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SECURITIES AND
EXCHANGE
COMMISSION
Washington, D.C.
20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
[FEE REQUIRED]
For the fiscal year ended December 31, 1997
OR
[] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE
REQUIRED]
For the transition period from to
Commission file number 0-19761
OP-TECH Environmental Services, Inc.
(Exact name or registrant as specified in its charter)
Delaware 91- 1528142
State or other jurisdiction (I.R.S Employer
of incorporarion or organization Identification No.)
6392 Deere Road, Syracuse, NY 13206
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area
code 315-463-1643
Securities registered pursuant to section 12(b)
of the Act:
Title of each class Name or each
exchange on which registered
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of class)
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act
of 1943 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 nonaffiliates of the Company as of March
15, 1998 was $2,888,781 based upon the average bid
and ask price of such stock on such day.
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Indicate the number of shares outstanding of
each of the Company's classes of common stock, as
of March 15, 1998. Common Stock, $.01 par value.
11,555,123
PART I
ITEMS 1. BUSINESS
General
OP-TECH Environmental Services, Inc. and
Subsidiaries (the "Company"), a Delaware
corporation provides comprehensive environmental
services predominately in Upstate, Central and
Eastern New York and Massachusetts. The
Company performs industrial cleaning of non-
hazardous materials, provides varying services
relating to plant facility closure including
interior and exterior demolition as well as asbestos
removal services. In addition, the Company
provides remediation services for sites
contaminated by hazardous materials and provides
24 hour emergency spill response services. The
majority of the Company's revenues are derived from
industrial companies and Municipalities facing
complex environmental clean-up problems associated
with hazardous materials as required by the New York
State Department of Environmental Conservation
(NYSDEC) and the Massachusetts Department of
Environmental Protection. The Company's services
include assessing the regulatory, technical, and
construction aspects of the environmental issue,
developing a strategic plan to solve 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.
Through its affiliation with O'Brien & Gere
Limited Inc. and Subsidiaries ("Limited"), the
Company has an available resource of experienced
engineers, scientists, construction professionals and
attorneys.
SERVICES
Asbestos Abatement
The Company provides asbestos abatement
contracting services to the public and private
sectors. The Company has expertise in all types of
asbestos abatement including removal, disposal and
enclosure and encapsulation. Asbestos removal is
performed in commercial buildings, industrial
facilities and governmental buildings.
Interior Demolition/Structural Dismantling
The Company provides interior demolition
services such as removing walls, ceilings and
flooring. In addition, the Company offers
structural dismantling services with 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 provided by
vacuuming, soda blasting, hydroblasting, dredging,
dewatering and sludge processing, sludge pumping,
chemical cleaning and tank cleaning.
Transportation and Disposal Services
The Company provides transportation of
hazardous and nonhazardous wastes from customer
sites to customer designated landfills, disposal
facilities and the Company's own Aqueous Treatment
Facility. The Company also provides liquid tank
truck transports equipped with vacuum pumps.
Excavation and Site Remediation Services
The Company provides excavation and soil
blending services for treatment of contaminated soil
using heavy equipment such as excavators, loaders
and a large soil blender. The Company primarily
provides on-site soil blending to public utilities
and municipal customers.
Hydrogeological/Drilling Services
The Company provides hydrogeological services
to petroleum companies, engineering firms and local
and state public entities through the use of
qualified subcontractors. Through performing
hydrogeological assessments, the Company evaluates
and determines the need for ground water remediation
systems, pump and treatment systems and sub-surface
petroleum product recovery. In addition, the
Company provides air sparging systems, long term
remediation system operations and maintenance as well
as monitoring well and recovery well installations.
24 Hour Emergency Spill Response
The Company undertakes environmental remediation
projects on both a planned and emergency basis.
Emergency response actions may develop into
planned remedial action projects when soil,
groundwater, buildings, or facilities are
extensively contaminated. The Company has
established specially trained emergency response
teams. Many of the Company's decontamination and
mitigation activities result from a response to an
emergency situation by one of its response teams.
These incidents can result from transportation
accidents involving chemical or petroleum
substances, fires at chemical facilities or
hazardous waste sites, transformer fires or
explosions involving PCB's, and other unanticipated
developments. The substances involved may pose an
immediate threat to public health or the
environment, such as possible groundwater
contamination. The Company has an agreement with
the NYSDEC to provide emergency response services in
Upstate, Central and Western New York, payment of
which is guaranteed by the NYSDEC.
Emergency response projects require trained
personnel who are equipped with protective gear and
specialized equipment and are prepared to respond
promptly whenever these situations occur. The
Company's health and safety specialists and other
skilled personnel closely supervise these projects
during and subsequent to the clean-up process. The
steps performed by the Company include rapid
response, containment and control procedures,
sampling for analytical testing and assessment,
neutralization and treatment, collection and
transportation of the substance to an appropriate
treatment or disposal facility.
Aqueous Treatment Facility
The Company operates an aqueous treatment
facility at the Company's Massena, New York
location. The facility provides for the clean-up
of contaminated water and its eventual discharge
into the St. Lawrence River. The facility
services both the Company, its clients and outside
vendors. Construction of the facility was
completed in September, 1992 and has seen increased
use as a result of receiving a Part 360 permit from
the State of New York.
Overall Site Assessment and Implementation of
Remediation
Services
Hazardous Waste: The Company's hazardous
waste projects include the design and
construction of on-site facilities to monitor,
isolate, or contain hazardous wastes existing in
surface and subsurface water; the transport of
contaminated soils; the decontamination of
equipment and facilities related to the
production and use of hazardous materials,
industrial cleaning, building demolition and
asbestos removal. Although the Company's projects
vary widely in objective, scope and duration,
each project involves the Company providing one
or more of the following services through the use
of its own resources or the resources of selected
subcontractors: strategic planning; site
reconnaissance and security; remedial
evaluation; clean-up evaluation; design,
construction and operation of facilities to treat,
stabilize, or isolate the hazardous materials; and
closure planning and monitoring.
Strategic Planning: On each of its projects,
the Company attempts as early as possible, to
formulate a complete strategy for directing all
efforts toward solving the hazardous waste problem.
The Company's strategic plans are designed to
satisfy the demands of regulatory agencies and the
public, sometimes under emergency conditions.
Additionally, the Company attempts to balance the
cost of the alternatives against risks to the
client associated with potential litigation or
unfavorable publicity. Through strategic planning,
the Company attempts to minimize expenditures that
will not lead to complete solutions, and to enhance
the clients' credibility with regulatory agencies and
the public.
Site Reconnaissance and Security: In
conducting a site reconnaissance, the Company
makes a general assessment to
determine the basic characteristics of a site and the
limitations imposed thereby, climatological
considerations and the proximity and degree of
residential development. In providing site
security, the Company's services include assessing
the hazardous condition, restricting access to the
affected area, assisting in the preparation of any
necessary evacuation plans, eliminating or reducing
potential risks of fire or explosion, containing
or removing hazardous materials which might pose
additional risk, and implementing measures to
reduce or halt the spread of hazardous
substances into adjacent areas.
Remedial Evaluation: A remedial investigation
involves the detailed assessment of an affected area
to determine the nature and extent of hazardous
materials present. This is often done at the
request of one or more regulatory agencies. In
conducting such an investigation, the Company
performs numerous physical tests. A remedial
investigation also involves the study of the
geologic, and hydrogeologic characteristics of the
affected area and the surrounding environment and a
determination of the risks posed by the hazardous
materials determined to be located in the affected
area. In conducting such investigations, the
Company often reviews the construction of a facility and past
storage and handling practices regarding hazardous
materials. The Company has the capability of
removing and replacing underground storage tanks.
Clean-up Evaluation: A feasibility study
addresses measures which may be implemented to remove
hazardous wastes from a site,
to treat, stabilize or contain such wastes on-
site or to otherwise mitigate their effects.
Such studies take into account, among other
things, available technology, regulatory
considerations and the cost-benefit relationship of
alternative measures. Additionally, the Company
reviews the project and alternative remedial
measures in light of legitimate public concerns.
Design, Construction, and Operation of Remedial
Facilities: Based on the results of remedial
investigations and feasibility
studies, the Company uses its scientific and
construction expertise directly, or through
subcontractors to design an appropriate structure
or system for use at a particular site, and performs
the necessary remediation activities. These
remediation activities might include such diverse
measures as construction of a slurry wall to
contain the hazardous materials, construction and
operation of a pumping and filtration system to
decontaminate surface or subsurface waters or
construction and operation of an integrated system
to excavate contaminated soil and remove it to a
licensed disposal facility.
Closure Planning and Site Monitoring:
The Resource Conservation and Recovery Act of
1976 ("RCRA") requires the planning of closure
and postclosure monitoring for all licensed secure
hazardous landfills, treatment facilities, and on-
site hazardous waste storage areas. The Company
plans and performs facility closures and
postclosure monitoring programs. While certain
monitoring requirements are mandated by RCRA, many
sites have, at some time, contained hazardous
wastes which also frequently require monitoring.
The Company provides monitoring for sites and the
corresponding data management services.
The Company usually contracts for and manages
all aspects of the work related to the completion of
a particular project. In addition, the Company
performs all aspects of the work and certain
other specialized operations, some of which
are subcontracted to other parties. The Company
does, however, occasionally, contract to perform
only certain aspects of a particular project.
The Company has submitted a number of bids for
projects with other members of Limited.
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 substantial
compliance with all federal, state and local
regulations governing its business.
RCRA. The Resources Conservation and Recovery
Act of 1976 ("RCRA") 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 substance classified as
"hazardous". The 1984 amendments to RCRA
substantially expanded its scope by, among other
things,providing for the listing of additional wastes
as "hazardous" and providing of the regulation of
hazardous wastes generated in lower quantities
than previously had been regulated.
Additionally, the amendments impose restrictions on
land disposal of certain hazardous wastes, prescribe
more stringent standards for hazardous waste land
disposal sites, set standards for underground
storage tanks and provide for "corrective" action at
or near sites of waste management units. Under
RCRA, liability and stringent operating requirements
may be imposed on a person who is either a
"generator" or a"transporter" of hazardous waste, or
an "owner" or "operator" of a waste treatment,
storage, or disposal facility. The Company does
not believe its hazardous waste remediation
services cause it to fall within any of these
categories, although it might be considered an
"operator" of a waste management facility of a
"generator" of hazardous waste if it were to
control the collection, source, separation, storage,
transportation, processing, treatment, recovery or
disposal of hazardous wastes, including operation
of a treatment unit for remedial purposes.
Regulation of underground storage tanks (UST)
legislation, in particular Subtitle I of RCRA,
focuses on the regulation of underground tanks in
which liquid petroleum or hazardous
substances are stored and provides for the regulatory
setting for the principal portion of the Company's
work. Subtitle I of RCRA requires owners of all
existing underground tanks to list the age,
size, type, location and use of each tank with a
designatedstate 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 form the Potentially Responsible
Parties (PRPs).
In October 1986, the Superfund Amendment and
Reauthorization act("SARA") was enacted and has
increased environmental remediation activities
significantly. SARA authorizes federal
expenditures of $8.5 billion over five years, while
imposing more stringent clean-up standards and
accelerated timetables.
Therequirements of SARA are expected to add 1,600 to
2,000 sites to the national priority list. Within
36 months of the enactment of SARA, remedial
investigation and feasibility studies were to be
conducted for at least 275 national priority list
sites, and were this not achieved for at least 650
sites within five years. Physical on-site
remedial work was to be commenced for at least 175
new sites in the 36 months after enactment and
for an additional 200 sites in the following 24
months. SARA also contains provisions which expand
the EPA's enforcement powers and which are expected
to encourage and facilitate settlements with PRPs.
The Company believes that, even apart from
funding authorized by SARA, industry and
governmental entities will continue to try to
resolve hazardous waste problems due to their need
to comply with other statutory and regulatory
requirements and to avoid liabilities to private
parties.
The liabilities provided by the Superfund Act
could, under certain factual circumstances, apply to
a broad rage of possible activities by the Company,
including generation of transportation of
hazardous substances, releases of hazardous
substances,
failure to properly design a clean-up, removal or
remedial plan and failure to achieve required clean-
up standards, leakage of removed wastes intransit
or a 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,
have become increasingly competitive. The Company
competes with many different firms ranging from
small local firms to large national firms some of
which have greater financial and marketing
resources than the Company. Competition in
environmental services is based largely on
competitive pricing and quality of service provided.
Other competitive factors include geographic
location as well as reputation. Management
believes the Company is one of the few firms
based in the Central and Upstate New York Region
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 and Albany New York as
well as Braintree Massachusetts with an additional
office in Canada. While operations in the Syracuse
and Massena offices are substantial, the Rochester
and Albany and Braintree offices operate on a
skeleton staff. Operations in Canada have been
minimal since inception.
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 industrial
companies, real estate developers, auto parts
manufacturers, aluminum producers, utilities, waste
disposal firms, municipalities and engineering
firms. During 1997, the Company performed services
for more than 250 clients. These projects ranged
from short-term (three months or less) to projects
which were on going for 12 months or more. The
majority of the projects were short-term in nature
and continue to provide a substantial amount of
revenue for the Company. During 1997, sales to
subsidiaries of O'Brien & Gere Limited (an
affiliated party) totalled approximately
$1,507,364 or 22% of the Company's revenues.
Insurance
The Company maintains commercial general
liability insurance which provides aggregate
coverage limits of $5.0 million. The
Company also maintains asbestos liability and
contractors pollution legal liability which provide
aggregate coverage limits of $5.0 million
respectively. In addition, the Company also
maintains workers compensation, comprehensive
automobile, and Directors and Officers liability
insurance. The Company's insurance coverage is
consistent with the insurance requirements found in
the environmental remediation industry.
Backlog
As of December 31, 1997, the Company had a
backlog of orders it believed to be firm of
approximately $850,000.
Employees
As of March 15, 1998, the Company had a total
of 65 fulltime employees between its headquarters
in Syracuse, NY and its branch offices in Massena,
Rochester and Albany, NY and Braintree Massachusetts.
All employees of St. Lawrence Industrial
Services, Inc., a wholly owned subsidiary, are
covered by union contracts. The Company's union
contracts are negotiated on an annual basis and
cover wages, vacations, working conditions, and
fringe benefits. The Company has contracts with
two unions locally in the Massena area. No other
employees are currently covered by union contracts.
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
Massena and Syracuse branch offices. Manager
contracts are negotiated on an annual basis and
encompass items such as salary, bonuses, and non
compete clauses. The Company does not maintain
key-person insurance for such personnel. The Company
considers its relations with its employees to be
good, and the Company has never had a
work stoppage or threat of a work stoppage.
ITEM 2. PROPERTIES
The Company's executive and branch office
located in Syracuse, New York, occupies
approximately 17,000 square feet leased from
O'Brien and Gere Property Development, a related
party, at a current monthly rate of $7,167
including utilities. The terms of the lease extend
through June 30, 1998 and does not contain an
escalation clause.
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 also
ocean going ships utilizing the St. Lawrence
Seaway.
The land is improved with a well maintained
concrete and creosote timbered dock that extends
about 90 feet into the river and about 260 feet
along the river bed. It is equipped with the
necessary piping, valves and fittings to serve
the former Metropolitan Oil Petroleum Tank Farm.
The land is improved with seven petroleum tanks
that have a capacity of 472,000 barrels.
There are four support buildings on the premises,
consisting of an office building, a combination
office, shop and boiler room building; and two
storage sheds.
The Company is currently pursuing the sale of
all or part of its Massena property and is currently
discussing its sale with several parties. On
November 5, 1997 the Company entered into an option
with O'Brien & Gere Property Development (an
affiliated party) for the sale of the eastern
portion of the property, the tanks and the dock for
$ 2 million. (See additional discussion
under ITEM 7 of this report).
In March of 1997, the Company signed a consent
order issued by the New York State Department of
Environmental Conservation which requires the Company
to remediate its Massena, NY property.
In the second quarter of 1997, the Company
began digging test pits on the property to
determine the extent of ground contamination. A
total of ten test pits were dug. Eight of the pits
were found to have no contamination and were closed
out by New York State. The remaining two pits had
low level indications of contamination. These areas
were excavated late in the third quarter of 1997.
The Company removed approximately 40 cubic yards of
contaminated material from the two pits and is
currently awaiting final closure of the site by
New York State. The company also tested its
groundwater monitoring wells which were also found
to be free of contamination therefore posing no
threat to the groundwater supply in the area. The
Company has spent approximately $60,000 to clean
this site which has been expensed in 1997. As of
the date of this report, the Company is awaiting
final closure of the consent order by the New
York State Department of Environmental Conservation
and the Company believes the extent of the
contamination is minimal and will not impair its
ability to sell the property.
The Company's owned equipment consists
primarily of construction equipment such as vacuum
trucks, tankers, forklifts, excavation equipment,
pumps, generators and compressors, some of which
have been specially modified for the Company's
use.
Chemical trailers and other specialized equipment
for short-term projects are typically leased form
local equipment contractors.
ITEM 3. LEGAL PROCEEDINGS
With the exception of the New York State
Department of Environmental Conservation consent
order discussed in ITEM 2 above, the Company
is not a party to any litigation or
governmental proceedings that management believes
could result in any judgements or fines against it
or that would have a material adverse effect on the
Company or its financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
The Company held a Special Meeting of
Stockholders on December 26, 1997 to approve an
ammendment to the Corporation's Certificate of
Incorporation increasing the number of shares of
Common Stock from 7,500,000 to 20,000,000.
Stockholders of record at the close of business on
November 5, 1997 were entitled to notice of and to
vote at the Special Meeting.
The number of votes cast approving the
ammendment were 2,496,808. The number of votes cast
against the ammendment were 0.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
(a) The shares of the Company's common stock are listed in
the"Pink Sheets" and on the NASDAQ Bulletin Board under the
symbol OTES.
The high and low bid price for the shares of the Company's
common stock of the following periods is as follows:
Quarter Ended High Bid Low Bid
March 31, 1996 1 1/8 5/8
June 30, 1996 7/8 3/8
September 30, 1996 5/8 1/8
December 31, 1996 5/8 1/8
March 31, 1997 5/8 1/8
June 30, 1997 5/8 1/8
September 30, 1997 3/4 1/4
December 31, 1997 5/8 1/4
March 15, 1998 5/8 1/4
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 15, 1998, there were approximately
152 holders of record of the Company's common stock.
(c) The Company has never paid any dividends
and does not anticipate paying dividends for the
foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
Year Ended
December 31
Statement of Operations Data
1997 1996 1995 1994 1993 (5)
Project
Billings $6,993,221 $5,792,548 $7,145,587 $5,143,623 $4,648,574
Extraordinary
gain $1,000,000 0 0 0 0
Net Loss
from
Continuing
Operations ($1,747,543) ($1,553,320) ($847,037) ($1,131,139) ($587,084)
Net Loss
Per Share
from
Continuing
Operations
(Basic &
Dilutive) ($.32) ($.32) ($.17) ($.25) ($.20)
1997 1996 1995 1994 1993
Balance
Sheet Data (5) (1)(2) & (3) (1)(2)&(4)
Total
Assets $4,776,471 $5,155,409 $5,527,547 $6,269,756 $5,610,187
Long-Term
Obligations $120,944 $875,000 $2,326,459 $1,681,686 $3,249,620
(1) On March 2, 1994, a shareholder of the Company
converted its $1.0 million long-term obligation
to Common Stock.
(2) On March 2, 1994, the Company paid off its
subordinate debt to a shareholder. The long-
term obligation as of December 31, 1993 was
$681,516.
(3) April 6, 1994, the Company sold 170,000 shares
of Common Stock for $255,000.
(4) On November 1, 1995, the Company converted a
$500,000 shortterm note to a long-term obligation.
(5) On October 14, 1997, the Company entered into
an agreement with its two largest creditors to
convert all or part of its indebtedness into
common stock of the corporation. The
agreement included forgiveness of $1,000,000
of debt by O'Brien & Gere Limited (a
shareholder) and the conversion of $ 540,000 of
convertible debentures, plus accrued interest,
into 1,080,000 shares of the Company's Common
Stock. In addition, OnBank & Trust Co.
converted $ 2,811,070 of principal and
interest into 5,622,140 shares of the
Company's Common Stock.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997, the Company had
cash and cash equivalents of $81,517 as compared
to $19,077 at December 31, 1996.
At December 31, 1997, the Company had a
working capital deficit of $217,156 compared to a
working capital deficit of $2,978,958 at December
31, 1996, with a current ratio of .9 to 1 at the
end of 1997 compared to .4 to 1 at the end of 1996.
The
decrease in the working capital deficit is primarily
attributable to the conversion of debt to equity by
the Company's two largest creditors and the
foregiveness of $1,000,000 of debt.
As a result of recurring operating losses
during 1997, the Company's cash provided by financing
activities was due primarily to borrowings with
O'Brien & Gere Limited, (a shareholder) and a bank.
For the year ended December 31, 1997, the
Company's net cash used in operating activities was
$747,813 versus net cash used in operating
activities of $446,122 in 1996. The increasein
cash used is primarily attributable to the
increase in accounts receivable during the fourth
quarter of 1997.
During 1997, the Company had capital purchases
of $195,188 which were financed through operations
and long term debt. Capital expenditures consisted
of a utility vehicle, dump truck, vacuum loader and
a laser water truck.
On October 14,1997, the Company entered into
a borrowing agreement with a new bank that
provided for borrowings on a revolving basis. On
April 6, 1998 the agreement was amended to provide
borrowings up to $1,000,000. The revolving loan
is subject to renewal at the banks option and is
payable on demand, or if no demand is made
outstanding advances are due on February 16, 1999,
and are guaranteed by a shareholder for an amount
not to exceed $500,000. Under the terms of the
guarantee, should the Bank be unable to recover the
full amount of outstanding balances from the
Company's collateralized assets, the shareholder
agrees to purchase the Massena Port Facility for the
unrecovered balance up to a maximum of $500,000.
Borrowings against the revolving loan aggregated
$500,000 at December 31,1997.
On October 14, 1997, the Company entered into
an agreement with its two largest creditors to
convert all or part of its indebtedness into
Common Stock of the Corporation. The
agreements were executed on December 31, 1997.
YEAR 2000
The Company recognizes the need to ensure its
operations will not be adversely impacted by year
2000 software failures. The Company is addressing
the risk to the availability and integrity of
financial systems and the reliability of operational
systems. In 1998, the Company has upgraded its
financial systems to comply with year 2000
requirements and has also undertaken an upgrade of
its headquarters information and decision support
systems. The total cost of these systems projects
is estimated
to $ 50,000 over the next 12 to 18 months.
THE MASSENA PORT FACILITY
The Massena Port Facility is a former oil tank
farm which is located on the St. Lawrence River in
Massena, NY. The property is improved with
several buildings and a deep water docking
facility for large ocean going ships. The property
is still a viable location for a petroleum
distribution facility and could still function as
one pending upgrades of tanks and diking systems
to current state and federal guidelines.
Any improvements such as these would be treated as a
capital expense in the year they were inccurred.
Currently, the Company uses the property for its
Massena branch office headquarters, equipment
storage and its Aqueous Treatment/360 Facility.
In 1996, the Company reclassified the Massena
Property to Assets Held for Sale.
The property at that time had
a carrying valve of approximately $ 1.9 million.
Due to the significance of the carrying value of the
property, in March of 1997, management obtained an
independent third party appraisal to support its
carrying value. Such appraisal included an
evaluation of similar sales plus a pending
transaction at the time. The appraisal also included
an evaluation of the time frame during which a
sale would be expected. Based upon the appraisal
report and an estimate of the costs to sell,
management concluded that there was no
impairment of the property's value at that
time. Management is currently reviewing several
options relative to the sale and or lease of the
property however, due to the uniqueness of the asset
and the absence of current quoted market prices on
similar properties, management anticipates it
will take a prolonged period of time to
consummate such as sale or lease of the property.
Therefore, the Company recognized an impairment of
$ 308,377, reducing the property's carrying value
to $ 1,675,000 as of December 31, 1997.
CAPITAL RESTRUCTURING & BUSINESS OPERATIONS
The Company entered into letter of agreements
with its two largest creditors, OnBank & Trust
Co.("OnBank") and O'Brien & Gere Limited ("OBG
Limited"), a shareholder on October 14, 1997, which
were executed as of December 31, 1997, whereas OnBank
and OBG Limited agreed to convert all or part of
their indebtedness, including accrued interest, into
Common Stock of the Company, and to forgive the
remaining balance. OBG Limited, to which the
Company was indebted for $1,540,000, including
accrued interest of $140,000, forgave $1,000,000
of the debt and converted the balances into
1,080,000 shares of the Company's Common Stock.
OnBank, to which the Company was indebted for
$2,811,070, including accrued interest of 75,332,
converted their debt and accrued interest for
5,622,000 shares of the Company's Common Stock.
The price per share, of $.50, was negotiated with the
two creditors and the Company based on the price of
recent sales and their estimates of future risk
As a result of these transactions the Company
has positive shareholders' equity, and has been able
to obtain bank financing from another financial
institution for working capital.
This restructuring has had a significant impact not
only on the Company's financial position, but also
on its operations and cash flows.Interest cost will
be reduced from the $300,000 -
$400,000 per year level based on the new
capitalization of the Company.
The Company is focusing on growing its operations
throughout the Northeastern United States and
Pennsylvania, two areas not pursued by the Company
in the past. Secondly, a new sales force has been
put in place to aggressively market its core
business areas as well as expansion areas.
Third, the Company is continuing its focus on
its core service lines with industrial and
governmental customers which is expected to lead
to and increase in recurring work.
In order to achieve its 1998 budgeted revenue and
profit goals, the Company believes it can
develop core service revenues throughout the
Northeastern United States and Pennsylvania.The
Company has relocated two of its senior employees to
the Eastern New York and Massachusetts regions to
build a client base that will provide recurring core
service revenue. With respect to its sales force,
the Company has hired several sales representatives
throughout the New England and Pennsylvania areas to
pursue both private industrial and governmental
opportunities.
Based on its 1998 budget, the Company will have
adequate cash flow to meet its obligations as they
come due. Through the first two months of 1998 the
Company was profitable. However, there can be no
assurance that the Company will be able to continue
to meet its budgets and maintain adequate cash flows.
RESULTS OF OPERATIONS
This financial review should be read in
conjunction with the accompanying Consolidated
Financial Statements and related notes thereto.
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 profitability in the face of intense price
competition.
The Company's operations may be affected by the
commencement and completion of major site
remediation projects; seasonal fluctuations due to
weather and budgetary cycles influencing the timing
of customers' spending for remedial activities; the
timing of regulatory decisions relating to
hazardous waste management projects'; changes in
regulations governing the management of hazardous
waste and secular changes in the waste
processing industry towards waste minimization and
the propensity of delays in the remedial market.
As a result of these factors, the Company's
revenue and income could vary significantly
from quarter to quarter, and past financial
performance should not be considered a reliable
indicator of future performance.
The Company's business has not been
significantly affected by inflation during the
periods discussed below.
1997 Compared to 1996
Revenues
During the year ended December 31, 1997,
the Company's revenues increased 21% to $ 6,993,221
as compared to $ 5,792,548 reported for the previous
year ended December 31, 1996. A comparison of
revenues by service line between the current
and prior year shows the following. The asbestos
abatement and demolition business saw an increase
in revenues of approximately $ 690,000 due to an
award of a large asbestos abatement project in the
fourth quarter of 1996 that was completed in May of
1997. The Company also saw an increase in revenues
of approximately $325,000 in underground storage
tank removal revenues. The increase is attributable
to the Federal deadline to remove all underground
storage tanks (UST's) which are not in compliance
with the EPA guidelines for UST's. The deadline to
remove out of compliance UST's is December 22, 1998.
The Company expects to see a continued rise in this
service line during 1998. Industrial cleaning
services remained steady throughout 1997 as the
Company continued to focus its marketing
efforts in this area. Emergency Spill
Responses revenue increased approximately $150,000
during 1997. The increase was primarily
attributable to a large oil spill in January of
1997. Finally, the Company saw an increase in the
transportation and disposal business of
approximately $100,000 as a result of the increased
volume of UST jobs.
Project Costs and Gross Profit
Project costs for the year ended December 31,
1997 increased 23% to $ 4,959,449 from $ 4,036,846
for the year ended December 31,1996. The increase
in project costs is attributable to increased
revenues. The gross profit margin for the year
ended December 31, 1997 was 29% versus 30.3% for
the year ended December 31, 1996. The decrease in
the gross profit margin is attributable to an
increase in public projects which typically produces
a lower gross profit margin than private projects.
The Company also continues to see increasingly
competitive market conditions which have forced the
Company to bid jobs at a lower gross profit margin
than in previous years.
Selling, General and Administrative Expenses
During the year ended December 31, 1997 selling,
general and administrative (SG&A) expenses
decreased 1% to $ 2,569,486 compared to $
2,593,996 reported for the previous year.
Operating Loss
For the year ended December 31, 1997,
the Company's operating loss increased 13% to $
1,333,400 compared to a loss of $ 1,181,190 for the
previous year. The increase in the operating loss
is primarily attributable to a non-cash charge of $
797,686 related to the write down of its Massena
Property and certain equipment held for use. In
1996, the Company incurred a non-cash charge of $
342,896 related to the write down of certain
equipment and intangible assets.
Interest Expense
Interest expense increased 13% to $ 402,144 in
1997 compared to $ 357,173 in 1996. The increase
in interest expense is attributable to increased
borrowings from O'Brien & Gere Limited (a
shareholder).
Extraordinary Gains
In connection with the capital restructuring of
the Company in 1997, O'Brien & Gere Limited,a
shareholder forgave $1,000,000 of debt.
Net Loss
The net loss after extraordinary gain of
$1,000,000 for the year ended December 31, 1997 was
$ 747,543 ($.14 per share basic & dilutive)
compared to $ 1,553,320 ($.32 per share basic &
dilutive) in 1996. As a result of the Company's
net operating loss, there was no provision for
federal income taxes recorded in 1997.
1996 COMPARED TO 1995
Revenues
During the year ended December 31, 1996,
the Company's revenues decreased 19% to
$5,792,548 compared to $7,145,587 reported for
the previous year ended December 31,
1995. A comparison of revenues by business type
between the current and prior year shows the following.
The asbestos abatement and demolition business
remained stable due to an award of a large asbestos
abatement contract in the fourth quarter.
The hydrogeological and drilling business decreased
significantly due to the lack of enforcement of
governmental regulations during the year. The
Company has since eliminated
its in-house hydrogeological division and is currently
subcontracting these services to another company.
Industrial cleaning services rose slightly during
the year as the Company began to refocus its
marketing effort in this area. The Company's
Emergency Spill Response revenue decreased
significantly during 1996 as there were fewer
emergency response calls than in 1995. Finally, the
Company saw a slight decrease in the transportation
and disposal business during the year.
Project Costs and Gross Profit
Project costs for the year ended December 31,
1996 decreased 15% to $4,036,846 from $4,756,576 for
the year ended December 31, 1995. The decrease in
project costs is attributable primarily to decreased
revenues. The gross profit margin for the year
ended December 31, 1996 was 30.3% versus 36.8% for
the year ended December 31, 1995. The decrease in
the gross profit margin is attributable to
increasingly competitive market conditions which
have forced the Company to bid jobs at a lower
gross profit margin than in past years. In
addition, several large projects during 1995
contributed to an overall higher gross profit margin.
Selling, General and Administrative Expenses
During the year ended December 31, 1996 selling,
general and administrative expenses decreased 9.6% to
$2,593,996 compared to $2,871,719 reported for the
previous year ended December 31, 1995. The
decrease is mainly attributable to a reduction in
personnel.
Operating Loss
For the year ended December 31, 1996,
the Company's operating loss increased to
$1,181,190 compared to a loss of $482,708 for
year ended December 31, 1995. The increase in the
operating loss is attributable to an overall lower
sales volume in 1996 and a lower gross margin on
sales due to an increasingly competitive market. In
addition, the Company incurred a non-cash charge of
$342,896 related to the write-down of certain
equipment and intangible assets during 1996.
Interest Expense
Interest expense decreased slightly in 1996 to
$357,173 from $357,460 in 1995. Interest expense
on short term borrowings increased during 1996 as a
result of an increase in the Company's line of credit
borrowings with an affiliate.
Net Loss
The net loss for the year ended December
31, 1996 was $1,553,320 ($.32 per share basic &
dilutive) compared to $847,347 ($.17 per share basic
& dilutive) in 1995. As a result of the
Company's net operating loss, there was no provision
for federal income taxes recorded in 1996.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the
Company and the report of Coopers & Lybrand L.L.P.
are submitted under Item 14 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
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
September 30, 1997 for a term of one year.
Year
First
Principal Occupation Elected
Certain Other
Information
Terry L. Brown (46)
Director 1991
Mr. Brown has
served in his present position as
Director since November 1991. He previously
served as Vice President from November 1991 to
December 1996. He has served as President of
O'Brien & Gere Technical Services since
September 1991. He has served as a Director of
O'Brien & Gere Limited since August of 1991.
From 1988 to September 1991, he served as Vice
President and General Manager of O'Brien &
Gere Technical services.
Richard L. Elander (56)
Director 1991
Mr. Elander has served
in his present position as a
Director since November 1991. He has served as
Vice President and General Manager from June
1994 to December 1996. He also served as Chief
Executive Officer from November 1991 to June 1994.
Mr. Elander served as a Director of O'Brien & Gere
Limited from August 1991 to December 1995. From 1983 to
1996, Mr. Elander served as President of O'Brien &
Gere Operations.
John R. Loveland (60)
Chairman of the Board and
Chief Executive Officer 1994
Mr.Loveland has served in his present
position since June
1994. He has been a director of O'Brien & Gere
Engineers Inc. since 1973, he
served as President of O'Brien & Gere Engineers Inc.
from 1980 to December 1992. He has been Chairman of
the Board of O'Brien & Gere Limited since 1989.
Cornellus B. Murphy, Jr. (52)
Director 1991
Mr. Murphy has served in his
current position since December1996.
He previously served as the Company's President from
June of 1994 to December of 1996 and Chairman of the
Board from November of 1991 to June 1994. Mr.
Murphy has been a Director of O'Brien & Gere Limited
since 1985 and O'Brien & Gere Engineers, Inc. from
1992 to 1997. Prior to that, Mr. Murphy served as
Senior Vice President of O'Brien & Gere Engineers
Inc. and Chairman of the Board of O'Brien & Gere
Technical Services Inc. since 1992. From 1982 to
1992, Mr. Murphy served as President of O'Brien &
Gere Technical Services Inc. Mr. Murphy currently
serves as President of O'Brien & Gere Limited.
Steven A. Sanders (52)
Director 1991
Mr. Sanders is a partner in the
law firm of Beckman,Millman, and
Sanders. Mr. Sanders served as President of the Law
Office of Steven A. Sanders P.C. from 1992 to 1997.
Prior to that, he served as Counsel to
Jacobs, Persinger & Parker from 1987 to 1992. Prior
thereto, Mr. Sanders served as Senior Partner of
the law firm Sanders and Srerchio.
EXECUTIVE OFFICERS OF THE COMPANY
Name Age Position Held
John R. Loveland 60 Chairman ofthe Board and
Chief Executive Officer
Anthony R. Pongonis 45 President
Dennis S. Lerner 51 Secretary
Joseph M. McNulty 43 Treasurer
Christopher J. Polimino 32 Assistant Treasurer
Mr. Pongonis was hired during the fourth
quarter of 1996. He has over twenty-five years of
experience in the environmental services market.
Mr. Lerner has served his present position since
February of 1994. Mr. Lerner is Assistant
Secretary of O'Brien & Gere Engineers Inc. a
wholly owned subsidiary of O'Brien & Gere Limited
and serves as O'Brien & Gere Engineer's in-house
legal counsel. He has held this position since 1990.
Mr. McNulty has served his current position
since February 1993. Mr. McNulty has served as
Vice President of Finance of O'Brien & Gere
Limited since April of 1995 and serves as a
Director of O'Brien & Gere, Inc. of North America.
ITEM 11. Executive Compensation
The following table sets forth summary information
concerning compensation paid or accrued by the
Company for services rendered during the last three
fiscal years.
Summary Compensation Table
Long Term Compensation
Annual Awards Payments
Compensation
Name and Other
Principal Annual # LTIP All Other
Position Year Salary Compensation Options Payouts Compensation
John R.
Loveland 1997 $19,200 -0- 50,000 -0- -0-
Chairman & CEO 1996 $16,800 -0- -0- -0- -0-
1995 $24,960 -0- -0- -0- -0-
Year End Option Table
The following table sets forth certain information regarding
stock options held as of December 31, 1997 by the named
executive officers.
Number of Securities Value of Unexercised
Underlying Unexercised Inthe-Money Options
Shares Options at F/Y/E Options at F/Y/E (1)
Acquired on Value Exercisable UnexercisableExercisable Unexercisable
Exercise # Realized # # # #
John
R.
Love-
land 50,000 -0- 50,000 -0- -0- -0-
(1) The options for all Executive Officers were
out-of-the money on December 31, 1997 as the
exercise price of the options exceeded the
closing price of the Company's Common Stock as
reported by the National Quotation Bureau Inc.
Compensation of Directors
Directors of the Company are paid $500 for each
quarter plus reimbursement for their actual
expenses incurred in attending meetings. At
December 31, 1997 the Company has accrued its 1996
Directors Fees which remain unpaid.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth certain
information regarding the beneficial ownership of
the Company's Common Stock at March 15, 1998 by
persons who, to the knowledge of the Board of
Directors, beneficially own more than five
percent of the outstanding shares of Common Stock
of the Corporation.
All voting power of the Corporation is vested
in its Common Stock. As of the close of business on
March 15, 1998, 11,555,123 shares of Common Stock par
value $.01 per share were outstanding. Each share of
Common Stock is entitled to one vote.
Name and Address Number of Shares of Common Percentage
of Beneficial Owner Stock Beneficially Owned(1) of Class
OnBank & Trust Co
101 S. Salina Street 5,622,140 48.6%
Syracuse, NY 13202
O'Brien & Gere Limited
5000 Brittonfield Parkway 3,148,200 27.2%
Syracuse, NY 13220
Richard L. Elander
3613 Melvin Drive South 329,365 (5) 2.9%
Baldwinsville, NY 13027
Terry L. Brown 3,057 (2)(5) <1%
Cornelius B. Murphy Jr. 667 (5) <1%
Steven A. Sanders 25,752 (3)(5) <1%
John R. Loveland 117,093 (4)(5) 1.0%
All Officers & Directors
as a Group (8 persons) (2)(3)(4)(5) 4.2%
(1) The beneficial owners have sole voting and
investment power over the shares owned.
(2) Includes 1,470 shares owned by Mr. Browns
children as to which Mr. Brown disclaims
beneficial ownership.
(3) Includes 200 shares which are owned by Mr.
Sanders' wife as custodian for the son as to
which Mr. Sanders disclaims beneficial
ownership.
(4) Includes 50,000 shares issuable upon exercise
of currently exercisable options. Does not
include 3,148,200 shares currently owned by
Limited of which Mr. Loveland is a director.
Includes 66,659 shares owned by Mr. Loveland's
wife as to which Mr. Loveland disclaims
beneficial ownership.
(5) Director
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS
On July 1, 1995, the Company entered into a
lease agreement with O'Brien & Gere Property
Development (an affiliate) to occupy approximately
17,000 square feet of office and garage space. The
terms of the lease extend through June 30, 1998.
Total rent expense incurred in 1997 amounted to
$89,000.
On November 5, 1997, the Company entered into an
option with O'Brien & Gere Property Development (an
affiliated party) to sell the eastern portion of the
Massena Property, the tanks and the dock for $ 2
million.
During 1997, the Company provided $1,507,364 of
remediation, sub-contract support and project
services to subsidiaries O'Brien & Gere Limited, a
shareholder. Services provided to O'Brien & Gere
Limited subsidiaries were at competitive rates which
are bid on a project by project basis.
The Company purchases technical, accounting
and consulting services from subsidiaries of
O'Brien & Gere Limited, a shareholder. The
costs for these services amounted to $ 97,225 in
1997.
The Company had a $1,000,000 unsecured line of
credit with O'Brien & Gere Limited, a shareholder,
due on March 1, 1998. On October 14, 1997 in
accordance with the Company's debt restructuring
plan, O'Brien & Gere Limited forgave the $
1,000,000 unsecured line of credit. Interest expense
amounted to $59,453 for 1997.
The Company's revolving loan agreement is
guaranteed by O'Brien & Gere Limited, a shareholder
for an amount not to exceed $500,000.
Steven A. Sanders, a director of the Company, a
partner of The Law Offices of Beckman, Millman
and Sanders, P.C. which provides professional
services to the Company, and it is anticipated
that it will continue to do so.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K
Page
(a) Financial Statements and Exhibits
(1) Report of Independent Auditors. F-1
Consolidated Balance Sheets at
December 31, 1997 and 1996. F-2
Consolidated Statements of
Operations for the years
ended December 31, 1997, 1996 and 1995. F-3
Consolidated Statements of
Shareholders' Equity (Deficit) for the
years ended December 31, 1997,1996 and 1995. F-4
Consolidated Statements of Cash Flows for
the years ended December 31,1997,1996 and 1995. F-5
Notes to Consolidated Financial Statements. F-6
(2) All schedules for which provision is
made in the applicable accounting regulation
of the Securities and Exchange Commission are not
required under the related instructions
or are inapplicable, and therefore have
been omitted.
(21) Subsidiaries of the Company:
St. Lawrence Industrial Services Inc.
OP-TECH Environmental Services
Limited - Ontario, Canada
(b) Reports on Form 8-K
The Company did not file any Current Reports
on Form 8-K during the three months ended
December 31, 1997.
(c) Exhibits
10.1 Union and Employment Contracts (1)-
Incorporated herein by reference to the Company's Form
10-K/A F/Y/E December 31,1996.
10.2 Voting Agreement
10.3 Memorandum of Agreement and Exchange
SIGNATURES
Pursuant to the requirements of Section 13 or
15(d) of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be
signed on its behalf by the undersigned,
thereunto duly authorized.
OP-TECH
Environmental Services, Inc.
(Registrant)
By:/s/ John R. Loveland
John R. Loveland
Chief Executive Officer
April 15,1998
Pursuant to the requirements of the Securities
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 31st day of March 1998.
/s/ John R. Loveland
John R. Loveland Director and
Chairman of
the Board(Chief
Executive Officer)
/s/ Cornelius B. Murphy, Jr.
Cornelius B. Murphy, Jr. Director
/s/ Terry L. Brown
Terry L. Brown Director
/s/ Richard L. Elander
Richard L. Elander Director
/s/ Steven A. Sanders Assistant Secretary
Steven A. Sanders and Director
/s/ Joseph M. McNulty
Joseph M. McNulty Treasurer
/s/ Christopher J.Polimino Assistant Treasurer
Christopher J. Polimino
OP-TECH ENVIRONMENTAL
SERVICES, INC. AND SUBSIDIARIES
REPORT ON AUDITED CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1997
Report of Independent Accountants
Shareholders and Board of Directors
OP-TECH Environmental Services, Inc. and Subsidiaries
We have audited the accompanying consolidated balance
sheets of OP-TECH Environmental Services, Inc. and Subsidiaries
as of December 31, 1997 and 1996, and the related consolidated
statements of operations, shareholders' equity (deficit), and
cash flows for the three years in the period ended December 31,
1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. 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 audits provide 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 at December 31, 1997 and 1996,
and the consolidated results of their operations and their cash
flows for the three years in the period ended December 31, 1997,
in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements
have been prepared assuming that the Company will continue as a
going concern. As discussed in Note 2 to the financial
statements, the Company has suffered recurring losses from
operations that raise substantial doubt about its ability to
continue as a going concern. Management's plans in regard to
these matters are also described in Note 2. The financial
statements do not include any adjustments that might result from
the outcome of this uncertainty.
As discussed in Note 5 to the consolidated financial
statements, in 1996 the Company changed its method of accounting
for the impairment of long-lived assets.
Syracuse, New York
March 13, 1998, except as to certain
information contained in Note 6,
for which the date is April 6, 1998
Consolidated Balance Sheets
December 31, 1997 and 1996
ASSETS 1997 1996
Current assets:
Cash and cash
equivalents $81,517 $19,077
Accounts receivable
(net of allowance
for doubtful
accounts
of approximately
$119,000 in 1997
and $33,000 in
1996):
Unaffiliated parties 1,948,102 890,028
Affiliated parties 126,247 658,690
2,074,349 1,548,718
Costs on uncompleted
projects applicable
to future billings 132,590 100,941
Prepaid expenses 105,792 117,082
Other assets 78,653 151,418
Total current assets 2,472,901 1,937,236
Property and
equipment, net 622,979 1,234,949
Assets held for sale 1,675,000 1,908,677
Other assets 5,591 74,547
$4,776,471 $5,155,409
LIABILITIES AND SHAREHOLDERS' EQUITY(DEFICIT)
Current liabilities:
Bank overdraft $224,458 $74,982
Notes payable
to bank 500,000 971,000
Accounts payable:
Unaffiliated parties 1,008,236 879,084
Affiliated parties 118,159 112,997
1,126,395 992,081
Billings in
excess of costs
and estimated
profit on
uncompleted
contracts 309,927 238,063
Accrued payroll
and related
liabilities 272,772 208,385
Accrued expenses
and other
liabilities 148,594 233,562
Current portion of
long-term debt 107,911 2,198,121
Total current
liabilities 2,690,057 4,916,194
Long-term debt 120,944 -
Long-term notes
payable - shareholder - 875,000
120,944 875,000
Shareholders' equity
(deficit):
Common stock,
par value $.01
per share;
authorized 20,000,000
shares; 11,555,100
and 4,854,497 shares
outstanding as of
December 31, 1997
and 1996,
respectively 115,551 48,535
Additional
paid-in capital 7,773,555 4,491,773
Accumulated deficit (5,923,636)(5,176,093)
1,965,470 (635,785)
$4,776,471 $5,155,409
The accompanying notes are an integral part of the
consolidated financial statements.
Consolidated Statements of Operations
Years Ended December 31, 1997, 1996 and 1995
1997 1996 1995
Project billings
and services $6,993,221 $5,792,548 $7,145,587
Project costs 4,959,449 4,036,846 4,756,576
Gross margin 2,033,772 1,755,702 2,389,011
Selling, general
and administrative
expenses 2,569,486 2,593,996 2,871,719
Provision for
impairment of
long-lived assets 797,686 342,896 -
Operating loss (1,333,400) (1,181,190) (482,708)
Other income
and expense:
Interest expense (402,144) (357,173) (357,460)
Other income
(expense), net (11,999) (14,957) (3,503)
(414,143) (372,130) (360,963)
Loss before
income taxes
and extraordinary
item (1,747,543) (1,553,320) (843,671)
State income taxes - - 3,366
Loss before
extraordinary
item (1,747,543) (1,553,320) (847,037)
Extraordinary gain
on forgiveness
of debt 1,000,000 - -
NET LOSS $(747,543) $(1,553,320) $(847,037)
Earnings per
common share -
basic and dilutive:
Loss before
extraordinary item $(.32) $(.32) $(.17)
Extraordinary item .18 - -
Net loss $(.14) $(.32) $(.17)
The accompanying notes are an integral part of the
consolidated financial statements.
Consolidated Statements of Shareholders' Equity
(Deficit)
Years Ended December 31, 1995, 1996 and 1997
Additional
Common Paid-in Accumulated
Stock Capital Deficit Total
Balances at
December 31, 1994 $48,461 $4,480,684 $(2,775,736) $1,753,409
Issuance of
3,962 shares 39 4,473 - 4,512
Net loss - - (847,037) (847,037)
Balances at
December 31, 1995 48,500 4,485,157 (3,622,773) 910,884
Issuance of
3,500 shares 35 6,616 - 6,651
Net loss - - (1,553,320) (1,553,320)
Balances at
December 31, 1996 48,535 4,491,773 (5,176,093) (635,785)
Conversion of debt
to 6,702,140 shares
67,021 3,284,049 - 3,351,070
Retirement of
1,537 shares (5) (2,267) - (2,272)
Net loss - - (747,543) (747,543)
Balances at
December 31, 1997 $115,551 $7,773,555 $(5,923,636) $1,965,470
The accompanying notes are an integral part of the
consolidated financial statements.
Consolidated Statements of Cash Flows
Years Ended December 31, 1997, 1996 and 1995
1997 1996 1995
Operating activities:
Net loss $(747,543) $(1,553,320) $(847,037)
Adjustments to
reconcile net loss
to net cash
(used in) provided
by operating
activities:
Extraordinary
gain on forgiveness
of debt (1,000,000) - -
Provision for
loss on accounts
receivable 190,594 131,290 126,334
Depreciation
and amortization 351,812 486,021 728,438
Provision for
impairment of
long-lived assets 716,710 342,896 -
Interest expense
converted to
common stock 166,836 - -
Loss on disposal
of equipment - - 3,770
(Increase) decrease
in operating
assets and increase
(decrease)
in operating
liabilities:
Accounts receivable (716,225) (419,049) 338,765
Costs on
uncompleted
projects applicable
to future billings (31,649) 1,258 (1,141)
Prepaid expenses
and other assets 84,055 6,209 (2,743)
Billings and
estimated profit
in excess of costs
of uncompleted
contracts 71,864 88,861 (18,221)
Accounts payable
and other accrued
expenses 165,733 469,712 (19,471)
Net cash (used in)
provided by
operating activities (747,813) (446,122) 308,694
Investing activities:
Purchases of
property and equipment (120,488) (153,953) (503,640)
Proceeds from sale
of property and
equipment 7,793 - 5,707
Net cash used
in investing
activities (112,695) (153,953) (497,933)
Financing activities:
Cash overdrafts 149,476 74,982 -
Proceeds from notes
payable to banks and
long-term borrowings,
net of financing costs 511,904 1,732,000 231,621
Proceeds from notes
payable to shareholders 525,000 630,000 140,000
Principal payments on
current and long-term
borrowings (263,432) (1,856,525) (310,998)
Proceeds from
issuance of
common stock - 6,651 4,512
Net cash provided
by financing activities 922,948 587,108 65,135
Increase (decrease) in
cash and cash equivalents 62,440 (12,967) (124,104)
Cash and cash equivalents
at beginning of year 19,077 32,044 156,148
CASH AND CASH EQUIVALENTS
AT END OF YEAR $81,517 $19,077 $32,044
Non-cash items:
Conversion of debt
and related
accrued interest to
equity (including $166,836
of 1997 interest expense) 3,351,070 - -
Shareholders retirement
of common stock 2,272 - -
The accompanying notes are an integral part of the
consolidated financial statements.
Notes to Consolidated Financial Statements
December 31, 1997, 1996 and 1995
1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
OP-TECH Environmental Services, Inc., a Delaware
corporation and Subsidiaries (the "Company"), provides
comprehensive environmental services predominately in Upstate
and Central New York. The Company performs industrial cleaning
of non-hazardous materials, provides varying services relating
to plant facility closure including demolition and asbestos
services, provides remediation services for sites contaminated
by hazardous materials and provides emergency spill response
services. The Company has two subsidiaries, St. Lawrence
Industrial Services, Inc., a New York corporation and OP-TECH
Environmental Services, Ltd., a Canadian subsidiary.
Principles of Consolidation
The accompanying consolidated financial statements
include the accounts of the Company and its wholly-owned
subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity
with generally accepted accounting principles 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.
One of the more significant estimates includes the
evaluation of impairment of the Company's long-lived assets. As
more fully described in Note 5, the Company has had certain
property held for sale appraised by an independent third party.
Such appraisals are dependent upon various assumptions and
estimates, which are subject to change over time. Future
changes in these estimates may have a material effect on the
conclusions reached and the determination of impairment.
Cash Equivalents
The Company considers all highly liquid investments
with a maturity of three months or less when purchased to be
cash equivalents. The carrying amount reported in the balance
sheet for cash and cash equivalents approximates its fair value.
Notes to Consolidated Financial Statements
December 31, 1997, 1996 and 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Project Income Recognition and Unbilled Project Costs
Predominately, contracts are short-term in nature,
less than three months, and revenue is recognized as the costs
are incurred and billed. Income on long-term contracts is
recognized on project billings based on the
percentage-of-completion method utilizing the cost-to-cost
basis. Project costs are generally billed in the month they are
incurred and are shown as current assets.
In the event the 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.
Concentration of Business Risk - Significant Customers
Sales to one customer, other than an affiliated
party, amounted to $463,000, $428,989 and $1,777,468 in 1997,
1996 and 1995, respectively. Accounts receivable at December
31, 1997, 1996 and 1995 include $102,510, $164,439 and $157,027,
respectively, from this customer.
For the year ended December 31, 1997 two individual
customers, including one shareholder, generated approximately
$1,970,000, or 28% of the Company's revenues.
Property and Equipment
Property and equipment are stated at cost.
Expenditures for repairs and maintenance are charged to expense
as incurred. Depreciation and amortization of assets including
those recorded under capital leases is provided for using the
straight-line method.
Assets Held for Sale
Assets held for sale are stated at the lower of
carrying amount or fair value, determined by an independent
appraisal, less cost to sell.
Long and Short-Term Debt
The carrying amounts of the Company's short-term
secured and unsecured borrowing and non-traded variable-rate
long-term debt agreements approximate fair value. The fair
values of the Company's non-traded fixed-rate long-term debt are
estimated using discounted cash flow analysis, based upon the
Company's current incremental borrowing rates for similar types
of borrowing arrangements.
Notes to Consolidated Financial Statements
December 31, 1997, 1996 and 1995
1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Income Taxes
The Company provides for income taxes in accordance
with the liability method as set forth in Statement of Financial
Accounting Standards No. 109 "Accounting for Income Taxes".
Under the liability method, deferred tax assets and liabilities
are determined based on the difference between the financial
statement and tax basis of assets and liabilities and are
measured using the enacted tax rates and laws that may be in
effect in the years in which the differences are expected to
reverse.
Impairment of Long-Lived Assets
In March 1995, the Financial Accounting Standards
Board ("FASB") issued Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets to Be
Disposed Of ("FAS 121"), for fiscal years beginning after
December 15, 1995. This statement requires long-lived assets
and certain identifiable intangibles, to be held and used by the
Company and assets to be disposed of by the Company, to be
reviewed for impairment whenever events or changes in
circumstances indicate the carrying amount of an asset may not
be recoverable. As a result the Company's assets classified as
assets held for sale and assets to be held and used have been
evaluated in accordance with the provisions of SFAS 121.
Earnings Per Share
The Company adopted SFAS No. 128, "Earnings Per
Share", as of December 31, 1997. Under the new standard, basic
and diluted earnings per share are presented for each period in
which a statement of operations is presented. Basic earnings
per share is computed by dividing income less preferred stock
dividends by the weighted average shares actually outstanding
for the period. Diluted earnings per share includes the
potentially dilutive effect of shares issuable under the
employee stock purchase and incentive stock option plans. Due
to the losses incurred by the Company, the impact of the
outstanding options and warrants are anti-dilutive and therefore
their impact has not been included in the dilutive earnings per
share disclosure.
Reclassification
Certain amounts in the 1996 financial statements have
been reclassified to conform to 1997 presentation.
Notes to Consolidated Financial Statements
December 31, 1997, 1996 and 1995
2.CAPITAL RESTRUCTURING AND BUSINESS OPERATIONS
The Company entered into letter of agreements with
its two largest creditors, OnBank & Trust Co. ("OnBank") and
O'Brien & Gere Limited ("OBG Limited"), a shareholder, on
October 14, 1997, which were executed as of December 31, 1997,
whereas OnBank and OBG Limited agreed to convert all or part of
their indebtedness, including accrued interest, into Common
Stock of the Company, and to forgive the remaining balance. OBG
Limited, to which the Company was indebted for $1,540,000,
including accrued interest of $140,000, forgave $1,000,000 of
the debt and converted the balance into 1,080,000 shares of the
Company's Common Stock. OnBank, to which the Company was
indebted for $2,811,070, including accrued interest of $75,332,
converted their debt and accrued interest for 5,622,000 shares
of the Company's Common Stock. The price per share, of $.50,
was negotiated with the two creditors and the Company based on
the price of recent sales and their estimates of future risk.
As a result of these transactions the Company has
positive shareholders' equity, and has been able to obtain bank
financing from another financial institution for working capital.
This restructuring has had a significant impact not
only on the Company's financial position, but also on its
operations and cash flows. Interest cost will be reduced from
the $300,000 - $400,000 per year level based on the new
capitalization of the Company.
The Company is focusing on growing its operations
throughout the Northeastern United States and Pennsylvania, two
areas not pursued by the Company in the past. Secondly, a new
sales force has been put in place to aggressively market its
core business areas as well as expansion areas. Third, the
Company is continuing its focus on its core service lines with
industrial and governmental customers which is expected to lead
to an increase in recurring work.
In order to achieve its 1998 budgeted revenue and
profit goals, the Company believes it can develop core service
revenues throughout the Northeastern United States and
Pennsylvania. The Company has relocated two of its senior
employees to the Eastern New York and Massachusetts regions to
build a client base that will provide recurring core service
revenue. With respect to its sales force, the Company has hired
several sales representatives throughout the New England and
Pennsylvania areas to pursue both private industrial and
governmental opportunities.
Based on its 1998 budget, the Company will have
adequate cash flow to meet its obligations as they come due.
Through the first two months of 1998 the Company was profitable.
However, there can be no assurance that the Company will be
able to continue to meet its budgets and maintain adequate cash
flows.
Notes to Consolidated Financial Statements
December 31, 1997, 1996 and 1995
3.RELATED PARTY TRANSACTIONS
The Company purchases technical, accounting, and
consulting services and rented certain office and warehouse
space from a shareholder and its affiliates. The cost for these
services amounted to $97,225, $150,743 and $122,924 in 1997,
1996 and 1995, respectively.
Additionally, the Company provided $1,507,364,
$1,109,963 and $1,637,499 of remediation, sub-contract support
and project services to a shareholder and its affiliates for the
years ending December 31, 1997, 1996 and 1995, respectively.
Interest expense on an unsecured line of credit with
a stockholder was approximately $94,000, $59,500 and $16,000 in
1997, 1996, and 1995, respectively.
4.PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the
following at December 31:
1997 1996
Furniture and fixtures $35,033 $35,033
Office machines 44,399 133,920
Utility vehicles 101,140 184,941
Field equipment 1,244,601 1,909,347
Aqueous treatment
system 100,002 332,909
1,525,175 2,596,150
Less: Accumulated
depreciation 902,196 1,361,201
$622,979 $1,234,949
Depreciation expense approximated $282,000, $448,000
and $472,000 for 1997, 1996, and 1995, respectively.
5.IMPAIRMENT OF LONG-LIVED ASSETS
Assets Held for Sale
As a result of the Company's operating losses, and
the need to increase cash flows, the Company decided, in the
third quarter of 1996, to actively pursue the disposal of under
utilized assets. The largest assets to be disposed are those
associated with the Massena Port Facility ("Facility"). The
Company acquired this asset in 1991 for the purpose of
developing a large aqueous treatment facility. Although the
Company has vigorously attempted to sell the Facility or find
alternative uses, it has been unable to do so in the last twelve
months. As a result, based upon management's evaluation of the
Facility's fair value, the Company has recognized an impairment
Notes to Consolidated Financial Statements
December 31, 1997, 1996 and 1995
5.IMPAIRMENT OF LONG-LIVED ASSETS (Continued)
Assets Held for Sale (Continued)
loss of approximately $308,000 in the fourth quarter
of 1997. Management's estimation of fair value is based upon an
evaluation of existing facts and circumstances, including
current real estate market conditions; the 1997 independent
appraisal; a discount related to an estimated period of time to
consummate the sale of the Facility; and certain other factors,
less costs of disposal.
The components of Assets Held for Sale consist of the
following:
Massena Port Facility,
net of write down $ 1,595,000
Equipment 80,000
$ 1,675,000
Assets to be Held and Used
Due to the on-going operating losses, the Company has
continuously evaluated whether there has been an impairment of
its long-lived assets in accordance with the provisions of SFAS
#121. As a result of this review, the Company recognized an
impairment loss, based upon estimated undiscounted cash flows
and a specific detailed review of fixed assets, of approximately
$489,000 of its long-lived assets during the third quarter of
1997. No further write downs were deemed to be necessary by
management at this time. Management will continue to monitor
whether, as a result of future events, any further impairment of
its assets has occurred.
6. DEBT AND LEASE OBLIGATIONS
At April 6, 1998, the Company has an annually
renewable borrowing agreement that provides borrowings up to
$1,000,000 on a revolving loan basis, collateralized by all
accounts receivable, inventory and equipment now owned or
acquired later. Advances are based upon 75% of certain accounts
receivable, as defined in the loan document. The revolving loan
is subject to renewal, at the bank's option and is payable on
demand, or if no demand is made outstanding advances are due on
February 16, 1999, and are guaranteed by a shareholder for an
amount not-to-exceed $500,000. Under the terms of the
guarantee, should the Bank be unable to recover the full amount
of outstanding balances from the Company's collateralized
assets, the shareholder agrees to purchase the Massena Port
Facility for the unrecovered balance up to a maximum of
$500,000. A wholly-owned subsidiary of the same shareholder
currently has an option to purchase the Massena Port Facility
for $2,000,000.
Notes to Consolidated Financial Statements
December 31, 1997, 1996 and 1995
6.DEBT AND LEASE OBLIGATIONS (Continued)
Borrowings against the revolving loan aggregated
$500,000 at December 31, 1997. Interest is charged at prime
plus 1.5%, or 10% at December 31, 1997. The weighted average
borrowing rates under short-term credit facilities was 10% and
10.25% at December 31, 1997 and 1996, respectively.
Long-term debt is summarized as follows at December
31, 1997:
Various equipment installment
obligations, due in aggregate monthly installment payments of
$8,992, including interest rates between 8.37% and 15%,
collateralized by equipment with a carrying value
of $260,134.
$228,855
Less: Current portion (107,911)
$120,944
Interest paid amounted to approximately $235,000,
$326,000 and $357,000 in 1997, 1996 and 1995, respectively.
Scheduled principal payments on long-term debt,
assuming the creditors do not call the debt, for the next five
years are as follows:
1998 $107,911
1999 82,026
2000 38,918
$228,855
Office facilities, a portion of which is with an
affiliate of the Company's shareholder, are leased under
noncancelable operating leases expiring at various dates through
1999. Rent expense incurred amounted to $89,000, $120,314 and
$98,720 in 1997, 1996 and 1995, respectively. Future minimum
lease payments under noncancelable operating leases are as
follows: 1998 - $50,572, 1999 - $7,818.
The Company incurred non-cash debt and capital lease
obligations of $47,500 and $16,104 in 1997 and 1996,
respectively, for the acquisition of equipment.
7.SHAREHOLDERS' EQUITY
The Company approved a stock option plan permitting
the issuance of up to 500,000 shares of common stock. The
purpose of the Plan, which is more fully defined by the Plan
document, provides various directors, officers and employees
("Eligible Employees") of the Company the opportunity to acquire
a stake in the growth of the Company, as well as a means of
promoting the Eligible Employee's maximum effort and continued
association with the Company.
Notes to Consolidated Financial Statements
December 31, 1997, 1996 and 1995
7.SHAREHOLDERS' EQUITY (Continued)
Stock options granted under the Plan allow the
Eligible Employee to purchase the Company's common stock, for a
period not to exceed three years, at the price established at
the grant date. Options granted under the Plan must specify
option periods ending not more than ten years from the date of
grant. The following table summarizes option activity of the
Plan during 1997, 1996 and 1995:
Weighted No. of
Average Shares
Exercise Under
Price Options
Balance at December 31, 1994 $2.50 250,000
Options granted - -
Balance at December 31, 1995 2.50 250,000
Options granted - -
Options forfeited - -
Balance at December 31, 1996 2.50 250,000
Options granted 1.50 50,000
Options expired (2.50) (250,000)
Balance at December 31, 1997 1.50 50,000
The Company has elected to follow APB Opinion No. 25
and related interpretations in accounting for the options
granted under the Plan. Under APB Opinion No. 25, because the
exercise price of the Company's stock is above the market price
of the underlying stock on the date of the grant, no
compensation expense is recognized. Under SFAS No. 123, rights
to acquire company stock are to be valued under the fair value
method and the proforma effect of such value on reported
earnings and earnings per share are to be disclosed in the notes
to the financial statements. As the fair value of these options
are not material, further disclosures are not required.
On March 2, 1994, the Company issued to Summit
Capital Associates, Inc. two separate warrant certificates to
purchase 146,250 and 125,000 shares, respectively, of common
stock at a price of $1.65 per share. These warrants expired on
March 1, 1998.
As of December 31, 1997, the Company has reserved a
total of 321,250 shares of common stock for issuance under the
agreements discussed above. No options or warrants have been
exercised.
During 1997 certain directors returned 500 shares of
common stock to the Company for no consideration. Said shares
were then retired by the Company.
Notes to Consolidated Financial Statements
December 31, 1997, 1996 and 1995
8.INCOME TAXES
The Company has net operating loss carryforwards of
approximately $5,425,000 for income tax purposes that expire
through the year ending December 31, 2012. State income taxes
and franchise taxes paid were $366 in 1997 and 1996.
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. For financial reporting purposes,
the Company increased their valuation allowance by $118,408 and
$541,505 in 1997 and 1996, respectively, due to the uncertainty
of realizing the deferred tax assets in future years. The
Company has recorded a valuation allowance, amounting to the
entire net deferred tax asset, due to the historical losses
incurred by the Company.
Significant components of the Company's deferred tax
liabilities and assets as of December 31, 1997 and 1996 are as
follows:
1997 1996
Deferred tax liabilities:
Tax over book depreciation $60,218 $154,626
Deferred tax assets:
Net operating
loss carryforward $1,844,768 $1,817,757
Accounts receivable
reserve 24,602 11,259
Other 6,289 22,643
Total deferred tax assets 1,875,659 1,851,659
Valuation allowance
for deferred assets (1,815,441) (1,697,033)
Deferred tax assets $60,218 $154,626
Net deferred taxes $ 0 $ 0
9.EMPLOYEE BENEFIT PLAN
During 1992 the Board of Directors approved an
employee retirement plan which covers substantially all
employees. The Plan is funded by voluntary employee
contributions which are matched by the Company at a designated
percentage, and additional contributions by the Company at the
discretion of the Board of Directors. There were matching
contributions to the plan of $9,137, $12,083 and $10,108 in
1997, 1996 and 1995, respectively, by the Company. The Company
did not make any discretionary contributions to the Plan in
1997, 1996 and 1995.
Notes to Consolidated Financial Statements
December 31, 1997, 1996 and 1995
10.COMMITMENT AND CONTINGENCIES
The Company is subject to various federal, state and
local regulations relating to environmental matters, including
laws which require the investigation and, in some cases,
remediation of environmental contamination. The Company's
policy is to accrue and charge to operations environmental
investigation and remediation expenses when it is probable that
a liability has been incurred and an amount is reasonably
estimable.
MEMORANDUN OF AGREEMENT AND EXCHANGE
THIS MEMORANDUN OF AGREEMENT AND EXCHANGE (hereinafter referred
to as the
"Memorandum") made by and among ONBANK & TRUSR co., 101 South
Salina Street, Syracuse, New York 13202 (hereinafter referred to
as the "Bank") and OP-TECH ENVIRONMENTAL SERVICES, INC., 6392
Deere Road, Syracuse, New York 13206 (hereinafter referred to as
"OP-TECH") and O'BRIEN & GERE LIMITED, 5000 Brittonfield
Parkway, East Syracuse, New York 13057 (hereinafter referred to
as "O'Brien & Gere") on the date set forth below.
W-I-T-N-E-S-S-E-T-H:
WHEREAS, the Bank holds claims against Op-Tech in the
total amount of 2,811,070.69 million dollars secured by various
security interests and mortgage liens upon property of Op-Tech,
all of which claims and liens, etc. are evidenced by various loan
documents ("hereinafter referred to as the "Loan Documents") ;
and WHEREAS, O'Brien & Gere holds claims against Op-Tech in the
total amount of 1.54 million dollars (including all accrued
interest) which claims are evidenced by various notes and other
documents (hereinafter referred to as "O'Brien & Gere
Indebtedness"); and WHEREAS, Op-Tech has requested that the Bank
and O'Brien & Gere cooperate in the restructuring of the
obligations of Op-Tech; and WHEREAS, O'Brien & Gere is willing to
accommodate the request of Op-Tech by forgiving one million
dollars of the O'Brien & Gere Indebtedness and exchanging .54
million dollars of the O'Brien & Gere Indebtedness in
consideration of the issuance by Op-Tech of its common stock; and
WHEREAS, the Bank is willing to accommodate the request of Op-
Tech by exchanging all of its claims against Op-Tech and the
collateral security therefor in the consideration of the issuance
by Op-Tech of its common stock. WHEREAS, the Bank is willing to
accommodate the request of Op-Tech by exchanging all of its
claims against Op-Tech and the collateral security therefor in
the consideration of the issuance by Op-Tech of its common stock.
NOW, THEREFOR, the Bank and Op-Tech and O'Brien & Gere do hereby
agree, represent and covenant as follows: Simultaneously with
the execution hereof Op-Tech has duly issued, tendered and
delivered to the Bank a certificate (hereinafter referred to as
the "Bank Certificate") demonstrating the ownership by the Bank
of 5,622,140 million shares of the common stock of Op-Tech.
Simultaneously with the execution hereof, the Bank has tendered
and delivered to Op-Tech by assignment all of the original Loan
Documents in consideration of the delivery to the Bank of the
aforesaid Bank certificate by Op-Tech. Simultaneously with
the execution hereof, Op-Tech has duly issued, tendered and
delivered to O'Brien & Gere a certificate (hereinafter referred
to as the "O'Brien & Gere Certificate") demonstrating the
ownership by O'Brien & Gere of 1.08 million shares of the common
stock of Op-Tech. Simultaneously with the execution hereof,
O'Brien & Gere has cancelled the O'Brien & Gere Indebtedness and
exchanged part of the O'Brien & Gere Indebtedness in
consideration of the delivery to O'Brien & Gere of the aforesaid
O'Brien & Gere Certificate by Op-Tech. The transactions
described herein were executed pursuant and subject to and in
reliance upon and in consideration of the terms, provisions and
conditions of the Letter Agreement executed by and among the
Bank, Op-Tech and O'Brien & Gere dated as of October 13, 1997,
and the voting Agreement executed between the Bank and O'Brien &
Gere on or about even date herewith , and the Assignment executed
and delivered by the Bank to Op-Tech on or about even date
herewith, and the cancellation and exchange of the O'Brien & Gere
Indebtedness executed and delivered by O'Brien & Gere to Op-Tech
on or about even date herewith, and the letter issued by Op-Tech
to the Bank on or about even date herewith, and the letter issued
by Op-Tech to O'Brien & Gere on or about even date herewith, and
this Memorandum (cumulatively referred to as the "Exchange
Documents"), all of which terms, provisions and conditions shall
survive the execution of this Memorandum and the exchange of the
aforesaid Bank Certificate and Loan Documents, and aforesaid
O'Brien & Gere Certificate and cancellation and exchange of the
O'Brien & Gere Indebtedness, and shall continue in full force and
effect thereafter. Op-Tech shall pay all of the costs and
expenses to be accrued or incurred for the Bank's filing of Forms
3 and 13 (g) with the Securities and Exchange Commission. The
transactions described herein, this Memorandum, and the other
Exchange Documents shall not in any way affect, amend, modify,
terminate or discharge any agreement, contract or instrument
heretofore executed and delivered by O'Brien & Gere to the Bank,
or any obligation or liability of O'Brien & Gere to the Bank
arising therefrom, all of which shall remain in full force and
effect.
Date: March___, 1998
OP-TECH ENVIRONMENTAL O'BRIEN & GERE LIMITED
SERVICES, INC.
By: ______________________ By:
_____________________
John R. Loveland,
Cornelius B. Murphy Jr.
Chief Executive Officer President
ONBANK & TRUST CO.
By: ______________________
Title
VOTING AGREEMENT
AGREEMENT dated as of March 25, 1998, between ONBANK & TRUST
CO., ("OnBANK") with a mailing address at PO Box 4983, Syracuse,
New York 13221-4983 and O'Brien & Gere Limited ("OBG") with an
office at 5000 Brittonfield Parkway, East Syracuse, NY 13057.
W-I-T-N-E-S-S-E-T-H
WHEREAS, OnBank will become a shareholder of OP-TECH
Environmental Services, Inc.("OP-TECH") through an exchange of
debt for common stock and OBG is presently a shareholder of OP-
TECH, and WHEREAS, OnBank and OBG own approximately 49% and 27%
of the outstanding common stock of OP-TECH, and WHEREAS, the
parties to this agreement are desirous of establishing certain
rights and relationship between themselves, NOW, THEREFORE, in
consideration of the mutual covenants contained herein, the
parties hereto covenant and agree as follows:
1. For a term of five (5) years from the date hereof (the
"Term"), OBG covenants and agrees that so long as it shall
continue to own voting shares of OP-TECH, it will vote all such
shares in any election of directors in such manner as to elect up
to two(2) nominees of OnBank to the Board of Directors. In the
event the OP-TECH board of directors shall consist of five (5)
members, it shall support the nomination of one (1) nominee to
the board; in the event of a larger board, it will support the
nomination of two(2) nominees to the board.
2. Notwithstanding anything herein to the contrary, OnBank &
Trust Co. shall not at any time be required or obligated to
nominate any persons for election to the Board of Directors of Op-
Tech.
3. OnBank has advised OBG that it is their intention to
liquidate its common stock position in OP-TECH during the period
of the Term. While OBG has not determined its policy regarding
its disposition of OP-TECH common stock, should it elect to sell
share, it will not do so at a faster rate than OnBank disposes of
shares. The parties recognize that they will periodically confer
to carry out the intent of the paragraph.
4. This agreement shall be binding upon and inure to the
benefit of the parties hereto and any person or transferee to
whom common stock of OP-TECH is transferred ("Transferee") (other
than a Transferee who purchases such stock in the public market)
and the respective heirs, executors, administrators, successors
and assigns of the parties (or Transferee) hereto.
5. All matters relating to this Agreement shall be governed and
construed by an under the laws of the State of New York.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the day and year first above written.
ONBANK & TRUST CO.
BY:__________________
Name:
Title:
O'Brien & Gere Limited
By: _________________
Name:
Title:
BECKMAN, MILLMAN & SANDERS, LLP
ATTORNEYS AT LAW
116 JOHN STREET, NEW YORK, N.Y. 10038
TELEPHONE
(212) 406-4700
TELECOPIER
(212) 406-3750
HUNGARY OFFICE
VACI UTCA 18
1052
BUDAPEST, HUNGARY
TELEPHONE: (361)266-5987
March 25, 1998
OnBank & Trust Co.
101 South Warren Street
Syracuse, New York 13202
Melvin & Melvin, LLP
217 South Salina Street
Suite 700
Syracuse, New York 13202
Re: Exchange ("Exchange") of indebtedness owed by Op-Tech
Environmental Services, Inc. ("Op-Tech") to OnBank
&
Trust Co. ("Bank") in the aggregate amount of
$2,735,738.27 principal and $75,332.42 interest
accrued
through December 1, 1997 ("Debt") in consideration
of
issuance to the Bank of 5.6 million shares ("Stock")
of
the common stock of Op-Tech evidenced by a
certificate (s)
("Certificate") thereof
Gentlemen:
We have acted as counsel to Op-Tech in connection with the
Exchange. Said Exchange will be executed pursuant to the Letter
Agreement ("Letter Agreement") executed among the Bank, Op-Tech
and O'Brien & Gere, Limited ("OBG") dated as of October 13, 1997;
Memorandum of Agreement and Exchange ("Memorandum") executed
among the Bank, Op-Tech and OBG on or about even date herewith;
Voting Agreement executed among the Bank and OBG on or about even
date herewith; Letter ("Op-Tech Letter") issued by Bank to Op-
Tech (all of which including the Certificate are referred to
cumulatively as the "Exchange Documents").
In connection with this opinion, we have reviewed the proceedings
of Op-Tech in relation to the Exchange and the Exchange
Documents, and such other documents, representations, statements
and certificate of public officials, Op-Tech, and others as we
have deemed relevant or proper as a basis for our opinion set
forth herein. In addition, we have assumed the genuineness of
signatures on original documents and the conformity to the
original of all copies.
BECKMAN, MILLMAN & SANDERS, LLP
Based on the foregoing and such other investigations as we
deem proper and advisable we are of the opinion that:
Op-Tech is a duly organized, validly existing corporation, and is
in good standing under the laws of the State of Delaware, has the
power to own its assets and to transact the business in which it
is presently engaged.
Op-Tech has an authorized capitalization consisting of twenty
million (20,000,000) shares of common stock $.01 par value, of
which as of December 31, 1997, 11,555,123 shares were outstanding
and 231,250 shares were issuable pursuant to the options
outstanding.
The execution and delivery by Op-Tech of the Exchange Documents
and the performance by Op-Tech thereunder as provided for therein
(a) have been duly authorized by all necessary action, (b) do not
contravene any law or governmental regulation or, to the best of
our knowledge, any contractual restriction binding on or
affecting them or any of their properties, and (c) the execution,
delivery and perfection thereof are within the capacity and power
of each of the persons who have executed the Exchange Documents
on behalf of Op-Tech.
No consent or approval of any person, and no consent, license
approval, authorization, or declaration of any governmental
authority, bureau, or agency of the United States of America or
the States of New York or Delaware, or to the best of our
knowledge, of any other jurisdiction is or will by required in
connection with the execution, delivery or performance by Op-Tech
of the Exchange Documents.
The execution and delivery of the Exchange Documents and the
performance by Op-Tech thereunder, are in compliance with and
will not violate any New York or Delaware or federal law
((including, without limitation, the Securities Act of 1933, as
amended ("Act"), the Securities Exchange Act of 1934, or New York
General Business law Article 23-A)), rule or regulation of
general applicability, or any judgement, order, decree, writ or
injunction known to us to be binding on or applicable to Op-Tech
and will not contravene the Certificate of Incorporation or by-
laws of Op-Tech.
The Exchange Documents have been duly executed and delivered by
Op-Tech and, assuming the due execution and delivery where
appropriate, by the Bank. Each of such Exchange Documents
constitutes the valid and legally binding obligation of each of
the parties who have executed it, and it is enforceable in
accordance with its terms.
Upon the issuance and delivery to it of the Certificate, the Bank
will be the absolute owner, free and clear of the rights or
interest of any party of 5.6 million shares of the common stock
of Op-Tech. The stock will be fully paid for, non-assessable and
validly issued pursuant to the exemption provided by Section 4(2)
and/or 4(6) of the Act. None of the other shareholders of Op-Tech
have or will have any pre-emptive rights with respect to either
the Certificate or the Stock or any shares of Op-Tech issued
hereafter. At the time of its issuance, the Stock will not be
registered and the Certificate will bear a Rule 144 legend.
Other than an obligation to file Forms 3 and 13(d) under the
Securities Exchange Act of 1934, no other obligations or duties
accrue to the Bank by virtue of its acquisition and/or ownership
of the stock and/or execution and performance of the Exchange
Documents.
It is acknowledged that the company's information statement
noticed a special meeting of stockholders to be held December 26,
1997 at the offices of the company. We are advised that no
stockholders appeared at the meeting. We are further advised
that on December 27, 1997, OBG and Richard L. Elander, holders of
a majority of the common stock of the company, executed a consent
of shareholders approving an amendment to the company's
certificate of incorporation. We are of the opinion that
stockholders approval of the above mentioned amendment was duly
authorized.
The above mentioned information statement recited in part that
the company had no obligation to file a registration statement
providing for a sale of company shares owned by bank and OBG. We
are advised
by the company that at the time the information statement was
distributed, it believed they were under no obligation to file a
registration statement. We are of the opinion that because it
subsequently became necessary for the company to agree to file a
registration statement for the sale of shares owned by Bank to
complete a debt for stock exchange, such action did not render
the information statement defective.
The Above opinions are provided solely for your benefit in
connection with the transactions described above and may not be
used or relied upon, or published or communicated to, any other
person, without our prior written consent.
Accompanying this letter is a certificate of malpractice
insurance in the amount of $2,000,000 addressed to the Bank for
the Bank's reliance concerning this letter and the Exchange.
Very truly yours,
Beckman, Millman & Sanders,
LLP
By: _________________________
Steven A.
Sanders, a partner
of the firm
Sworn to before me
This 25th day of March, 1998
_______________________
notary public
MACKENZIE SMITH LEWIS MICHELL & HUGHES, LLP
LAW OFFICES
OnBank & Trust Co.
101 South Warren Street
Syracuse, New York 13202
Melvin & Melvin, LLP
217 South Salina Street
Suite 700
Syracuse, New York 13202
RE: Restructure of Debt of OP-TECH Environmental Services, Inc.
("OP-TECH") including the Exchange ("Exchange") for common stock
of OP-TECH of the indebtedness owed by OP-TECH to OnBank & Trust
Co. ("Bank") and the forgiveness and exchange ("Replacement")
for common stock of OP-TECH of the indebtedness owed by OP-TECH
to O'Brien & Gere Limited ("OBG")
Gentlemen:
We have acted as counsel to OBG in connection with the exchange
and the replacement. Said exchange and replacement will be
executed pursuant to the letter agreement ("Letter Agreement")
executed among the Bank, OP-TECH and OBG dated as of October 13,
1997 ; Memorandum of Agreement and Exchange ("Memorandum")
executed among the Bank, OP-TECH and OBG on or about even date
herewith; Voting Agreement executed among the bank, and OBG on or
about even date herewith; Letter ("OP-TECH Letter") issued by OP-
TECH to the Bank and OBG on or about even date herewith; and
assignment issued by the bank to OP-TECH (all of which are
referred to cumulatively herein as the "Exchange and Replacement
Documents").
In connection with this opinion, we have reviewed the proceedings
of OBG in relation to the Exchange and Replacement Documents, and
such other documents, representations, statements and
certificates of public officials, OBG, and others as we have
deemed relevant or proper as a basis for our opinion set forth
herein. In addition, we have assumed the genuineness of
signatures on original documents and the conformity to the
original of all copies submitted to us as photocopies or
conformed copies.
Based on the foregoing and such other investigations as we deem
proper and advisable we are of the opinion that:
1. OGB is a duly organized, validly existing corporation, and
is in good standing under the laws of the State of New York, has
the power to own its assets and to transact the business in which
it is presently engaged.
2. The execution and delivery by OBG of the Exchange and
Replacement Documents and the performance by OBG thereunder as
provided for therein (a) have been duly authorized by all
necessary action, (b) do not contravene any law or governmental
regulation or, to the best of our knowledge, any contractual
restriction binding on or affecting them or any of their
properties, and (c) the execution, delivery and perfection
thereof are within the capacity and power of each of the persons
who have executed the exchange and replacement documents on
behalf of OBG.
3. No consent or approval of any person, and no consent,
license, approval, authorization, or declaration of any
governmental authority, bureau, agency of the United States of
America or the State of New York, or to the best of our
knowledge, of any other jurisdiction is or will be required in
connection with the execution, delivery or performance by OBG of
the exchange and replacement documents.
4. The execution and delivery of the exchange and replacement
documents and the performance by Obg thereunder, are in
compliance with and will not violate any New York or federal law,
rule or regulation of general applicability, or any judgement,
order, decree, writ, injunction or agreement known to us to be
binding on or applicable to OBG and will not contravene the
certificate of incorporation or by-laws of OBG.
5. The exchange and replacement documents to which OBG is a
party have been duly executed and delivered by OGB. Each of such
exchange and replacement documents which was executed by OBG
constitutes the valid and legally binding obligation of OBG, and
it is enforceable in accordance with its terms, except as such
may be limited by applicable federal or state law relating to
bankruptcy, reorganization or insolvency, or other law generally
affecting the enforcement of creditors' rights and remedies.
The above opinions are provided solely for your benefit in
connection with the transactions described above and may not be
used or relied upon, or published or communicated to, any other
person, except the bank's counsel, Melvin & Melvin, LLP, without
our prior written consent.
Very truly yours,
MACKENZIE SMITH LEWIS MICHELL & HUGHES, LLP
OP-TECH ENVIRONMENTAL SERVICES, INC.
6392 DEERE ROAD
SYRACUSE, NEW YORK 13206
March 25, 1998
OnBank & Trust Co.
Gentlemen:
OnBank & Trust Co. ("OnBank") has become the owner of
approximately 49% of our common stock. These shares have been
issued to you pursuant to exemptions under the securities act of
1933, as amended (the "Act"). The certificate (s) evidencing
ownership of the shares bear a rule 144 restrictive legend.
We acknowledge that OnBank has accepted the legended certificate
(s) with the specific understanding and agreement that our
company will use its best efforts to provide for registration of
the shares during the early part of the year 2001 but no later
than April 30, 2001.
You are aware that the registration statement will be subject to
review by the securities and exchange commission. Upon the
registration statement being declared effective the legended
certificates referred to above will be exchanged for unlegended
stock certificates.
All expenses, other than underwriting discounts and commissions,
if any, incurred in connection with the registration filing
and/or qualification, including without limitation, all
registration, listing, filing and qualification fees, printers
and accounting fees, shall be borne by the company.
Cordially,
OP-TECH Environmental Svcs., Inc.
Gentlemen:
O'Brien & Gere Limited ("OBG") has become the owner of
approximately 27% of our common stock. These shares have been
issued to you pursuant to exemptions under the Securities Act of
1933, as amended (the "Act"). The certificate (s) evidencing
ownership of the shares bear a rule 144 restrictive legend.
We acknowledge that OBG has accepted the legended certificate (s)
with the specific understanding and agreement that our company
will use its best efforts to provide for registration of the
shares during the early part of the year 2001 but no later than
April 30, 2001.
You are aware that the registration statement will be subject to
review by the securities and exchange commission. Upon the
registration statement being declared effective the legended
certificates referred to above will be exchanged for unlegended
stock certificates.
All expenses, other than underwriting discounts and commissions,
if any, incurred in connection with the registration filing
and/or qualification, including without limitation, all
registration, listing, filing and qualification fees, printers
and accounting fees, shall be borne by the company.
Cordially,
OP-TECH Environmental Svcs., Inc.