10-Q/A 1 text3qa.txt 09/30/04 10-Q AMENDED FOR SEC COMMENT LETTER 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, 2004 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file 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 Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act) Yes or No X APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of October 31, 2004: 11,697,707 OP-TECH Environmental Services, Inc. and Wholly-Owned Subsidiaries INDEX PART I. FINANCIAL INFORMATION Page No. Item 1. Financial Statements Consolidated Balance Sheets -September 30, 2004 (Unaudited) and December 31, 2003 (Audited)..................................3 Consolidated Statements of Operations -Three months ended September 30, 2004 and September 30, 2003 (Unaudited) -Nine months ended September 30, 2004 and September 30, 2003 (Unaudited)...........................4 Consolidated Statements of Cash Flows -Nine months ended September 30, 2004 and September 30, 2003 (Unaudited)...........................5 Notes to Consolidated Financial Statements (Unaudited)......6-9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.......................10-13 Item 3. Quantitative and Qualitative Disclosure About Market Risk....14 Item 4. Controls and Procedures......................................15 PART II. OTHER INFORMATION ...........................................16 SIGNATURES ..................................................17 CERTIFICATIONS............................................18-21 2 ITEM #1 FINANCIAL STATEMENTS PART I - FINANCIAL INFORMATION OP-TECH ENVIRONMENTAL SERVICES, INC. AND WHOLLY-OWNED SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) September 30, December 31, 2004 2003 ------------- ------------ ASSETS Current Assets: Cash $- $58,073 Accounts receivable (net of allowance for doubtful accounts of approximately $179,000 and $187,000, respectively) 4,431,281 3,386,795 Costs on uncompleted projects applicable to future billings 1,087,877 638,513 Inventory 177,663 219,568 Current portion of deferred tax asset 45,500 45,500 Prepaid expenses and other current assets, net 521,074 281,110 ----------- ----------- Total Current Assets 6,263,395 4,629,559 Property and equipment, net 3,334,862 2,989,827 Deferred tax asset 1,439,500 1,473,500 Other assets 28,849 31,419 ----------- ----------- Total Assets $11,066,606 $9,124,305 ============ =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable $1,819,916 $864,484 Billings in excess of costs and estimated profit on uncompleted projects 829,281 716,351 Accrued expenses and other current liabilities 146,988 368,006 Current portion of long-term debt 1,305,562 901,336 ----------- ----------- Total Current Liabilities 4,101,747 2,850,177 Long-term debt, net of current portion 2,118,580 1,510,547 Note payable to bank under line of credit 2,000,000 1,744,473 ----------- ----------- Total Liabilities 8,220,327 6,105,197 ----------- ----------- Shareholders' Equity: Common stock, par value $.01 per share; authorized 20,000,000 shares; 11,697,707 and 12,606,045 shares issued and outstanding, respectively 116,977 126,060 Additional paid-in capital 6,818,564 7,053,848 Accumulated deficit (4,089,262) (4,160,800) ------------ ------------ Total Shareholders' Equity 2,846,279 3,019,108 ------------ ------------ Total Liabilities and Shareholders' Equity $11,066,606 $9,124,305 ============ ============ The accompanying notes are an integral part of the consolidated financial statements. 3 ITEM #1 FINANCIAL STATEMENTS PART I - FINANCIAL INFORMATION OP-TECH ENVIRONMENTAL SERVICES, INC. AND WHOLLY-OWNED SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) THREE MONTHS ENDED NINE MONTHS ENDED Sept 30, Sept 30, Sept 30, Sept 30, 2004 2003 2004 2003 ----------- ----------- ----------- ----------- Project billings and services $5,008,986 $3,794,519 $12,298,977 $11,281,357 Project costs 3,537,104 2,582,291 8,529,326 7,822,356 ----------- ----------- ----------- ----------- Gross margin 1,471,882 1,212,228 3,769,651 3,459,001 ----------- ----------- ----------- ----------- Operating expenses: Payroll expense and related payroll taxes and benefits 593,188 483,369 1,817,258 1,549,923 Professional Services 83,890 103,934 292,285 297,097 Occupancy 96,858 77,734 288,330 257,412 Office Expense 88,674 92,952 293,862 290,873 Business Insurance 93,271 64,935 235,454 176,178 Telephone 46,790 35,344 129,537 110,454 Equipment Expense, net of usage credit 71,726 40,420 161,295 87,365 Other expenses 100,957 83,641 286,411 217,524 ----------- ----------- ----------- ----------- 1,175,354 982,329 3,504,432 2,986,826 ----------- ----------- ----------- ----------- Operating income 296,528 229,899 265,219 472,175 ----------- ----------- ----------- ----------- Other income and (expense): Interest expense (71,923) (48,286) (176,366) (144,897) Casualty gain from insurance proceeds, net - - - 2,052 Other, net 228 (1,716) 28,829 (4,349) ----------- ----------- ----------- ----------- (71,695) (50,002) (147,537) (147,194) ----------- ----------- ----------- ----------- Net income before income taxes 224,833 179,897 117,682 324,981 Income tax (expense) (82,144) - (46,144) - ----------- ----------- ----------- ----------- Net income $142,689 $179,897 $71,538 $324,981 =========== =========== =========== =========== Earnings per common share: Basic and diluted $0.012 $0.011 $0.006 $0.020 Weighted average shares outstanding: Basic 11,686,186 15,417,115 11,904,158 15,357,326 Diluted 12,354,316 15,882,879 12,241,149 15,898,188 The accompanying notes are an integral part of the consolidated financial statements. 4 ITEM #1 FINANCIAL STATEMENTS PART I - FINANCIAL INFORMATION OP-TECH ENVIRONMENTAL SERVICES, INC. AND WHOLLY-OWNED SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) NINE MONTHS ENDED September 30, September 30, 2004 2003 -------------- ------------- Operating activities: Net income $71,538 $324,981 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Bad debt expense 14,689 69,925 Depreciation and amortization 437,910 358,491 Provision for deferred income taxes 34,000 - Loss on disposal of equipment 9,964 23,718 (Increase) decrease in operating assets and increase (decrease) in operating liabilities: Accounts receivable (1,059,175) 666,217 Costs on uncompleted projects applicable to future billings (449,364) (217,534) Billings and estimated profit in excess of costs on uncompleted contracts 112,930 429,035 Prepaid expenses, inventory and other assets 151,393 (266,011) Accounts payable and accrued expenses 734,414 (1,141,293) ----------- ------------ Net cash provided by operating activities 58,299 247,529 Investing activities: Purchase of property and equipment (488,284) (431,664) ----------- ------------ Net cash used in investing activities (488,284) (431,664) ----------- ------------ Financing activities: Proceeds from issuance of common stock 5,633 5,900 Purchase of common stock (250,000) - Proceeds from note payable to bank and current and long-term borrowings, net of financing costs 5,930,589 8,638,878 Principal payments on current and long-term borrowings (5,314,310) (8,460,643) ----------- ------------- Net cash provided by financing activities 371,912 184,135 ----------- ------------- Increase (decrease) in cash (58,073) - Cash at beginning of period 58,073 - ----------- ------------ CASH AT END OF PERIOD $- $- =========== ============ Non-cash items Equipment purchased through bank and other financing sources $297,125 $173,998 Non-cash financing of insurance premiums $354,382 $- Cash paid for interest $176,366 $144,897 The accompanying notes are an integral part of the consolidated 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. 6 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 including asset management services. All material intercompany transactions and balances have been eliminated in consolidation. The balance sheet at December 31, 2003 has been derived from the audited balance sheet included in the Company's annual report on Form 10-K for the year ended December 31, 2003. 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 utilizes subcontract labor purchased from St. Lawrence Industrial Services, Inc., which is owned by a director of the Company. The costs for these services amounted to approximately $574,000 and $939,000 for the nine months ended September 30, 2004 and 2003, respectively, and $262,000 and $380,000 for the three months ended September 30, 2004 and 2003 respectively. 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, which include outstanding options under the Company's Stock Option Plan and warrants that 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. 7 5. Stock Based Compensation The Company applies APB Opinion 25 and related interpretations in accounting for its stock option plan. Accordingly no compensation cost has been recognized for non-qualified stock options issued. Had compensation cost for these options been determined based on their fair value at the grant date consistent with the method proscribed under Financial Accounting Standards Board ("FASB") Statement No. 123 "Accounting For Stock-Based Compensation", the Company's net income (loss) and per share amounts reported for the periods ended September 30, 2004 and 2003 would not be materially different. The Company does not intend to adopt the fair value accounting for stock based compensation in accordance with FASB Statement No. 148 "Accounting for Stock- Based Compensation - Transition and Disclosure, an Amendment of FASB Statement No. 123". In March 2004 a holder of options to purchase common stock at $.10 per share exercised those options resulting in the issuance of 3,333 shares of common stock. In July 2004 holders of options to purchase common stock at $.06 per share exercised those options resulting in the issuance of 88,329 shares of common stock. 8 6. Financial Information Concerning Segment Reporting The Company reports its operations principally in two business segments, as follows: (1) OP-TECH Environmental Services, Inc. ("OP-TECH") engages in diversified and comprehensive environmental remediation services for customers located primarily in the north eastern United States. (2) OP-TECH AVIX, Inc. ("AVIX"), a subsidiary of OP-TECH, was formed in January 2002 to pursue and engage in diversified lines of business including asset management services. Nine Months Ended September 30, 2004 OP-TECH AVIX Total Project billings and services to external customers $12,222,365 $76,612 $12,298,977 Intersegment project billings and services - - - ----------- ------- ----------- Total Project billings and services $12,222,365 $76,612 $12,298,977 ----------- ------- ----------- Operating earnings (loss) $249,044 $16,175 $265,219 Interest expense (176,366) - (176,366) Other income, net 28,829 - 28,829 ------------ ------- ------------ Earnings (loss) before income taxes $101,507 $16,175 $117,682 ------------ ------- ------------ Total assets $11,036,620 $29,986 $11,066,606 Depreciation and amortization 437,704 206 437,910 Capital expenditures 785,409 - 785,409 Nine Months Ended September 30, 2003 OP-TECH AVIX Total Project billings and services to external customers $11,209,675 $71,682 $11,281,357 Intersegment project billings and services - - - ----------- ------- ----------- Total Project billings and services $11,209,675 $71,682 $11,281,357 ----------- ------- ----------- Operating earnings (loss) $515,615 $(43,440) $472,175 Interest expense (134,394) (10,503) (144,897) Other income, net (2,297) - (2,297) ------------ ------- ------------ Earnings (loss) before income taxes $378,924 $(53,943) $324,981 ------------ ------- ------------ Total assets $8,070,149 $30,846 $8,100,995 Depreciation and amortization 357,563 928 358,491 Capital expenditures 605,662 - 605,662 9 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, 2004, the Company had cash of $0 as compared to $58,073 at December 31, 2003. The Company voluntarily applies all available cash in the Company's operating account to pay down the Company's note payable to bank under its line of credit. At September 30, 2004, the Company had working capital of $2,161,648 compared to $1,779,382 at December 31, 2003, with a current ratio of 1.53 to 1 at September 30, 2004 and 1.62 to 1 at December 31, 2003. For the nine months ended September 30, 2004, the Company's net cash provided by operations was $58,299 compared to net cash provided by operations of $247,529 during the nine months ended September 30, 2003. The cash provided by operations for the nine months ended September 30, 2004 was primarily a result of a net increase in accounts payable partially offset by a net increase in accounts receivable. The Company's net cash used in investing activities of $488,284 during the first nine months of 2004 was attributable to the purchase of various field equipment. Cash provided by financing activities for the nine months ended September 30, 2004 was $371,912, which was primarily due to the net proceeds from the Company's long-term debt used to finance the Company's investing activities. As of September 30, 2004, the Company had a loan agreement that provided for borrowings up to $2,600,000 on a revolving basis, collateralized by all accounts receivable, inventory and equipment now owned or acquired later. The loan has a "step down" provision to $2,000,000 on January 31, 2005. Amounts in excess of $2,000,000 have been included in the current portion of long-term debt at September 30, 2004 The loan is payable on May 31, 2006, 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, 2004, borrowing against the revolving loan aggregated $2,175,603. At September 30, 2004 the Company was not in compliance with certain restrictive covenants. The bank has waived the compliance with the covenants for the quarter ended September 30, 2004. In addition, certain directors and officers of the Company have loaned the Company a total of $295,000. The loans are evidenced by promissory notes, are unsecured, pay interest at 8%, and are payable on March 31, 2005. $200,000 of the director and officer loans are subordinated to the Company's debt payable to its primary lender. During the first nine months of 2004, all principal payments on the Company's debt were made within payment terms. The Company expects, based on its operating results and the continued availability of its line of credit and additional debt provided from certain directors and officers, that it will be able to meet obligations as they come due. On July 13, 2004 options to purchase 88,329 shares of common stock were exercised. The total proceeds received from the exercise of the options was $5,300. 10 RESULTS OF OPERATIONS BILLINGS The Company's project billings for the third quarter of 2004 increased 32% to $5,008,986 from $3,794,519 for the third quarter of 2003. For the nine-month period ended September 30, 2004 the Company's billings have increased 9% to $12,298,977 from $11,281,357 for the same period in 2003. When comparing the first nine months of 2004 to the same period in 2003, the overall increase in billings is due to several reasons: The development of the field office in Edison, NJ has resulted in approximately $400,000 more in project billings in the first nine months of 2004 than in the comparable period in 2003. The creation and development of the sales department in 2004 has led to significantly more opportunities and project billings throughout the Company. PROJECT COSTS AND GROSS MARGIN Project costs for the third quarter of 2004 increased 37% to $3,537,104 from $2,582,291 for the same period in 2003. Project costs as a percentage of revenues were 71% and 68% for the three months ended September 30, 2004 and 2003, respectively. Gross margin for the third quarter of 2004 decreased to 29% from 32% for the same period in 2003. For the nine-month period ended September 30, 2004, project costs increased 9% to $8,529,326 from $7,822,356 for the nine months ended September 30, 2003. Project costs as a percentage of revenues were 69% for each of the nine months ended September 30, 2004 and 2003. Gross margin for each of the nine months ended September 30, 2004 and 2003 was 31%. As a result of increased billings, project costs also increased. The maintenance of the gross margin at 31% with increased project billing volume is due to quality project management, the Company's continued focus on pursuing more profitable lines of work, and a vendor consolidation program that has resulted in volume discounts on project material purchases. 11 OPERATING EXPENSES Operating expenses for the quarter ended September 30, 2004 increased 20% to $1,175,354 from $982,329 for the same period in 2003. For the nine-month period ended September 30, 2004, operating expenses increased 17% to $3,504,432 from $2,986,826 for the same period in 2003. Operating expenses as a percentage of revenues was 28% and 27% for the nine months ended September 30, 2004 and 2003, respectively. When comparing the first nine months of 2004 to 2003, the overall increase in operating expenses is due to several factors: Payroll expense and related payroll taxes and benefits increased 17% to $1,817,258 in the first nine months of 2004 from $1,549,923 in the same period in 2003. During the fourth quarter of 2003 and the first two quarters of 2004, new employees were added in the Cleveland, Edison, Albany, Syracuse and Massena branch offices. Each of these offices added new employees as a result of anticipation of increased sales volume and long-term growth plans. In addition, over the last 12 months four employees were added to the sales department. Business insurance increased 34% to $235,454 over the same period in 2003. This increase in insurance expense is due to a single one-time loss resulting in a significant claim being paid out of the Company's general liability insurance policy. Equipment expense has increased to $161,295 from $87,365 in the same period in 2003. The increase in equipment expense is primarily attributed to the higher fuel prices. Occupancy expense increased 12% to $288,330 over the same period in 2003. This increase in occupancy expense is attributable to new leases entered into since the third quarter of 2003 for a new office in Cleveland, OH and larger offices in Edison, NJ, Plattsburgh, NY and Rochester, NY. INTEREST EXPENSE Interest expense for the nine months ended September 30, 2004 increased 22% to $176,366 from $144,897 for the same period in 2003. The increase in interest expense was primarily due to an increase in the average outstanding balance on the revolving loan and long-term debt when comparing the nine months ended September 30, 2004 with the same period in 2003. NET INCOME The net income for the nine months ended September 30, 2004 was $71,538, or $0.006 per share basic and diluted compared to net income of 324,981, or $0.020 per share basic and diluted, for the nine months ended September 30, 2003. 12 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 long lived assets, revenue recognition, valuation allowance on deferred tax assets, 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. The Company maintains a valuation allowance for deferred tax assets to reduce these assets to their realizable amounts. Recognition of these amounts and the adjustment of the corresponding allowance is dependent on the generation of taxable income in current and future years. As circumstances change with respect to managements expectations of future taxable income, the valuation allowance is adjusted. 13 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, 2004. 14. Item 4. Controls and Procedures (a) Disclosure Controls and Procedures. As of the end of the period covering this Form 10-Q, we evaluated the effectiveness of the design and operation of our "disclosure controls and procedures". OP-TECH conducted this evaluation under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer. (i) Definition of Disclosure Controls and Procedures. Disclosure controls and procedures are controls and other procedures that are designed with the objective of ensuring that information required to be disclosed in our periodic reports filed under the Exchange Act, such as this report, is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. As defined by the SEC, such disclosure controls and procedures are also designed with the objective of ensuring that such information is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, in such a manner as to allow timely disclosure decisions. (ii) Limitations on the Effectiveness of Disclosure Controls and Procedures and Internal Controls. OP-TECH recognizes that a system of disclosure controls and procedures (as well as a system of internal controls), no matter how well conceived and operated, cannot provide absolute assurance that the objectives of the system are met. Further, the design of such a system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented in a number of ways. Because of the inherent limitations in a cost-effective control system, system failures may occur and not be detected. However, the Chief Executive Officer and Chief Financial Officer believe that our system of disclosure controls and procedures provides reasonable assurance of achieving their objectives. (iii) Conclusions with Respect to Our Evaluation of Disclosure Controls and Procedures. Our Chief Executive Officer and Chief Financial Officer have concluded ,based on the evaluation of these controls and procedures , that our disclosure controls and procedures are effective in timely alerting them to material information relating to OP-TECH required to be included in OP-TECH's periodic SEC filings. (b) Changes in Internal Controls. There have been no significant changes in OP-TECH's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation. 15 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 16 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 11, 2004 /s/ Christopher J. Polimino Christopher J. Polimino President and Chief Executive Officer /s/ Douglas R. Lee Douglas R. Lee Treasurer and Chief Financial Officer 17 CERTIFICATIONS Certification of Chief Executive Officer I, Christopher J. Polimino, certify that: 1. I have reviewed this annual report on Form 10-Q of OP-TECH Environmental Services, Inc. as of the end of the period covering this Form 10-Q; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15e and 15d-15e) and internal control over financial reporting (as defined in Exchange Act Rules 13a - 15f and 15d - 15f) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's fourth fiscal quarter that has materially affected, or is reasonable likely to materially affect, the registrant's internal control over financial reporting. 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting. Date: November 11, 2004 /s/ Christopher J. Polimino Christopher J. Polimino President and Chief Executive Officer 18. Certification of Chief Financial Officer I, Douglas R. Lee, certify that: 1. I have reviewed this annual report on Form 10-Q of OP-TECH Environmental Services, Inc. as of the end of the period covering this Form 10-Q; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15e and 15d-15e) and internal control over financial reporting (as defined in Exchange Act Rules 13a - 15f and 15d - 15f) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's fourth fiscal quarter that has materially affected, or is reasonable likely to materially affect, the registrant's internal control over financial reporting. 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting. Date: November 11, 2004 /s/ Douglas R. Lee Douglas R. Lee Treasurer and Chief Financial Officer 19. Certification Pursuant to 18 U.S.C. Section 1350 As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 I, Christopher J. Polimino, President and Chief Executive Officer of OP-TECH Environmental Services, Inc. (the "Company"), certify, to the best of my knowledge and belief, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that: (1) the Quarterly Report on Form 10-Q of the Company for the quarter ended September 30, 2004 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (15 U.S.C. 78m or 78o(d)); and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: November 11, 2004 /s/ Christopher J. Polimino Christopher J. Polimino President and Chief Executive Officer 20. Certification Pursuant to 18 U.S.C. Section 1350 As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 I, Douglas R. Lee, Treasurer and Chief Financial Officer of OP-TECH Environmental Services, Inc. (the "Company"), certify, to the best of my knowledge and belief, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that: (1) the Quarterly Report on Form 10-Q of the Company for the quarter ended September 30, 2004 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (15 U.S.C. 78m or 78o(d)); and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: November 11, 2004 /s/ Douglas R. Lee Douglas R. Lee Treasurer and Chief Financial Officer 21.