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, 1997 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 Identification Number)
incorporation or organization)
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 12, 1997 is 1,219,645 shares.
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LEAK-X ENVIRONMENTAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1997 1996
(Unaudited)
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ASSETS:
CURRENT ASSETS
Cash and cash equivalents $ 133,381 $ 156,617
Accounts receivable, net 1,847,018 1,383,857
Estimated earnings in excess of billings 5,440 20,357
Inventory 365,043 398,848
Other current assets 162,544 84,765
Net assets of discontinued operations 499,234 499,234
TOTAL CURRENT ASSETS 3,012,660 2,543,678
PROPERTY AND EQUIPMENT, NET 188,828 197,851
OTHER ASSETS
Goodwill, net of accumulated amortization
of $90,666 in 1997 and $30,257 in 1996 1,735,325 1,750,325
Patents and other assets, net of
accumulated amortization of $3,089
in 1997 and $2,663 in 1996 20,223 20,329
TOTAL OTHER ASSETS 1,755,548 1,770,654
TOTAL ASSETS $ 4,957,036 $ 4,512,183
LIABILITIES AND SHAREHOLDERS' EQUITY:
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 1,801,268 $ 1,625,832
Unearned revenue 201,551 112,272
Line of credit 472,000 222,000
Note payable to directors 158,031 0
Current portion of long term debt 52,001 50,337
Net liabilities of discontinued operations 501,407 501,707
TOTAL CURRENT LIABILITIES 3,186,258 2,512,148
LONG TERM DEBT 39,537 215,176
STOCKHOLDERS' EQUITY
Preferred stock $.01 par value:
5,000,000 shares authorized,
0 Issued and outstanding in 1997 and 1996 0 0
Common stock $.001 par value:
30,000,000 shares authorized,
1,219,645 issued and outstanding
in 1997 and 1996 1,220 1,220
Additional paid-in capital 8,308,015 8,308,015
Accumulated deficit (6,577,994) (6,524,376)
TOTAL STOCKHOLDERS' EQUITY 1,731,241 1,784,859
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 4,957,036 $ 4,512,183
See notes to consolidated financial statements
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<TABLE>
<CAPTION>
LEAK-X ENVIRONMENTAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
Three Months Ended March 31,
1997 1996
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Revenues:
Service $1,446,223 $1,247,169
Product 550,667 569,569
1,996,890 1,816,738
Cost of Revenues:
Service 1,067,105 891,245
Product 396,093 547,235
1,463,198 1,438,480
Selling, general and
administrative expenses 580,440 657,284
Operating loss (46,748) (279,026)
Other income (13,158) (6,275)
Interest expense 19,189 14,184
Net income loss before taxes (52,779) (286,935)
Income tax expense 840 614
Net loss (53,619) (287,549)
Weighted average common
shares outstanding 1,219,645 1,104,166
Net loss per share ($0.04) ($0.26)
See notes to consolidated financial statements
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<TABLE>
<CAPTION>
LEAK-X ENVIRONMENTAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
Three Months Ended March 31,
1997 1996
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CASH FLOW FROM
OPERATING ACTIVITIES:
Net loss ($ 53,619) ($ 287,549)
Adjustments to reconcile net loss to
net cash provided (used) by
operating activities:
Depreciation 17,400 13,848
Goodwill amortization 15,000 14,632
Gain on sale of asset (3,824) ----
Valuation of stock options ---- 6,750
(Increase) decrease in accounts receivable (463,161) 707,429
(Increase) decrease in costs and estimated
earnings in excess of billings 14,918 50,041
Decrease in inventories 33,805 66,802
Increase in other current assets (77,780) (36,713)
Increase (decrease) in accounts payable 173,013 (421,360)
Increase in billings in excess of cost 89,278 31,112
Increase (decrease) in accrued
expenses and other liabilities 2,423 (10,293)
Change in net assets of discontinued
operations (300) (30,324)
NET CASH PROVIDED (USED) BY OPERATIONS (252,847) 104,375
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (13,051) (14,468)
Sale of asset 8,500 ----
(Increase) decrease in other assets, net 107 (2,086)
NET CASH USED BY INVESTING ACTIVITIES (4,444) (16,554)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings (payments) on line of credit 250,000 (100,000)
Payments on long-term debt (12,206) (12,669)
Payments on notes payable to directors (3,739) ----
Proceeds from subscription receivable,
net of expenses ---- 140,506
NET CASH PROVIDED BY
FINANCING ACTIVITIES 234,055 27,837
NET INCREASE/(DECREASE) IN CASH (23,236) 115,658
CASH, beginning of the year 156,617 442,946
CASH, end of the year $ 133,381 $ 558,604
See notes to consolidated financial statements
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NOTES TO 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. 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 and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates. Operating results for the three month period ended March 31, 1997
are not necessarily indicative of the results that may be expected for the
year ending December 31, 1997. 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, 1996.
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
three month periods ended March 31, 1997 or March 31, 1996 as they would be
immaterial or anti-dilutive, respectively.
Note 2. Financial Matters
Total interest expense for the three months ended March 31, 1997 and
March 31, 1996 was $19,189 and $14,184, respectively.
Note 3. Discontinued Operations
Net assets of discontinued operations at March 31, 1997 consist of
accounts receivable of $499,234. Net liabilities of discontinued operations
at March 31, 1997 include accounts payable and accrued expenses of $346,314
and $155,093, respectively.
Note 4. Line of Credit
On April 9, 1997, the Company received a waiver from First Union National
Bank (the "Bank") with respect to failure to meet some of the terms of the
financial covenants of the Company's Revolving Credit Agreement (the "Credit
Agreement") at December 31, 1996. On May 7, 1997, the Company signed a Loan
Modification Agreement to its Credit Agreement with the Bank. The Agreement
amended the Company's financial covenant requirements to more accurately
reflect its current operations. The Company was not in default of any
covenants of the Credit Agreement at March 31, 1997. The Company had $278,000
of available borrowing at March 31, 1997.
Note 5. Subsequent Events
On May 12, 1997, the Company entered into an agreement with George A.
Nolan and James G. Warburton, Officers of GRS and Directors of the Company, to
waive a total of $52,005 each for the period January 1, 1997 through September
30, 1997. The agreement requires aggregate payments of $61,770 to be made on
the notes payable to Messrs. Nolan and Warburton for the same period. Messrs.
Nolan and Warburton waived a total of $10,360 each in salary and $975 each in
office expense for the quarter ended March 31, 1997 and received an aggregate
amount of $3,739 on the balance of the notes payable to directors. The
Company also granted 15,000 incentive stock options each to George Nolan and
James Warburton pursuant to the Company's 1996 stock option plan at an
exercise price of $1.50 per share with 5,000 additional options each which
will be granted upon audit if certain operating profits are met for the fiscal
year ended December 31, 1997.
Item 2. Management's Discussion and Analysis or Plan of Operation
Results of Operations
Quarter ended March 31, 1997 compared to the Quarter ended March 31, 1996
Net revenue increased 10% to $1,996,890 for the quarter ended March 31,
1997 (the "1997 Quarter") compared to $1,816,738 for the quarter ended March
31, 1996 (the "1996 Quarter"). The increase in revenues is attributable to a
16% increase in environmental consulting services, partly offset by a decrease
of 3% at the Company's groundwater remediation business.
The Company reported an improvement in gross margin to 27% for the 1997
Quarter as compared to a gross margin of 21% in the 1996 Quarter. The higher
gross margin is primarily attributable to improved margins at the Company's
groundwater remediation business which resulted from a cost reduction program
which was implemented in Fiscal 1996.
Selling, general and administrative expenses decreased $76,844 to
$580,440 for the 1997 Quarter, as compared to $657,284 in the 1996 Quarter.
This decrease is primarily attributable to a cost reduction program which was
implemented at the Company's groundwater remediation business in Fiscal 1996.
The Company took action to reduce the losses in Fiscal 1996 through personnel
layoffs and cost containment programs. These reductions were offset, in part,
by higher overhead expenses relating to new employment contracts for two of
the Company's executive officers which became effective July 1, 1996. The
Company also made an investment in a new office in New York for its
environmental consulting services and incurred additional costs related to the
pursuit of the Company's growth and acquisition strategy.
The $53,619 loss in the 1997 Quarter is a significant improvement over
the $287,549 loss reported for the 1996 Quarter. The improvement is
attributable to all aspects of the Company's business. The Company incurred
higher interest expense of $19,189 in the 1997 Quarter, as compared to $14,184
in the 1996 Quarter due to a higher use of debt in the 1997 Quarter. During
Fiscal 1996, the Company made significant reductions in its overhead expenses
in the groundwater remediation business which has allowed the Company to
better compensate for lower than anticipated sales.
Liquidity and Capital Resources
The Company utilized $252,847 in cash from operating activities in the
1997 Quarter as compared to providing $104,375 in the 1996 Quarter. The
primary change in the utilization of cash from operating activities was a
$463,161 increase in accounts receivable in the 1997 Quarter as compared to a
$707,429 decrease in the 1996 Quarter. Accounts payable increased by $173,013
in the 1997 Quarter as compared to a reduction of $421,360 in the 1996
Quarter. In addition, the Company incurred a substantially lower loss of
$53,619 in the 1997 Quarter as compared to a loss of $287,549 in the 1996
Quarter.
Net cash used by investing activities in the 1997 Quarter was $4,444 as
compared to $16,554 net cash used in the 1996 Quarter. Capital expenditures,
which were primarily for computer equipment, remained fairly consistent. The
1997 Quarter included $8,500 of cash received from the sale of an asset.
Net cash provided by financing activities was $234,055 in the 1997
Quarter as compared to $27,837 in the 1996 Quarter. During the 1997 Quarter,
the Company borrowed $250,000 on its line of credit in order to support
ongoing operations. The first quarter is typically the lowest cash receipt
period for the Company. In the 1996 Quarter, the Company paid down $100,000
on its line of credit and raised $140,506 through the completion of a private
placement of its common stock and warrants which commenced in December 1995.
The Company continued to make scheduled payments on its debt in the 1997
Quarter and 1996 Quarter.
The Company's working capital decreased to ($173,598) at March 31, 1997
as compared to $31,530 at December 31, 1996. The change in working capital
was primarily the result of a reclass from long-term debt to current
liabilities for $158,031 related to the notes payable to directors which
becomes due on March 31, 1998. The Company utilizes working capital to manage
accounts payable, fund ongoing operations and make scheduled payments on its
long-term debt.
Backlog at March 31, 1997 of $7,900,000 was 16.2% higher than the level
at December 31, 1996 of $6,800,000, primarily as a result of an increase of
the NYNEX work. The Company believes that all of the current backlog will be
completed in 1997, 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 April 9, 1997, the Company received a waiver from the Bank with
respect to failure to meet some of the terms of the financial covenants of the
Credit Agreement at December 31, 1996. On May 7, 1997, the Company signed a
Loan Modification Agreement to its Credit Agreement with the Bank. The
Agreement changed the Company's financial covenant requirements to more
accurately reflect its current operations. The Company was not in default of
any covenants of the Credit Agreement at March 31, 1997. The Company had
$278,000 of available borrowing at March 31, 1997.
On May 12, 1997, the Company entered into an agreement with George A.
Nolan and James G. Warburton, Officers of GRS and Directors of the Company, to
waive a total of $52,005 each for the period January 1, 1997 through September
30, 1997. The agreement requires aggregate payments of $61,770 to be made on
the notes payable to Messrs. Nolan and Warburton for the same period. Messrs.
Nolan and Warburton waived a total of $10,360 each in salary and $975 each in
office expense for the 1997 Quarter and received an aggregate amount of $3,739
on the balance of the notes payable to directors. The Company also granted
15,000 incentive stock options each to George Nolan and James Warburton
pursuant to the Company's 1996 stock option plan at an exercise price of $1.50
per share with 5,000 additional options each which will be granted upon audit
if certain operating profits are met for the fiscal year ended December 31,
1997.
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) Financial Data Schedule
(b) Reports on Form 8-K:
None.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Dated: May 14, 1997
LEAK-X ENVIRONMENTAL CORPORATION
by: /s/ Joyce A. Rizzo
Joyce A. Rizzo
Chief Executive Officer
by: /s/ Eileen E. Bartoli
Eileen E. Bartoli
Controller and
Chief Financial 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, 1997, AND
THE RELATED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED
MARCH 31, 1997, 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-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 133381
<SECURITIES> 0
<RECEIVABLES> 1882018
<ALLOWANCES> 35000
<INVENTORY> 365043
<CURRENT-ASSETS> 3012660
<PP&E> 454736
<DEPRECIATION> 265908
<TOTAL-ASSETS> 4957036
<CURRENT-LIABILITIES> 3186258
<BONDS> 39537
0
0
<COMMON> 1220
<OTHER-SE> 1730021
<TOTAL-LIABILITY-AND-EQUITY> 4957036
<SALES> 1996890
<TOTAL-REVENUES> 1996890
<CGS> 1463198
<TOTAL-COSTS> 1463198
<OTHER-EXPENSES> 580440
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19189
<INCOME-PRETAX> (52779)
<INCOME-TAX> 840
<INCOME-CONTINUING> (53619)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (53619)
<EPS-PRIMARY> (0.04)
<EPS-DILUTED> (0.04)
</TABLE>
