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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, 2004
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 June 30, 2004 was $8,707,034 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 14, 2005. Common stock, $.01 par value: 11,725,370
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 headquartered in Syracuse, New York, provides
comprehensive environmental and industrial cleaning and decontamination
services predominately in New York, New England, Pennsylvania, New Jersey,
and 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 2004, the Company's wholly-owned subsidiary, OP-TECH AVIX, Inc.,
became inactive. The subsidiary is no longer pursuing a separate line of
business and the Company now operates in only one business segment.
Disclosures related to 2002, 2003 and 2004 have been restated to reflect
this change.
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.
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.
3
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.
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.
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.
4
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.
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 and
Cleveland, Ohio. While operations in the Syracuse, Massena, Albany, Buffalo
and Waverly offices are substantial, the Rochester, Plattsburgh, Edison and
Cleveland operations operate at a lower volume.
5
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 2004, the Company performed services for more than
650 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, 2004, 2003, and 2002 was Emergency Spill Response
services. Emergency Spill Response accounted for 33%, 29% and 30% of
the Company's revenues for the years ended December 31, 2004, 2003, and 2002,
respectively.
During 2004, the Company had sales of approximately $3,845,000 related to a
contract with the New York State Department of Environmental Conservation,
which totaled approximately 22% 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 $9
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.
Employees
The Company has entered into a contractual co-employment agreement with a
third party provider. As of March 14, 2005, the Company had a total of
approximately 115 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.
Available Information
Our internet address is www.op-tech.us. There we make available, free of
charge, our annual report on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K, and any amendments to those reports, as soon as
reasonably practicable after we electronically file such material with the
Securities and Exchange Commission (SEC). The information found on our Web
site is not part of this or any other report we file with or furnish to the
SEC.
The public may read and copy any materials that we file with the SEC at the
SEC's Public Reference Room located at 450 Fifth Street NW, Washington, DC
20549. The public may obtain information on the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also
maintains electronic versions of our reports on its website at www.sec.gov.
6
ITEM 2. PROPERTIES
Syracuse, New York Branch and Corporate Headquarters
The Company leases approximately 21,000 square feet of office and shop space
at a rate of $7,792 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 three
support buildings on the premises.
Buffalo, New York Branch
The Company leases approximately 8,445 square feet of office and shop space at
a rate of $3,695 per month plus utilities. The term of the lease extends
through October 31, 2009 and does not include an escalation clause. The lease
contains an option for the Company to renew the lease for 60 additional
months, to October 31, 2014, at the rate of $3,695 per month plus utilities.
Rochester, New York Branch
The Company leases approximately 4,050 square feet of office and shop space at
a current rate of $2,500 per month plus utilities. The term of the lease
extends through June 30, 2007. The lease contains a rate escalation clause
which increases the monthly rent to $2,550 on July 1, 2005 and to
$2,600 on July 1, 2006.
Waverly, New York Branch
The Company leases approximately 6,400 square feet of office and shop space at
a rate of $1,800 per month plus utilities on a month-to-month basis.
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 contains a rate escalation clause
which increases the monthly rent to $4,415 on May 1, 2005.
Edison, New Jersey Branch
The Company leases approximately 2,200 square feet of office and shop space at
a rate of $2,204 per month plus utilities on a month-to-month basis.
Plattsburgh, New York Branch
The Company leases approximately 4,375 square feet of office and shop space at
a rate of $2,000 per month plus utilities. The term of the lease extends
through December 31, 2006 and does not contain an escalation clause.
7
Cleveland, Ohio Branch
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.
Equipment
The Company's owned equipment consists primarily of construction equipment
such as vacuum trucks, dump trucks, tankers, excavation equipment, utility
vehicles, pumps, generators, and compressors, some of which have been
specially modified for the Company's use. Chemical trailers and other
specialized equipment are typically leased from local equipment contractors.
8
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any litigation or governmental proceedings that
management believes could result in 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 19, 2004. 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 6,100,749 -0-
Election of Directors:
Robert J. Berger Director 6,100,749 -0-
Richard L. Elander Director 6,100,749 -0-
Cornelius B. Murphy, Jr. Director 6,100,749 -0-
Steven A. Sanders Director 6,100,749 -0-
George W. Lee Director 6,100,749 -0-
Christopher J. Polimino Director 6,100,749 -0-
There were no other matters submitted to a vote of the Company's shareholders.
9
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, 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
March 31, 2004 $0.51 $0.28
June 30, 2004 $0.75 $0.45
September 30, 2004 $0.75 $0.35
December 31, 2004 $1.01 $0.25
First quarter through
March 14, 2005 $0.65 $0.55
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 14, 2005, there were approximately 202 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.
Equity Compensation Plan Information
Number of securities Weighted-average Number of securities
to be issued upon exercise price of remaining avail for future
exercise of outstanding issuance under equity
outstanding options, options, warrants compensation plans
warrants and rights and rights (1) (excluding securities
reflected in column (a)) (1)
1)
(a) (b) (c)
Equity
compensation
plans approved by
security holders 757,013 $0.26 25,334
Equity
compensation
plans not approved
by security holders - - -
(1) As of March 14, 2005.
10
ITEM 6. SELECTED FINANCIAL DATA
Statement of Operations Data
Year Ended December 31
2004 2003 2002 2001 2000
Project Billings $18,170,103 $15,037,888 $15,093,052 $13,243,081 $13,671,025
Net Income $200,086 $1,959,031 $553,666 $511,393 $539,876
Net Income Per
Share (Basic & Diluted) $.02 $.12 $.04 $.04 $.05
Balance Sheet Data
As of December 31
2004 2003 2002 2001 2000
Total Assets $12,241,068 $9,124,305 $8,130,139 $5,671,179 $5,734,277
Long-Term Obligations $5,366,959 $4,156,356 $3,570,103 $2,365,615 $2,432,374
11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2004 the Company had cash and cash equivalents of $101,738 as
compared to $58,073 at December 31, 2003. Cash in the Company's operating
account is electronically transferred nightly to pay down the Company's
revolving line of credit in order to minimize interest expense.
At December 31, 2004, the Company had working capital of $2,767,034 compared
to working capital of $1,779,382 at December 31, 2003. The Company had a
current ratio of approximately 1.59 to 1 at the end of 2004 compared to 1.62
to 1 at the end of 2003.
Cash provided by operating activities during 2004 was $476,268 compared to
$1,024,953 during 2003. The decrease in cash provided by operating activities
in 2004 was mostly attributable to the increase in accounts receivable due to
three large projects billed in December, partially offset by an increase in
accounts payable attributable to those same projects.
The Company's net cash used in investing activities of $582,586 during 2004
was attributable to the purchase of various field and office equipment.
Cash provided by financing activities of $149,983 in 2004 was primarily due to
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. During 2004 the Company borrowed $295,000 from certain
officers and directors. These amounts including interest at 8% were repaid in
January 2005.
On January 25, 2005, the Company entered into a new loan agreement and
refinanced its revolving line of credit and several outstanding term loans.
The new line of credit agreement provides for borrowings up to $2,900,000 on a
revolving basis, collateralized by all accounts receivable, inventory and
equipment now owned or acquired later. The loan is payable on September 30,
2006, bears interest at a rate of prime plus .50 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. In addition, the Company entered into a loan agreement which
provides for borrowings up to $250,000 to be used to provide equipment
financing. Under this new loan agreement, the Company refinanced $2,087,240
of its existing term debt outstanding at December 31, 2004. The disclosures
in the financial statements have been revised to show the 2005 borrowings.
As of December 31, 2004, borrowing against the prior revolving loan aggregated
$2,347,503.
During 2004, all principal payments on the Company's debt were made within
payment terms.
As part of the refinancing, the Company has entered into an interest rate swap
agreement that has been designated as a hedge. The swap will be evaluated for
effectiveness on a quarterly basis and any ineffective portion will be charged
to earnings. The effect of the swap is to fix the rate being paid
on the new term loan at 7.80%.
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.
12
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.
In 2004, approximately $80,000 of expenses related to improving the property,
including the removal of oil tanks, were capitalized, bringing the carrying
value to $560,000.
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.
On January 26, 2005 the Company granted stock options at an exercise price of
$.40.
On February 9, 2005 options to purchase 27,663 shares of stock were exercised
at $.15 per share, or $4,149.
13
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.
CONTRACTUAL OBLIGATIONS
The Company's estimated future payments as of December 31, 2004 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 4 - 5 More than
Obligations Total one year years years 5 years
Long-term debt(1) $2,986,584 $775,671 $1,218,672 $942,545 $49,696
Note payable to bank
under line of credit(2) 2,380,375 - 2,380,375 - -
Interest Expense (3) 915,160 317,942 465,218 114,557 17,443
Operating leases(4) 929,818 387,950 504,918 36,950 -
---------- ---------- ---------- -------- ------
Total $7,211,937 $1,481,563 $4,569,183 $1,094,052 $67,139
========== ========== ========== ======== ======
1. Long-term debt represents term loans payable that mature at various dates
through February 2012. Long-term debt includes scheduled maturities but
excludes interest payments.
2. Note payable to bank under line of credit includes the scheduled maturity
on September 30, 2006, 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. Interest expense represents all interest that will become payable on the
Company's fixed and floating rate long-term debt obligations. Interest
expense assumes that the prime rate remains at the current rate of 5.5% and
that the Company's working capital line of credit remains at $2,347,503 and is
paid on its maturity date of September 30, 2006.
4. Operating leases represent office facilities and various field equipment
leased under non-cancelable operating leases expiring at various dates through
2009.
14
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, valuation allowances on deferred tax assets, 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. 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.
The Company maintains a valuation allowance on its deferred tax asset based on
the amount of net operating losses that management believes it will utilize
prior to the expiration dates of these losses. Management determines the
adequacy of this allowance by continually evaluating its ongoing profitability
and its ability to generate taxable income in the future sufficient to utilize
the net operating losses. If the profitability of the Company were to change,
it could effect the amount of net operating losses that could be utilized and
require an adjustment to the valuation allowance.
IMPACT OF RECENTLY ISSUED STATEMENTS
In December 2004, the Financial Accounting Standards Board (FASB) issued FASB
Statement No. 123R, "Share-Based Payment" (FAS123R), a revision of FASB
Statement No. 123, "Accounting for Stock-Based Compensation", which addresses
financial accounting and reporting for costs associated with stock-based
compensation. FAS 123R addresses all forms of share-based payment ("SBP")
awards, including shares issued under employee stock purchase plans, stock
options, restricted stock and stock appreciation rights. FAS 123R requires
the Company to adopt the new accounting provisions beginning in the third
quarter of 2005. The Company has not determined the transition alternative it
will use or the effect on the financial statements.
15
2004 COMPARED TO 2003
Revenues
During the year ended December 31, 2004, the Company's revenues increased 21%
to $18,170,103 as compared to $15,037,888 for the year ended December 31,
2003. The increase in revenue is due to several factors. Revenues from New
York State Department of Environmental Conservation ("NYSDEC") increased
approximately $1,580,000. The increased revenue from NYSDEC is primarily
due to a $1,200,000 soil excavation project in the Massena, NY area in the
fourth quarter of 2004. Four other large projects in 2004, including a spill
response project on the Erie Canal near Rochester, NY in December 2004, a
spill response project on the Delaware River near Philadelphia, PA in
December 2004, a spill response and remediation project on a road near Geneva,
NY in June 2004, and a train derailment spill response and remediation project
on a railroad near Ticonderoga, NY in March, 2004, aggregated revenue of
approximately $2,465,000. The Company performs several large spill response
projects every year. These large spill response projects generate revenue of
between $1,800,000 and $2,500,000 per year.
In addition, the creation and development of the sales department in 2004 has
led to significantly more opportunities and project billings throughout the
Company.
Project Costs and Gross Margin
Project costs for the year ended December 31, 2004 increased 24% to
$12,855,714 from $10,399,088 for the year ended December 31, 2003. Project
costs as a percentage of revenues increased to 71% for the year ended December
31, 2004 compared to 69% for the same period in 2003. The gross profit margin
for the year ended December 31, 2004 was 29% versus 31% for the year ended
December 31, 2003. Project costs paid to St. Lawrence Industrial Services,
Inc., a related party, amounted to approximately $838,000 in 2004 and
$1,210,000 in 2003.
The decrease in the gross margin is due to a higher volume of excavation
projects in 2004, including the $1,200,000 soil excavation project for the
NYSDEC mentioned above, compared to 2003. 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.
Selling, General, and Administrative Expenses
During the year ended December 31, 2004, selling, general, and administrative
("SG&A") expenses increased 19% to $4,727,583 compared to $3,963,069 reported
for the previous year. SG&A expenses were approximately 26% of sales for each
of the years ended December 31, 2004 and December 31, 2003.
When comparing 2004 to 2003, the overall increase in operating expenses is due
to several factors:
-Payroll expense increased 20% to $2,321,931. During the fourth quarter of
2003 and the first three quarters of 2004, new employees were added in the
Cleveland, Edison, Albany, Syracuse and Massena branch offices. Each of these
offices added new employees as a result of anticipation of increased sales
volume and long-term growth plans. In addition, over the last 12 months four
employees were added to the sales department.
-Business insurance increased 37% to $328,640. The increase in insurance
expense is due to a single one-time loss resulting in a significant claim
being paid out of the Company's general liability insurance policy.
-Fuel expense increased 64% to $477,426. The increase in fuel expense is due
to significantly higher fuel prices, additional pieces of equipment, and
higher utilization of the Company's equipment.
-Occupancy expense increased 18% to $395,532. The increase in occupancy
expense is attributable to new leases entered into since the third quarter of
2003 for a new office in Cleveland, OH and larger offices in Edison, NJ,
Plattsburgh, NY and Rochester, NY.
16
Operating Income
As a result of the factors discussed above, for the year ended December 31,
2004, the Company reported operating income of $586,806 compared to $675,731
for the previous year.
Interest Expense
Interest expense increased 33% to $253,854 in 2004 compared to $190,707 in
2003. The increase in interest expense was primarily due to an increase in
the rates paid on the Company's floating rate debt that is tied to changes in
the prime rate. The prime rate increased from 4% at 12/31/03 to 5.25% at
12/31/04. In addition, the average outstanding balance on the revolving loan
and long-term debt increased when comparing the year ended December 31, 2004
with the same period in 2003.
Net Income Before Income Taxes
Net income before income taxes amounted to $332,684 in 2004 compared to
$481,369 in 2003.
Income Tax Expense
The Company recorded a net income tax expense of $132,598 compared to a net
income tax benefit of $1,477,662 in 2003.
Net Income
Net income for the years ended December 31, 2004 and 2003 was $200,086 or $.02
per share basic & diluted, and $1,959,031, or $.12 per share basic and
diluted, respectively.
17
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.
18.
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.
19
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk, including changes in interest rates.
To manage the potential exposure, the Company enters into various derivative
transactions, mainly interest rate swaps. The financial impact of these
hedging instruments are offset in part or in whole by corresponding changes
in the underlying exposures being hedged. The Company does not hold or issue
derivative financial instruments for trading purposes. Note 7 to the
consolidated financial statements includes a discussion of the Company's
accounting policies for financial instruments.
Interest rate swaps are used to hedge underlying debt obligations. Based on
the Company's overall interest rate exposure as of and during the year ended
December 31, 2004, including derivative and other rate sensitive instruments,
a near term change in interest rates would not materially affect the Company's
financial statements.
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.
However, the Chief Executive Officer and Chief Financial Officer believe that
our system of disclosure controls and procedures provides reasonable assurance
of achieving their objectives.
(iii) Conclusions with Respect to Our Evaluation of Disclosure Controls and
Procedures.
Our Chief Executive Officer and Chief Financial Officer have concluded, based
on the evaluation of these controls and procedures, 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 2004 that has materially affected
or is reasonably likely to affect the Company's internal control over
financial reporting.
ITEM 9b - OTHER INFORMATION
None
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 19, 2004 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 (58)
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 (63)
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. (60)
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. Dr. Murphy also
served as President of O'Brien & Gere Limited from
December 1997 to May 1999 and Chairman of the Board
of O'Brien & Gere Engineers from January 1993 to
December 1998. 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 (59)
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 (39)
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 (56)
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, 2004. 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 auditing
standards of the Public Company Accounting Oversight Board (United States),
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
2004, 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, 2004 for filing with the
Securities and Exchange Commission.
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 39 President and Chief Executive Officer
Charles B. Morgan 51 Chief Operating Officer
Paul Misiaszek 43 Vice President
Douglas R. Lee 34 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 an inactive 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.
CODE OF ETHICS FOR SENIOR OFFICERS
The Company has adopted a code of ethics that applies to its senior executive
and financial officers. The Code of Ethics for senior officers is included in
Exhibit 14.
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 2004 $175,000 -0- -0- -0- -0-
CEO and President 2003 $175,000 $10,000 100,000 -0- -0-
2002 $135,000 $25,000 75,000 -0- -0-
Charles B. Morgan 2004 $140,000 -0- -0- -0- -0-
COO 2003 $115,000 $5,000 50,000 -0- -0-
2002 $100,000 -0- 50,000 -0- -0-
The Company has no formal deferred compensation or bonus plans. The Company
has adopted an incentive compensation plan.
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 $18,250 33,333 / 91,667 $16,666 / $45,834
Polimino
Charles B. 16,666 $11,500 16,667 / 50,000 $8,333 / $25,000
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.
26
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 14, 2005 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 14, 2005, 11,725,370 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) 32%
40 Fulton Street, 19th Floor
New York, NY 10038
Robert Berger 1,171,667(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) 11,725,370 shares of common stock outstanding,
(b) 757,013 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 13,333 shares of Common Stock.
27
The following table sets forth certain information furnished to the Company
regarding the beneficial ownership of the Company's common stock at March 14,
2005 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) 1,171,667 9%
Richard L. Elander (1) 429,565 3%
Steven A. Sanders (1) 45,352 <1%
Cornelius B.Murphy, Jr. (1) 21,424 <1%
Christopher J. Polimino (1) (2) 295,454 2%
George W. Lee (1) 186,666 1%
Charles Morgan (2) 200,000 1%
Paul Misiaszek (2) 80,000 <1%
Douglas R. Lee (2) 140,000 <1%
All Directors as a Group (6 persons) 2,150,128 17%
(1) Director
(2) Officer
(3) Includes unexercised options to purchase shares of common stock:
Mr. Berger 13,333
Mr. Elander 13,333
Mr. Sanders 13,333
Mr. Murphy 13,333
Mr. Polimino 185,000
Mr. GW Lee 16,667
Mr. Morgan 100,000
Mr. Misiaszek 61,668
Mr. DR Lee 113,334
28
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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 cost of
these services in 2004 was approximately $3,000.
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 $838,000 in
2004.
During 2004 certain Officers and Directors of the Company loaned $295,000 to
the Company. These amounts were paid back with interest at 8% in January 2005.
29
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:
2004 2003
Audit Fees $ 28,000 $ 28,000
Tax Fees $ 10,200 $ 14,500
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 2004 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.
30
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K
Page
(a) Financial Statements
(1) Report of Independent Accountants F-2
Consolidated Balance Sheets at December 31, 2004 and 2003 F-3
Consolidated Statement of Operations for the years ended
December 31, 2004, 2003, and 2002 F-4
Consolidated Statements of Shareholders' Equity for
the years ended December 31, 2004, 2003, and 2002 F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 2004, 2003, and 2002 F-6
Notes to Consolidated Financial Statements F-7
(2) Schedule II, Valuation and Qualifying Accounts for the Years
Ended 2004, 2003, and 2002 F-18
All other schedules are omitted because they are not required, are
inapplicable, or the information is otherwise shown in the Financial
Statements or notes thereto.
(b) Reports on Form 8-K filed during the last quarter of 2004:
None
(c) Exhibits
10.1 Stock Option Plan - Incorporated herein by reference to the
Company's Information Statement filed November 6, 2002
14 Code of Ethics E-1
21 Subsidiaries of the Registrant E-2
31 Certifications E-3
32 Section 1350 Certifications E-5
31
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 28, 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
Vice President
/s/ Douglas R. Lee
Chief Financial Officer and Treasurer
Douglas R. Lee
32
OP-TECH Environmental
Services, Inc. and Subsidiaries
Consolidated Financial Statements
December 31, 2004 and 2003
Independent Auditors Report
To the Shareholders and Board of Directors of
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, 2004 and
2003, and the related consolidated statements of operations, changes in
shareholders' equity and cash flows for each of the years in the three year
period ended December 31, 2004. 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 the standards of the Public Company
Accounting Oversight Board (United States). 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,
2004 and 2003, and the consolidated results of their operations and their cash
flows for each of the years in the three year period ended December 31, 2004,
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 4, 2005 (except for Note 11 as to which the date is February 9, 2005)
OP-TECH Environmental Services, Inc. and Subsidiaries
Consolidated Balance Sheets
December 31, 2004 and 2003
2004 2003
---------- -----------
Assets
Current assets:
Cash (Note 4) $101,738 $58,073
Accounts receivable, net (Notes 1 and 5) 5,632,209 3,386,795
Costs on uncompleted projects
applicable to future billings 879,200 638,513
Inventory 227,463 219,568
Current portion of deferred tax asset 45,500 45,500
Prepaid expenses and other current assets, net 531,500 281,110
--------- ---------
Total current assets 7,417,610 4,629,559
Property and equipment, net (Note 6) 3,415,731 2,989,827
Deferred tax asset (Note 9) 1,378,878 1,473,500
Other assets 28,849 31,419
---------- ----------
Total Assets $12,241,068 $9,124,305
========== ==========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $2,533,373 $864,484
Billings in excess of costs and estimated
profit on uncompleted contracts 1,096,475 716,351
Accrued expenses and other current liabilities 245,057 368,006
Current portion of long-term debt (Note 7) 775,671 901,336
--------- ---------
Total current liabilities 4,650,576 2,850,177
Long-term debt, net of current portion (Note 7) 2,210,913 1,510,547
Note payable to bank under line of credit (Note 7) 2,380,375 1,744,473
--------- ---------
Total liabilities 9,241,864 6,105,197
--------- ---------
Shareholders' equity:
Common stock, par value $.01 per share; authorized
20,000,000 shares; 11,697,707 and 12,606,045
shares outstanding as of December 31, 2004 and
2003, respectively 116,976 126,060
Additional paid-in capital 6,842,942 7,053,848
Accumulated deficit (3,960,714)(4,160,800)
----------- -----------
Shareholders' equity, net 2,999,204 3,019,108
----------- -----------
Total Liabilities and Shareholders' Equity 12,241,068 $9,124,305
========== ==========
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, 2004, 2003 and 2002
2004 2003 2002
----------- ---------- ----------
Project billings and services $18,170,103 $15,037,888 $15,093,052
Project costs 12,855,714 10,399,088 10,916,214
----------- ----------- -----------
Gross margin 5,314,389 4,638,800 4,176,838
Selling, general and administrative expenses 4,727,583 3,963,069 3,465,557
--------- ---------- ----------
Operating income 586,806 675,731 711,281
--------- ---------- ----------
Other income (expense):
Interest expense (253,854) (190,707) (167,542)
Other, net (268) (3,655) 9,927
--------- --------- ---------
(254,122) (194,362) (157,615)
--------- --------- ---------
Net income before income taxes 332,684 481,369 553,666
--------- --------- ---------
Income tax (expense) (Note 9)
Current (13,598) (26,000) -
Deferred (119,000 1,503,662 -
---------- --------- ---------
(132,598) 1,477,662 -
---------- --------- ---------
Net Income $200,086 $1,959,031 $553,666
=========== ========== ==========
Earnings per common share - basic
and diluted (Note 2) $0.02 $0.12 $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, 2004, 2003 and 2002
Additional
Common Common Paid-In Accumulated
Shares Stock Capital Deficit Total
---------- ------ -------- ------------ --------
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
Purchase and Retirement
of 1,000,000 Shares (1,000,000) (10,000) (240,000) - (250,000)
Issuance of 3,333 Shares 3,333 33 300 - 333
Issuance of 88,329 Shares 88,329 883 4,416 - 5,299
Tax Benefit of the Exercise
Of Stock Options - - 24,378 - 24,378
Net Income - - - 200,086 200,086
---------- ---------- -------- ---------- ---------
Balance at December
31, 2004 11,697,707 $116,976 $6,842,942$(3,960,714)$2,999,204
========== ======== ========== =========== =========
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, 2004, 2003 and 2002
2004 2003 2002
---------- -------- --------
Operating activities:
Net income $200,086 $1,959,031 $553,666
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Bad debt expense 14,689 110,682 12,058
Depreciation and amortization 566,567 454,362 317,380
Loss on disposal of equipment 9,964 47,790 -
Provision for deferred income taxes 119,000 (1,503,662) -
(Increase) decrease in operating assets and
increase (decrease) in operating liabilities:
Accounts receivable (2,260,103) 1,142,254 (1,766,106)
Costs on uncompleted projects
applicable to future billings (240,687) (239,625) 21,227
Prepaid expenses, Inventory and
other assets, net 140,688 (148,185) (82,615)
Billings and estimated profit in excess
of costs of uncompleted contracts 380,124 148,928 26,050
Accounts payable and other accrued expenses 1,545,940 (946,622) 670,275
--------- --------- ---------
Net cash provided by (used in)
operating activities 476,268 1,024,953 (248,065)
---------- ---------- ---------
Investing activities:
Purchases of property and equipment (582,586) (577,089) (727,891)
---------- ---------- ---------
Net cash used in investing activities (582,586) (577,089) (727,891)
---------- ---------- ---------
Financing activities:
Proceeds from issuance of common stock, net 5,632 5,900 388,995
Purchase of common stock (250,000) (700,000) (438,517)
Outstanding checks in excess of bank balance - (74,662) 54,003
Loans from directors and officers 295,000 - -
Repayments of loans to directors and officers (22,500) - -
Proceeds from notes payable to banks and
long-term borrowings, net of financing costs 9,941,564 8,944,678 8,665,285
Principal payments on current
and long-term borrowings (9,819,713)(8,565,707)(7,745,628)
---------- ---------- -----------
Net cash (used in) provided by
financing activities 149,983 (389,791) 924,138
--------- ---------- -----------
Increase (decrease) in cash
and cash equivalents 43,665 58,073 (51,818)
Cash and cash equivalents
at beginning of year 58,073 - 51,818
--------- --------- ---------
Cash and Cash Equivalents
at End of Year $101,738 $58,073 $-
========= ========= =========
Non-cash items:
Equipment purchased through
bank and other financing sources $412,349 $207,282 $284,831
Non-cash financing of insurance $403,902 - -
The accompanying notes are an integral part of the consolidated financial
statements
F-6
1. Summary of Significant Accounting Policies
Basis of Presentation
OP-TECH Environmental Services, Inc. and Subsidiaries (the "Company"), a
Delaware corporation headquartered in Syracuse, New York, provides
comprehensive environmental and industrial cleaning and decontamination
services predominately in New York, New England, Pennsylvania, New Jersey, and
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.
OP-TECH AVIX, Inc. (AVIX) is a subsidiary of OP-TECH Environmental Services,
Inc. formed in January 2002 to pursue and engage in diversified lines of
business. In The fourth quarter of 2004 this subsidiary became inactive and
the Company is no longer pursuing the lines of business that AVIX performed.
Therefore, separate segment information is no longer presented in the
Financial Statements.
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
Contracts are predominately short-term in nature (less than three months), and
revenue is recognized as costs are incurred. Project costs include all direct
material, equipment, and labor costs and those indirect costs related to
contract performance.
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 receipt of job-related vendor invoices, payroll
processing, and billing compilation typically cause customer invoices relating
to revenue earned in a certain month to be mailed in the first two weeks of
the following month. Such invoices mailed after year-end that are included in
December 31, 2004 and December 31, 2003 accounts receivable are approximately
$701,000 and $999,000, respectively.
F7
Concentration of Business Risk - Significant Customers
Sales to one customer, other than an affiliated party, amounted to
approximately $3,845,000, $2,265,000, and $5,600,000 in 2004, 2003 and 2002,
respectively. Accounts receivable at December 31, 2004 and 2003 include
$1,690,000 and $1,007,000 respectively, from this customer.
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.
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 estimates a general allowance covering
other amounts that may not be collectible.
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
and 40 years for buildings.
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 a line of credit. The carrying value of the
Company's financial instruments approximates their fair value at December 31,
2004 and 2003. The fair values of fixed rate 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.
F8
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 11,849,508, 15,356,933,
and 14,273,139 for the years ended December 31, 2004, 2003 and 2002,
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 two of the Company's 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.
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 $838,000, $1,210,000, and $880,000 in
2004, 2003 and 2002, respectively.
A director of the Company is of counsel to Rubin, Bailen, Ortoli, Mayer &
Baker, LLP beginning in January 2004, and Spitzer & Feldman PC in 2003 and
2002. These firms provided professional services to the Company, and it is
anticipated that Rubin, Bailen, Ortoli, Mayer & Baker, LLP will continue to do
so. The cost for these services amounted to approximately $3,000, $8,000, and
$18,000 in 2004, 2003 and 2002, respectively.
F9
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) nightly.
5. Accounts Receivable
Accounts receivable at December 31, 2004 and 2003 consists of:
2004 2003
---------- ----------
Accounts Receivable, gross $5,806,709 $3,573,795
Allowance for uncollectible receivables (174,500) (187,000)
----------- -----------
Accounts Receivable, net $5,632,209 $3,386,795
=========== ===========
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, 2004 and 2003 consist of:
2004 2003
--------- ---------
Furniture and fixtures $21,758 $22,267
Buildings and land 973,190 893,190
Office machines 229,147 236,884
Field equipment 4,400,940 3,572,180
Aqueous treatment system - 121,728
--------- ---------
5,625,035 4,846,249
Less: Accumulated depreciation (2,209,304)(1,856,422)
---------- ----------
$3,415,731 $2,989,827
========== ==========
Depreciation expense approximated $558,000, $434,000, and $314,000 for 2004,
2003 and 2002, respectively.
F10
7. Long-Term Debt Obligations
Long-term debt at December 31, 2004 and 2003 consists of:
2004 2003
Note payable to bank under line of
credit. Paid January 25, 2005. $- $1,744,473
Note payable to bank under line of
credit. Due September 30, 2006. (a) 2,380,375 -
--------- -----------
Term Loans under equipment line of credit, due in
Monthly installment payments aggregating $33,748,
plus interest at prime plus 1.25%.
Paid January 25, 2005. (a) - 1,482,374
Insurance Financing Note, due in monthly installment
Payments of $31,821, including interest at
prime plus 1.25%. (a) - 218,833
Stock Purchase Financing Note, due in monthly
installment payments of $9,722, plus interest
at prime plus 1.5%. Paid January 25, 2005. (a) - 350,000
Term Loan due in monthly installment payments
of $24,848 plus interest at prime plus .75%,
hedged by an interest rate swap (a) 2,087,240 -
Notes payable to certain Directors and Officers,
unsecured, due on March 31, 2005 plus interest
at 8%. Paid on January 19, 2005. 272,500 -
Insurance Financing Note, due in monthly installment
Payments of $50,033, plus interest at 7.51%,
collateralized by the assignment of unearned premiums 52,108 -
Equipment Notes, due in monthly installment payments
Aggregating $11,212 and $5,110 at December 31, 2004
and 2003, including interest at rates ranging from
4.9% to 8.9%, collateralized by equipment with a
carrying value of approximately $500,000 and $145,000
at December 31, 2004 and 2003, respectively. 463,822 142,613
Equipment Notes, due in monthly installment payments
Aggregating $8,929 at December 31, 2004 and 2003,
with 0% interest, collateralized by equipment with
a carrying value of approximately $125,000 and
$225,000 at December 31, 2004 and 2003, respectively. 110,914 218,063
------------ ---------
2,986,584 2,411,883
Less: Current portion (775,671) (901,336)
------------ ---------
$2,210,913 $1,510,547
========== ==========
F11
(a) On January 25, 2005 the Company entered into financing agreements (the
"Agreements") with a new financial institution ("Primary Lender"). As a
result several loans were repaid. The footnote descriptions and schedule of
future maturities have been revised to reflect the new agreement.
The Agreements include a Line of Credit note which provides for borrowings up
to $2,900,000 to be used to provide working capital and expires on September
30, 2006, unless renewed by the lender. Interest will be charged at a rate
ranging from prime plus .50% to prime minus .50%, adjusted annually based upon
the minimum fixed charge coverage ratio (EBITDA (earnings before interest
expense, income tax expense, depreciation and amortization) minus
dividends paid minus unfunded capital expenditures divided by current
maturities of long-term debt and leases plus interest expense) as calculated
in the previous year-end audited financial statements, beginning in 2005 using
the calculation from the December 31, 2004 financial statements, as follows:
Fixed Charge Coverage Ratio Interest Rate
--------------------------- -------------
>/= 1.05 - 1.24 Prime + .50%
>/= 1.25 - 1.39 Prime
>/= 1.40 Prime - .50%
The Agreements also include an Equipment Line of Credit agreement which
provides for borrowings up to $250,000 to be used to provide equipment
financing. Advances on the Equipment Line of Credit may be made until
September 30, 2005 (the "Conversion Date"). Advances on the Equipment Line of
Credit are limited to a maximum of 90% of the purchase price of titled
vehicles and 80% of the purchase price of non-titled vehicles. Interest will
be accrued and paid at a rate of prime plus .50% until the Conversion Date and
at a rate of prime plus .75% after the conversion date. The outstanding
principal balance on the Conversion Date shall be repaid in equal installments
of principal and interest based upon a seven (7) year amortization period.
The Agreements also include a Term Loan agreement which is due in monthly
principal installment payments of $24,848 plus interest at a rate of prime
plus .75%, hedged by an Interest Rate Swap Transaction.
On January 25, 2005, the Company entered into an Interest Rate Swap
Transaction with its Primary Lender to hedge against rising interest rates on
the floating rate Term Loan debt. The liability being hedged is the
variability in cash flows related to fluctuations in interest payments
made. The fluctuation in interest rates exposes the Company to the risk of
higher interest expense. The purpose of the Swap Agreement is to limit the
Company's exposure to rising interest rates during the term of the floating
rate Term Loan noted above. The swap has been designated as a cash flow hedge.
Based on Managements analysis of historical interest rates and current market
conditions, Management believes that interest rates will rise over the next
seven (7) years. Management entered into this Swap Agreement to guard the
Company from rising interest rates.
The interest rate swap hedge instrument has a fixed rate of 7.05%, matures on
February 1, 2012, and has a notional amount that remains equal to the
principal balance on the Term Loan. The notional amount on January 25, 2005
is $2,087,240. The difference between the prime rate, as periodically
adjusted, and the Interest Rate Swap rate of 7.05% will be settled monthly.
The effect of the interest rate swap is to fix the floating rate on the Term
Loan at 7.80%.
F12
The Agreements are collateralized by all present and future right, title and
interest in all of the personal property of the Company including, but not
limited to, all accounts receivable, inventory and equipment. This collateral
has a carrying value at December 31, 2004 as follows:
Accounts Receivable, net of Allowance for Doubtful Accounts $5,632,209
Inventory 227,464
Equipment, net of Accumulated Depreciation 2,368,032
----------
$8,227,705
==========
The Agreements also include certain financial covenants including a minimum
fixed charge coverage ratio, a tangible net worth ratio, a debt to net worth
ratio, and a consecutive quarterly net loss provision; 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 $254,000, $190,000, and $153,000 in
2004, 2003 and 2002, 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:
2005 $775,671
2006 416,887
2007 408,000
2008 393,785
2009 346,191
Thereafter 646,050
----------
$2,986,584
==========
At December 31, 2004 the Company has outstanding commitments in the form of
standby letters of credit in the amount of approximately $110,000 securing
various agreements.
F13
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 $405,000,
$385,000, and $456,000 in 2004, 2003 and 2002, respectively. Future minimum
lease payments under noncancelable operating leases are as follows:
2005 $387,950
2006 286,085
2007 159,207
2008 59,626
2009 36,950
Thereafter -
-------
$929,818
========
9. Income Taxes
The following summarizes the income tax (benefit) expense at December 31, 2004,
2003 and 2002:
2004 2003 2002
--------- -------- ---------
Current:
Federal $- $- $-
State 13,598 26,000 -
-------- -------- --------
13,598 26,000 -
Deferred 119,000 (1,503,662) -
--------- -------- --------
$132,598 (1,477,662) $-
============ ======== ========
In 2003 and 2002, 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.
In 2004 the difference is due to nondeductible items, state taxes and
graduated federal tax rates. The deferred tax expense recognized in 2004
represents the effect of changes in temporary differences.
At December 31, 2003, the Company has federal net operating loss ("NOL")
carryforwards of approximately $5,100,000 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.
F14
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 $300,000 per year to enable utilization of these losses.
Significant components of the Company's deferred tax liabilities and assets as
of December 31, 2004 and 2003 are as follows:
2004 2003
----------- -----------
Deferred tax liabilities:
Depreciation $(246,516 $(155,835)
Accrued expenses (25,568) (27,344)
---------- ----------
(272,084) (183,179)
---------- ----------
Deferred tax assets:
Net operating loss carryforward 2,120,692 2,124,548
Accounts receivable reserve 75,770 72,844
Accrued expenses - -
AMT tax credits - 4,787
---------- -----------
2,196,462 2,202,179
---------- -----------
Net Deferred tax asset 1,924,378 2,019,000
Valuation allowance for deferred assets (500,000) (500,000)
---------- -----------
Net deferred tax asset, net
of valuation allowance $1,424,378 $1,519,000
=========== ===========
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 $18,000,
$17,000, and $16,000 in 2004, 2003 and 2002, respectively. The Company did
not make discretionary contributions to the Retirement Plan in 2004, 2003 and
2002.
F15
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
A summary of the status of the Company's NQSO's granted under the Omnibus Plan
as of December 31, 2004, 2003 and 2002, and changes during the years ending on
those dates follows:
Shares Exercise Price
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
--------- ------------
Exercised (88,329) $0.06
Exercised (3,333) $0.10
Forfeited (41,667) $0.06 - 0.15
Expired - -
---------- ------------
Outstanding at December 31, 2004 448,343 $0.06 - 0.15
---------- ------------
Options exercisable at December 31, 2004 123,997 $0.06 - 0.15
---------- ------------
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, 2004 and 2003 would not be
materially different from the amounts reported.
F16
On January 26, 2005, the Company granted 369,000 NQSO's. The exercise price
of each NQSO equals the market price on the date of grant ($0.40), and an
NQSO's maximum term is 10 years. The NQSO's vest and are exercisable on a
three-year vesting schedule.
On February 9, 2005, 27,663 options were exercised at $.15 per share.
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.
13. Two-Year Selected Quarterly Financial Data (Unaudited)
Year Ended December 31, 2004
Quarter Quarter Quarter Quarter
Ended Ended Ended Ended
March 31 June 30 Sept 30 Dec 31
-------- ------- --------- ---------
Project billings $3,262,062 $4,027,929 $5,008,986 $5,871,126
Gross margin 1,094,286 1,203,483 1,471,882 1,544,738
Net income (loss) (94,898) 23,747 142,689 128,548
Net income (loss) per
share (basic and dilutive) $(0.00) $0.00 $0.01 $0.01
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
F17
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Balance at Balance at
Beginning End of
Description of Period Additions Deductions Period
- ---------------------------------- --------- --------- ---------- -------
YEAR ENDED DECEMBER 31, 2004
Reserves deducted from assets to
which they apply:
Doubtful accounts receivable $187,000 $14,689 $27,189(a) $174,500
Valuation allowance for
deferred assets $500,000 $- $- $500,000
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
(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 REGISTRANT
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; and
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 the 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 28, 2005
/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; and
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 the 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 28, 2005
/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, 2004 (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 28, 2005
/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, 2004 (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 28, 2005
/s/ Douglas R. Lee
Douglas R. Lee
Chief Financial Officer and Treasurer
E-5