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, 1998 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, 1998 is 1,219,645 shares.
LEAK-X ENVIRONMENTAL CORPORATION AND SUBSIDIARIES
INDEX TO FORM 10-QSB
March 31, 1998
PART I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheet -
March 31, 1998 and December 31, 1997
Consolidated Statements of Operations -
Three months ended March 31, 1998 and 1997
Consolidated Statements of Cash Flows -
Three months ended March 31, 1998 and 1997
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis or Plan of
Operation
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
CONSOLIDATED BALANCE SHEET
LEAK-X ENVIRONMENTAL CORPORATION AND SUBSIDIARIES
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March 31, December 31,
1998 1997
(Unaudited)
ASSETS:
CURRENT ASSETS
Cash and cash equivalents $ 30,602 $ 240,769
Accounts receivable, net 2,504,030 2,111,682
Estimated earnings in excess of billings 23,155 117,749
Inventory 299,432 267,733
Other current assets 138,680 78,454
Net assets of discontinued operations 499,234 499,234
TOTAL CURRENT ASSETS 3,495,133 3,315,621
PROPERTY AND EQUIPMENT, NET 149,084 158,024
OTHER ASSETS - Deposits 117,672 82,488
TOTAL ASSETS $ 3,761,889 $ 3,556,133
LIABILITIES AND SHAREHOLDERS' EQUITY:
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 2,323,795 $ 2,292,012
Unearned revenue 255,125 307,041
Line of credit 607,000 422,000
Note payable to directors 100,000 100,000
Current portion of long term debt 38,604 50,809
Net liabilities of discontinued
operations 425,032 440,114
TOTAL CURRENT LIABILITIES $ 3,749,556 $ 3,611,976
STOCKHOLDERS' EQUITY
Common stock $.001 par value:
5,000,000 shares authorized,
1,219,645 issued and outstanding
in 1998 and 1997 1,220 1,220
Additional paid-in capital 8,308,015 8,308,015
Accumulated deficit (8,296,902) (8,365,078)
TOTAL STOCKHOLDERS' EQUITY 12,333 (55,843)
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 3,761,889 $ 3,556,133
</TABLE>
See notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF OPERATIONS
LEAK-X ENVIRONMENTAL CORPORATION AND SUBSIDIARIES
(Unaudited)
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Three Months Ended March 31,
1998 1997
Revenues:
Service $ 1,819,443 $ 1,446,223
Product 767,062 550,667
2,586,505 1,996,890
Cost of Revenues:
Service 1,349,780 1,067,105
Product 519,254 396,093
1,869,034 1,463,198
Selling, general and
administrative expenses 635,997 580,440
Operating income (loss) $ 81,474 $ (46,748)
Other income (3,381) (13,158)
Interest expense 15,858 19,189
Net income (loss) before taxes 68,997 (52,779)
Income tax expense 821 840
Net income (loss) $ 68,176 $ (53,619)
Weighted average shares
of common stock outstanding
Basic 1,219,645 1,219,645
Diluted 1,300,519 1,219,645
Net income (loss) per share
Basic $ 0.06 $ (0.04)
Diluted $ 0.05 $ (0.04)
</TABLE>
See notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF CASH FLOWS
LEAK-X ENVIRONMENTAL CORPORATION AND SUBSIDIARIES
(Unaudited)
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Three Months Ended March 31,
1998 1997
CASH FLOW FROM
OPERATING ACTIVITIES:
Net income (loss) $ 68,176 $ (53,619)
Adjustments to reconcile net loss
to net cash provided (used) by
operating activities:
Depreciation 17,400 17,400
Goodwill amortization 0 15,000
Gain on sale of asset 0 (3,824)
Increase in accounts receivable (392,348) (463,161)
Decrease in costs and estimated
earnings in excess of billings 94,594 14,918
(Increase) decrease in inventories (31,699) 33,805
Increase in other current assets (60,226) (77,780)
Increase in accounts payable 146,648 173,013
Increase (decrease) in billings
in excess of cost (218,976) 89,278
Increase in accrued expenses
and other liabilities 52,197 2,423
Change in net assets of disc ops (15,082) (300)
NET CASH USED BY OPERATIONS (339,316) (252,847)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditure (8,460) (13,051)
Sale of asset 0 8,500
(Increase) decrease in other
assets, net (35,184) 107
NET CASH USED BY INVESTING ACTIVITIES (43,644) (4,444)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on line of credit 185,000 250,000
Payments on long-term debt (12,207) (12,206)
Payments on notes payable
to directors 0 (3,739)
NET CASH PROVIDED BY FINANCING ACTIVITIES 172,793 234,055
NET DECREASE IN CASH (210,167) (23,236)
CASH, beginning of the year 240,769 156,617
CASH, end of the year $30,602 $133,381
</TABLE>
See notes to consolidated financial statements
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, 1998
are not necessarily indicative of the results that may be expected for the
year ending December 31, 1998. 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, 1997.
Per share data for the periods are based upon the weighted average number of
shares of common stock outstanding during such periods, plus net additional
shares issued upon exercise of options and warrants (see Note 4).
Note 2. Financial Matters
Total interest expense for the three months ended March 31, 1998 and
March 31, 1997 was $15,858 and $19,189, respectively.
Note 3. Discontinued Operations
Net assets of discontinued operations at March 31, 1998 consist of
accounts receivable of $499,234. Net liabilities of discontinued operations
at March 31, 1998 include accounts payable and accrued expenses of $346,251
and $78,781, respectively.
Note 4. Income from Continuing Operations per Share
The following is a reconciliation of the numerator and denominator
underlying the income from continuing operations per share calculations:
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Three Months ended March 31, 1998
Income Shares Per Share
(Numerator) (Denominator) Amount
Income from Continuing operations
available to common stockholders $68,176 1,219,645 $0.06
Effect of dilutive securities:
Incremental shares of assumed
conversions of options 80,874
Diluted income from continuing operations
available to common stockholders
and assumed conversions $68,176 1,300,519 $0.05
</TABLE>
The reconciliation for the three months ended March 31, 1997 has not
been presented since any incremental shares converted would be anti-dilutive
to the net loss for such three months then ended.
Item 2. Management's Discussion and Analysis or Plan of Operation
Results of Operations
Quarter ended March 31, 1998 compared to the Quarter ended March 31, 1997
Net revenue increased 30% to $2,586,505 for the quarter ended March 31,
1998 (the "1998 Quarter") compared to $1,996,890 for the quarter ended March
31, 1997 (the "1997 Quarter"). The increase in revenues is attributable to a
26% increase in environmental consulting services and a 39% increase in sales
at the Company's groundwater remediation business.
The Company's showed a 1% improvement in gross margin to 28% for the 1998
Quarter as compared to a gross margin of 27% in the 1997 Quarter. The
improvement is primarily attributable to improved margins at the Company's
groundwater remediation business resulting from increased sales and a
continuing cost containment program.
Selling, general and administrative ("SG&A") expenses increased $55,557
to $635,997 for the 1998 Quarter, as compared to $580,440 in the 1997 Quarter.
This increase is primarily attributable to an investment made in the Company's
new environmental monitoring services. In addition, the Company had
significantly reduced SG&A expenses in the 1997 Quarter through personnel
layoffs and partial waivers of two officers' salaries which did not occur in
the 1998 Quarter. The Company continues to use available resources to pursue
its growth and acquisition strategy.
Net income in the 1998 Quarter was $68,176 as compared to a net loss of
$53,619 in the 1997 Quarter. The significant improvement is attributable to
higher sales and increased personnel utilization for environmental services.
The Company incurred lower interest expense of $15,858 in the 1998 Quarter, as
compared to $19,189 in the 1997 Quarter due to lower interest rates on the use
of debt in the 1998 Quarter.
Liquidity and Capital Resources
The Company utilized $339,316 in cash from operating activities in the
1998 Quarter as compared to utilizing $252,847 in the 1997 Quarter. The
primary change in the utilization of cash from operating activities was the
decrease in billings in excess of cost in the 1998 Quarter.
Net cash used by investing activities in the 1998 Quarter was $43,644 as
compared to $4,444 net cash used in the 1997 Quarter. Capital expenditures,
which were primarily for computer equipment, remained consistent. The 1998
Quarter included $35,184 for an investment in the expansion of an existing
product line and the 1997 Quarter included $8,500 of cash received from the
sale of an asset.
Net cash provided by financing activities was $172,793 in the 1998
Quarter as compared to $234,055 in the 1997 Quarter. During the 1998 and 1997
Quarters, the Company borrowed $185,000 and $250,000, respectively, on its
line of credit in order to support ongoing operations. The first quarter is
typically the lowest cash receipt period for the Company. The Company
continued to make scheduled payments on its long-term debt in the 1998 Quarter
and 1997 Quarter.
The Company's working capital deficit decreased to $254,354 at March 31,
1998 from $296,355 at December 31, 1997. The working capital deficit is
primarily attributable to an increase in the Company's bank borrowing in order
to support the Company's increased growth in revenues.
Backlog at March 31, 1998 was $5,900,000 which is consistent with the
level at December 31, 1997 of $5,800,000, primarily as a result of additional
backlog being recognized at the same rate as the sales for the 1998 Quarter.
The Company believes that all of the current backlog will be completed in
1998, 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 May 12, 1997, the Company entered into an agreement with George A.
Nolan and James G. Warburton, Officers of the Company's groundwater
remediation subsidiary 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 required 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.
On February 26, 1998, the Company received a notice from The Nasdaq Stock
Market, Inc. stating that the Company was not in compliance with the new
tangible net worth requirement, pursuant to the NASD Marketplace Rules, which
became effective on February 23, 1998. The Company has requested a temporary
exception to the new requirements by requesting a hearing through a written
submission. If the Company's written submission supporting the argument in
favor of an exception is not satisfactory, the Company's common stock will be
scheduled for delisting from the Nasdaq Stock Market subject to the Company's
opportunity to request an oral hearing.
Management has maintained control of overhead expenses and operating
margins. However, there is no assurance that the cost controlling measures
will be sufficient to permit the Company to meet its financial obligations
while providing capital for ongoing operations.
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: enforcement of environmental regulations,
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 20, 1998
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, 1998, AND
THE RELATED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED
MARCH 31, 1998, 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-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 30602
<SECURITIES> 0
<RECEIVABLES> 2519030
<ALLOWANCES> 15000
<INVENTORY> 299432
<CURRENT-ASSETS> 661069
<PP&E> 472510
<DEPRECIATION> 323426
<TOTAL-ASSETS> 3761889
<CURRENT-LIABILITIES> 3749556
<BONDS> 0
0
0
<COMMON> 1220
<OTHER-SE> 11113
<TOTAL-LIABILITY-AND-EQUITY> 3761889
<SALES> 2586505
<TOTAL-REVENUES> 2586505
<CGS> 1869034
<TOTAL-COSTS> 1869034
<OTHER-EXPENSES> 635997
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15858
<INCOME-PRETAX> 68997
<INCOME-TAX> 821
<INCOME-CONTINUING> 68176
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 68176
<EPS-PRIMARY> 0.06
<EPS-DILUTED> 0.05
</TABLE>
