
OP-TECH Environmental Services, Inc. and Subsidiary
Notes to Consolidated Financial Statements
6. Debt and Lease Obligations
Long-term debt is summarized as follows at December 31, 2000:
Revolving loan (a) $1,779,315
Promissory Note, due in full with accrued interest
on May 1, 2005. Interest is at prime plus 1.5%
(11% as of December 31, 2000), collateralized by
all accounts receivable, inventory and equipment
now owned or acquired later. 137,406
Various equipment and other installment obligations,
due in aggregate monthly installment payments of
approximately $37,000, including interest with rates
between 7.84% and 13.99% collateralized by equipment
with a carrying value of $549,905. 515,653
-----------
2,432,374
Less: Current portion (2,038,057)
-----------
$394,317
===========
(a) The Company has an annually renewable borrowing agreement that provides
borrowings up to $2,000,000 on a revolving loan basis, collateralized by
all accounts receivable, inventory and equipment now owned or subsequently
acquired. Availability on the line is subject to a specified borrowing
base calculation using eligible accounts receivable and costs in excess of
billings.
The agreement includes a material adverse change clause which permits the
financial institution to call its obligation in the event of a material
adverse change in the Company's business. Considering the significant
losses in 1999, the Company asked for and received a waiver of the
material adverse change clause as of and for the year ended December 31,
1999. Management does not anticipate any adverse changes in the next
twelve months, however, there can be no assurances. The revolving loan,
which is due on April 30, 2001, is guaranteed by a shareholder for an
amount not-to-exceed $500,000.
Interest is charged at prime plus 1.25%, or 10.75% at December 31, 2000.
The weighted average borrowing rates under short-term credit facilities
were 10.49% and 9.23% at December 31, 2000 and 1999, respectively.
Interest paid amounted to approximately $267,000, $191,000 and $115,000 in
2000, 1999 and 1998, respectively.
Scheduled principal payments on long-term debt for the next five years are as
follows:
2001 $2,038,057
2002 147,343
2003 141,239
2004 95,893
2005 9,842
----------
$2,432,374
==========
10
OP-TECH Environmental Services, Inc. and Subsidiary
Notes to Consolidated Financial Statements
6. Debt and Lease Obligations (Continued)
Office facilities, a portion of which is with an affiliate of the Company's
shareholder, are leased under noncancelable operating leases expiring at
various dates through 2006. Rent expense incurred amounted to approximately
$208,000, $155,000 and $77,000 in 2000, 1999 and 1998, respectively. Future
minimum lease payments under noncancelable operating leases are as follows:
2001 - $446,000, 2002 - $345,500, 2003 - $233,800, 2004 - $164,700,
2005 - $163,300, 2006 - $63,400.
7. Shareholders' Equity
The Company maintains a non-qualified stock option plan permitting the
issuance of up to 500,000 shares of common stock. The purpose of the Plan,
which is more fully defined by the Plan document, is to provide various
directors, officers and employees ("Eligible Employees") of the Company the
opportunity to acquire a stake in the growth of the Company, as well as a
means of promoting the Eligible Employee's maximum effort and continued
association with the Company.
Stock options granted under the Plan allow the Eligible Employee to purchase
the Company's common stock, for a period not to exceed three years, at the
price established at the grant date. Options granted under the Plan must
specify option periods ending not more than ten years from the date of grant.
Option activity of the Plan during fiscal years 1998 through 2000 consisted of
50,000 options granted in 1996 that expired unexercised in 1999. There
was no activity in the Plan during 2000. As of December 31, 2000, a total of
500,000 options are available for grant under the Plan.
The Company has elected to follow APB Opinion No. 25 and related
interpretations in accounting for options granted under the Plan. Under SFAS
No. 123, rights to acquire company stock are to be valued under the fair value
method and the proforma effect of such value on reported earnings and
earnings per share are to be disclosed in the notes to the financial
statements. As the fair value of options activity is not material, proforma
and related disclosures are not presented.
In 1994 and 1995, the Company issued warrants to a financial advisor to
purchase 302,500 shares of common stock. These warrants expired and were
immediately reissued in 1998, at a price of $1.65 and expire in 2001.
8. Income Taxes
The following summarizes the income tax (benefit) expense at December 31, 2000:
2000 1999 1998
Current:
Federal $ - $ - $15,000
State (12,000) 43,980 3,200
--------- ------- -------
$(12,000) $43,980 $18,200
========= ======= =======
The difference between the expected tax provision resulting from the
application of the federal statutory income tax rate to pre-tax income is due
principally to (i) for 2000 and 1998, reversal of the valuation allowance
related to utilized net operating loss carryforwards (ii) for 1999, the
recognition of a valuation allowance against generated net operating losses.
11
OP-TECH Environmental Services, Inc. and Subsidiary
Notes to Consolidated Financial Statements
8. Income Taxes (Continued)
At December 31, 2000, the Company has federal net operating loss ("NOL") and
alternative minimum tax ("AMT") credit carryforwards of approximately
$6,564,000 and $19,000, for income tax purposes. The federal net operating
loss carryforward expires at various times through the year ending December 31,
2020. Alternative minimum tax credit carryforwards do not expire. Income
taxes and franchise taxes paid were approximately $3,500 and $18,200 in 2000
and 1998, respectively.
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The Company has
recorded a valuation allowance amounting to the entire net deferred tax asset
due to uncertainty as to the ultimate recovery of the assets.
Significant components of the Company's deferred tax liabilities and assets as
of December 31, 2000 and 1999 are as follows:
2000 1999
Deferred tax liabilities:
Depreciation $64,625 $21,999
=========== ===========
Deferred tax assets:
Net operating loss carryforward $2,470,447 $2,508,848
Accounts receivable reserve 59,156 44,932
Other 568,947 387,431
AMT tax credits 18,785 15,000
----------- -----------
Total deferred tax assets 3,117,335 2,956,211
Valuation allowance for deferred assets (3,052,710) (2,934,212)
----------- -----------
Deferred tax assets $64,625 $21,999
=========== ===========
Net deferred tax assets $ - $ -
=========== ===========
9. Employee Benefit Plan
The Company maintains a defined contribution employee retirement plan which
covers substantially all employees. The Plan is funded by voluntary employee
contributions which are matched by the Company at a designated percentage, and
additional contributions by the Company at the discretion of the Board of
Directors. There were matching contributions to the plan of approximately
$18,700, $9,900 and $11,500 in 2000, 1999 and 1998, respectively, by the
Company. The Company did not make discretionary contributions to the Plan in
2000, 1999 and 1998.
10. Commitment and Contingencies
The Company is subject to various federal, state and local regulations
relating to environmental matters, including laws which require the
investigation and, in some cases, remediation of environmental contamination.
The Company's policy is to accrue and charge to operations environmental
investigation and remediation expenses when it is probable that a liability
has been incurred and an amount is reasonably estimable.
12
OP-TECH Environmental Services, Inc. and Subsidiary
Notes to Consolidated Financial Statements
10. Commitment and Contingencies (Continued)
The Company is a party to various proceedings arising from the normal course
of business. Based on information currently available, management believes
adverse decisions relating to litigation and contingencies in the aggregate
would not materially affect the Company's results of operations, cash flows or
financial condition.
11. Two-Year Selected Quarterly Financial Data (Unaudited)
Year Ended December 31, 2000
--------------------------------------------------
Quarter Quarter Quarter Quarter
Ended Ended Ended Ended
March 31 June 30 September 30 December 31
Project billings $2,717,158 $3,377,878 $3,358,271 $4,217,718
Gross Margin 778,363 915,882 935,650 982,060
Net Income (loss) 51,174 173,269 161,920 153,513
Net income (loss) per
share (basic and dilutive) $0.00 $0.01 $0.01 $0.01
Year Ended December 31, 1999
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Quarter Quarter Quarter Quarter
Ended Ended Ended Ended
March 31 June 30 September 30 December 31
(a)
Project billings $2,923,110 $3,079,195 $3,746,540 $2,768,927
Gross Margin 809,729 703,741 671,339 (22,842)
Net Income (loss) (46,278) (182,898) (334,447) (2,050,260)
Net income (loss) per
share (basic and dilutive) ($0.00) ($0.02) ($0.03) ($0.18)
(a) During the fourth quarter of 1999, the Company recognized a provision for
impairment of long-lived and other assets of $1,109,877. Included in this
provision was a loss of $825,427 recognized in order to reflect the
carrying value of the Massena Port Facility at the lower of cost or
market, which was based on an independent appraisal obtained by the
Company in January of 2000. The remainder of the impairment was due to a
loss recognized on equipment and other assets the Company was no longer
utilizing.
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OP-TECH Environmental Services, Inc. and Subsidiary
Notes to Consolidated Financial Statements
OP-TECH Environmental Services, Inc. and Subsidiary
Schedule II
Valuation and Qualifying Accounts for the Years Ended December 31, 2000, 1999,
and 1998
Balance at Balance at
Beginning End of
Description of Period Additions Deductions Period
YEAR ENDED DECEMBER 31, 2000
Reserves deducted from assets to
which they apply:
Doubtful accounts receivable $132,155 $116,500 $99,309 (a) $149,346
Valuation allowance for
deferred assets $2,934,212 $118,498 $ - $3,052,710
YEAR ENDED DECEMBER 31, 1999
Reserves deducted from assets
to which they apply:
Doubtful accounts receivable $125,960 $108,700 $102,505 (a) $132,155
Valuation allowance for
deferred assets $1,726,508 $1,207,704 $ - $2,934,212
YEAR ENDED DECEMBER 31, 1998
Reserves deducted from assets
to which they apply:
Doubtful accounts receivable $119,339 $105,350 $98,729 (a) $125,960
Valuation allowance for
deferred assets $1,815,441 $ - $88,933 $1,726,508
(a) Doubtful accounts written off and adjustments.
14