-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FoIxAVcDB2Zm3vLfuB3AAsktQ2yL4MJVsxQLyq6qTKmJ++hUJUV3R8zjKX2V2uEQ 6VjoD9RySZwbOZ3Ws5VyQA== 0000858748-02-000006.txt : 20021118 0000858748-02-000006.hdr.sgml : 20021118 20021114181006 ACCESSION NUMBER: 0000858748-02-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20020930 FILED AS OF DATE: 20021114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: OP TECH ENVIRONMENTAL SERVICES INC CENTRAL INDEX KEY: 0000858748 STANDARD INDUSTRIAL CLASSIFICATION: HAZARDOUS WASTE MANAGEMENT [4955] IRS NUMBER: 911528142 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-19761 FILM NUMBER: 02827140 BUSINESS ADDRESS: STREET 1: 6392 DEERE ROAD CITY: SYRACUSE STATE: NY ZIP: 13206 BUSINESS PHONE: 3154631643 MAIL ADDRESS: STREET 1: 6392 DEERE RD CITY: SYRACUSE STATE: NY ZIP: 13206 FORMER COMPANY: FORMER CONFORMED NAME: MASADA CORP DATE OF NAME CHANGE: 19600201 FORMER COMPANY: FORMER CONFORMED NAME: MASADA INDUSTRIAL SERVICES INC DATE OF NAME CHANGE: 19600201 10-Q 1 txt902.txt OP-TECH 9/30/02 10-Q ______________________________________________________________________ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2002 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 0-19761 OP-TECH Environmental Services, Inc. (Exact name of registrant as specified in its charter) Delaware 91-1528142 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 6392 Deere Road, Syracuse, NY 13206 (Address of principal executive offices) (Zip Code) (315) 463-1643 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X or No APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of November 12, 2002: 15,318,787 ______________________________________________________________________ OP-TECH Environmental Services, Inc. and Wholly-Owned Subsidiaries INDEX Page No. PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets -September 30, 2002 (Unaudited) and December 31, 2001 (Audited)..3 Consolidated Statements of Operations -Three months ended September 30, 2002 and September 30, 2001 (Unaudited) -Nine months ended September 30, 2002 and September 30, 2001 (Unaudited)......................................................4 Consolidated Statements of Cash Flows -Nine months ended September 30, 2002 and September 30, 2001 (Unaudited)....................................................5 Notes to Consolidated Financial Statements (Unaudited).........6-8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...........................9-15 Item 3. Quantitative and Qualitative Disclosure About Market Risk .....16 PART II. OTHER INFORMATION .............................................17 SIGNATURES ....................................................18 2 ITEM # 1 FINANCIAL STATEMENTS PART 1 - FINANCIAL INFORMATION OP-TECH ENVIRONMENTAL SERVICES, INC. AND WHOLLY-OWNED SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) September 30, December 31, 2002 2001 ------------- -------------- ASSETS Current Assets: Cash $ 88,719 $ 51,818 Accounts receivable (net of allowance for doubtful accounts of approximately $200,000 and $195,000, respectively) 3,299,640 2,885,683 Costs on uncompleted projects applicable to future billings 335,665 420,115 Prepaid Expenses and Other current assets 413,104 315,150 ------------- ------------- Total Current Assets 4,137,128 3,672,766 Property and equipment, net 1,585,081 1,518,413 Assets held for sale 480,000 480,000 ------------- ------------- Total Assets $ 6,202,209 $ 5,671,179 ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable $ 708,305 $ 1,195,298 Billings in excess of costs and estimated profit on uncompleted projects 356,796 541,373 Accrued expenses and other current liabilities 333,424 334,198 Current portion of long-term debt 465,382 239,369 ------------- ------------- Total Current Liabilities 1,863,907 2,310,238 Long-term debt, net of current portion 697,288 698,346 Note payable to bank under line of credit 2,121,300 1,427,900 ------------- ------------- Total Liabilities 4,682,495 4,436,484 ------------- ------------- Shareholders' Equity: Common stock, par value $.01 per share; authorized 20,000,000 shares; 15,318,787 and 11,703,963 shares issued and outstanding as of September 30, 2002 and December 31, 2001, respectively 197,040 117,040 Additional paid-in capital 7,705,482 7,791,152 Accumulated deficit (6,338,956) (6,673,497) Treasury stock; 4,385,170 shares as of September 30, 2002 (43,852) - ------------- ------------- Total Shareholders' Equity 1,519,714 1,234,695 ------------- ------------- Total Liabilities and Shareholders' Equity $ 6,202,209 $ 5,671,179 ============= ============= The accompanying notes are an integral part of the financial statements. 3 ITEM # 1 FINANCIAL STATEMENTS PART 1 - FINANCIAL INFORMATION OP-TECH ENVIRONMENTAL SERVICES, INC. AND WHOLLY-OWNED SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) THREE MONTHS ENDED NINE MONTHS ENDED September 30, September 30, September 30, September 30, 2002 2001 2002 2001 ------------ ------------ ------------ ------------- Revenues: Project billings and services $ 3,728,173 $ 3,664,400 $ 10,453,271 $ 9,912,929 Project costs 2,578,700 2,738,364 7,419,087 7,104,559 ------------ ------------ ------------ ------------ Gross margin 1,149,473 926,036 3,034,184 2,808,370 ------------ ------------ ------------ ------------ Selling, general and administrative expense: Payroll expense and related payroll taxes and benefits 508,923 456,240 1,479,382 1,386,295 Depreciation 74,456 89,544 215,807 250,252 Occupancy 93,320 93,680 287,197 294,460 Professional Services 56,321 38,489 188,641 146,325 Office Expense 61,116 41,126 173,636 131,883 Business Insurance 54,084 30,747 125,688 78,682 Provision for impairment of long-lived assets - 300,000 - 300,000 Other expenses, net 62,055 (10,153) 112,292 38,499 --------- ------------ ------------ ----------- 910,275 1,039,673 2,582,643 2,626,396 --------- ------------ ------------ ----------- Operating income 239,198 (113,637) 451,541 181,974 --------- ------------ ------------ ----------- Other income and (expense): Interest expense (43,862) (53,843) (117,879) (171,077) Casualty gain from insurance proceeds, net (Note 5) - - - 301,881 Other, net (968) 5,032 877 (2,271) ---------- ------------ ------------ ------------ (44,830) (48,811) (117,002) 128,533 ---------- ------------ ------------ ------------ NET INCOME (LOSS) $ 194,368 $ (162,448) $ 334,539 $ 310,507 ========= ============ =========== ============ Earnings per common share: Basic and diluted $0.012 $(0.014) $0.024 $0.027 Weighted average shares outstanding: Basic 16,796,401 11,669,963 13,976,872 11,626,185 Diluted 16,406,915 11,669,963 13,770,055 11,626,185 The accompanying notes are an integral part of the financial statements. 4 ITEM # 1 FINANCIAL STATEMENTS PART 1 - FINANCIAL INFORMATION OP-TECH ENVIRONMENTAL SERVICES, INC. AND WHOLLY-OWNED SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) NINE MONTHS ENDED September 30, September 30, 2002 2001 ------------- -------------- Operating activities: Net income $ 334,539 $ 310,507 Adjustments to reconcile net income to net cash used in operating activities: Bad debt expense 101,078 100,223 Depreciation 227,306 258,824 Provision for impairment of long-lived assets - 300,000 Gain on insurance proceeds from loss on real property - (301,881) Loss on disposal of asset - 1,167 (Increase) decrease in operating assets and increase (decrease) in operating liabilities: Accounts receivable (515,035) (1,039,572) Costs on uncompleted projects applicable to future billings 84,450 225,823 Billings and estimated profit in excess of costs on uncompleted contracts (184,577) (67,470) Prepaid expenses and other current assets (97,955) 52,325 Accounts payable and accrued expenses (487,768) 24,562 ------------ ------------- Net cash used in operating activities (537,962) (135,492) ------------ ------------- Investing activities: Purchase of property and equipment (274,004) (523,601) Insurance proceeds from loss on real property - 308,167 ------------ ------------- Net cash used in investing activities (274,004) (215,434) ------------ ------------- Financing activities: Proceeds from issuance of common stock 388,996 5,000 Purchase of treasury stock (438,517) - Proceeds from note payable to bank and current and long-term borrowings 6,878,285 4,947,958 Principal payments on current and long-term borrowings (5,979,897) (4,602,722) ------------ ------------- Net cash provided by financing activities 848,867 350,236 ------------ ------------- Increase (Decrease) in cash 36,901 (690) Cash at beginning of period 51,818 6,249 CASH AT END OF PERIOD $ 88,719 $ 5,559 =========== =========== Non-cash items: Equipment purchased through bank and other financing sources $ 19,966 $ 155,478 Non-cash financing of insurance - $ 158,174 Cash paid for interest $ 117,879 $ 171,077 The accompanying notes are an integral part of the financial statements. 5 PART I - FINANCIAL INFORMATION SPECIAL NOTICE REGARDING FORWARD-LOOKING STATEMENTS The Company is including the following cautionary statement in this Form 10-Q to make applicable and take advantage of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995 for any forward-looking statement made by, or on behalf of, the Company. This 10-Q, press releases issued by the Company, and certain information provided periodically in writing and orally by the Company's designated officers and agents contain statements which constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The words expect, believe, goal, plan, intend, estimate, and similar expressions and variations thereof used are intended to specifically identify forward-looking statements. Where any such forward- looking statement includes a statement of the assumptions or basis underlying such forward-looking statement, the Company cautions that, while it believes such assumptions or basis to be reasonable and makes them in good faith, assumed facts or basis almost always vary from actual results, and the differences between assumed facts or basis and actual results can be material, depending on the circumstances. Where, in any forward-looking statement, the Company, or its management, expresses an expectation or belief as to future results, such expectation or belief is expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the statement of expectation or belief will result or be achieved or accomplished. Item 1. Financial Statements. OP-TECH ENVIRONMENTAL SERVICES, INC. AND WHOLLY-OWNED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Basis of Presentation The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, quarterly results include all adjustments (consisting of only normal recurring adjustments) that the Company considers necessary for a fair presentation of such information for interim periods. The unaudited financial statements include the accounts of the Company and its two wholly-owned subsidiaries; OP-TECH Environmental Services, Ltd, an inactive Canadian company, and OP-TECH AVIX, Inc., a company formed in January 2002 for purposes of pursuing and engaging in diversified lines of business. All material intercompany transactions and balances have been eliminated in consolidation. 6 2. Revenue Recognition The timing of revenues is dependent on the Company's backlog, contract awards, and the performance requirements of each contract. The Company's revenues are also affected by the timing of its clients planned remediation work as well as the timing of unplanned emergency spills. Historically, planned remediation work generally increases during the third and fourth quarters. Although the Company believes that the historical trend in quarterly revenues for the third and fourth quarters of each year are generally higher than the first and second quarters, there can be no assurance that this will occur in future periods. Accordingly, quarterly or other interim results should not be considered indicative of results to be expected for any quarter or for the full year. 3. Related Party Transactions The Company purchases subcontract labor services from St. Lawrence Industrial Services, Inc., which is owned by a shareholder and director of the Company. The costs for these services amounted to approximately $613,000 and $653,000 for the nine months ended September 30, 2002 and 2001, respectively. The costs for these services were comparable to those which would have been charged by a provider of labor services with no relationship to the Company. 4. Earnings per Share Basic earnings per share is computed by dividing net income by the weighted average shares outstanding. Diluted earnings per share includes the potentially dilutive effect of common stock equivalents. Warrants issued to a financial advisor in 1998 to purchase 302,500 shares of common stock at $1.65 per share expired in March 2001. Warrants were issued to a financial advisor in May 2002 to purchase 480,000 shares of common stock at $0.066 per share, expiring in May 2007. In May 2002, a private offering of the Company's common stock was made under Regulation D, Rule 506 of the Securities and Exchange Commission Act of 1933, as amended. Form D, Notice of sale of securities pursuant to regulation D, was filed with the Securities and Exchange Commission on June 13, 2002. The principal underwriter of the offering was Benchmark- Pellinore. The offering resulted in the sale of 8,000,000 shares of the Company's common stock at $0.06 per share to twenty-one accredited investors. Gross proceeds from the offering were $480,000. Expenses and fees, including an underwriting commission paid to Benchmark-Pellinore of $48,000, aggregated approximately $91,000. Net proceeds of the offering were approximately $389,000. Management used the proceeds from the offering to buy back into treasury 4,385,170 shares of common stock from the Company's two largest shareholders. 7 On August 2, 2002, the Company purchased into treasury 4,385,170 shares of its common stock from the Company's two largest shareholders. 2,811,070 shares were purchased from M&T Bank for $.10 per share, or $281,107. 1,574,100 shares were purchased from O'Brien & Gere Limited for $.10 per share, or $157,410. 5. Casualty Gain On January 21, 2001, a fire destroyed the offices of the Massena, NY branch. Insurance proceeds were received in the amount of $308,167 related to the insured replacement value of the property that was destroyed. The proceeds received were used to replace the destroyed building and contents at substantially the same cost. A loss on disposal of assets, representing the net book value of all the destroyed assets as of the date of the fire, was recorded in the amount of $6,286. Accordingly, the Company realized a casualty gain of $301,881 in the second quarter of 2001 as a result of the proceeds collected. 8 PART I - FINANCIAL INFORMATION Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. LIQUIDITY AND CAPITAL RESOURCES At September 30, 2002, the Company had cash and cash equivalents of $88,719 as compared to $51,818 at December 31, 2001. The Company voluntarily applies excess cash in the Company's operating account to pay down the Company's revolving line of credit. At September 30, 2002, the Company had working capital of $2,273,221 compared to $1,362,528 at December 31, 2001, with a current ratio of 2.22 to 1 at September 30, 2002 and 1.59 to 1 at December 31, 2001. For the nine months ended September 30, 2002, the Company's net cash used in operations was $537,962 compared to $135,492 during the nine months ended September 30, 2001. The increase in cash used in operations for the nine months ended September 30, 2002 was primarily a result of a net decrease in accounts payable as well as a net increase in accounts receivable and other current assets. The Company's net cash used in investing activities of $274,004 during the first nine months of the year was attributable to the purchase of various field and office equipment. Cash provided by financing activities for the nine months ended September 30, 2002 was $848,867, which was primarily due to a net increase in the Company's line of credit as a result of the cash used in operating activities. As of September 30, 2002, the Company had a loan agreement that provided for borrowings up to $2,300,000 on a revolving basis, collateralized by all accounts receivable, inventory and equipment now owned or acquired later. The loan is payable on May 31, 2004, bears interest at a rate of prime plus 1.25 percent, is subject to certain restrictive financial covenants, and is subject to default if there is a material adverse change in the financial or economic condition of the Company. As of September 30, 2002, borrowing against the revolving loan aggregated $2,121,300. During the first nine months of 2002, all principal payments on the Company's bank debt were made within payment terms. The Company expects, based on its operating results and the continued availability of its line of credit, that it will be able to meet obligations as they come due. 9 THE MASSENA PORT FACILITY The Massena Port Facility is a former oil tank farm that is located on the St. Lawrence River in Massena, NY. The property is improved with several buildings and a deep water docking facility for large ocean going ships. Currently, the Company uses the property for its Massena branch office headquarters, equipment storage and its Aqueous Treatment/360 Facility. The property has been held for sale since 1996, during which time the carrying value has been reduced from $1,900,000 to $480,000. During the third quarter of 2001, the Company recognized an additional provision for impairment of long-lived assets of $300,000 to adjust the carrying value of the Massena Port Facility to the estimated fair value, less cost of disposal, of $480,000. Management's estimation of fair value is based upon an evaluation of existing facts and circumstances, including current real estate market conditions. 10 RESULTS OF OPERATIONS BILLINGS The Company's project billings for the third quarter of 2002 increased 2% to $3,728,173 from $3,664,400 for the third quarter of 2001. For the nine-month period ended September 30, 2002 the Company's billings have increased 6% to $10,453,271 from $9,912,929 for the same period in 2001. When comparing the first nine months of 2002 to the same period in 2001, the overall increase in billings is due to several factors. Revenues from New York State Department of Environmental Conservation ("NYSDEC") remediation projects increased approximately $1,760,000. The increased revenue from NYSDEC remediation projects is primarily due to a single large project in the Plattsburgh, NY area in the first quarter and single large projects in the Massena, NY and Albany, NY areas in the second quarter. This increase was partially offset by decreases in revenue from asbestos remediation projects totaling approximately $787,000 and spill response, transportation and disposal projects totaling approximately $340,000. As part of the Company's plan to refocus its efforts on lines of work that are more profitable, the Company is being more selective in bidding on asbestos remediation projects. PROJECT COSTS AND GROSS MARGIN Project costs for the third quarter of 2002 decreased 6% to $2,578,700 from $2,738,364 for the same period in 2001. Project costs as a percentage of revenues were 69% and 75% for the three months ended September 30, 2002 and 2001, respectively. Gross margin for the third quarter of 2002 increased to 31% from 25% for the same period in 2001. For the nine-month period ended September 30, 2002, project costs increased 4% to $7,419,087 from $7,104,559 for the nine months ended September 30, 2001. Project costs as a percentage of revenues were 71% and 72% for the nine months ended September 30, 2002 and 2001, respectively. Gross margin for the nine months ended September 30, 2002 increased to 29% from 28% for the same period in 2001. As a result of increased billings for the nine-month period ended September 30, 2002, project costs also increased. The slight increase in the gross margin is due to the Company being more selective in project bidding and project managers meeting their budgetary guidelines. 11 SELLING, GENERAL, ADMINISTRATIVE AND INTEREST EXPENSES Selling, general and administrative expenses ("SG&A") for the quarter ended September 30, 2002 decreased 12% to $910,275 from $1,039,376 for the same period in 2001. For the nine month period ended September 30, 2002, SG&A decreased 2% to $2,582,643 from $2,626,396 for the same period in 2001. SG&A as a percentage of revenues was 25% for the nine months ended September 30, 2002 compared to 27% for the same period in 2001. When comparing SG&A excluding the effect of the impairment of long-lived assets, for the quarter ended September 30, 2002, SG&A increased 23% to $910,275 from $739,673 for the same period in 2001. For the nine-month period ended September 30, 2002, SG&A increased 11% to $2,582,643 from 2,326,396 for the same period in 2001. SG&A as a percentage of revenues increased to 25% versus 24% for the nine months ended September 30, 2001. When comparing the first nine months of 2002 to the same period in 2001, the overall increase in SG&A is due primarily to the commencement of operations of OP-TECH AVIX, Inc ("AVIX") in January 2002. AVIX accounted for SG&A of approximately $139,000 for the nine months ended September 30, 2002. Based on the categories of SG&A as illustrated on the Consolidated Statements of Operations on page 4, AVIX contributed the following amounts: Payroll Expenses and related payroll taxes and benefits $ 95,794 Depreciation 928 Occupancy 4,814 Professional Services 16,800 Office Expense 8,607 Other Expenses, net 12,295 ------------ $ 139,238 ============ SG&A, net of AVIX, as a percentage of revenues decreased to 23% for the nine months ended September 30, 2002 compared to 24% for the same period in 2001. 12 INTEREST EXPENSE Interest expense for the nine months ended September 30, 2002 decreased 31% to $117,879 from $171,077 for the same period in 2001. The decrease in interest expense was primarily due to a decrease in the average interest rate on the Company's floating rate debt. CASUALTY GAIN On January 21, 2001, a fire destroyed the offices of the Massena, NY branch. Insurance proceeds were received in the amount of $308,167 related to the insured replacement value of the property that was destroyed. The proceeds received were used to replace the destroyed building and contents at substantially the same cost. A loss on disposal of assets, representing the net book value of all the destroyed assets as of the date of the fire, was recorded in the amount of $6,286. Accordingly, the Company realized a casualty gain of $301,881 in the second quarter of 2001 as a result of the proceeds collected. NET INCOME The net income for the nine months ended September 30, 2002 and 2001 was $334,539, or $0.024 per share basic and diluted, and $310,507 (includes $301,881 casualty gain), or $0.027 per share basic and diluted, respectively. 13 CONTRACTUAL OBLIGATIONS The Company's future payments related to its material debt and other certain contractual obligations and the timing of those payments are set forth below. Since many of these payment amounts are not fixed, the amounts in the table are solely estimates as more fully indicated in the footnotes and the actual amounts may be different. Contractual Obligations Fiscal Year 2-3 4-5 After 5 ($ in thousands) 2002 (1) Years Years Years - ---------------------------- ----------- ---------- ---------- -------- Note payable to bank under lline of credit (2) - 2,121 - - Term loans (3) 296 446 238 - Equipment line of credit (4) 49 139 139 16 Equipment note payable (5) 33 55 - - 1. Amounts due within one year represent payment obligations from January 1, 2002 to December 31, 2002. 2. Note payable to bank under line of credit includes scheduled maturities, but excludes interest payments. The scheduled amortization does not consider the Company's ability to draw or pay down the line of credit facility prior to maturity. Remaining credit available under the line of credit is $179,000 at September 30, 2002. 3. Term loan payable includes scheduled maturities, but excludes variable rate interest payments. 4. Equipment line of credit includes scheduled maturities, but excludes interest payments. The scheduled amortization does not consider the Company's ability to draw or pay down the line of credit facility prior to maturity. Remaining credit available under the equipment line of credit is $733,886 at September 30, 2002. 5. Equipment note payable includes scheduled maturities including interest payments. 14 CRITICAL ACCOUNTING POLICIES AND ESTIMATES Management has identified the following critical accounting policies that affect the Company's more significant judgments and estimates used in the preparation of the Company's consolidated financial statements. The preparation of the Company's financial statements in conformity with accounting principles generally accepted in the United States of America requires the Company's management to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an on-going basis, management evaluates those estimates, including those related to assets held for sale, revenue recognition, allowance for doubtful accounts and contingencies and litigation. The Company states these accounting policies in the notes to the consolidated financial statements and in relevant sections in this discussion and analysis. These estimates are based on the information that is currently available to the Company and on various other assumptions that management believes to be reasonable under the circumstances. Actual results could vary from those estimates. The Company believes that the following critical accounting policies affect significant judgments and estimates used in the preparation of its consolidated financial statements: Contracts are predominately short-term in nature (less than three months) and revenue is recognized as costs are incurred and billed. Income on long-term fixed-priced contracts greater than three months is recognized on the percentage-of-completion method. Project costs are generally billed in the month they are incurred and are shown as current assets. Revenues recognized in excess of amounts billed are recorded as an asset. In the event interim billings exceed costs and estimated profit, the net amount of deferred revenue is shown as a current liability. Estimated losses are recorded in full when identified. The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments, which results in bad debt expense. Management determines the adequacy of this allowance by continually evaluating individual customer receivables, considering the customer's financial condition, credit history and current economic conditions. If the financial condition of customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. 15 Item 3. Quantitative and Qualitative Disclosure About Market Risk. There were no material changes in the Company's market risk or market risk strategies during the quarter ended September 30, 2002. 16 PART II - OTHER INFORMATION Item 1. Legal Proceedings. None Item 2. Changes in Securities. None Item 3. Defaults Upon Senior Securities. None Item 4. Submission of Matters to a Vote of Security Holders. None Item 5. Other Information. None Item 6. Exhibits and Reports on Form 8-K. None 17 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. OP-TECH Environmental Services, Inc. (Registrant) Date: November 14, 2002 /s/ Christopher J. Polimino Christopher J. Polimino President and Chief Executive Officer /s/ Douglas R. Lee Douglas R. Lee Chief Financial Officer and Treasurer 18 EX-1 3 cert.txt CEO AND CFO CERTIFICATION CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of OP-TECH Environmental Services, Inc. (the "Company") on Form 10-Q for the quarter ending September 30, 2002, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned Chief Executive Officer of the Company hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that: 1. I have reviewed this quarterly report on Form 10-Q of OP-TECH Environmental Services, Inc; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 14, 2002 /s/ Christopher J. Polimino Christopher J. Polimino Chief Executive Officer OP-TECH Environmental Services, Inc. CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of OP-TECH Environmental Services, Inc. (the "Company") on Form 10-Q for the quarter ending September 30, 2002, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned Chief Financial Officer of the Company hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that: 1. I have reviewed this quarterly report on Form 10-Q of OP-TECH Environmental Services, Inc; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 14, 2002 /s/ Douglas R. Lee Douglas R. Lee Chief Financial Officer OP-TECH Environmental Services, Inc. -----END PRIVACY-ENHANCED MESSAGE-----