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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
For the fiscal year ended December 31, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission file No. 0-19761
OP-TECH Environmental Services, Inc.
(Exact name of registrant as specified in its charter)
Delaware 91-1528142
(State or other jurisdiction of (I.R.S. 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:
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 16, 2004 was $3,767,759 based upon the average closing bid
and ask price of such stock on such day.
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act)
Yes___ or No X
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the Company's classes of
common stock, as of March 16, 2004. Common stock, $.01 par value: 11,606,045
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.
2.
ITEM 1. BUSINESS
General
OP-TECH Environmental Services, Inc. and Subsidiaries (the "Company"), a
Delaware corporation, provides comprehensive environmental and industrial
cleaning and decontamination services predominately in New York, Western New
England, Northern Pennsylvania, New Jersey, and Northern Ohio. 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 Company's revenues are derived from state agencies, 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.
In December 2001, the Company's Board of Directors approved a resolution to
establish OP-TECH AVIX, Inc. ("AVIX"), a wholly-owned subsidiary of the
Company, for purposes of pursuing and engaging in diversified lines of
business including asset management technologies. AVIX was formed in January
2002 and has had limited activity since its inception. Information on
business segments is included in Note 13 to the consolidated financial
statements for the year ended December 31, 2003.
Services
Transportation and Disposal Services
The Company provides transportation of bulk and containerized hazardous and
non-hazardous wastes from customer sites to customer-designated landfills and
disposal facilities. The Company also provides liquid tank truck transports
equipped with vacuum pumps.
24-Hour Emergency Spill Response
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 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. The Company
derives a material portion of its revenues from an agreement with the
New York State Department of Environmental Conservation (NYSDEC) to provide
emergency response services in certain areas of New York State, payment of
which is guaranteed by the NYSDEC.
3.
Asbestos Abatement
The Company provides asbestos abatement contracting services on a limited
basis 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.
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 Services
The Company provides hydrogeological services to petroleum companies,
engineering firms and local and state public entities. In addition to
maintaining a hydrogeologist on staff, the Company has several teaming
arrangements with other companies that provide drilling, geoprobe and support
services to the Company. 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.
4.
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.
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
material compliance with all federal, state, and local regulations governing
its business.
5.
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 for 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 a 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 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").
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 hazardous substances, releases of hazardous substances
during transportation, 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.
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.
6.
Competitive Conditions
The markets for environmental remediation, as well as demolition and asbestos
removal, continue to be very competitive. The Company competes with many
different firms ranging from small local firms to large national firms, many
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, Waverly and Buffalo, New York, as well as Edison, New Jersey.
While operations in the Syracuse, Massena, Albany, Buffalo and Waverly offices
are substantial, the Rochester, Plattsburgh, and Edison operations operate at
a lower volume. In February, 2004, the Company opened a field office in
Cleveland, Ohio.
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 2003, the Company performed services for more than
600 clients. These projects were substantially all short-term (three months
or less) in nature. The largest business segment for the each of the years
ended December 31, 2003, 2002, and 2001 was Emergency Spill Response
services. Emergency Spill Response accounted for 29%, 30% and 29% of
the Company's revenues for the years ended December 31, 2003, 2002, and 2001,
respectively.
During 2003, the Company had sales of approximately $2,265,000 related to a
contract with the New York State Department of Environmental Conservation,
which totaled approximately 15% of the Company's revenues. The contract with
the New York State Department of Environmental Conservation runs through
2008. The loss of these sales could have a material adverse effect on the
Company.
Insurance
The Company maintains commercial general liability, asbestos liability and
pollution liability insurance which provides aggregate coverage limits of $10
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, 2003 and 2002, the Company had a backlog of orders of
approximately $2,700,000 and $2,850,000, respectively.
Employees
The Company has entered into a contractual co-employment agreement with a
third party provider. As of March 16, 2004, the Company had a total of
approximately 100 full-time employees under this contract. 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 maintains key-person insurance for the
President and CEO only. 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.
7.
ITEM 2. PROPERTIES
Syracuse, New York Branch and Corporate Headquarters
The Company leases approximately 17,000 square feet of office and shop space
at a current rate of $6,375 per month plus utilities and real estate taxes.
The term of the lease extends through June 30, 2006, and does not contain an
escalation clause.
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 concrete and timbered dock that extends about 90
feet into the river and about 260 feet along the riverbed. There are four
support buildings on the premises.
The Company is currently pursuing the sale of all or part of its Massena
property.
Buffalo, New York Branch
The Company leases approximately 3,200 square feet of office and shop space at
a current rate of $2,850 per month plus utilities. The term of the lease
extends through March 31, 2004 and does not include an escalation clause.
Rochester, New York Branch
The Company leases approximately 150 square feet of office space at a current
rate of $170 per month. The term of the lease is on a month-to-month basis.
Waverly, New York Branch
The Company leases approximately 6,400 square feet of office and shop space at
a current rate of $1,800 per month plus utilities. The term of the lease
extended through December 31, 2003, and did not contain an escalation clause.
Effective January 1, 2004, the Company is leasing this space on a month-to-
month basis at the same current rate.
Albany, New York Branch
The Company leases approximately 11,000 square feet of office and shop space
at a current rate of $3,957 per month plus utilities. The term of the lease
extends through October 31, 2007. The lease payment is scheduled to increase
an additional $458 in May of 2005.
Edison, New Jersey Branch
The Company leases approximately 2,200 square feet of office and shop space at
a current rate of $1,467 per month plus utilities. The term of the lease
extends through February 2005. The lease payment is scheduled to increase an
additional $44 in February 2004.
8.
Plattsburgh, New York Branch
The Company leases approximately 2,100 square feet of office and shop space at
a current rate of $700 per month plus utilities. The term of the lease is on
a month-to-month basis.
Cleveland, Ohio Branch
Effective February 10, 2004, the Company leases approximately 5,000 square
feet of office and shop space at a rate of $2,500 per month plus utilities.
The term of the lease extends through March 31, 2008 and does not include an
escalation clause. Under the terms of the lease, the rent due for the first
four months of the initial term, $10,000, is abated.
Equipment
The Company's owned equipment consists primarily of construction equipment
such as vacuum trucks, dump 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.
9.
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 May 14, 2003. The
shareholders voted on the ratification of Dannible & McKee, LLP as the
Company's auditors, and the election of six directors. The following votes
were cast for each:
For Against
Ratification of Dannible & McKee, LLP as
the Company's auditors 9,103,021 -0-
Election of Directors:
Robert J. Berger Director 9,103,021 -0-
Richard L. Elander Director 9,103,021 -0-
Cornelius B. Murphy, Jr. Director 9,103,021 -0-
Steven A. Sanders Director 9,103,021 -0-
George W. Lee Director 9,103,021 -0-
Christopher J. Polimino Director 9,103,021 -0-
There were no other matters submitted to a vote of the Company's shareholders.
10.
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 on the Over the
Counter Bulletin Board under the symbol OTES.OB.
The high and low closing bid prices for the shares of the Company's common
stock were as follows:
Quarter Ended High Bid Low Bid
March 31, 2002 $0.07 $0.06
June 30, 2002 $0.12 $0.06
September 30, 2002 $0.35 $0.08
December 31, 2002 $0.45 $0.14
March 31, 2003 $0.46 $0.10
June 30, 2003 $0.45 $0.10
September 30, 2003 $0.48 $0.11
December 31, 2003 $0.49 $0.11
First quarter through
March 16, 2004 $0.51 $0.28
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 16, 2004, there were approximately 188 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.
11.
ITEM 6. SELECTED FINANCIAL DATA
Statement of Operations Data
Year Ended December 31
2003 2002 2001 2000 1999
Project Billings $15,037,888 $15,093,052 $13,243,081 $13,671,025 $12,517,772
Net Income (Loss) $1,959,031 $553,666 $511,393 $539,876 ($2,613,883)
Net Income (Loss) Per
Share (Basic & Diluted) $.12 $.04 $.04 $.05 ($.23)
Balance Sheet Data
As of December 31
2003 2002 2001 2000 1999
Total Assets $9,124,305 $8,130,139 $5,671,179 $5,734,277 $5,942,940
Long-Term Obligations $4,156,356 $3,570,103 $2,365,615 $2,432,374 $2,644,353
12.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2003 the Company had cash and cash equivalents of $58,073 as
compared to $0 at December 31, 2002. Cash in the Company's operating account
is electronically reduced nightly to pay down the Company's revolving line of
credit in order to minimize interest expense.
At December 31, 2003, the Company had working capital of $1,779,382 compared
to working capital of $2,031,861 at December 31, 2002. The Company had a
current ratio of approximately 1.62 to 1 at the end of 2003 compared to 1.60
to 1 at the end of 2002.
Cash provided by operating activities during 2003 was $1,024,953 compared to
cash used in operating activities of $248,065 during 2002. The increase in
cash provided by operating activities in 2003 was mostly attributable to the
decrease in accounts receivable due to improved collection efforts.
The Company's net cash used in investing activities of $577,089 during 2003
was attributable to the purchase of various field and office equipment.
Cash used in financing activities of $389,791 in 2003 was primarily due to a
$700,000 purchase of treasury stock and the timing of pay downs and cash
advances on the Company's line of credit, as was necessitated by the net cash
provided by operating and used in investing activities.
As of December 31, 2003, the Company had a loan agreement that provided for
borrowings up to $2,000,000 on a revolving basis, collateralized by all
accounts receivable, inventory and equipment now owned or acquired later. The
loan is payable on May 31, 2005, bears interest at a rate of prime plus 1.25
percent, is subject to certain restrictive financial covenants, and is subject
to default if there is a material adverse change in the financial or economic
condition of the Company. As of December 31, 2003, borrowing against the
revolving loan aggregated $1,744,473.
During 2003, all principal payments on the Company's debt were made within
payment terms.
The Company expects, based on budgeted operating results and the continued
availability of its line of credit, that it will be able to meet obligations
as they come due.
THE MASSENA PORT FACILITY
The Massena Port Facility is a former oil tank farm that 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 and equipment storage. The property has been held for sale since
1996, during which time the carrying value has been reduced from $1,900,000 to
$480,000, which approximates its fair value.
During the third quarter of 2001, the Company recognized an additional
provision for impairment of long-lived assets of $300,000 to adjust the
carrying value of the Massena Port Facility to the estimated fair market value,
less cost of disposal, of $480,000. Management's estimation of fair market
value is based upon an evaluation of existing facts and circumstances,
including current real estate market conditions.
At December 31, 2002 this asset was reclassified to property and equipment as
assets held and used since it no longer meets the criteria to be classified as
asset held for sale.
13.
CAPITAL RESTRUCTURING & BUSINESS OPERATIONS
In May 2002, a private offering of the Company's common stock was made under
Regulation D, Rule 506 of the Securities Act of 1933, as amended. Form D,
Notice of sale of securities pursuant to regulation D, was filed with the
Securities and Exchange Commission on June 13, 2002. The placement agent of
the offering was Benchmark-Pellinore Securities Corp. The offering resulted
in the sale of approximately 8,000,000 shares of the Company's common stock at
$0.06 per share to twenty-one accredited investors. Gross proceeds from the
offering were $480,000. Expenses and fees, including a placement commission
paid to Benchmark-Pellinore Securities Corp. of $48,000, aggregated
approximately $91,000. Net proceeds of the offering were approximately
$389,000. Management used the proceeds from the offering to purchase and
retire 4,385,170 shares of common stock from the Company's two largest
shareholders.
On August 2, 2002, the Company purchased and retired 4,385,170 shares of its
common stock from the Company's then two largest shareholders. 2,811,070,
shares were purchased from M&T Bank for $.10 per share, or $281,107.
1,574,100 shares were purchased from O'Brien & Gere Limited for $.10 per
share, or $157,410.
On December 30, 2003, the Company purchased and retired the remaining
2,811,070 shares of its common stock from M&T Bank for $.249 per share, or
$700,000.
On March 16, 2004, the Company purchased and retired 1,000,000 shares of its
common stock from O'Brien & Gere Limited for $.25 per share, or $250,000.
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.
14.
CONTRACTUAL OBLIGATIONS
The Company's estimated future payments as of December 31, 2003 related to its
material debt and other certain contractual obligations and the timing of
those payments are set forth below. Since many of these payment amounts are
not fixed, the amounts in the table are solely estimates and the actual
amounts may be different.
Payments Due By Period:
Contractual Less than 1 - 3 3 - 5 More than
Obligations Total one year years years 5 years
Long-term debt(1) $2,411,883 $901,336 $1,215,768 $294,779 $ -
Note payable to bank
under line of credit(2) 1,744,473 - 1,744,473 - -
Operating leases(3) 741,508 268,415 393,540 79,553 -
---------- ---------- ---------- -------- ------
Total $4,897,864 $1,169,751 $3,353,781 $374,332 $ -
========== ========== ========== ======== ======
1. Long-term debt represents term loans payable that mature at various dates
through September 2008. Long-term debt includes scheduled maturities but
excludes variable-rate interest payments.
2. Note payable to bank under line of credit includes the scheduled maturity
on May 31, 2005, but excludes variable-rate interest payments. The scheduled
maturity does not consider the Company's ability to draw or pay down the line
of credit facility prior to the maturity date, or the possibility that the
maturity date may be extended by negotiations with the lender.
3. Operating leases represent office facilities and various field equipment
leased under non-cancelable operating leases expiring at various dates through
2007.
15.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Management has identified the following critical accounting policies that
affect the Company's more significant judgments and estimates used in the
preparation of the Company's consolidated financial statements. The
preparation of the Company's financial statements in conformity with
accounting principles generally accepted in the United States of America
requires the Company's management to make estimates and judgments that affect
the reported amounts of assets and liabilities, revenues and expenses, and
related disclosures of contingent assets and liabilities. On an on-going
basis, management evaluates those estimates, including those related to assets
held for sale, revenue recognition, allowance for doubtful accounts and
contingencies and litigation. The Company states these accounting policies in
the notes to the consolidated financial statements and in relevant sections
in this discussion and analysis. These estimates are based on the information
that is currently available to the Company and on various other assumptions
that management believes to be reasonable under the circumstances. Actual
results could vary from those estimates.
The Company believes that the following critical accounting policies affect
significant judgments and estimates used in the preparation of its
consolidated financial statements:
Contracts are predominately short-term in nature (less than three months) and
revenue is recognized as costs are incurred and billed. 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.
The Company maintains an allowance for doubtful accounts for estimated losses
resulting from the inability of its customers to make required payments, which
results in bad debt expense. Management determines the adequacy of this
allowance by continually evaluating individual customer receivables,
considering the customer's financial condition, credit history and current
economic conditions. If the financial condition of customers were to
deteriorate, resulting in an impairment of their ability to make payments,
additional allowances may be required.
IMPACT OF RECENTLY ISSUED STATEMENTS
In January, 2003 the Financial Accounting Standards Board issued Financial
Accounting Standards Board Interpretation No. 46 "Consolidation of Variable
Interest Entities". The statement requires consolidation of certain entities
when one entity has a controlling interest in a second entity. This would
apply to certain specific purpose entities regardless of the percentage of
ownership. The interpretation was effective for the Company as of July 1,
2003 and its adoption has no impact on the consolidated financial statements.
In May, 2003 the Financial Accounting Standards Board issued Statement No. 150
"Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity". The statement requires classification from an equity
presentation to a liability presentation in the balance sheet of certain
equity and financial instruments, including common stock, if certain criteria
are met. The statement is effective for the quarter beginning July 1, 2003
and its adoption has no impact on the consolidated financial statements.
16.
2003 COMPARED TO 2002
Revenues
During the year ended December 31, 2003, the Company's revenues decreased less
than 1% to $15,037,888 as compared to $15,093,052 for the year ended December
31, 2002. The slight decrease in billings is due to several factors.
Revenues from New York State Department of Environmental Conservation
("NYSDEC") remediation projects decreased approximately $3,335,000.
The decreased revenue from NYSDEC remediation projects is primarily due to a
single large project in the Plattsburgh, NY area in the first quarter of 2002
and single large projects in the Massena, NY and Albany, NY areas in the
second quarter of 2002. This decrease was offset by several factors including
an increase in revenue from asbestos remediation of approximately $705,000
primarily from one large job in Buffalo, NY, and an increase in revenue from
industrial cleaning of approximately $250,000. Revenues from OP-TECH Avix,
Inc. were not material in 2003 or 2002.
Project Costs and Gross Margin
Project costs for the year ended December 31, 2003 decreased 5% to $10,399,088
from $10,916,214 for the year ended December 31, 2002. Project costs as a
percentage of revenues decreased to 69% for the year ended December 31, 2003
compared to 72% for the same period in 2002. The gross profit margin for the
year ended December 31, 2003 was 31% versus 28% for the year ended December
31, 2002. Project costs paid to St. Lawrence Industrial Services, Inc., a
related party, amounted to approximately $1,210,000 in 2003 and $880,000 in
2002.
The increase in the gross margin is due to a substantially lower volume of
excavation projects in 2003 compared to 2002. Excavation projects typically
produce a lower gross margin as a result of 3rd party trucking and landfill
expenses that are treated as a pass-through expense at a specified mark-up.
In 2003 the excavation projects that were completed achieved a higher gross
margin due to the purchase in December 2002 of four tri-axle dump trucks.
Selling, General, and Administrative Expenses
During the year ended December 31, 2003, selling, general, and administrative
("SG&A") expenses increased 14% to $3,963,069 compared to $3,465,557 reported
for the previous year. SG&A expenses were approximately 26% and 23% of sales
for the years ended December 31, 2003 and December 31, 2002, respectively.
When comparing 2003 to 2002, the overall increase in operating expenses is due
to several factors:
- - Payroll expense increased 5% to $1,847,356 when comparing 2003 to 2002.
During the fourth quarter of 2002 and the first quarter of 2003, new employees
were added in the Albany, Rochester, and Buffalo NY branch offices. Each of
these offices added new employees as a result of increased sales volume and
long-term growth plans. As is customary in adding new employees, it takes
approximately six months for a new employee to meet the company's
chargeability goals as set forth in the operating budget.
Therefore, the Company bears additional overhead expense until this time.
- - Depreciation expense increased 40% to $444,362 when comparing 2003 to 2002.
This increase in depreciation expense is due to field equipment additions
totaling approximately $1,517,000 from July 1, 2002 through December 31, 2003.
- - Occupancy expense increased 9% to $287,419 when comparing 2003 to 2002.
This increase in occupancy expense is primarily due to new, larger branch
office and shop space leases in Albany, NY, Plattsburgh, NY and Edison, NJ
that have been entered into since October 1, 2002.
- - Business insurance increased 26% to $239,840 when comparing 2003 to 2002.
This increase in insurance expense is due to the extreme tightening of the
insurance market in the United States that has resulted in large premium
increases.
17.
Operating Income
As a result of the factors discussed above, for the year ended December 31,
2003, the Company reported operating income of $675,731 compared to $711,281
for the previous year.
Interest Expense
Interest expense increased 14% to $190,707 in 2003 compared to $167,542 in
2002. The increase in interest expense was primarily due to an increase in
the average outstanding balance on the revolving loan and long-term debt, due
to equipment purchases in 2003, when comparing the year ended December 31,
2003 with the same period in 2002.
Net Income Before Income Taxes
Net income before income taxes amounted to $481,369 in 2003 compared to
$553,666 in 2002.
Income Tax Benefit
The Company recorded a net income tax benefit of $1,477,662 in 2003 compared
to $0 in 2002. The income tax benefit is primarily due to the recording of a
net deferred tax asset in the amount of $1,519,000. Recognition of the
deferred tax asset represents recognition of the benefit of the net
operating loss carryforwards of the Company. The Company has had four
consecutive years of profitability and believes that utilization of these net
operating loss carry forward is more likely than not and has recognized the
benefit of these carryforwards in 2003. See Note 9 of Notes to Consolidated
Financial Statements at Item 15 of this report.
Net Income
Net income for the years ended December 31, 2003 and 2002 was $1,959,031 or
$.12 per share basic & diluted, and $553,666, or $.04 per share basic and
diluted, respectively.
18.
2002 COMPARED TO 2001
Revenues
During the year ended December 31, 2002, the Company's revenues increased 14%
to $15,093,052 as compared to $13,243,081 for the year ended December 31,
2001. The increase in billings is due to several factors. Revenues from New
York State Department of Environmental Conservation ("NYSDEC") remediation
projects increased approximately $2,165,000. The increased revenue from
NYSDEC remediation projects is primarily due to a single large project in the
Plattsburgh, NY area in the first quarter and single large projects in the
Massena, NY and Albany, NY areas in the second quarter. Revenues from Tank
Cleaning increased approximately $800,000 primarily from a single
large project in the Baltimore, MD area in the fourth quarter. These
increases were partially offset by a decrease in revenue from asbestos
remediation projects totaling approximately $1,108,000. As part of
the Company's plan to refocus its efforts on lines of work that are more
profitable, the Company is being more selective in bidding on asbestos
remediation projects. Revenues from OP-TECH Avix, Inc. were not material in
2002.
Project Costs and Gross Margin
Project costs for the year ended December 31, 2002 increased 15% to
$10,916,214 from $9,466,613 for the year ended December 31, 2001. Project
costs as a percentage of revenues increased to 72% for the year ended December
31, 2002 compared to 71% for the same period in 2001. The gross profit margin
for the year ended December 31, 2002 was 28% versus 29% for the year ended
December 31, 2001. Project costs paid to St. Lawrence Industrial Services,
Inc., a related party, amounted to approximately $880,000 in 2002 and $886,000
in 2001.
As a result of increased billing for 2002, project costs also increased. The
slight decrease in the gross margin is due to the unusually large volume of
excavation projects in the first half of the year. Excavation projects
typically produce a lower gross margin as a result of trucking and landfill
expenses that are treated as a pass-through expense at a specified mark-up.
Selling, General, and Administrative Expenses
During the year ended December 31, 2002, selling, general, and administrative
("SG&A") expenses increased 14% to $3,465,557 compared to $3,035,129 reported
for the previous year. SG&A expenses were approximately 23% of sales for both
the years ended December 31, 2002 and December 31, 2001.
When comparing 2002 to 2001, the overall increase in SG&A is due primarily to
the commencement of operations of OP-TECH AVIX, Inc ("AVIX") in January 2002.
AVIX accounted for SG&A of approximately $200,000 for 2002.
SG&A, net of AVIX, as a percentage of revenues decreased to 22% for 2002
compared to 23% for 2001.
Operating Income
As a result of the factors discussed above, for the year ended December 31,
2002, the Company reported operating income of $711,281 compared to $441,339
for the previous year.
Interest Expense
Interest expense decreased 24% to $167,542 in 2002 compared to $221,046 in
2001. The decrease in interest expense was primarily due to a decrease in the
average interest rate incurred on the revolving loan and long-term debt, when
comparing the year ended December 31, 2002 with the same period in 2001.
Net Income
Net income for the years ended December 31, 2002 and 2001 was $553,666 or $.04
per share basic & diluted, and $511,393, or $.04 per share basic and diluted,
respectively.
19.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
Due to the fact that the interest rate associated with the a substantial
portion of the Company's revolving line of credit, notes payable and other
long-term debt 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 and net income. 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 15 of this report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company and the report of
Dannible & McKee LLP are submitted under Item 15 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
20.
ITEM 9a - CONTROLS AND PROCEDURES
(a) Disclosure Controls and Procedures.
As of the end of the period covering this Form 10-K, we evaluated the
effectiveness of the design and operation of our "disclosure controls and
procedures". OP-TECH conducted this evaluation under the supervision and with
the participation of management, including our Chief Executive Officer and
Chief Financial Officer.
(i) Definition of Disclosure Controls and Procedures.
Disclosure controls and procedures are controls and other procedures that are
designed with the objective of ensuring that information required to be
disclosed in our periodic reports filed under the Exchange Act, such as this
report, is recorded, processed, summarized and reported within the time
periods specified in the SEC's rules and forms. As defined by the
SEC, such disclosure controls and procedures are also designed with the
objective of ensuring that such information is accumulated and communicated to
our management, including the Chief Executive Officer and Chief Financial
Officer, in such a manner as to allow timely disclosure decisions.
(ii) Limitations on the Effectiveness of Disclosure Controls and Procedures
and Internal Controls.
OP-TECH recognizes that a system of disclosure controls and procedures (as
well as a system of internal controls), no matter how well conceived and
operated, cannot provide absolute assurance that the objectives of the system
are met. Further, the design of such a system must reflect the fact that there
are resource constraints, and the benefits of controls must be considered
relative to their costs. Because of the inherent limitations in all control
systems, no evaluation of controls can provide absolute assurance that all
control issues have been detected. These inherent limitations include the
realities that judgments in decision-making can be faulty, and that breakdowns
can occur because of simple error or mistake. Additionally, controls can be
circumvented in a number of ways. Because of the inherent limitations in a
cost-effective control system, system failures may occur and not be detected.
(iii) Conclusions with Respect to Our Evaluation of Disclosure Controls and
Procedures.
Subject to the limitations described above, our Chief Executive Officer and
Chief Financial Officer have concluded that our disclosure controls and
procedures are effective in timely alerting them to material information
relating to OP-TECH required to be included in OP-TECH's periodic SEC filings.
(b) Changes in Internal Controls.
There have been no changes in OP-TECH's internal controls over financial
reporting during the last fiscal quarter of 2003 that has materially affected
or is reasonably likely to affect the Company's internal control over
financial reporting.
21.
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 May 14, 2003 for a term of one year.
Each director has served continuously since he was first elected.
The Board of Directors held five meetings during the last calendar year. All
of the directors attended more than 75% of the total number of meetings held
by the Board of Directors.
Year
Name, Age First
Principal Occupation Elected Certain Other Information
Robert J. Berger (57)
Director and Chairman of the
Board
1998
Mr. Berger has served in his present position as Director
since November 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 M&T
Bancorp. pursuant to its merger agreement with OnBank.
Since August 1998, he has been an Adjunct Professor at
LeMoyne College in Syracuse, New York. From August
1998 through June 2002, he served as Director of the
Madden Institute of Business Education at LeMoyne
College. Mr. Berger is also Chairman, President, and
Chief Executive Officer of St. Lawrence Industrial
Services, Inc.
Richard L. Elander (62)
Director
1991
Mr. Elander has served in his present position as a
Director since November of 1991. Mr. Elander currently
operates his own construction management consulting
business, and he has been appointed to the position of
Onondaga County Department of Water Environment
Protection Commissioner.
22.
Cornelius B. Murphy, Jr. (59)
Director
1991
Dr. Murphy has served in his current position since
December 1991. 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 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 (58)
Director
1991
Mr. Sanders has served in his present position as a
Director since December 1991. Since January 1, 2004,
he has been of counsel to the law firm of Rubin, Bailin,
Ortoli, Mayer & Baker, LLP. From January 1, 2001 to
December 31, 2003, he was 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.
Christopher J. Polimino (38)
Director
2002
Mr. Polimino was named Chief Executive Officer in
January 2001, and has been President of the Company
since January 2000. He has been with the Company
since December of 1994 and has previously served as
Executive Vice President, General Manager, and
Controller.
George W. Lee (55)
Director
2002
Mr. Lee was elected to the Board in December 2002. Mr.
Lee co-founded Blasland, Bouck and Lee, Inc., an
Engineering News Record top 100 worldwide engineering
and scientific services company in 1984. He served in
various capacities in this firm, including Executive VP,
Director of Marketing and Director of Health and Safety
from 1984 to 1994. Mr. Lee currently serves on the
Board of Directors of this company. Since 1984 Mr. Lee
has been active as a consultant to new business
ventures involved in professional development and
wastewater treatment.
23.
AUDIT COMMITTEE
In October of 2002, the Company's Board of Directors formed an Audit Committee
(the "Committee"). The members of the Committee are Messrs. Cornelius Murphy,
Richard Elander, and George Lee. The Committee operates under a written
charter adopted by the Board of Directors. The Committee held 2 meetings
during the year ended December 31, 2003. Its duties and responsibilities
include the following:
- - Provides oversight of the financial reporting process and management's
responsibility for the integrity, accuracy and objectivity of financial
reports, and accounting and financial reporting practices.
- - Recommends to the Board the appointment of the Company's independent public
accountants.
- - Provides oversight of the adequacy of the Company's system of internal
controls.
- - Provides oversight of management practices relating to ethical
considerations and business conduct, including compliance with laws and
regulations.
The Committee has met and held discussions with the Chief Financial Officer
and the Company's independent accountants, Dannible & McKee, LLP, regarding
audit activities. Management has the primary responsibility for the Company's
systems of internal controls and the overall financial reporting process. The
independent accountants are responsible for performing an independent audit of
the Company's consolidated financial statements in accordance with generally
accepted auditing standards and to issue a report thereon. The Committee's
responsibility is to monitor and oversee these processes. However, the
members of the Committee are not certified public accountants, professional
auditors or experts in the fields of accounting and auditing and rely, without
independent verification, on the information provided to them and on the
representations made by management and the independent accountants.
The Committee recommended to the Board of Directors the appointment of
Dannible & McKee, LLP as the Company's independent accountants for the year
2003, as ratified by shareholders. The Company's independent accountants
provided to the Committee the written disclosure required by Independence
Standards Board Standard No. 1 (Independence Discussions with Audit
Committees), and the Committee discussed with the independent accountants that
firm's independence.
Management represented to the Committee that the Company's consolidated
financial statements were prepared in accordance with generally accepted
accounting principles. The Committee has reviewed and discussed the
consolidated financial statements with management and the independent
accountants. The Committee discussed with the independent accountants matters
required to be discussed by Statement on Auditing Standards No. 61
(Communication with Audit Committees) as currently in effect. Based on these
discussions and reviews, the Committee recommended that the
Board of Directors include the audited consolidated financial statements in
the Company's Annual Report on Form 10-K for the year ended December 31, 2003
for filing with the Securities and Exchange Commission.
The aggregate fees billed by the Company's independent accounting firm,
Dannible & McKee, LLP, for professional services rendered for the audit of the
Company's annual financial statements for the year's ended December 31, 2003
and 2002 and the review of the financial statements to be included in
the Company's Forms 10-Q for 2004 and 2003 were $28,000 and $24,000,
respectively.
As of the date hereof the Board of Directors have not formed either
compensation or nomination committees. The Board of Directors as a whole acts
in the capacities of these two committees.
The Committee does not have a financial expert. Due to the small size of the
Company and lack of financial complexity, the Committee does not anticipate
adding a financial expert.
24.
EXECUTIVE OFFICERS OF THE COMPANY
Name Age Position Held
Christopher J. Polimino 38 President and Chief Executive Officer
Charles B. Morgan 50 Chief Operating Officer
Paul Misiaszek 42 Vice President
Douglas R. Lee 33 Chief Financial Officer & Treasurer
Mr. Polimino was named Chief Executive Officer ("CEO") in January 2001, and
has been President of the Company since January 2000. He has been with the
Company since December of 1994 and has previously served as Executive Vice
President, General Manager, and Controller.
Mr. Morgan was named Chief Operating Officer ("COO") in August 2002 and has
been President of OP-TECH AVIX, Inc since January 2002. Prior to joining OP-
TECH, Mr. Morgan served as a Vice President with the firm of Camp, Dresser and
McKee, an Engineering News Record top 20, Boston, MA based consulting,
engineering, construction and operating firm. Mr. Morgan's 29 year career
includes project assignments predominantly with private sector industrial
clients completed for major national and international clients.
Mr. Misiaszek was named Vice President in August 2002. He has been with the
Company since 1996 and has previously served as Branch Manager. He has a
Bachelor of Science degree from the University of Maine and is a Certified
Hazardous Materials Manager at the Masters level.
Mr. Lee was named Chief Financial Officer ("CFO") in August 2002 and Treasurer
in December 2001, and has been Controller of the Company since March 2001.
Mr. Lee is a Certified Public Accountant in New York State. He previously
worked as an Auditor for a public accounting firm from 1993 to 1999, and as
Controller for a manufacturing company from 1999 to February 2001.
25.
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 by the Named Executive Officers.
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
- ------------------ ---- ------ ------------ ------- ------- ------------
Christopher J.
Polimino 2003 $175,000 $10,000 100,000 -0- -0-
CEO and President 2002 $135,000 $25,000 75,000 -0- -0-
2001 $110,000 $12,500 -0- -0- -0-
Anthony R.
Pongonis(1) 2002 $106,000 -0- -0- -0- -0-
Executive VP 2001 $111,080 -0- -0- -0- -0-
Charles B. Morgan 2003 $115,000 $5,000 50,000 -0- -0-
COO 2002 $100,000 -0- 50,000 -0- -0-
(1) Anthony Pongonis was terminated on September 30, 2002
The Company has no formal deferred compensation or bonus plans. The Company
has adopted an incentive compensation plan.
Option Grants in Last Fiscal Year
The following table sets forth information on option grants in 2003 to the
Named Executive Officers:
Number of Percent of Potential Realized
Securities Options Value at Assumed Annual
Underlying Granted to Rates of Stock Price
Options Employees Exercise Expiration Appreciation for Option Term(2)
Name Granted(1) in Year $/Share Date 5% 10%
- ----- ---------- --------- -------- ---------- ---------- ---------
Christopher J. 100,000 30% $0.15 November,2013 $9,433 $23,906
Polimino
Charles B. 50,000 15% $0.15 November,2013 $4,717 $11,953
Morgan
(1) All options listed were granted pursuant to the 2002 Omnibus Plan. Option
exercise prices were at the market price when granted. The options have a
term of 10 years and vest ratably over 3 years.
(2) Potential realizable values are based on assumed annual rates of return
specified by the Securities and Exchange Commission. The Company's management
cautions shareholders and option holders that such increases in values are
based on speculative assumptions and should not inflate expectations of
the future value of their holdings.
26.
Aggregated Option Exercises in Last Fiscal Year
(Exercisable/Unexercisable)
Number of securities Value of Unexercised
Shares acquired underlying unexercised in-the money options
Name on exercise Value realized options at year-end at year-end
- ----- -------------- -------------- ---------------------- --------------------
Christopher J. 25,000 $2,750 0 / 150,000 $73,500
Polimino
Charles B. 16,666 $1,833 0 / 83,334 $40,833
Morgan
Compensation of Directors
Directors of the Company are paid $1,000 for each meeting plus reimbursement
for their actual expenses incurred in attending meetings.
27.
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 16, 2004 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 16, 2004, 11,606,045 shares of common stock par
value $.01 per share were outstanding. Each share of common stock is entitled
to one vote.
Name and Address Amount and Nature
of Beneficial Owner of Beneficial Ownership(1)(2) Percentage of Class(1)
- --------------------- ----------------------------- ----------------------
Richard Messina 4,177,851(2)(3) 33%
40 Fulton Street, 19th Floor
New York, NY 10038
Robert Berger 1,161,667(4) 9%
121 Shirley Rd.
Syracuse, NY 13224
Jurg Walker 1,000,000 8%
3 Avenue De La Costa
Monaco 98000
Kevin Eldred 835,000 7%
1007 Overlook Terrace
Cazenovia, NY 13035
(1) Based upon the sum of (a) 11,606,045 shares of common stock outstanding,
(b) 581,672 outstanding, unexercised options to purchase shares pursuant
to the 2002 Stock Option Plan, and (c) warrants to purchase 480,000 shares
issued to Summit Capital Associates, Inc.
(2) All shareholder's directly or beneficially own all shares except for Mr.
Messina who owns 1,313,333 shares directly and 2,864,518 shares indirectly.
(3) Includes 480,000 shares issuable upon the exercise of warrants to purchase
common stock issued to Summit Capital Associates, Inc.
(4) Includes options to purchase 6,667 shares of Common Stock.
28.
The following table sets forth certain information furnished to the Company
regarding the beneficial ownership of the Company's common stock at March 16,
2004 by each director and nominee for election as director and each elective
officer. Unless otherwise indicated, the beneficial owner has sole voting and
investment power with respect to such shares of common stock.
Name of Number of Shares of Common
Beneficial Owner Stock Beneficially Owned(3)(4) Percentage of Class
- ---------------------- ------------------------------ -------------------
Robert J. Berger(1) 1,161,667 9%
Richard L. Elander(1) 419,565 3%
Steven A. Sanders(1) 35,352 <1%
Cornelius B.Murphy, Jr.(1) 11,424 <1%
Christopher J. Polimino(1)(2) 235,454 2%
George W. Lee(1) 176,666 1%
Charles Morgan(2) 150,000 1%
Paul Misiaszek(2) 55,000 <1%
Douglas R. Lee(2) 90,000 <1%
All Directors as a Group(6 persons) 2,033,461 16%
(1) Director
(2) Officer
(3) Includes options to purchase shares of common stock:
Mr. Berger 6,667
Mr. Elander 6,667
Mr. Sanders 6,667
Mr. Murphy 6,667
Mr. Polimino 150,000
Mr. GW Lee 10,000
Mr. Morgan 83,334
Mr. Misiaszek 43,334
Mr. DR Lee 76,667
29.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 2003, the Company provided approximately $20,000 of remediation, sub-
contract support, and project services to subsidiaries of 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.
Steven A. Sanders, a director of the Company, is of counsel to Rubin, Bailin,
Ortoli, Mayer & Baker, LLP, which provides professional services to the
Company, and it is anticipated that it will continue to do so.
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 $1,210,000 in
2003.
Warrants were issued to Summit Capital Associates, affiliated with Richard
Messina, a financial advisor and shareholder, in May 2002 to purchase 480,000
shares of common stock at $0.066 per share, expiring in May 2007.
30.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Fees billed by Dannible & McKee, LLP, the Company's principal accountants in
the aggregate for each of the last two years were as follows:
2003 2002
-------- --------
Audit Fees $ 28,000 $ 26,000
Tax Fees $ 8,750 $ 0
There were no other fees billed for services other than those noted above.
The fees for tax services represent fees for compliance related to Federal and
state tax return preparation and filing.
The fees for audit and tax services for 2003 were proposed to the audit
committee and approved by that committee in an engagement letter. No other
services were provided by the accountants that would require approval by the
audit committee.
31.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K
Page
(a) Financial Statements
(1) Report of Independent Accountants F-1
Consolidated Balance Sheets at December 31, 2003 and 2002 F-3
Consolidated Statement of Operations for the years ended
December 31, 2003, 2002, and 2001 F-4
Consolidated Statements of Shareholders' Equity for
the years ended December 31, 2003, 2002, and 2001 F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 2003, 2002, and 2001 F-6
Notes to Consolidated Financial Statements F-7
(2) Schedule II, Valuation and Qualifying Accounts for the Years
Ended 2003, 2002, and 2001 F-18
(b) Exhibits
10.1 Stock Option Plan (1) Incorporated herein by reference to the
Company's Information Statement filed November 6, 2002
14 Code of Ethics E-1
21 Subsidiaries of the Company E-2
31 Certifications E-3
32 Section 1350 Certifications E-5
33 Employment Agreement of Christopher J. Polimino E-6
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 and Chief Executive Officer
March 29, 2004
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 29th day of March 2004.
/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/ George W. Lee
Director
George W. Lee
/s/ Christopher J. Polimino
President, Chief Executive Officer and Director
Christopher J. Polimino
/s/ Charles B. Morgan
Chief Operating Officer
Charles B. Morgan
/s/ Paul Misiaszek
Vice President
Paul Misiaszek
/s/ Douglas R. Lee
Chief Financial Officer and Treasurer
Douglas R. Lee
33.
Report of Independent Auditors
Shareholders and Board of Directors
OP-TECH Environmental Services, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of OP-TECH
Environmental Services, Inc. and Subsidiaries as of December 31, 2003 and
2002, and the related consolidated statements of operations, changes in
shareholders' equity and cash flows for the years then ended. These financial
statements 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 in accordance with auditing standards generally
accepted in the United States of America. Those standards 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. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
OP-TECH Environmental Services, Inc. and Subsidiaries as of December 31, 2003
and 2002, and the consolidated results of their operations and their cash
flows for the years then ended in conformity with accounting principles
generally accepted in the United States of America.
In connection with our audits of the financial statements referred to above,
we audited the financial schedules listed under Item 15. In our opinion,
these financial schedules, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly in all
material respects the information stated therein.
/s/ Dannible & McKee, LLP
Syracuse, New York
February 6, 2004
(Except for Note 15, as to which the date is March 16, 2004)
F-1
Report of Independent Auditors
Shareholders and Board of Directors
OP-TECH Environmental Services, Inc. and Subsidiaries
In our opinion, the accompanying consolidated balance sheet as of December 31,
2001 and the related consolidated statements of operations and shareholders'
equity and of cash flows present fairly, in all material respects, the
financial position, results of operations and cash flows of OP-TECH
Environmental Services, Inc. and Subsidiary at December 31, 2001 and for each
of the two years in the period ended December 31, 2001, in conformity with
accounting principles generally accepted in the United States of America.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements
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.
/s/ PricewaterhouseCoopers LLP
Syracuse, New York
March 8, 2002
F-2
OP-TECH Environmental Services, Inc. and Subsidiaries
Consolidated Balance Sheets
December 31, 2003 and 2002
2003 2002
---------- -----------
Assets
Current assets:
Cash (Note 4) $58,073 $ -
Accounts receivable, net (Note 5) 3,386,795 4,639,731
Costs on uncompleted projects
applicable to future billings 638,513 398,888
Inventory 219,568 172,848
Current portion of deferred tax asset 45,500 -
Prepaid expenses and other current assets, net 281,110 198,201
--------- ---------
Total current assets 4,629,559 5,409,668
Property and equipment, net (Note 6) 2,989,827 2,697,608
Deferred tax asset (Note 9) 1,473,500 -
Other assets 31,419 22,863
---------- ----------
Total Assets $9,124,305 $8,130,139
========== ==========
Liabilities and Shareholders' Equity
Current liabilities:
Outstanding checks in excess of bank balance (Note 4) $- $74,662
Accounts payable 864,484 1,863,203
Billings in excess of costs and estimated
profit on uncompleted contracts 716,351 567,423
Accrued expenses and other current liabilities 368,006 315,909
Current portion of long-term debt (Note 7) 901,336 556,610
--------- ---------
Total current liabilities 2,850,177 3,377,807
Long-term debt, net of current portion (Note 7) 1,510,547 1,116,793
Note payable to bank under line of credit (Note 7) 1,744,473 1,896,700
--------- ---------
Total liabilities 6,105,197 6,391,300
--------- ---------
Shareholders' equity:
Common stock, par value $.01 per share; authorized
20,000,000 shares; 12,606,045 and 15,318,787
shares outstanding as of December 31, 2003 and
2002, respectively 126,060 153,188
Additional paid-in capital 7,053,848 7,705,482
Accumulated deficit (4,160,800) (6,119,831)
----------- -----------
Shareholders' equity, net 3,019,108 1,738,839
----------- -----------
Total Liabilities and Shareholders' Equity $9,124,305 $8,130,139
========== ==========
The accompanying notes are an integral part of the consolidated financial
statements
F-3
OP-TECH Environmental Services, Inc. and Subsidiaries
Consolidated Statements of Operations
Years Ended December 31, 2003, 2002 and 2001
2003 2002 2001
----------- ---------- ----------
Project billings and services $15,037,888 $15,093,052 $13,243,081
Project costs 10,399,088 10,916,214 9,466,613
----------- ----------- -----------
Gross margin 4,638,800 4,176,838 3,776,468
Selling, general and administrative expenses 3,963,069 3,465,557 3,035,129
Provision for impairment of long-lived assets - - 300,000
--------- ---------- ----------
Operating income 675,731 711,281 441,339
--------- ---------- ----------
Other income (expense):
Interest expense (190,707) (167,542) (221,046)
Casualty gain from insurance
proceeds, net (Note 6) - - 301,881
Other, net (3,655) 9,927 2,219
--------- --------- ---------
(194,362) (157,615) 83,054
--------- --------- ---------
Net income before income taxes 481,369 553,666 524,393
--------- --------- ---------
Income tax (expense) (Note 9)
Current (26,000) - (13,000)
Deferred 1,503,662 - -
---------- --------- ---------
1,477,662 - (13,000)
---------- --------- ---------
Net Income $1,959,031 $553,666 $511,393
=========== ========== ==========
Earnings per common share - basic
and diluted (Note 2) $0.12 $0.04 $0.04
The accompanying notes are an integral part of the consolidated financial
statements
F-4
OP-TECH Environmental Services, Inc. and Subsidiaries
Consolidated Statements of Shareholders' Equity
Years Ended December 31, 2003, 2002 and 2001
Additional
Common Common Paid-In Accumulated
Shares Stock Capital Deficit Total
---------- ------ -------- ------------ --------
Balance at December
31, 2000 11,603,963 $116,040 $7,787,152 $(7,184,890) $718,302
Issuance of 100,000 shares 100,000 1,000 4,000 - 5,000
Net income - - - 511,393 511,393
---------- ------- --------- ---------- --------
Balance at December
31, 2001 11,703,963 117,040 7,791,152 (6,673,497) 1,234,695
Issuance of
7,999,994 Shares 7,999,994 80,000 308,995 - 388,995
Purchase and Retirement
of 4,385,170 Shares (4,385,170) (43,852) (394,665) - (438,517)
Net Income - - - 553,666 553,666
----------- -------- --------- --------- ---------
Balance at
December 31, 2002 15,318,787 153,188 7,705,482 (6,119,831) 1,738,839
Issuance of 98,328 Shares 98,328 983 4,917 - 5,900
Purchase and Retirement
of 2,811,070 Shares (2,811,070) (28,111) (671,889) - (700,000)
Tax Benefit of the Exercise
of Stock Options - - 15,338 - 15,338
Net Income - - - 1,959,031 1,959,031
---------- ---------- -------- ---------- ---------
Balance at December
31, 2003 12,606,045 $126,060 $7,053,848 $(4,160,800) $3,019,108
========== ======== ========== ============ ==========
The accompanying notes are an integral part of the consolidated financial
statements
F-5
OP-TECH Environmental Services, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Years Ended December 31, 2003, 2002 and 2001
2003 2002 2001
---------- -------- --------
Operating activities:
Net income $1,959,031 $553,666 $511,393
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Bad debt expense 110,682 12,058 135,999
Depreciation and amortization 454,362 317,380 328,220
Provision for impairment of long-lived assets - - 300,000
Loss on disposal of equipment 47,790 - 1,167
Gain on insurance proceeds
from loss on real property - - (301,881)
Common stock issued for services rendered - - 5,000
Provision for deferred income taxes (1,503,662) - -
(Increase) decrease in operating assets and
increase (decrease) in operating liabilities:
Accounts receivable 1,142,254 (1,766,106) 34,314
Costs on uncompleted projects
applicable to future billings (239,625) 21,227 213,063
Prepaid expenses, Inventory and
other assets, net (148,185) (82,615) 108,841
Billings and estimated profit in excess
of costs of uncompleted contracts 148,928 26,050 (10,801)
Accounts payable and other accrued expenses(946,622) 670,275 (317,382)
--------- --------- ---------
Net cash provided by (used in)
operating activities 1,024,953 (248,065) 1,007,933
---------- ---------- ---------
Investing activities:
Purchases of property and equipment (577,089) (727,891) (705,571)
Insurance proceeds from loss on real property - - 308,167
---------- ---------- ---------
Net cash used in investing activities (577,089) (727,891) (397,404)
---------- ---------- ---------
Financing activities:
Proceeds from issuance of common stock, net 5,900 388,995 -
Purchase of common stock (700,000) (438,517) -
Outstanding checks in excess of bank balance (74,662) 54,003 (184,549)
Proceeds from notes payable to banks and
long-term borrowings, net of financing costs 8,944,678 8,665,285 6,382,500
Principal payments on current
and long-term borrowings (8,565,707)(7,745,628)(6,762,911)
---------- ---------- -----------
Net cash (used in) provided by
financing activities (389,791) 924,138 (564,960)
--------- ---------- -----------
Increase (decrease) in cash
and cash equivalents 58,073 (51,818) 45,569
Cash and cash equivalents
at beginning of year - 51,818 6,249
--------- --------- ---------
Cash and Cash Equivalents
at End of Year $58,073 $- $51,818
========= ========= =========
Non-cash items:
Equipment purchased through
bank and other financing sources $207,282 $284,831 $155,478
Non-cash financing of insurance - - 158,174
Common stock issued for services rendered - - 5,000
The accompanying notes are an integral part of the consolidated financial
statements
F-6
OP-TECH Environmental Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Basis of Presentation
OP-TECH Environmental Services, Inc., headquartered in Syracuse, NY, provides
comprehensive environmental services predominately in New York, Western New
England, Northern Pennsylvania, New Jersey, and Northern Ohio. The Company
performs a wide range of environmental remediation services including
industrial cleaning of non-hazardous materials, varying services relating to
plant facility closure including demolition and asbestos services, remediation
services for sites contaminated by hazardous materials, and emergency spill
response services.
OP-TECH AVIX, Inc. is a subsidiary of OP-TECH Environmental Services, Inc.
formed in January 2002 to pursue and engage in diversified lines of business
including asset management services.
OP-TECH Environmental Services, Ltd. is an inactive Canadian subsidiary of OP-
TECH Environmental Services, Inc.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of OP-
TECH Environmental Services, Inc. and its two wholly-owned subsidiaries
(collectively, the "Company"). 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 the 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.
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. Project costs include
all direct material and labor costs and those indirect costs related to
contract performance, and are generally billed in the month they are incurred
and are shown as current assets. General and administrative costs are charged
to expense as incurred.
Revenues recognized in excess of amounts billed are recorded as a current
asset. Deferred revenue resulting from billings that exceed costs and
estimated profit is reflected as a current liability.
Provisions for estimated losses are made in the period in which such losses
are determined.
Normal delays relating to payroll processing and billing compilation typically
cause customer invoices relating to services performed in a certain month to
be billed in the first two weeks of the following month. Such unbilled
amounts at December 31, 2003 and 2002 are included in accounts receivable.
Concentration of Business Risk - Significant Customers
Sales to one customer, other than an affiliated party, amounted to
approximately $2,265,000, $5,600,000, and $3,435,000 in 2003, 2002 and 2001,
respectively. Accounts receivable at December 31, 2003 and 2002 include
$1,007,000 and $1,350,000 respectively, from this customer.
F-7
1. Summary of Significant Accounting Policies (Continued)
Receivables and Credit Policies
Accounts receivable are unsecured customer obligations due under normal trade
terms requiring payment within 30 days from the invoice date. Interest is not
accrued on past-due invoices. Accounts receivable are stated at the amount
billed to the customer. Payments of accounts receivable are allocated to the
specific invoices identified on the customer's remittance advice. Customer
account balances with invoices dated over 90 days old are considered
delinquent.
The carrying amount of accounts receivable is reduced by a valuation allowance
that represents management's best estimate of the amounts that will not be
collected. Management individually reviews all accounts receivable balances
that exceed 90 days from invoice date and, based on assessment of current
creditworthiness, estimates the portion, if any, of the balance that will not
be collected. Additionally, management applies a two-year weighted average of
write-offs to the aggregate remaining accounts receivable to estimate a
general allowance covering those amounts. The weighted average is adjusted
for management's estimate of any changes in future economic conditions that
might give rise to results that differ from past experience.
Inventory
Inventories, consisting of spill response and remediation supplies and
materials, are stated at the lower of cost or market value. Cost is
determined using the first-in, first-out method.
Property and Equipment
Property and equipment are stated at cost. Expenditures for repairs and
maintenance are charged to expense as incurred. Depreciation of assets
including those recorded under capital leases is provided for using the
straight-line method over useful lives typically ranging from 3 to 15 years.
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.
Financial Instruments
The Company maintains various financial instruments in the ordinary course of
business, which consist of cash, accounts receivable and payable, notes
payable, long-term debt and line of credit. The carrying value of the
Company's financial instruments approximates their fair value at December 31,
2003 and 2002. The fair values of notes payable and long-term debt are
determined using incremental borrowing rates available to the Company for
similar types of borrowings. All other financial instruments are short-term
in nature and their fair values are based on the amounts that they have been
or will be settled for subsequent to the balance sheet date.
Income Taxes
The Company provides for income taxes in accordance with the liability method
as set forth in Statement of Financial Accounting Standards ("SFAS") 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.
F-8
2. Earnings per Share
Basic earnings per share is computed by dividing net income by the weighted
average shares outstanding for the period, which were 15,356,933, 14,273,139,
and 11,641,771 for the years ended December 31, 2003, 2002 and 2001,
respectively. Basic earnings per share is computed by dividing net income by
the weighted average shares outstanding. Diluted earnings per share includes
the potentially dilutive effect of common stock equivalents.
Warrants were issued to a financial advisor in May 2002 to purchase 480,000
shares of common stock at $0.066 per share, expiring in May 2007.
In May 2002, a private offering of the Company's common stock was made under
Regulation D, Rule 506 of the Securities Act of 1933, as amended. Form D,
Notice of sale of securities pursuant to regulation D, was filed with the
Securities and Exchange Commission on June 13, 2002. The placement agent of
the offering was Benchmark-Pellinore Securities Corp. The offering resulted
in the sale of 7,999,994 shares of the Company's common stock at $0.06 per
share to twenty-one accredited investors. Gross proceeds from the offering
were approximately $480,000. Expenses and fees, including an underwriting
commission paid to Benchmark-Pellinore Securities Corp. of $48,000, aggregated
approximately $91,000. Net proceeds of the offering were approximately
$389,000. Management used the proceeds from the offering to purchase and
retire 4,385,170 shares of common stock from the Company's two largest
shareholders.
On August 2, 2002, the Company purchased and retired 4,385,170 shares of its
common stock from the Company's two largest shareholders. 2,811,070 shares
were purchased from M&T Bank for $.10 per share, or $281,107. 1,574,100
shares were purchased from O'Brien & Gere Limited for $.10 per share, or
$157,410.
On December 30, 2003, the Company purchased the remaining 2,811,070 shares of
its common stock from M&T Bank for $.249 per share, or $700,000.
See Note 15, Subsequent Event.
3. Related Party Transactions
The Company purchases subcontract labor services from St. Lawrence Industrial
Services, Inc. which is owned by a director of the Company. The cost for
these services amounted to approximately $1,210,000, $880,000, and $886,000 in
2003, 2002 and 2001, respectively.
A director of the Company is of counsel to Rubin, Bailen, Ortoli, Mayer &
Baker, LLP, formerly Spitzer & Feldman PC, which provides professional
services to the Company, and it is anticipated that it will continue to do so.
The cost for these services amounted to approximately $8,000, $18,000, and
$12,000 in 2003, 2002 and 2001, respectively.
The Company purchases technical services and rents certain office and
warehouse space from a shareholder and its affiliates. The cost for these
services amounted to approximately $1,000, $38,000, and $43,000 in 2003, 2002
and 2001, respectively. Additionally, the Company provided approximately
$20,000, $67,000, and $27,000 of remediation, sub-contract support and project
services to a shareholder and its affiliates for the years ending
December 31, 2003, 2002 and 2001, respectively.
F-9
4. Cash
The Company voluntarily applies all available cash in excess of $25,000 in the
Company's operating account to pay down the Company's note payable to bank
under line of credit (Note 7) daily. Outstanding checks in excess of bank
balance represent the amount of outstanding checks issued in the normal course
of business that are in excess of the remaining balance in the Company's
operating account.
5. Accounts Receivable
Accounts receivable at December 31, 2003 and 2002 consists of:
2003 2002
---------- ----------
Accounts Receivable, gross $3,573,795 $4,779,731
Allowance for uncollectible receivables (187,000) (140,000)
----------- -----------
Accounts Receivable, net $3,386,795 $4,639,731
=========== ===========
All customer accounts receivable collateralize the Company's outstanding loans
with its primary lender (see Note 7).
6. Property, Plant and Equipment
Property, plant and equipment at December 31, 2003 and 2002 consist of:
2003 2002
--------- ---------
Furniture and fixtures $22,267 $17,011
Buildings and land 893,190 907,107
Office machines 236,884 136,220
Field equipment 3,572,180 2,950,548
Aqueous treatment system 121,728 121,728
--------- ---------
4,846,249 4,132,614
Less: Accumulated depreciation (1,856,422)(1,435,006)
---------- ----------
$2,989,827 $2,697,608
========== ==========
Depreciation expense approximated $434,000, $314,000, and $327,000 for 2003,
2002 and 2001, respectively.
During the second quarter of 2001, the Company received insurance proceeds in
the amount of $308,167 related to the insured replacement value of a property
that was destroyed by a fire. The proceeds received were used to replace the
destroyed building and contents at substantially the same cost. A loss on
disposal of assets, representing the net book value of all the destroyed
assets as of the date of the fire, was recorded in the amount of $6,286.
Accordingly, the Company realized a casualty gain of $301,881 as a result of
the proceeds collected.
F-10
7. Long-Term Debt Obligations
Long-term debt at December 31, 2003 and 2002 consists of:
2003 2002
--------- ----------
Note payable to bank under line of
credit, Due May 31, 2005. (a) $1,744,473 $1,896,700
---------- ----------
Term Loans under equipment line of credit, due
in monthly installment payments aggregating
$33,748.14, plus interest at prime plus 1.25%
(5.25% at December 31, 2003).(a) 1,482,374 -
Term Loan, due in monthly installment payments
of $12,500, plus interest at prime plus 1.25%
(5.5% at December 31, 2002).(a) - 550,000
Term Loans under equipment line of credit, due in
monthly installment payments aggregating $13,823,
including interest at prime plus 1.25%
(5.5% at December 31, 2002).(a) - 649,156
Insurance Financing Note, due in monthly installment
payments of $31,821, including interest at prime
plus 1.25% (5.25% at December 31, 2003).(a) 218,833 -
Insurance Financing Note, due in monthly installment
payments of $24,327, plus interest at prime plus
1.25% (5.5% at December 31, 2002).(a) - 170,289
Stock Purchase Financing Note, due in monthly
installment payments of $9,722, plus interest at
prime plus 1.5% (5.5% at December 31, 2003).(a) 350,000 -
Equipment Notes, due in monthly installment payments
aggregating $5,110 and $4,241 at December 31, 2003
and 2002, including interest at rates ranging from
4.9% to 7.5%, collateralized by equipment with
a carrying value of approximately $145,000 and
$130,000 at December 31, 2003 and 2002, respectively. 142,613 129,075
Equipment Notes, due in monthly installment payments
aggregating $8,929 and $5,142 at December 31, 2003
and 2002, with 0% interest, collateralized by
equipment with a carrying value of approximately
$225,000 and $175,000 at December 31, 2003 and 2002,
respectively. 218,063 174,883
---------- ----------
2,411,883 1,673,403
Less: Current portion (901,336) (556,610)
---------- ----------
$1,510,547 $1,116,793
=========== ==========
(a) The Company has entered into financing agreements (the "Agreements") with
a lender including a Line of Credit agreement which provides for borrowings up
to $2,000,000, with interest at prime plus 1.25%, to be used for working
capital and expires on May 31, 2005, unless renewed by the lender.
F-11
The Agreements are collateralized by all accounts receivable, inventory and
equipment now owned or subsequently acquired. This collateral has a carrying
value at December 31, 2003 as follows:
Accounts Receivable, net of Allowance for Doubtful Accounts $3,386,795
Inventory 219,568
Equipment, net of Accumulated Depreciation 1,942,468
----------
$5,548,831
==========
The Agreements also include certain financial covenants including a minimum
fixed charge coverage ratio, a tangible net worth ratio and a debt to net
worth ratio; cross-collateralization provisions; and a material adverse change
clause which permits the financial institution to call its obligation if the
Company fails to comply with covenants, as defined, or in the event of a
material adverse change in the Company's business. Management does not
anticipate any adverse changes in the next twelve months, however, there can
be no assurances.
Interest paid amounted to approximately $190,000, $153,000, and $207,000 in
2003, 2002 and 2001, respectively.
Scheduled principal payments on long-term debt for the next five years, not
including the note payable to bank under line of credit, are as follows:
2004 $901,336
2005 651,807
2006 563,961
2007 272,728
2008 22,051
----------
$2,411,883
==========
At December 31, 2003 the Company has outstanding commitments in the form of
standby letters of credit in the amount of approximately $90,000 securing
various agreements.
8. Operating Lease Obligations
Office facilities and various field equipment are leased under noncancelable
operating leases expiring at various dates through 2007. Rent expense
incurred under these operating leases amounted to approximately $385,000,
$456,000, and $519,000 in 2003, 2002 and 2001, respectively. Future minimum
lease payments under noncancelable operating leases are as follows:
2004 $268,415
2005 245,195
2006 148,345
2007 69,267
2008 10,286
Thereafter -
-------
$741,508
========
F-12
9. Income Taxes
The following summarizes the income tax (benefit) expense at December 31,
2003, 2002 and 2001:
2003 2002 2001
--------- -------- ---------
Current:
Federal $- $- $-
State 26,000 - 13,000
-------- -------- --------
26,000 - 13,000
Deferred (1,503,662) - -
--------- -------- --------
$(1,477,662) $- $13,000
============ ======== ========
In 2003, 2002 and 2001, 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 adjustment of the valuation allowance related
to recognition of net operating loss carryforwards.
At December 31, 2003, the Company has federal net operating loss ("NOL")
carryforwards of approximately $5,448,000 for income tax purposes. The
federal net operating loss carryforward expires at various times beginning in
2009 through the year ending December 31, 2019. Income taxes and franchise
taxes paid were approximately $12,000 and $13,000 in 2003 and 2002,
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. At December 31, 2002,
the Company 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, 2003 and 2002 are as follows:
2003 2002
----------- -----------
Deferred tax liabilities:
Depreciation $(155,835) $-
Accrued expenses (27,344) -
---------- ----------
(183,179) -
---------- ----------
Deferred tax assets:
Net operating loss carryforward 2,124,548 2,220,016
Accounts receivable reserve 72,844 54,472
Accrued expenses - 169,063
AMT tax credits 4,787 -
---------- -----------
2,202,179 2,443,551
---------- -----------
Net Deferred tax asset 2,019,000 2,443,551
Valuation allowance for deferred assets (500,000) (2,443,551)
---------- -----------
Net deferred tax asset, net
of valuation allowance $1,519,000 $-
=========== ===========
In the fourth quarter of 2003 the Company recognized a portion of the net
operating loss carryforwards by reducing the valuation allowance recorded in
prior years. The Company believes that it is more likely than not that the
taxable income in future years will be sufficient to utilize a portion of
these loss carryforwards. Minimum taxable income is anticipated to be
approximately $250,000 per year to enable utilization of these losses.
F-13
10. Employee Benefit Plan
The Company maintains a defined contribution employee retirement plan
("Retirement Plan") which covers substantially all employees. The Retirement
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. Matching contributions
made by the Company to the Retirement Plan were approximately $17,000,
$16,000, and $26,000 in 2003, 2002 and 2001, respectively. The Company did
not make discretionary contributions to the Retirement Plan in 2003, 2002 and
2001.
11. Stock Option Plan
The 2002 Omnibus Plan ("Omnibus Plan") maintained by the Company is intended
to promote the growth and general prosperity of the Company by offering
incentives to its key employees who are primarily responsible for the growth
of the Company and to attract and retain qualified employees. Awards granted
under the Plan may be (a) Stock Options which may be designated as Incentive
Stock Options intended to qualify under Section 422 of the Internal Revenue
Code of 1986, or Nonqualified Stock Options ("NQSO's) not intended to so
qualify; (b) stock appreciation rights; (c) restricted stock awards; (d)
performance awards; or (e) other forms of stock-based incentive awards.
The shares of stock with respect to which the Awards may be granted shall be
the common stock, par value at $0.01, of the Company ("Common Stock"). Shares
delivered upon exercise of the Awards, at the election of the Board of
Directors of the Company, may be stock that is authorized but previously
unissued or stock reacquired by the Company, or both. The maximum number of
shares with respect to which the Awards may be granted under the Plan shall not
exceed 1,000,000 shares of Common Stock; provided, however, that such number
of shares of Common Stock may also be subject to adjustment, from time to
time, at the discretion of the Board of Directors of the Company.
Under the Omnibus Plan, on May 21, 2002 the Company granted 335,000 NQSO's.
The exercise price of each NQSO equals the market price of the Company's stock
on the date of grant ($0.06), and an NQSO's maximum term is 10 years. The
NQSO's vest and are exercisable on a three-year vesting schedule.
Under the Omnibus Plan, on February 24, 2003 the Company granted 10,000
NQSO's. The exercise price of each NQSO equals the market price of the
Company's stock on the date of grant ($0.10), and an NQSO's maximum term is 10
years. The NQSO's vest and are exercisable on a three-year vesting schedule.
Under the Omnibus Plan, on November 19, 2003 the Company granted 335,000
NQSO's. The exercise price of each NQSO equals the market price of the
Company's stock on the date of grant ($0.15), and an NQSO's maximum term is 10
years. The NQSO's vest and are exercisable on a three-year vesting schedule
F-14
A summary of the status of the Company's NQSO's granted under the Omnibus Plan
as of December 31, 2003 and 2002, and changes during the years ending on those
dates follows:
Shares Exercise Price
Outstanding at December 31, 2001 - -
Granted May 21, 2002 335,000 $0.06
Exercised - -
Forfeited - -
Expired - -
--------- ----------
Outstanding at December 31, 2002 335,000 $0.06
Granted February 24, 2003 10,000 $0.10
Granted November 19, 2003 335,000 $0.15
Exercised (98,328) $0.06
Forfeited - -
Expired - -
--------- ------------
Outstanding at December 31, 2003 581,672 $0.06 - 0.15
--------- ------------
Options exercisable at December 31, 2003 13,339 $0.06
--------- ------------
The Company applies APB Opinion 25 and related Interpretations in accounting
for its Omnibus Plan. Accordingly, no compensation cost has been recognized
for the NQSO's granted on May 21, 2002, February 24, 2003 and November 19,
2003. Had compensation cost for the Company's Omnibus Plan been determined
based on the fair value at the grant dates for awards under the Omnibus Plan
consistent with the method of FASB Statement 123, the Company's net income and
earnings per share for the year ended December 31, 2003 would not be
materially different from the amounts reported.
12. 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.
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.
F-15
13. Financial Information Concerning Segment Reporting
The Company reports its operations principally in two business segments, as
follows:
(1) OP-TECH Environmental Services, Inc. ("OP-TECH") engages in diversified
and comprehensive environmental remediation services for customers located
primarily in the northeastern United States.
(2) OP-TECH AVIX, Inc. ("AVIX"), a subsidiary of OP-TECH, was formed in
January 2002 to pursue and engage in diversified lines of business including
asset management services.
Segment data for the year ended December 31, 2003 follows:
OP-TECH AVIX Total
----------- -------- ------------
Project billings and services
to external customers $14,944,051 $93,837 $15,037,888
Intersegment project billings
and services - - -
----------- --------- -----------
Total Project billings and services $14,944,051 $93,837 $15,037,888
----------- --------- -----------
Operating earnings (loss) $713,164 $(37,433) $675,731
Interest expense (178,846) (11,861) (190,707)
Other income, net (3,655) - (3,655)
----------- --------- -----------
Earnings (loss) before income taxes $530,663 $(49,294) $481,369
----------- --------- -----------
Total assets $7,658,452 $27,565 $7,686,017
Depreciation and amortization 443,125 1,237 444,362
Capital expenditures 750,299 - 750,299
Segment data for the year ended December 31, 2002 follows:
OP-TECH AVIX Total
----------- -------- ------------
Project billings and services
to external customers $15,081,710 $11,342 $15,093,052
Intersegment project billings
and services - - -
----------- --------- -----------
Total Project billings and services $15,081,710 $11,342 $15,093,052
----------- --------- -----------
Operating earnings (loss) $903,670 $(192,389) $711,281
Interest expense (159,733) (7,809) (167,542)
Other income, net 9,927 - 9,927
----------- --------- -----------
Earnings (loss) before income taxes $753,864 $(200,198) $553,666
----------- --------- -----------
Total assets $8,114,089 $16,050 $8,130,139
Depreciation and amortization 316,143 1,237 317,380
Capital expenditures 1,006,777 5,945 1,012,722
F-16
14. Two-Year Selected Quarterly Financial Data (Unaudited)
Year Ended December 31, 2003
Quarter Quarter Quarter Quarter
Ended Ended Ended Ended
March 31 June 30 Sept 30 Dec 31
-------- ------- --------- ---------
Project billings $3,316,218 $4,170,620 $3,794,519 $3,756,531
Gross margin 1,044,539 1,202,234 1,212,228 1,179,799
Net income (loss) (84,767) 229,851 179,897 1,634,050
Net income (loss) per
share (basic and dilutive) $(0.01) $0.02 $0.01 $0.10
In the fourth quarter of 2003 the Company reduced the valuation allowance
related to deferred tax assets recorded in prior years by $1,943,551. See
Note 9.
Year Ended December 31, 2002
Quarter Quarter Quarter Quarter
Ended Ended Ended Ended
March 31 June 30 Sept 30 Dec 31
-------- ------- --------- ---------
Project billings $3,080,364 $3,644,734 $3,728,173 $4,639,781
Gross margin 918,727 965,984 1,149,473 1,368,468
Net income 2,133 138,038 194,368 219,127
Net income per
share (basic and dilutive) $0.00 $0.01 $0.01 $0.02
15. Subsequent Event
On March 16, 2004 the Company purchased and retired 1,000,000 shares of its
common stock from O'Brien & Gere Limited for $.25 per share, or $250,000. The
purchase was financed with a note payable to the Company's primary lender in
monthly installments through February 2009.
F-17
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Balance at Balance at
Beginning End of
Description of Period Additions Deductions Period
- ---------------------------------- --------- --------- ---------- -------
YEAR ENDED DECEMBER 31, 2003
Reserves deducted from assets to
which they apply:
Doubtful accounts receivable $140,000 $110,682 $63,682(a) 187,000
Valuation allowance for
deferred assets $2,443,551 $- $1,943,551 $500,000
YEAR ENDED DECEMBER 31, 2002
Reserves deducted from assets to
which they apply:
Doubtful accounts receivable $194,782 $43,805 $98,587(a) $140,000
Valuation allowance for
deferred assets $2,547,663 $- $104,112 $2,443,551
YEAR ENDED DECEMBER 31, 2001
Reserves deducted from assets to
which they apply:
Doubtful accounts receivable $149,346 $135,999 $90,563(a) $194,782
Valuation allowance for
deferred assets $3,052,710 $- $505,047 $2,547,663
(a) Doubtful accounts written off and adjustments.
F-18
EXHIBIT 14 - CODE OF ETHICS FOR SENIOR OFFICERS
The Company's CEO, COO and CFO hold important and elevated roles in corporate
governance. They are uniquely capable and empowered to ensure that the
shareholder's and Company's interests are protected and preserved.
This Code of Ethics provides principles to which these officers are expected
to adhere and which they are expected to advocate.
This Code of Ethics has been approved by the Audit Committee.
Any change to this Code of Ethics and any explicit or implicit waiver from it
for these officers may be made only with the approval of the Audit Committee
and will be appropriately disclosed in accordance with applicable law and
regulations. Violations may subject these officers to disciplinary action
including termination of employment.
The CEO, COO and CFO will:
1. act with honesty and integrity, including ethically handling actual or
apparent conflicts of interest between their personal, financial or commercial
interests and their responsibility to the Company;
2. make full, fair, accurate, timely and understandable disclosure in all
reports and documents that the Company files with or submits to shareholders,
government authorities and stock exchanges or otherwise makes public;
3. act on good faith, responsibly, with due care, competence and diligence,
without misrepresenting material facts or allowing their independent judgment
to be subordinated;
4. respect the confidentiality of information acquired in the course of their
work except when authorized or otherwise legally obligated to disclose and not
use such confidential information for personal advantage;
5. comply with all laws and regulations applicable to the Company's businesses
and to the Company's relationship with its shareholders;
6. report known or suspected violations of this Code of Ethics to the Audit
Committee, and
7. ensure that their actions comply not only with the letter but the spirit of
this Code of Ethics and foster a culture in which compliance with the law and
the Company's policies is at the core of the Company's activities.
E-1
EXHIBIT 21 - SUBSIDIARIES OF THE COMPANY
The listing below includes the subsidiaries of OP-TECH Environmental Services,
Inc. ("OP-TECH"). All subsidiaries are owned 100% by OP-TECH. OP-TECH does
not have ownership interests in any special purpose entities that are not
included in the consolidated financial statements.
1. OP-TECH AVIX, Inc. (NY)
2. OP-TECH Environmental Services, Ltd. (Canada)
E-2
EXHIBIT 31 - CERTIFICATIONS
Certification of Chief Executive Officer
I, Christopher J. Polimino, certify that:
1. I have reviewed this annual report on Form 10-K of OP-TECH Environmental
Services, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15e and 15d-15e) and internal control over financial
reporting (as defined in Exchange Act Rules 13a - 15f and 15d - 15f) for the
registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's fourth fiscal
quarter that has materially affected, or is reasonable likely to materially
affect, the registrant's internal control over financial reporting.
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or
operation of internal controls over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls
over financial reporting.
Date: March 29, 2004
/s/ Christopher J. Polimino
Christopher J. Polimino
President and Chief Executive Officer
E-3
Certification of Chief Financial Officer
I, Douglas R. Lee, certify that:
1. I have reviewed this annual report on Form 10-K of OP-TECH Environmental
Services, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15e and 15d-15e) and internal control over financial
reporting (as defined in Exchange Act Rules 13a - 15f and 15d - 15f) for the
registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's fourth fiscal
quarter that has materially affected, or is reasonable likely to materially
affect, the registrant's internal control over financial reporting.
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or
operation of internal controls over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls
over financial reporting.
Date: March 29, 2004
/s/ Douglas R. Lee
Douglas R. Lee
Chief Financial Officer and Treasurer
E-4
EXHIBIT 32 - SECTION 1350 CERTIFICATIONS
Certifications Pursuant to 18 U.S.C. Section 1350 As Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
I, Christopher J. Polimino, President and Chief Executive Officer of OP-TECH
Environmental Services, Inc. (the "Company"), certify, pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:
(1) the Annual Report on Form 10-K of the Company for the year ended December
31, 2003 (the "Report") fully complies with the requirements of Section 13(a)
or 15(d) of the Securities Exchange Act of 1934, as amended (15 U.S.C. 78m or
78o(d)); and
(2) the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
Date: March 29, 2004
/s/ Christopher J. Polimino
Christopher J. Polimino
President and Chief Executive Officer
I, Douglas R. Lee, Chief Financial Officer and Treasurer of OP-TECH
Environmental Services, Inc. (the "Company"), certify, pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:
(1) the Annual Report on Form 10-K of the Company for the year ended December
31, 2003 (the "Report") fully complies with the requirements of Section 13(a)
or 15(d) of the Securities Exchange Act of 1934, as amended (15 U.S.C. 78m or
78o(d)); and
(2) the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
Date: March 29, 2004
/s/ Douglas R. Lee
Douglas R. Lee
Chief Financial Officer and Treasurer
E-5
EXHIBIT 33 - EMPLOYMENT AGREEMENT OF CHRISTOPHER J. POLIMINO
THIS AGREEMENT, made as of the 1St day of January, 2003 by and between OP-TECH
ENVIRONMENTAL SERVICES, NC., a Delaware corporation (hereinafter referred to
as the "Company") and CHRISTOPHER POLIMINO (of 8817 Waterview Circle, Cicero
New York 13039) (hereinafter referred to as the "Executive").
WITNESSETH:
In consideration of the mutual covenants herein contained, the parties hereto
agree as follows:
1. EMPLOYMENT The Company hereby employs Executive as President and chief
executive officer of the Company, subject only to the direction and control of
the Company's Board of Directors and no other person, and in such executive
and managerial capacities not inconsistent therewith as may be determined by
or under the authority of its Board of Directors, and Executive hereby accepts
such employment by the Company. During the period of his employment hereunder,
Executive shall devote his entire business time attention to the business of
the Company, not engaging in any outside business activities requiring the
devotion by him of such time and attention as shall materially interfere with
the performance of his duties hereunder (except to the extent prohibited and
permitted by Section 8 hereof). The Executive is permitted to participate in
charitable and trade association activities.
Executive agrees to serve the Company faithfully and to the best of his
ability under the direction and control of the Board of Directors of the
Company. The services to be rendered by Executive as chief executive officer
shall be rendered primarily in Syracuse, New York, or in such other place
within the continental United States where, with the consent of the Executive,
the principal executive offices of the Company are located.
2. TERM The term of this Agreement shall commence as of the date hereof and
shall terminate on December 31, 2004, unless sooner terminated as hereinafter
provided. Thereafter this Agreement shall be automatically renewed on a year-
to-year basis unless either party elects not to renew this Agreement upon not
less than thirty (30) days written notice to the other, prior to the end of
the Employment Period or any renewal term thereafter.
3. COMPENSATION The Company shall pay Executive and Executive shall accept
from the Company in full payment for any and all services rendered by him
hereunder, including, without limitation, all services as an officer and or
director of the Company, its subsidiaries and/or parent corporation, a salary
at an annual rate of One Hundred Seventy Five Thousand Dollars ($175,000) for
the term of this Agreement, payable in accordance with the customary
payroll practices of the Company (but not less often than monthly), which
salary shall be payable from the date hereof.
4. VACATION AND FRINGE BENEFITS Executive shall be entitled to paid vacations
during the term hereof to be taken at such time or times and for such duration
as he shall determine, not to exceed four (4) weeks in any twelve (12) month
period. All so-called "fringe benefits" in the nature of pension plans,
profit sharing plans, hospitalization insurance, health and accident
insurance, disability insurance, and the like which may be provided by the
Company for its executive employees during the tenure of employment, will be
extended to Executive on a basis comparable to that provided for other
executives whose salary and responsibilities are comparable to Executive and
for which Executive qualifies.
E-6
5. TERMINATION FOR CAUSE
(a) Except as otherwise specifically provided herein, the Company shall have
the right to terminate Executive's employment hereunder only for cause, as such
term is defined. For purposes of this Agreement, the term "cause" shall mean
(i) fraud, misappropriation, embezzlement or intentional and material damage
to property of the Company, (ii) chronic addiction to alcohol or narcotic drugs
or narcotic stimulants, and (iii) material breach by Executive of the
provisions of this Agreement and failure to cure such breach within five (5)
days after receipt of written notice thereof.
(b) Anything in this Agreement to the contrary notwithstanding, Executive may
terminate this Agreement by written notice to the Company if the Company
should (a) materially breach the provisions of this Agreement and shall fail
to cure such breach within five (5) days after receipt of written notice
thereof (b) a change in control of the Company as defined in paragraph 12 or
(c) for Good Reason as defined in paragraph 13.
6. OTHER TERMINATION
(a) In the event of the death of Executive during the term of this Agreement,
this Agreement shall terminate on the date of death.
(b) If, during the term of this Agreement, Executive contracts an illness or
other injury which prevents performance by him of his duties as chief executive
officer for (i) a consecutive period of six (6) months or more, or (ii) an
aggregate period of nine (9) months or more in any twelve (12) month period,
then the Company, at its option, may at any time thereafter terminate this
Agreement by serving ten (10) days' notice thereof on Executive and this
Agreement shall terminate and come to an end upon the date set forth in said
notice as if such date were the termination date of this Agreement, provided,
however, that if prior to the date specified in such notice, Executive's
illness or incapacity shall have been terminated and he is physically and
mentally able to perform his duties as chief executive officer and shall have
taken up and be performing such duties on a full-time basis, he shall be
entitled to resume employment hereunder as though such notice had not been
given.
(c) During the period from the commencement of said disability until
termination of this Agreement as in this Section 6 provided, Executive shall
continue to be paid in full by the Company in accordance with the provisions
of Section 3 of this Agreement, except that the Company shall deduct from
Executive's aggregate compensation as therein provided an amount equal to any
disability insurance payments received by Executive for such period pursuant
to disability insurance policies paid for and maintained by the Company for
the benefit of Executive.
7. LIMITATIONS ON COMPENSATION Upon termination of this Agreement in
accordance with the provisions of paragraph 5(a) hereof, Executive shall
receive no further compensation hereunder (other than accrued benefits under
pension and profit sharing plans, if any) and shall be completely relieved of
his position as chief executive officer of the Company and any other position
and/or office he holds in the Company, its subsidiaries and its parent.
8. PROHIBITED ACTIVITIES During his employment hereunder, Executive, without
the prior authorization by formal action of the Board of Directors of the
Company, shall neither invest directly or indirectly in any corporation,
partnership, sole proprietorship or other entity which supplies goods or
services to the Company or to any of its subsidiaries and/or affiliates nor
shall Executive, directly or indirectly, individually or as an employee,
partner, shareholder, director, officer or investor (whether by way of debt or
equity investment) of, or in any partnership, corporation, firm, association,
enterprise or other entity, engage, in the United States of America or in
Canada, in the environmental services business. As used herein, the
term "environmental services business" shall mean the business that is
conducted currently by the Company or is engaged in by the Company at any time
during the term of Executive's Employment with the Company; except that the
Executive may invest in any publicly held corporation whose stock is listed on
a national stock exchange or is regularly traded in the over-the-counter
market, provided that such investment and the investment of Executive's wife
and Executive's children, during their respective minorities, and trusts for
such minor children during their respective minorities, shall not exceed in
the aggregate one (1%) percent of the issued and outstanding capital stock of
such corporation; and further provided that Executive's, Executive's wife and
Executive's minor children's only relationship with or to any such corporation
is that of a stockholder.
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9. CONFIDENTIAL INFORMATION Executive will not at any time either during the
term of this Agreement or thereafter, except as authorized by the Company for
its benefit, divulge, furnish or make accessible to any person, firm,
corporation or other entity any information not otherwise publicly available
which he presently possesses or which he my obtain during the course of his
employment with respect to the business, products, customers and affairs of
the Company, or trade secrets, developments, know-how, mailing lists, methods
or other information and data pertaining to the Company's practices,
processes, equipment, products, developments or business or any confidential
or secret aspect of the business of the Company and/or any subsidiary or
parent of the Company, and that all such matters and information shall be kept
strictly and absolutely confidential. Executive, upon the termination of his
employment, irrespective of time, manner or cause of termination will
surrender and deliver to the Company all lists, including, without limitation,
mailing lists, books, records and data of every kind relating to or in
connection with the customers and business of the Company and/or any
subsidiary or affiliate of the Company, and all property belonging to the
Company and/or any subsidiary or affiliate of the Company.
10. INTELLECTUAL PROPERTIES The Executive shall communicate, disclose, make
known and assign to the Company, all knowledge possessed by him relating to
any methods, developments, inventions, discoveries and/or improvements,
whether patented, patentable or unpatentable which is used in or is related to
the business of the Company, from the time of entering upon employment until
the termination thereof, and whether acquired or conceived of by the Executive
before or during the term hereof. The Executive shall also, on request,
execute patent applications based on such methods, developments, inventions,
discoveries and/or improvements including any other instrument deemed
necessary by the Company for the prosecution of such patent applications or
the acquisition of Letters Patent in this and any foreign countries.
11. COVENANT NOT TO COMPETE In the event that Executive is terminated for
cause or Executive voluntarily leaves his employment prior to the expiration
of the term of this Agreement (other than pursuant to Section 13 hereof) or
Executive elects not to renew this Agreement under Section 2 hereof, Executive
covenants and agrees that for a period of one (1) year after he ceases to be
employed by the Company, he, as a proprietor, partner, investor, shareholder,
director, officer, employee, consultant, independent contractor or otherwise,
will not, directly or indirectly, solicit business from the Company's
customers, or directly or indirectly, solicit for employment any of the
Company's employees or otherwise engage in the environmental remediation
business as then conducted by the Company in regions seven and six as
designated by the New York Department of Environmental Protection. For
purposes of this paragraph, the term "customers" means all Persons to whom
or to which the Company has sold any product or service whether or not for
compensation within a period of three (3) years prior to the time Executive
ceases to be employed by the Company. For purposes of this Section of the
Agreement, the term "Persons" means any individual, corporation, partnership,
limited liability company or other entity.
12. CHANGE IN CONTROL-DEFINITION In the event of a change in control of the
Company, as defined herein, benefits will be paid to Executive in accordance
with Section 13 below. For the purposes of this Agreement, a "change in
control of the Company" shall mean a change in control of the nature that
would be required to be reported in response to Item 6(e) of schedule
14A of Regulation 14A promulgated under the Securities Exchange Act of 1934,
as amended ("Exchange Act"); provided that, without limitation, such a change
in control shall be deemed to have occurred (i) if any "person" (as such term
is used in Sections 13(d) and 14(d)(2) of the Exchange Act) after the date
hereof becomes the beneficial owner, directly or indirectly by acquisition, or
otherwise, of securities of the Company representing fifty (50%) percent or
more of the combined voting power of the Company's then outstanding
securities; or (ii) during any period of two consecutive years, individuals
who at the beginning of such period constituting the Board of Directors of the
Company cease for any reason to constitute at least a majority thereof, unless
the election, or the nomination for election by the Company's shareholders, of
each new director was approved by a vote at least two-thirds of the directors
then still in office who were directors at the beginning of the period.
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13. CHANGE OF CONTROL-GOOD REASON TERMINATION
(a) In the event of a change in control of the Company as described in Section
12 hereof shall have occurred, Executive shall be entitled within one (1) year
after the occurrence of a change in control of the Company to terminate his
employment for Good Reason. For purposes of this Agreement, "Good
Reason" shall mean:
(i) without Executive's written consent, the assignment to Executive of
any duties inconsistent with Executive's positions, duties, responsibilities
and status with the Company immediately prior to a change in control, except
in connection with termination of Executive's employment for cause or
disability or as a result of Executive's death or by Executive other than for
Good Reason;
(ii) a reduction by the Company in Executive's base salary with the
Company as in effect on the date hereof or as the same may be increased
from time to time;
(iii) the Company requiring Executive to be based anywhere other than
the offices at which Executive was based immediately prior to a change in
control except for required travel on Company business to an extent
substantially consistent with Executive's present business travel obligations,
or, in the event Executive consents to such relocation, the failure by the
Company to pay (or reimburse Executive for) all reasonable moving expenses
incurred by Executive relating to a change of Executive's principal residence
in connection with such relocation and to indemnify Executive against any loss
(defined as the difference between the actual sale price of such residence and
the highest of a (a) Executive's aggregate investment in such residence, or (b)
the fair market value of such residence by the average of two real estate
appraisers, one of which is to be designated by Executive and the other by the
Company realized in the sale of Executive's principal residence in connection
with any such change of residence);
(iv) the failure by the Company to continue in effect any material benefit or
compensation plan, stock option plan, pension plan, life insurance plan,
medical and dental plan, personal accident plan or disability plan in which
Executive is participating at the time of a change in control of the Company
(or plans providing Executive with substantially similar benefits) (the
"Plans"), taking of any action by the Company which would adversely affect
Executive's participation in or materially reduce Executive's benefits under
any such Plans or deprive Executive of any material fringe benefit enjoyed by
Executive at the time of the change in control (including, but not limited to,
use of a company car), or the failure by the Company to provide Executive with
the number of paid vacation days to which Executive is then entitled on the
basis of years of service with the Company in accordance with the normal
vacation policy of the Company in effect on the date hereof, or if the Company
should materially breach the provisions of this Agreement and shall fail to
cure such breach within five (5) days after receipt of written notice thereof.
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(b) Any termination by Executive pursuant to this Section 13 shall be
communicated by written Notice of Termination to the Company. For purposes
of this Agreement, a "Notice of Termination" shall mean a notice which shall
indicate the specific termination provision in this Agreement relied upon and
shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of Executive's employment under the
provisions so indicated.
(c) "Date of Termination" shall mean the date specified in the Notice of
Termination; provided that if within thirty (30) days after any Notice of
Termination is given by the Executive, the Company notifies the Executive
that a dispute exists concerning the termination, the Date of Termination shall
be the date on which the dispute is finally determined, either by mutual
written agreement of the parties, by a binding and final arbitration award or
by a final judgment, order of decree of a court of competent jurisdiction (the
time for appeal therefrom having expired and no appeal having been perfected).
(d) If Executive shall terminate his employment for Good Reason, or this
agreement is terminated by the Company for other than "cause", then the
Company shall pay Executive as a severance in a lump sum on the fifth day
following the Date of Termination, the following amounts:
(i) Executive's full base salary through the Date of Termination at the
rate in effect at the time the Notice of Termination is given and an amount
equal to the amount, if any, of the deferred portion of any awards which
pursuant to the Plans have accrued to Executive whether vested or unvested,
but which have not yet been paid to Executive;
(ii) in lieu of any further salary payments to Executive for periods,
subsequent to the Date of Termination, an amount equal to the product of (a)
the sum of (a) Executive's annual base salary at a rate in effect as of the
Date of Termination and the greater of (b) the amount awarded to Executive
under the Annual Incentive Bonus Plan for the performance year most recently
ended (whether or not fully paid) or the mean average amount of bonus
awarded to Executive under the Annual Incentive Bonus Plan during the two
(2) years most recently ended (whether or not fully paid), multiplied by three
(3); and
(iii) the Company shall also pay all relocation and indemnity payments as set
forth in Section 13 hereof, and all legal fees and expenses incurred by you as
a result of such termination (including all such fees and expenses, if any,
incurred in contesting or disputing any such termination or in seeking to
obtain or enforce any right or benefit provided by this Agreement).
(e) The Company shall maintain in full force and effect, for the continued
benefit of Executive, all employee benefit plans and programs or arrangements
in which Executive was entitled to participate immediately prior to the Date of
Termination, including but not limited to any life insurance policies or death
benefit agreements or arrangements under the Company deferred compensation
plan, provided that Executive's continued participation is possible under the
general terms and provisions of such plans and programs, or the laws
applicable thereto, until the earlier of (a) three (3) years after the
Date of Termination or (b) such time as Executive secures new full time
employment and comparable benefits pursuant to that employment have
commenced. In the event that Executive's participation in any such plan or
program is barred, the Company shall arrange to provide Executive with
benefits substantially similar to those which Executive would have been
entitled to receive under such plans and programs had Executive remained
employed by the Company. At the end of the period of coverage, Executive
shall have the option to have assigned to Executive at no cost and with no
apportionment of prepaid premiums, any assignable insurance policy owned
by the Company and relating specifically to Executive.
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(f) With respect to the 401(k) Plan, the benefit to which Executive shall be
entitled under this Section 13 shall be a lump sum cash payment equal to one
(1) times the amount of matching contribution paid by the Company during the
calendar year immediately preceding Executive's Date of Termination.
(g) Executive shall not be required to mitigate the amount of any payment
provided for in this paragraph 13 by seeking other employment or otherwise,
nor shall the amount of any payment provided for in this paragraph 13 be
reduced by the Company after the Date of Termination, or otherwise, except
as specifically provided in subparagraph (e) above.
(h) If the Executive's employment is terminated due to (i) the occurrence of
a change of control of the Company or a change in control occurs within one
year the occurrence of a change in control of the Company after the
employment or the Executive is terminated; then (A) the Company shall pay to
the Executive in a lump sum payment on the effective date of the termination
of the Executive's Employment (the "Termination Date") an amount equal to
the sum of three times the Executive's annualized includible compensation for
the base period, as such may be defined in ss.280G of the Internal Revenue
code of 1986, as amended (or the regulations promulgated thereunder) (the
"Code") minus one dollar (it being the intent of this provision that the
Executive receive the maximum compensation payable under the Code in
such circumstances that is deductible to the Company and which doe not
trigger the excise tax contemplated by the Code for excess parachute
payments
(i) In the event of any termination other than "for cause" or by the Executive
for other than Good Reason, the Company shall transfer ownership of the
automobile provided to the Executive free and clear of all liens and
encumbrances, without cost subject to the providing to the Executive W-2 or
1099 form in the amount of the fair market value.
14. ENTIRE AGREEMENT This Agreement constitutes the entire Agreement between
the parties with respect to the subject matter hereof and there are no terms
other than those contained herein. No variation hereof shall be deemed valid
unless in writing and signed by the parties hereto and no discharge of the
terms hereof shall be deemed valid unless by full performance by the parties
hereto or by a writing signed by the parties hereto. No waiver by the Company
or the Executive of any breach by the Executive or the Company of any
provision or condition of this Agreement by him or it to be performed shall be
deemed a waiver or similar or dissimilar provisions or conditions at the same
or any prior or subsequent time.
15. NOTICES All notices and other communications hereunder shall be in writing
and shall be deemed to have been duly given if delivered personally, delivered
by overnight courier or when mailed, postage prepaid by certified mail, as
follows (or to such changed address of which notice shall have been given in
the manner herein provided):
To Executive:
Christopher Polimino
8817 Waterview Circle
Cicero, New York 13039
With a copy to:
Francis D. Stinziano
Devorsetz Stinziano Gilberti Heintz & Smith, P.C.
555 East Genesee Street
Syracuse, New York 13202
To Company:
Op-Tech Environmental Services, Inc.
6392 Deere Road
Syracuse, New York 13220-2158
Attention: Bob Berger
With a Copy to:
Mackenzie Hughes, LLP
101 South Salina Street
P.O. Box 4967
Syracuse, New York 13221-4967
Attention: Edward J. Moses
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16. BINDING AGREEMENT This Agreement shall be binding upon and inure to the
benefit of the parties hereto and the successors of the Company. This Agreement
shall not be assignable by either party. The provisions contained in Sections
8, 9, 10, 11 and 15 hereof shall survive the termination.
17. GOVERNING LAW This Agreement shall be governed in all respects by the laws
of the State of New York, where this Agreement was executed and delivered,
without giving effect to principles of conflicts of law.
18. COUNTERPARTS This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same Agreement.
19. PARAGRAPH HEADINGS. Headings and subheadings herein are for convenience of
reference only and are not of substantive effect.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
Op-Tech Environmental Services, Inc.
By: /S/ Robert Berger
Robert Berger
/S/ Christopher J. Polimino
Christopher Polimino
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