U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended: Commission File Number:
March 31, 1996 0-17776
LEAK-X ENVIRONMENTAL CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 23-2823596
(State or other jurisdiction of (IRS Employer Identi-
incorporation or organization fication Number)
790 East Market Street, Suite 270, West Chester, PA 19382
(Address of Principal Executive Offices) (Zip Code)
(610) 344-3380
(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 filing requirements for the past 90 days.
Yes X No
The number of shares of Common Stock, par value $.001 per share,
outstanding as of May 13, 1996 is 14,354,154 shares.
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<CAPTION>
CONSOLIDATED BALANCE SHEET
LEAK-X ENVIRONMENTAL CORPORATION AND SUBSIDIARIES
March 31, December 31,
1996 1995
(Unaudited)
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ASSETS:
CURRENT ASSETS
Cash and cash equivalents $ 558,604 $ 442,946
Accounts receivable, net 1,656,340 2,363,769
Inventory 295,980 362,782
Subscription receivable -------- 225,000
Other current assets 162,164 175,492
Net assets of discontinued operations 528,107 528,107
TOTAL CURRENT ASSETS 3,201,195 4,098,096
PROPERTY AND EQUIPMENT, NET 212,090 211,471
OTHER ASSETS
Goodwill, net of accumulated amortization of $30,257
in 1996 and $15,625 in 1995 1,785,139 1,799,770
Patents and other assets, net of accumulated
amortization of $2,663 in 1996 and $2,556 in 1995 17,204 15,118
TOTAL OTHER ASSETS 1,802,343 1,814,888
TOTAL ASSETS $ 5,215,628 $ 6,124,455
LIABILITIES AND SHAREHOLDERS' EQUITY:
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 1,593,483 $ 2,108,564
Unearned revenue 199,318 168,206
Line of credit 350,000 450,000
Note payable to directors 161,770 161,770
Current portion of long term debt 52,348 52,348
Net liabilities of discontinued operation 503,000 533,324
TOTAL CURRENT LIABILITIES 2,859,919 3,474,212
LONG TERM DEBT 93,742 106,411
STOCKHOLDERS' EQUITY
Preferred stock $.01 par value:
5,000,000 shares authorized,
1,688,888 Issued and outstanding in 1996 and 1995 1,900,000 1,900,000
Common stock $.001 par value:
30,000,000 shares authorized,
14,354,154 issued and outstanding in 1996 and 1995 14,355 14,355
Additional paid-in capital 6,360,225 6,354,541
Deficit (6,012,613) (5,725,064)
TOTAL STOCKHOLDERS' EQUITY 2,261,967 2,543,832
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 5,215,628 $ 6,124,455
See notes to consolidated financial statements
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<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
LEAK-X ENVIRONMENTAL CORPORATION AND SUBSIDIARIES
(Unaudited)
Three Months Ended March 31,
1996 1995
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Revenues:
Service $1,247,169 $786,364
Product 569,569 --------
1,816,738 786,364
Cost of Revenues:
Service 891,245 486,609
Product 547,235 --------
1,438,480 486,609
Selling, general and
administrative expenses 657,284 274,927
Operating income(loss) (279,026) 24,828
Other income (6,275) --------
Interest expense 14,184 595
Net income(loss) before taxes (286,935) 24,233
Income tax expense(credit) 614 (1,029)
Net income(loss) (287,549) 25,262
Weighted average common
shares outstanding 14,354,154 8,716,154
Net income(loss) per share ($0.02) $0.00
See notes to consolidated financial statments
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<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
LEAK-X ENVIRONMENTAL CORPORATION AND SUBSIDIARIES
(Unaudited)
Three Months Ended March 31,
1996 1995
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CASH FLOW FROM
OPERATING ACTIVITIES:
Net income (loss) ($287,549) $25,262
Adjustments to reconcile net income (loss) to
net cash provided (used) by operating activities:
Depreciation 13,848 7,289
Goodwill amortization 14,632 ----
Valuation of stock options 6,750 7,812
(Increase) decrease in accounts receivable 707,429 (78,031)
Decrease in costs and estimated
earnings in excess of billings 50,041 ----
Decrease in inventories 66,802 ----
Increase in other current assets (36,713) (42,212)
Decrease in accounts payable (421,360) (167,804)
Increase in billings in excess of cost 31,112 ----
Decrease in accrued
expenses and other liabilities (10,293) (488)
Decrease in net assets of discontinued operations (30,324) (58,094)
NET CASH PROVIDED (USED) BY OPERATIONS 104,375 (306,266)
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (14,468) (8,478)
Increase in other assets, net (2,086) ----
NET CASH USED BY INVESTING ACTIVITIES (16,554) (8,478)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on line of credit (100,000) ----
Payments on long-term debt (12,669) ----
Proceeds from subscription receivable,
net of expenses 140,506 ----
NET CASH PROVIDED BY
FINANCING ACTIVITIES 27,837 0
NET INCREASE/(DECREASE) IN CASH 115,658 (314,744)
CASH, beginning of the year 442,946 724,669
CASH, end of the year $558,604 $409,925
See notes to consolidated financial statements.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
LEAK-X ENVIRONMENTAL CORPORATION AND SUBSIDIARIES
(UNAUDITED)
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Note 1. Basis of Presentation
The accompanying unaudited consolidated financial statements
of Leak-X Environmental Corporation (the "Company") have been
prepared in accordance with generally accepted accounting
principles for interim financial information and with the
instructions to Form 10-QSB and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all
adjustments considered necessary for a fair presentation
(consisting of normal recurring accruals) have been included.
Operating results for the three month period ended March 31, 1996
are not necessarily indicative of the results that may be expected
for the year ending December 31, 1996. For further information,
refer to the consolidated financial statements and footnotes
thereto included in the Company's Annual Report on Form 10-KSB for
the year ended December 31, 1995.
Per share data for the periods are based upon the weighted
average number of common shares outstanding during such periods,
plus net additional shares issued upon exercise of options and
warrants. Outstanding options and warrants have not been included
in the computation of per share data in the quarter ended March 31,
1996 or the quarter ended March 31, 1995 as they would be
immaterial or anti-dilutive, respectively.
Note 2. Financial Matters
Total interest expense for the three months ended March 31,
1996 and March 31, 1995 was $14,184 and $595, respectively.
Note 3. Discontinued Operations
Net assets of discontinued operations at March 31, 1996
consist of accounts receivable of $528,107. Net liabilities of
discontinued operations at March 31, 1996 include accounts payable
and accrued expenses of $346,314 and $165,823, respectively.
Note 4. Line of Credit
On March 29, 1996, the Company received a waiver from its
financial institution with respect to certain covenants of its
Revolving Credit Agreement. The waiver extends for the balance of
the term of the agreement, July 1, 1996.
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Item 2. Management's Discussion and Analysis
Results of Operations
Quarter ended March 31, 1996 compared to the Quarter ended March
31, 1995
Net revenue increased 131% to $1,816,738 for the quarter ended
March 31, 1996 (the "1996 Quarter") compared to $786,364 for the
quarter ended March 31, 1995 (the "1995 Quarter"). The increase in
revenues is attributable to a 59% increase in environmental
consulting services and the addition of the Company's groundwater
remediation business which the Company acquired in September 1995.
The Company had a lower gross margin of 21% for the 1996
Quarter as compared to a gross margin of 38% in the 1995 Quarter.
The lower gross margin is primarily attributable to the low gross
margin from the Company's groundwater remediation business which
was adversely affected by a decline in sales volume.
The Company reported a loss of $287,549 in the 1996 Quarter as
compared to income of $25,262 in the 1995 Quarter. The loss in the
1996 Quarter is primarily due to higher selling, general and
administrative ("SG&A") expenses, a lower gross margin and lower
sales in the groundwater remediation business in the 1996 Quarter.
Even though the Company's environmental consulting business
attained its highest first quarter sales volume in its
six year history, revenues for groundwater remediation services
were lower than anticipated for the 1996 Quarter primarily
attributable to delays in receipt of anticipated equipment orders.
These delays were, in part, a result of proposed changes that are
being considered by environmental regulators that would require a
longer "up-front" evaluation of sites where remediation may be
required. Accordingly, potential customers of the groundwater
remediation services are postponing purchases until the proposed
changes are more fully defined by environmental regulators.
The Company's groundwater remediation business, which was not
included in the 1995 Quarter since the business was acquired in
late 1995, accounted for approximately $333,120 of SG&A expenses
(or 87% of the increase in SG&A). Excluding the expenses
attributable to the groundwater remediation business, SG&A expenses
were actually proportionately less as a percentage of sales, 26% in
the 1996 Quarter as compared to 36% in the 1995 Quarter. This is
primarily attributable to the increased sales which required no
increase in SG&A expenses.
Liquidity and Capital Resources
The Company generated $104,375 in cash from operating
activities in the 1996 Quarter as compared to utilizing $306,266 in
the 1995 Quarter. The primary change in the generation of cash
from operating activities was a $707,429 decrease in accounts
receivable in the 1996 Quarter as compared to a $78,031 increase in
the 1995 Quarter. Accounts payable was reduced in the 1996 Quarter
by $421,360.
Net cash used by investing activities in the 1996 Quarter was
$16,554 as compared to $8,478 net cash used in the 1995 Quarter.
Capital expenditures were primarily for computers.
Net cash provided by financing activities was $27,837 in the
1996 Quarter as compared to no financing activities in the 1995
Quarter. In the 1996 Quarter, the Company completed the private
placement of its common stock which commenced in December 1995
which resulted in cash of $140,506. In addition, the Company paid
down $100,000 on its line of credit and $12,669 on its long-term
debt.
The Company's working capital decreased 45% at March 31, 1996
to $341,276 as compared to $623,884 at December 31, 1995. The
change in working capital was primarily the result of the decrease
in accounts receivable, inventory and proceeds from the private
placement. The Company utilized working capital funds to manage
accounts payable and to fund ongoing operations.
Backlog at March 31, 1996 was approximately $5,600,000 as
compared to approximately $5,000,000 at December 31, 1995. Backlog
in the 1996 Quarter increased as compared to December 31, 1995 due
to an increase in booking of new contracts scheduled to commence in
Fiscal 1996. The Company believes that all of the current backlog
will be completed in 1996, although, no assurance of this can be
given. Much of the Company's backlog is subject to termination at
will and rescheduling without significant penalty.
On March 29, 1996, the Company received a waiver through July
1, 1996 with respect to failure to meet some of the terms of the
financial covenants of its Revolving Credit Agreement (the "Credit
Agreement") at December 31, 1995. The Company is no longer in
default of any covenants of the Credit Agreement at March 31, 1996.
The Company had $400,000 of available borrowing at March 31, 1996.
The Company deems its present facilities and equipment
adequate for its immediate needs and it has no material commitments
for capital expenditures. The Company believes its present
liquidity and cash flow are adequate for its current needs. There
can be no assurance, however, that additional financing, whether
from debt or equity, will be available to the Company when needed
on commercially reasonable terms, or at all.
The Company's management believes that inflation has not had
a significant impact on its business during the past three years.
The statements contained herein include forward looking
statements that involve a number of risks and uncertainties. In
addition to the facts discussed, among the other factors that could
cause actual results to differ materially are the following:
business conditions and growth in the industry and general economy;
competitive factors, such as rival designs and prices; inventory
risks due to shifts in market demand; changes in sales mix; and the
risk factors listed from time to time in the Company's SEC reports.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
(27) Finacial Data Schedule
(b) Reports on Form 8-K:
On January 2, 1996, the Company filed a Form 8-K with respect
to the change in its auditors to Mazars and Company, LLP.
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.
Dated: May 14, 1996
LEAK-X ENVIRONMENTAL CORPORATION
by: /s/ Joyce A. Rizzo
Chief Executive Officer
by: /s/ Eileen E. Bartoli
Controller and
Chief Accounting Officer
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE LEAK X
ENVIRONMENTAL CORPORATION CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1996, AND
THE RELATED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED
MARCH 31, 1996, AND THE ACCOMPANYING NOTES, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 558604
<SECURITIES> 0
<RECEIVABLES> 1689383
<ALLOWANCES> (33043)
<INVENTORY> 295980
<CURRENT-ASSETS> 690271
<PP&E> 413141
<DEPRECIATION> (201051)
<TOTAL-ASSETS> 5215628
<CURRENT-LIABILITIES> 2859919
<BONDS> 0
0
1900000
<COMMON> 14355
<OTHER-SE> 347612
<TOTAL-LIABILITY-AND-EQUITY> 5215628
<SALES> 1816738
<TOTAL-REVENUES> 1816738
<CGS> 1438480
<TOTAL-COSTS> 1438480
<OTHER-EXPENSES> 651009
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14184
<INCOME-PRETAX> (286935)
<INCOME-TAX> 614
<INCOME-CONTINUING> (287549)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (287549)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
