U. S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year ended December 31, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-17776
LEAK-X ENVIRONMENTAL CORPORATION
(Name of small business issuer in its charter)
Delaware 23-2823596
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
790 E. Market Street, Suite 270, West Chester, PA 19382
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: 610-344-3380
Securities registered under Section 12(b) of the Exchange Act:
NONE
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $.001 per share
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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:
X Yes No
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B contained in this form, and no disclosure will be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
The Issuer's revenues for the fiscal year ended December 31, 1998 were
$6,915,747.
The aggregate market value of the Registrant's Common Stock held by
non-affiliates of the Registrant as of March 19, 1999 was approximately
$787,460. On such date, the closing price of the Common Stock as quoted on
The OTC Bulletin Board was $1.875.
The Registrant had 990,126 shares of Common Stock outstanding as of March 19,
1999.
The Annual Report to Stockholders for the year ended December 31, 1998 is
incorporated by reference to Part I, Item 3; Part II, Items 5,6, and 7; and
Part III, Item 12 of the Form 10-KSB.
Transitional Small Business Disclosure Format: Yes X No
PART I
Item 1. DESCRIPTION OF BUSINESS
General
Leak-X Environmental Corporation ("Leak-X" or the "Company") is engaged
in the environmental consulting business which is conducted through its
wholly-owned subsidiary, Lexicon Environmental Associates, Inc. ("Lexicon").
Lexicon provides environmental engineering, hydro-geological and remedial
consulting services; construction management services for storage tank related
construction; and remote monitoring services for environmental compliance.
Prior to September 1998, the Company also engaged in the groundwater
remediation business through Groundwater Recovery Systems, Inc. ("GRS"). On
September 30, 1998, the Company sold GRS. Prior to March 1995, the Company's
Gaservice Maintenance Corporation ("Gaservice") subsidiary operated as a
general contractor primarily involved in the installation and servicing of
petroleum storage and handling equipment. As of March 31, 1995, this business
was discontinued. Unless otherwise indicated, the discussions of the business
and operations of the Company described herein refer to Lexicon, and do not
reflect the business and operations of GRS or Gaservice.
Leak-X was incorporated in New York in October 1988. In August 1995, the
Company changed its state of incorporation to Delaware through a reverse
merger with a wholly-owned subsidiary. Lexicon was formed in October 1989.
The Company acquired GRS in September 1995 and subsequently sold it in
September 1998.
Operations
The Company offers a full spectrum of environmental engineering,
hydrogeological and remedial services which include: environmental assessments
for property transfers; design, installation and operation of groundwater
remediation systems; and storage tank testing, assessment, abandonment,
remediation, and installation. The Company's environmental consulting
services are provided primarily in the Northeastern and Mid-Atlantic United
States, however, many projects are conducted nationally.
The Company provides professional services with a staff of chemical and
civil engineers, hydrogeologists, geologists, and environmental scientists.
In addition to engineering and scientific evaluations, the Company's
environmental consulting business also provides construction management
services to oversee general contractors performing storage tank closures,
upgrades, and installations, as well as soil loading and disposal. To conduct
geological and hydrogeological assessments, the Company provides field
management of drilling contractors. Analytical services are provided through
various contract laboratories.
In 1993, the Company signed a contract with Bell Atlantic ("Bell"),
formerly NYNEX, to provide ongoing engineering, construction management,
analytical and soil disposal services for Bell's storage tank management
program at its New York City facilities. In 1995, the Bell program was
expanded to include Bell's Long Island, New York, facilities. The majority of
the construction management portion of the contract is provided by
subcontractors under contract to the Company.
In 1997, the Company developed new telecommunications software as part of
its Protocol Environmental Compliance Program ("Protocol"). Protocol was
developed in response to the market demand for centralized electronic
monitoring services for storage tank facilities. The telemonitoring program
entitled, "OnPatrol Remote Monitoring" has been developed as an outsourced
electronic surveillance service provided to tank owners. Data from individual
facilities is telecommunicated to the Company's centralized control center
where the Company analyzes the information, responds to alarms, and generates
the reports that are necessary for environmental compliance. Another aspect
of the Protocol program is "InControl", a comprehensive facility inspection
and maintenance program. Both Protocol programs work together to assist
clients in their ongoing compliance needs.
Source of Supply
There is no one supplier whose delivery of raw materials or other
products is material to the operations of the Company as a whole. The Company
has not experienced any difficulty in obtaining adequate supplies.
Marketing and Sales
The Company's marketing focuses on the needs of potential clients to
comply with federal, state and local environmental regulations governing
underground storage tanks (USTs) and protection of surface and ground water.
In addition, there are many states and lending institutions that require
environmental assessments to be performed when real property is transferred.
These assessments typically evaluate the financial impact of the environmental
liabilities associated with storage tanks, asbestos, PCBs, and hazardous
materials and wastes. In addition, the Company implements UST and aboveground
storage tank (AST) management programs.
The Company's environmental consulting business has primarily targeted
commercial and industrial entities, including "fleet owners" (i.e.,
telecommunications, rental car, and bus companies), chemical, manufacturing,
and petroleum companies, commercial real estate developers, lenders, and law
firms for environmental consulting services. The Protocol program targets
industrial, retail petroleum, and commercial companies with storage tanks.
The Company's environmental consulting and Protocol services are
marketed by disseminating descriptive literature to potential customers,
advertising, attending trade shows, conducting seminars, and on the basis of
referrals and reputation. A majority of the Company's consulting business is
repeat business from existing clients. The Chief Executive Officer of Lexicon
is a recognized national expert on storage tank management, has published two
books and numerous articles on the subject, and conducts seminars both
nationally and internationally on various environmental issues, including
storage tanks, hazardous waste management, real estate assessments, and state
laws and regulations.
Major Customers
During the years ended December 31, 1998 and 1997, Bell accounted for
approximately 70% and 68% of net revenues, respectively. Dependence on a
small number of large (in relation to total sales) customers may cause the
Company's revenues to fluctuate substantially from year to year and the loss
of any such customers may have an adverse effect on revenues and income.
Research and Development
The Company's research and development efforts focus on the development
of advanced technology for use in the production of its remediation systems,
as well as new technology areas. During the years ended December 31, 1998 and
1997, the Company had expenditures of $21,645 and $31,707, respectively, for
research and development.
Patents and Trademarks
The Company's business is not materially dependent on any patents or
trademarks. The Company has trademarked its Protocol compliance program
primarily for marketing purposes.
Competition
Competition in the environmental consulting business is intense and is
generated from a combination of both large and small environmental consulting
firms which provide tank management services. In addition, the Company
encounters competition from UST remedial service and construction firms which
also provide equipment and tank testing. Lexicon has developed a national reput
ation in storage tank management and niche markets in this area. In general,
the Company's environmental consulting competitors are larger and have greater
resources than the Company.
Competition for the Company's Protocol services consists primarily of
computer software and equipment manufacturers. The Company believes that its
approach and expertise in storage tank management provides an advantage over
the competition who do not provide a "complete service" which includes the
broad spectrum of environmental engineering services.
Competition in the construction management business is widespread and is
generated from large general contractors, as well as some specialized "tank
and pump" contractors. However, the Company provides its construction
management services in the specialized area of storage tanks and does not
confront significant competition from large general contractors which do not
possess the expertise in this area. Large contractors do, however, possess
greater resources than the Company.
Government Regulation
The demand for the various products and services offered by the Company
is stimulated by Federal, state, and local environmental and engineering laws
and regulations, including the regulations promulgated in December 1988 for
USTs by the United States Environmental Protection Agency. These regulations
required all UST owners to upgrade their existing tanks by the end of 1993 and
to replace them with new state-of-the-art technology by the end of 1998. Many
states currently have reimbursement programs in place to assist tank owners in
recouping monies spent for UST remediation at their sites. These programs are
expected to continue at least through the Year 2000. Thereafter, the primary
emphasis of these programs is expected to shift to operations and maintenance.
As a result of the federal, as well as many state and local regulations,
the Company must be certified by the respective state agencies in order to
perform services related to storage tank abandonment, installation, and
remediation. These certifications typically must be held both by the Company,
as well as the individuals performing the actual services. In addition,
several of the equipment manufacturers associated with storage tanks and
related equipment require individuals to be certified. The Company and its
respective key employees have obtained the necessary certifications from New
Jersey, Pennsylvania, and Massachusetts (three of the four principal states
where services are performed; New York does not yet have a certification
program) and from the principal equipment manufacturers.
Insurance
The Company maintains a general liability insurance policy, including
premises/operations, products/completed operations, pollution liability and
professional liability. In addition, property, automobile, and employer's
liability policies are maintained on the Company's leased properties and their
contents, and the Company's non-owned vehicles.
In the ordinary course of business, the Company may be subject to
substantial claims and liabilities from its customers. The Company may not be
insured against losses or liabilities to third parties because the insurance
it may have at the time of an alleged or actual loss is inadequate in amount.
Accordingly, the Company's assets may not be protected against potential
claims by users of its products and services. The Company's insurance
coverage is consistent with amounts customarily maintained by businesses in
its industry. Currently, there are claims that are in excess of the Company's
insurance coverage. See "Legal Proceedings."
Backlog, Seasonality
Backlog at December 31, 1998 was $2,600,000 as compared to $5,800,000 at
December 31, 1997. The Company has several contracts with Bell to provide
construction management, engineering, analytical and soil disposal services
for Bell's storage tank management program at its New York City, Long Island,
and New England facilities. A portion of the construction management
contract is provided by subcontractors under contract to the Company. The
construction management agreements represent $1,000,000 and $3,300,000,
respectively, of the December 31, 1998 and December 31, 1997 backlog. The
backlog at the end of Fiscal 1998 is lower primarily due to the completion of
these and other construction management programs.
Management believes that substantially all of the current backlog will be
completed during 1999, 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. The Company's operations are not generally
subject to significant seasonal variations. However, the first calendar
quarter of each year tends to have less activity as a result of
weather-related reduced accessibility of USTs.
Employees
As of March 19, 1999, the Company employed twenty-five persons full-time,
three temporary, and one part-time as follows: six in executive management,
seventeen in environmental consulting, one in sales, and five in
administration. The Company believes that its relationship with its employees
is good.
Domestic and Foreign Sales
All of the Company's environmental consulting operations are conducted
within the United States. However, historically, the Company has furnished
services at various locations outside the Continental United States. The
Company had no export sales for the year ended December 31, 1998.
Item 2. DESCRIPTION OF PROPERTY
The Company utilizes the following principal facilities as of the date
hereof:
<TABLE>
<CAPTION>
Location Square Ft. Lease Exp. Purpose Current Annual Rent
<S> <C> <C> <C> <C>
West Chester, PA 5,426 May 31, 2003 Office/Storage $86,622
Franklin Square, NY 1,350 December 31, 2001 Office $21,125
</TABLE>
The Company believes that its present facilities are adequate for its
operations, however, the Company may consider other options as its leases
terminate.
Item 3. LEGAL PROCEEDINGS
The information required by Item 3 is incorporated by reference from the
Company's 1998 Annual Report to Stockholders attached as Exhibit 13.1 hereto.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
Item 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information required by Item 5 is incorporated by reference from the
Company's 1998 Annual Report to Stockholders attached as Exhibit 13.1 hereto.
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The information required by Item 6 is incorporated by reference from the
Company's 1998 Annual Report to Stockholders attached as Exhibit 13.1 hereto.
Item 7. FINANCIAL STATEMENTS
The information required by Item 7 is incorporated by reference from the
Company's 1998 Annual Report to Stockholders attached as Exhibit 13.1 hereto.
All schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable and, therefore, have been
omitted.
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
As reported in the Company's Current Report on Form 8-K dated January 26,
1999, the Company dismissed the firm of Mazars & Guerard, LLP (the "Former
Accountants") as its independent accountants. The reports of the Former
Accountants on the Registrant's financial statements for the fiscal years
ended December 31, 1996 and 1997 did not contain an adverse opinion or
disclaimer of opinion and were not qualified or modified as to uncertainty,
audit scope or accounting principles. The Audit Committee of the Registrant's
Board of Directors recommended and authorized the decision to change
independent accountants. There were no disagreements with the Former
Accountants for the fiscal years ended December 31, 1996 and 1997 or for the
interim periods subsequent to December 31, 1997, on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which disagreements, if not resolved to the satisfaction of the
Former Accountant would have caused them to make reference thereto in their
reports on the financial statements for such periods. The Former Accountants
have furnished the Registrant with a letter addressed to the Securities and
Exchange Commission stating that it agrees with the above statements.
The Company engaged Radin, Glass & Co., LLP (the "New Accountants") as
its new independent accountants as of January 26, 1999. During the fiscal
years ended December 31, 1996 and 1997 and the interim periods subsequent to
December 31, 1997, the Company did not consult with the New Accountants on the
application of accounting principles to a specified transaction, either
completed or proposed; or the type of audit opinion that might be rendered on
the Company's financial statements; or receive either written or oral advice
from the New Accountants that was an important factor in reaching a decision
as to an accounting, auditing or financial reporting issue.
PART III
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The Directors and executive officers of the Company are:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
John S. Gelles 63 Chairman of the Board of
Directors
Joyce A. Rizzo 50 Chief Executive Officer and
Director of the Company and
Chief Executive Officer of
Lexicon Environmental
Associates, Inc.
William H. Gelles, Jr. 57 President, Treasurer and
Director
Robert D. Goldman 42 Secretary and Director of the
Company and President of
Lexicon Environmental
Associates, Inc.
Eileen E. Bartoli 30 Chief Financial Officer
Timothy J. Mayette 38 Director
Raymond W. Kane 54 Director
</TABLE>
Directors are elected to serve until the next annual meeting of
stockholders or until their successors are elected and qualified. Officers
serve at the discretion of the Board of Directors subject to any contracts of
employment. See "Executive Compensation." John S. Gelles and William H.
Gelles, Jr. are brothers.
Biographical Information
John S. Gelles co-founded and has been Chairman of the Board of Directors
of the Company since its inception. From inception until May 1992, he was
also Chief Executive Officer, and until December 1995, the Secretary. From
1996 through 1998, Mr. Gelles served in a sales and marketing capacity for the
Company. Prior to the Company's discontinuation of Gaservice, Mr. Gelles had
served as President of Gaservice for 28 years.
Joyce A. Rizzo has been a Director of the Company since September 1989
and Chief Executive Officer of the Company since May 1992. Ms. Rizzo has also
served as Chief Executive Officer of Lexicon since September 1997 and prior
thereto, from October 1989 through September 1997, as its President. Prior to
joining the Company, Ms. Rizzo held executive positions with environmental
engineering companies for six years after having spent twelve years as a
chemical engineer and environmental manager in the petroleum refining industry
with Sun Company.
William H. Gelles, Jr. co-founded and has been President, Treasurer, and
a Director of the Company since its inception. From 1996 through 1998, Mr.
Gelles served in a sales and marketing capacity for the Company. Prior to the
Company's discontinuation of Gaservice, Mr. Gelles had served as
Secretary-Treasurer of Gaservice for 28 years.
Robert D. Goldman has been Secretary of the Company since December 1995
and a Director since February 1997. Mr. Goldman has been President of Lexicon
since September 1997 and prior thereto, was Vice President of Lexicon from
November 1989 to September 1997. As a certified professional geologist, Mr.
Goldman has worked performing environmental and geologic consulting for the
past 20 years.
Eileen E. Bartoli has been Chief Financial Officer of the Company since
January 1997 and prior thereto, from February 1995 through January 1997, had
served as the Company's Controller and Chief Accounting Officer. From April
1994 to January 1995, Ms. Bartoli was Corporate Controller and Vice President
of Accounting for Global Spill Management, Inc., an environmental services
company specializing in spill response and remediation. From October 1990 to
April 1994, Ms. Bartoli held positions at Coopers and Lybrand, and Harper
Collins Publishers, Inc.
Timothy J. Mayette has been a Director of the Company since February
1998. Mr. Mayette is the Chief Financial Officer of PMCC Financial
Corporation, a position that he has held since October 1997. Prior thereto,
Mr. Mayette was Chief Financial Officer of Mortgage Plus Equity and Loan
Corporation from October 1996 to October 1997 and Vice president, Controller
of BankAmerica Mortgage from 1991 through September 1996.
Raymond A. Kane has been a Director of the Company since February 1998.
Mr. Kane is an independent consultant based in Wayne, Pennsylvania, who is a
leading national expert in the field of environmental compliance management,
auditing and program development with more than 20 years of experience. Prior
to becoming an independent consultant, Mr. Kane held various positions with
Booz Allen Hamilton, Roy F. Weston, and McLaren/Hart Environmental
Engineering.
Compliance With Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than ten percent of
a registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange
Commission. Officers, Directors, and greater than ten-percent stockholders
are required by regulation to furnish the Company with copies of all Section
16(a) forms they file. Based solely on its review of the copies of such forms
received by it, or written representations from certain reporting persons that
no Form 5's were required for those persons, the Company believes that, during
the period from January 1, 1998 through December 31, 1998, all filing
requirements applicable to its Officers, Directors, and greater than
ten-percent beneficial owners were complied with except for one Form 3 and
three Form 4's, reporting a total of six (6) transactions which were filed
late by Mr. Richard L. Schmidt.
Item 10. EXECUTIVE COMPENSATION
The following tables set forth all compensation awarded to, earned by, or
paid for all services rendered to the Company, for the fiscal years ended
December 31, 1996, 1997, and 1998, by the Chief Executive Officer, and each
other executive officer and executive officers of one of the Company's
subsidiaries whose total compensation exceeded $100,000.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation Awards
Name and Options/SARs
Principal Position Year Salary Bonus ($) (#)
<S> <C> <C> <C> <C>
Joyce A. Rizzo, 1998 $159,135 $1,500 20,000
Chief Executive 1997 $154,500 -0- 10,000
Officer 1996 $150,000 -0- -0-
Robert D. Goldman 1998 $117,500 $1,500 15,000
Secretary 1997 $109,850 $1,250 5,000
1996 $107,000 $1,150 -0-
George A. Nolan 1998 $110,925 -0- -0-
President, GRS (1) 1997 $104,575 -0- 15,000
James G. Warburton 1998 $110,925 -0- -0-
Vice President, GRS (1) 1997 $104,575 -0- 15,000
</TABLE>
_________________________
(1)The Company sold GRS as of September 30, 1998. The 1998 figures represent
compensation received through September 30, 1998.
Individualized Option/SAR grants in Last Fiscal Year
<TABLE>
<CAPTION>
% of Total Exercise
Options/ Options/SARs or Sale
SARs Granted to Price Expiration
Name Granted Employees ($/SH) Date
<S> <C> <C> <C> <C>
Joyce Rizzo 20,000 25% $2.375 09-17-08
Robert Goldman 15,000 19% $2.375 09-17-08
</TABLE>
Aggregated Option Exercises in Last Fiscal Year and FY End Option Values
<TABLE>
<CAPTION>
Number of Value of
Unexercised In-The-Money
Shares Options at Options
Acquired FY-End (#) at FY-End ($)
on Exer- Value Exercisable/ Exercisable/
Name cise (#) Realized Unexercisable Unexercisable (1)
<S> <C> <C> <C> <C>
Joyce A. Rizzo -0- $ 0.00 30,097/31,827 $43,340/$29,531
Robert D. Goldman -0- $ 0.00 11,423/20,192 $16,449/$16,851
</TABLE>
________________________
(1)The closing price for the Company's Common Stock on December 31, 1998 was
$3.00 per share.
The Company has no long-term incentive plan awards.
Directors who are employees or officers of the Company currently receive
no cash compensation for serving on the Board of Directors other than
reimbursement of reasonable expenses incurred in attending meetings. For
serving on the Board of Directors, the Company's outside directors receive
$2,500 in annual compensation plus reimbursement of reasonable expenses
incurred in attending meetings.
Employment Agreements
The information required by Item 10 Employment Agreements is incorporated
by reference from the Company's 1998 Annual Report to Stockholders attached as
Exhibit 13.1 hereto.
Item 11.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth, as of March 19, 1999, certain information
with respect to: (i) those persons who owned, to the Company's knowledge,
beneficially (as such term is defined in Rule 13d-3 under the Securities
Exchange Act of 1934) more than 5% of the Company's Common Stock; (ii) each
Director of the Company and each Executive Officer named in the Summary
Compensation Table; and (iii) all Directors and Executive Officers as a
group:
<TABLE>
<CAPTION>
Percentage of
Name and Number of shares Outstanding
Address of of Common Stock Common Stock
Beneficial Owner Owned (1) Owned (2)
<S> <C> <C>
John S. Gelles (3) 226,929 (4) 22.6%
William H. Gelles, Jr. (3) 227,618 (5) 22.6%
Joyce A. Rizzo (6) 31,468 (7) 3.1%
Robert D. Goldman (6) 15,269 (8) 1.5%
Timothy J. Mayette (9) 10,000 (10) 1.0%
Raymond W. Kane (11) 10,000 (10) 1.0%
Richard L. Schmidt (12) 145,000 14.6%
All Executive Officers and 522,822 (13) 48.1%
Directors as a Group
(consisting of seven persons)
</TABLE>
_________________________
(1)Unless otherwise noted, the Company believes that all persons named in the
table have sole voting and investment power with respect to all Common Stock
beneficially owned by them. A person is deemed to be the beneficial owner of
securities that can be acquired by such person within 60 days from the date
hereof upon the exercise of options. Each beneficial owner's percentage
ownership is determined by assuming that options and warrants held by such
person (but not those held by any other person) and which are exercisable
within 60 days from the date hereof have been exercised.
(2)Based on 990,126 shares of common stock outstanding.
(3)The address of this person is c/o Lexicon Environmental Associates, Inc.,
925 Hempstead Turnpike, Suite 200, Franklin Square, New York 11010.
(4)Includes 76 shares held of record by Mr. Gelles' wife, but excludes 115
shares held of record by Mr. Gelles's adult children as to which Mr. Gelles
disclaims beneficial ownership. Includes 15,385 incentive stock options which
are exercisable at an exercise price of $1.56.
(5)Excludes 152 shares owned of record by Mr. Gelles's adult children as to
which Mr. Gelles disclaims beneficial ownership. Includes 15,385 incentive
stock options which are exercisable at an exercise price of $1.56.
(6)The address of this person is Leak-X Environmental Corporation, 790 E.
Market Street, Suite 270, West Chester, Pennsylvania 19382.
(7)Includes 30,097 incentive stock options granted to Ms. Rizzo at an
exercise price of $1.56. Excludes 31,827 incentive stock options which are
not currently exercisable.
(8)Includes 3,846 warrants to purchase 3,846 shares and 11,423 incentive stock
options granted to Mr. Goldman at an exercise price of $1.56. Excludes
20,192 incentive stock options which are not currently exercisable.
(9)The address of this person is PMCC Financial Corporation, 66 Powerhouse
Road, Roslyn Heights, New York 11577.
(10)Includes 10,000 stock options each granted to Mr. Mayette and Mr. Kane at
an exercise price of $2.125 which are currently exercisable.
(11)The address of this person is 175 Strafford Ave., Suite One, Wayne,
Pennsylvania 19087
(12)The address of this person is 509 Center Street, Middleburg, Pennsylvania
17842.
(13)Includes an aggregate of 96,136 stock options and warrants described in
Notes 4, 5, 7, 8, and 10 above, and 1,538 stock options held by Eileen E.
Bartoli, CFO.
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the fiscal years ended December 31, 1998 and December 31, 1997
(Fiscal 1998 and Fiscal 1997, respectively), GRS had revenues of approximately
$271,349 and $239,929, respectively, from sales to an entity that is primarily
owned by the President of GRS. In Fiscal 1998 and Fiscal 1997, GRS also had
purchases of $17,796 and $36,536, respectively, from the same entity. At
December 31, 1997, GRS had accounts receivable from this related entity of
$142,616. This entity competes in some of the same markets and geographic
areas as the Company's environmental consulting services business. The
Company had implemented certain procedures with regard to this entity to
ensure that there is no conflict of interest with the Company's businesses.
The Chief Executive Officer was responsible for reviewing and negotiating
terms with this entity, as well as managing the credit limits and outstanding
receivables on an on-going basis.
During 1997, GRS signed a two-year licensing agreement with the same
entity for two of this entity's proprietary products. The licensing agreement
provided for the exclusive rights of GRS to market and sell these products,
superceded only by the entity's own rights to sell their own product. In
addition, the entity was required to purchase certain products exclusively
from GRS in its own sale of these products to third parties. GRS was required
to pay certain agreed upon royalty fees for each product which it sold
directly to customers. GRS paid royalty fees of $5,500 during the year ended
December 31, 1998.
Additional information required by Item 12 Certain Relationships and
Related Transactions is incorporated by reference from the Company's 1998
Annual Report to Stockholders attached as Exhibit 13.1 hereto.
PART IV
Item 13.EXHIBITS AND REPORTS ON FORM 8-K
(a)Exhibits
2.1 Stock Purchase Agreement dated September 30, 1998 between
George A. Nolan, James G. Warburton, Groundwater Recovery
Systems, Inc., and Leak-X Environmental Corporation. (11)
3.1 Certificate of Incorporation of Registrant (6)
3.2 By-Laws of the Registrant (6)
3.3 Certificate of Merger (6)
3.4 Agreement and Plan of Merger (6)
3.5 Amendment of Certificate of Incorporation filed
January 28, 1997 (8)
3.6 Amendment of Certificate of Incorporation filed
August 22, 1997 (10)
4.1 Form of Warrant, as amended. (1)
4.2 Form of Warrant Agreement, as amended. (1)
10.1 1988 Stock Option Plan. (1)
10.2 1992 Stock Option Plan (2)
10.3 Lease between Lexicon Environmental Associates, Inc. and High V
Limited Partnership dated March 31, 1993. (3)
10.4 Construction Manager's Agreement between New York Telephone
Company and Lexicon Environmental Associates, Inc. dated
December 31, 1993. (3)
10.5 Employment Agreement between Registrant and Joyce Rizzo dated
March 31, 1995. (4)
10.6 Letter Agreement between Registrant and Messrs. John S. Gelles
and William H. Gelles, Jr. dated March 31, 1995. (4)
10.7 Letter Agreement between Registrant and JWB Associates dated
March 31, 1995. (4)
10.8 Agreement and Plan of Merger dated September 29, 1995 among
Leak-X Environmental Corporation, Groundwater Recovery Systems,
Inc., GRS Acquisition Corp., and George A. Nolan and James G.
Warburton (5)
10.9 Employment Agreement among Leak-X Environmental Corporation,
GRS Acquisition Corp. and George A. Nolan, dated
September 29, 1995. (5)
10.10 Employment Agreement among Leak-X Environmental Corporation, GRS
Acquisition Corp. and James G. Warburton, dated
September 29, 1995. (5)
10.11 10% Non-Negotiable Promissory Note in the principal amount of
$125,000 made by GRS Acquisition Corp. payable to George A.
Nolan, dated September 29, 1995. (5)
10.12 10% Non-Negotiable Promissory Note in the principal amount of
$125,000 made by GRS Acquisition Corp. payable to James G.
Warburton, dated September 29, 1995. (5)
10.13 Lease between Lexicon Environmental Associates, Inc. and 30
Maplewood Avenue Trust dated August 8, 1995. (6)
10.14 Lease between Lexicon Environmental Associates, Inc. and High V
Limited Partnership dated December 1, 1995. (6)
10.15 Lease between Groundwater Recovery Systems, Inc. and Roger E.
Meinhart and Werner Volkman dated July 1, 1995. (6)
10.16 1995 Stock Option Plan (6)
10.17 1995 Employee Stock Purchase Plan (6)
10.18 1996 Employee Stock Option Plan (7)
10.19 Long Term Installment Note between First Fidelity Bank, N.A. and
Groundwater Recovery Systems, Inc. dated October 1, 1995. (6)
10.20 General Security Agreement between First Fidelity Bank, N.A. and
Groundwater Recovery Systems, Inc. dated October 1, 1995. (6)
10.21 Employment Agreement between Leak-X Environmental Corporation and
John S. Gelles dated June 30, 1996. (8)
10.22 Employment Agreement between Leak-X Environmental Corporation and
William H. Gelles, Jr. dated June 30, 1996. (8)
10.23 Preferred Stock Conversion Agreement by and among Leak-X
Environmental Corporation, John S. Gelles and William H.
Gelles, Jr., dated July 1, 1996. (8)
10.24 Stock Option Agreement between Leak-X Environmental Corporation
and William H. Gelles, Jr. dated June 30, 1996. (8)
10.25 Stock Option Agreement between Leak-X Environmental Corporation
and John S. Gelles dated June 30, 1996. (8)
10.26 Amendment No. 1 to 10% Non-Negotiable Promissory Note between
Leak-X Environmental Corporation and George A. Nolan dated
November 13, 1996. (8)
10.27 Amendment No. 1 to 10% Non-Negotiable Promissory Note between
Leak-X Environmental Corporation and James G. Warburton dated
November 13, 1996. (8)
10.28 Revolving Credit Note between First Union National Bank and
Leak-X Environmental Corporation dated June 27, 1996. (8)
10.29 Revolving Credit Agreement between First Union National Bank and
Leak-X Environmental Corporation dated June 27, 1996. (8)
10.30 Waiver of Covenants - Revolving Credit Agreement and Term Loan
Agreement between First Union National Bank and Leak-X
Environmental Corporation dated April 9, 1997. (8)
10.31 Salary Waiver dated May 12, 1997 between Leak-X Environmental
Corporation and George A. Nolan. (10)
10.32 Salary Waiver dated May 12, 1997 between Leak-X Environmental
Corporation and James G. Warburton. (10)
10.33 Lease between Lexicon Environmental Associates, Inc. and European
American Bank dated September 1996. (10)
10.34 Financial Advisory Services Agreement between Leak-X
Environmental Corporation and Andrew, Alexander Weiss dated
January 1, 1997. (10)
10.35 Loan Modification Agreement between Leak-X Environmental
Corporation and First Union National Bank dated
January 5, 1998. (10)
10.36 Promissory Note between Lexicon Environmental Associates, Inc.,
Groundwater Recovery Systems, Inc. and First Union National Bank
dated January 5, 1998. (10)
10.37 1997 Employee Stock Option Plan (9)
10.38 Consent, waiver and modification letter to Loan Documents from
First Union National Bank dated August 25, 1998. (11)
10.39 Renewal of Promissory Note from First Union National Bank dated
December 16, 1998.
10.40 Lease agreement between High V Limited Partnership and Lexicon
Environmental Associates, Inc. dated December 1998.
10.41 Extension of the Promissory Note from First Union National Bank
dated March 26, 1999.
10.42 Commitment Letter from First Union National Bank dated March 26,
1999.
13.1 1998 Annual Report to Stockholders
21.1 List of Subsidiaries of the Company
23.1 Consent of Independent Certified Public Accountants
27.1 Financial Data Schedule
27.2 Restated Financial Data Schedule
_______________________________
(1)Incorporated by reference from the initial filing of the Company's
Registration Statement on Form S-18 (File No. 33-25369-NY) declared effective
on February 14, 1989.
(2)Incorporated by reference from the Company's Annual Report on Form
10-K for the Fiscal Year ended December 31, 1992.
(3)Incorporated by reference from the Company's Annual Report on Form
10-KSB for the Fiscal Year ended December 31, 1993.
(4)Incorporated by reference from the Company's Annual Report on Form
10-KSB for the Fiscal Year ended December 31, 1994.
(5)Incorporated by reference from the Company's Form 8-K and Form
8-K/A-No. 1 dated September 29, 1995 filed on October 13, 1995 and October 27,
1995, respectively.
(6)Incorporated by reference from the Company's Annual Report on Form
10-KSB for the Fiscal Year ended December 31, 1995.
(7)Incorporated by reference from the Company's Proxy Statement for
Notice of Annual Meeting of Stockholders To Be Held on September 20, 1996.
(8)Incorporated by reference from the Company's Annual Report on Form
10-KSB for the Fiscal Year ended December 31, 1996.
(9)Incorporated by reference from the Company's Proxy Statement for
Notice of Annual Meeting of Stockholders To Be Held on August 21, 1997.
(10)Incorporated by reference from the Company's Annual Report on Form
10-KSB for the Fiscal Year ended December 31, 1997.
(11)Incorporated by reference from the Company's Form 8-K dated
September 30, 1998 filed on October 9, 1998.
(b)Reports on Form 8-K
The Company filed a current report on Form 8-K dated September 30, 1998
relating to the divestiture of GRS.
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
LEAK-X ENVIRONMENTAL CORPORATION
By: /s/Joyce A. Rizzo
Joyce A. Rizzo
Chief Executive Officer
March 29, 1999
Date
In accordance with the Securities Exchange Act, this report has been signed
below by the following persons on behalf of the Registrant and in the
capacities indicated on this 29th day of March, 1999.
/s/ John S. Gelles /s/ Joyce A. Rizzo
John S. Gelles Joyce A. Rizzo
Chairman of the Board of Directors Chief Executive Officer
and Director
/s/ William H. Gelles, Jr. /s/ Robert D. Goldman
William H. Gelles, Jr. Robert D. Goldman
President, Treasurer and Director Secretary and Director
/s/ Timothy J. Mayette /s/ Raymond W. Kane
Timothy J. Mayette Raymond W. Kane
Director Director
/s/ Eileen E. Bartoli
Eileen E. Bartoli
Controller and Chief Financial Officer
FIRST UNION NATIONAL BANK
PA1202
Portfolio Management
123 South Broad Street
Philadelphia, Pennsylvania 19109-1199
Fax 215 985-3143
Fax 215 985-3149
Suzanne S. Storm
Senior Vice President
Direct Dial 215-985-7767
December 16, 1998
Lexicon Environmental Associates, Inc.
Leak-X Environmental Corporation
790 East Market Street - Suite 270
West Chester, PA 19382
Attention: Joyce A. Rizzo
Re: Renewal of Promissory Note from Lexicon Environmental Associates, Inc.
and Groundwater Recovery Systems, Inc. ("Borrower") to First Union National
Bank ("First Union") in the original principal amount of $750,000.00 dated
July 9, 1998 and as amended by the letter agreement dated August 25, 1998
(the "Note")
Dear Joyce:
First Union has agreed to extend the maturity of the Note on the terms and
conditions set forth in this letter agreement.
Accordingly, in consideration of the mutual covenants and promises set forth
in this letter agreement and other good and valuable consideration, Borrower
and First Union agree as follows:
1. Borrower acknowledges that the Note is or will be fully due and owing by
virtue of its maturity on December 31, 1998, that the total outstanding
principal balance under the Note as of December 16, 1998 is $323,000.00 and
that interest on the obligations under the Note is paid through
November 30, 1998. Borrower and First Union agree that the maturity of the
Note shall be extended to March 31, 1999, at which time the outstanding
principal balance, accrued interest and all other amounts under the Note
sh
2. Except as extended and amended hereby, all of the terms, covenants,
conditions and provisions of the Note and related loan documents
(the "Loan Documents") remain unchanged and in full force and effect.
Borrower ratifies and confirms its obligations under the Note and Loan
Documents, as extended hereby, and represents and warrants to First Union
that it has no counterclaims, defenses or offsets to any of its obligations
under the Note and Loan Documents, as extended. Borrower further agrees
that all c
3. This letter agreement shall be binding upon and inure to the benefit of
First Union and Borrower and their respective successors and assigns.
Please indicate your agreement with the terms and conditions of this letter
agreement by executing it as provided below and returning it to the
undersigned.
Sincerely,
FIRST UNION NATIONAL BANK
By: /s/ Suzanne S. Storm
Suzanne S. Storm, Senior Vice President
The undersigned acknowledge, consent and agree to the terms of the above
letter agreement this 17th day of December, 1998.
Borrower:
LEXICON ENVIRONMENTAL ASSOCIATES, INC.
By: /s/ Robert D. Goldman
Robert D. Goldman
Guarantor:
LEAK-X ENVIRONMENTAL CORPORATION
By: /s/ Joyce A. Rizzo
Joyce A. Rizzo
AMENDMENT #3 TO THE LEASE
ADDITIONAL SPACE
Agreement made this 10th day of December, 1998, between HIGH V LIMITED
PARTNERSHIP, ("Landlord") and LEXICON ENVIRONMENTAL ASSOCIATES, INC.,
("Tenant").
A. Tenant and Landlord entered into a lease dated April 26, 1991, and
amended thereafter, wherein Tenant leased 4,182 square feel of 790 East
Market Street, Suite 270, (the "Building"), West Chester, Pennsylvania.
The aforesaid lease is herein referred to as the "Lease".
B. Tenant desires to lease additional space in the Building as set
forth herein.
NOW THEREFORE, the parties hereto intending to be legally bound agree as
follows:
1. Effective for the period January 1, 1999 through May 31, 2003 (May
31, 2003 being the expiration date of the term of the Lease), the Premises
leased under the Lease, (the "Premises"), shall be expanded to include the
additional space in the Building consisting of 746 square feet as shown on
Exhibit "A-2", hereto (the "Expansion Premises").
2. During the above-stated period applicable to the Expansion Premises,
all the terms and conditions of the Lease shall apply to the Expansion
Premises as if it were an original part of the Premises, subject to the
following:
The parties to the above referenced Lease amend Part I, Sections 1, 2, 3
and 4, by replacing those sections with the following:
1. Premises:
1.1 Location: 790 East Market Street, Suites 250 and 270, West
Chester, Pennsylvania
1.2 Tenant's Rentable Square Footage:
4,928 Square Feet
1.4 Tenant's Pro-Rata Share of Building: 20.513
Percent (20.513%)
2. Improvements:
2.1 Landlord shall make the improvements necessary to finish
the Expansion Premises according to the attached plan
(Exhibit A-2). Expansion Premises are not
continguous to the Premises.
3. Term
3.1 Number of Years: Four (4) Years and Five (5) Months
3.2 Term Begins: January 1, 1999
3.3 Term Ends: May 31, 2003
4. Rent
4.1 Base Rent for Entire Term: $376,852.43
4.2 Monthly Installment:
January 1, 1999 to May 31, 1999
- $6,644.59 $16.18 psf
June 1, 1999 to May 31, 2000
- $6,845.81 $16.67 psf
June 1, 2000 to May 31, 2001
- $7,051.15 $17.17 psf
June 1, 2001 to May 31, 2002
- $7,260.59 $17.68 psf
June 1, 2002 to May 31, 2003
- $7,478.24 $18.21 psf
IN WITNESS WHEREOF, the parties, intending to be legally bound have
signed this Agreement as of the 10th day of December, 1998.
LANDLORD
HIGH V LIMITED PARTNERSHIP
By: /s/ Mark C. Fitzgerald
Mark C. Fitzgerald
Senior Vice President
TENANT
LEXICON ENVIRONMENTAL ASSOCIATES, INC.
By: /s/ Joyce A. Rizzo
Joyce A. Rizzo
CEO
By: /s/ Robert D. Goldman
Robert D. Goldman
President
First Union National Bank
PA5093
Portfolio Management Division
2240 Butler Pike
Plymouth Meeting, Pennsylvania 19462
March 25, 1999
Lexicon Environmental Associates, Inc.
Leak-X Environmental Corporation
790 East Market Street - Suite 270
West Chester, PA 19382
Attention: Joyce A. Rizzo
Dear Joyce:
I am pleased to inform you of a commitment from First Union National Bank to
extend the maturity date of Lexicon Environmental Associates' existing
$750,000 line of credit to June 30, 2000. This commitment is contingent upon
your returning the signed extension agreement dated March 24, 1999 and receipt
of the audited financial statements and reflecting no material changes from
the draft numbers previously received by First Union.
If you have any questions concerning the above, please contact me at
610-941-3192.
Sincerely,
/s/ Karen A. Sek
Karen A. Sek
Assistance Vice President
First Union National Bank
PA5093
Portfolio Management Division
2240 Butler Pike
Plymouth Meeting, Pennsylvania 19462
March 24, 1999
Lexicon Environmental Associates, Inc.
Leak-X Environmental Corporation
790 East Market Street - Suite 270
West Chester, PA 19382
Attention: Joyce A. Rizzo
RE: Renewal of Promissory Note from Lexicon Environmental Associates, Inc.
and Groundwater Recovery Systems, Inc. ("Borrower") to First Union National
Bank ("First Union") in the original principal amount of $750,000.00 dated
July 9, 1998 and as amended by the letter agreement dated August 25, 1998 (the
"Note")
Dear Joyce:
First Union has agreed to extend the maturity of the Note on the terms and
conditions set forth in this letter agreement.
Accordingly, in consideration of the mutual covenants and promises set forth
in this letter agreement and other good and valuable consideration, Borrower
and First Union agree as follows:
1. Borrower acknowledges that the Note is or will be fully due and owing by
virtue of its maturity on March 31, 1999, that the total outstanding principal
balance under the Note as of March 24, 1999 is $274,000.00, and that interest
on the obligations under the Note is paid through February 28, 1999. Borrower
and First Union agree that the maturity of the Note shall be extended to May
31, 1999, at which time the outstanding principal balance, accrued interest
and all other amounts under the Note shall become due and payable. Accrued
interest shall continue to be due and payable monthly.
2. Except as extended and amended hereby, all of the terms, covenants,
conditions and provisions of the Note and related loan documents (the "Loan
Documents") remain unchanged and in full force and effect. Borrower ratifies
and confirms its obligations under the Note and Loan Documents, as extended
hereby, and represents and warrants to First Union that it has no
counterclaims, defenses or offsets to any of its obligations under the Note
and Loan Documents, as extended. Borrower further agrees that all collateral
pledged to secure the Note shall continue to secure the Note as extended
hereby.
3. This letter agreement shall be binding upon and inure to the benefit of
First Union and Borrower and their respective successors and assigns.
Please indicate your agreement with the terms and conditions of this letter
agreement by executing it as provided below and returning it to the
undersigned.
Sincerely,
FIRST UNION NATIONAL BANK
By: /s/ Karen A. Sek
Karen A. Sek, Assistance Vice President
The undersigned acknowledge, consent and agree to the terms of the above
letter agreement this 26th day of March, 1999.
Borrower:
LEXICON ENVIRONMENTAL ASSOCIATES, INC.
By: /s/ Robert D. Goldman
Guarantor:
LEAK-X ENVIRONMENTAL CORPORATION
By: /s/ Joyce A. Rizzo
LEAK-X ENVIRONMENTAL CORPORATION
FORM 10-KSB
EXHIBIT 13.1
1998 ANNUAL REPORT TO STOCKHOLDERS
To our Stockholders:
The Company is pleased to report that we were able to achieve positive
earnings from continuing operations for the year ended December 31, 1998
("Fiscal 1998"). Net income from continuing operations in Fiscal 1998 was
$84,379 or $0.07 per share, as compared to a net loss from continuing
operations in the year ended December 31, 1997 ("Fiscal 1997") of $1,773,131
or ($1.45) per share. Fiscal 1997 included a one-time write-off of goodwill
of $1,750,325 associated with the purchase of Groundwater Recovery Systems
("GRS") in 1995. Excluding this charge, the net loss from continuing
operations in Fiscal 1997 would have been $22,806. This improvement in
earnings is primarily due to a 24% increase in profits at the Company's
environmental consulting business.
Effective September 30, 1998, the Company sold its groundwater
remediation business, GRS, back to its original owners. This business is,
therefore, classified as a discontinued operation for Fiscal 1997 and 1998.
Even though the Company experienced a net loss from discontinued operations in
Fiscal 1998 of $428,606, or ($0.37) per share, the sale of GRS puts the losses
behind us and allows us to focus on our profitable engineering services in the
future.
Net revenues decreased 8% to $6,915,747 in Fiscal 1998, as compared to
$7,549,825 in Fiscal 1997. The decrease in sales is primarily attributable to
the closure of the Company's New England operations in March 1998.
The Company reported a higher gross margin of 27.7% for Fiscal 1998, as
compared to 21.7% for Fiscal 1997. This improvement in Fiscal 1998 is
primarily due to a greater contribution to revenues from higher margin
engineering services, as opposed to lower margin construction management
services.
The Company continues to invest in the marketing of its Protocol
Environmental Compliance Program in 1999 as the marketplace for storage tank
management shifts from construction services to operations and maintenance.
Protocol includes centralized telemonitoring services for storage tank
facilities, as well as ongoing inspection services for various commercial/
industrial facilities. With the addition of Protocol, the Company has
incorporated state-of-the-art telecommunications software into a package of
services which complement its traditional environmental engineering services.
The Company expects to have several new clients on line with Protocol in the
second quarter of 1999.
The Company has also enhanced its marketing programs into two new niche
markets for expert testimony and aboveground storage tank management, two
areas where the Company has considerable expertise and where the marketplace
continues to grow.
We thank you, our stockholders, for your continued support as we thank
our many loyal employees for their hard work and diligent efforts.
Very truly yours,
/s/ Joyce A. Rizzo
Joyce A. Rizzo
Chief Executive Officer
ABOUT THE COMPANY
Leak-X Environmental Corporation ("Leak-X" or the "Company") is engaged
in the environmental consulting business which is conducted through its
wholly-owned subsidiary, Lexicon Environmental Associates, Inc. ("Lexicon").
Lexicon provides environmental engineering, hydrogeological and remedial
consulting services, as well as construction management services for storage
tank related construction and remote monitoring services.
The Company offers a full spectrum of environmental engineering,
hydrogeological, and remedial services which include: environmental
assessments for property transfers; design, installation, and operation of
ground water remediation systems; and storage tank testing, assessment,
abandonment, remediation, and installation. The Company's environmental
consulting services are provided primarily in the Northeastern and
Mid-Atlantic United States, however, many projects are conducted nationally.
In addition to engineering and scientific evaluations, the Company's
environmental consulting business also provides construction management
services to oversee general contractors performing storage tank closures,
upgrades, and installations. To conduct geological and hydrogeological
assessments, the Company provides field management of drilling contractors.
Analytical services are provided through various contract laboratories.
The Company also provides expert witness services to law firms on storage tank
matters.
The Company has also developed a new business entitled "Protocol
Environmental Compliance Program". Protocol includes electronic
telemonitoring services for the management of USTs and other similar equipment
at facilities. Protocol also includes customized facility inspection and
maintenance programs for compliance with applicable regulations.
HIGHLIGHTS
Positive Earnings from Continuing Operations
Development of innovative technology to provide centralized telemonitoring
services to storage tank owners on a national basis.
FINANCIAL REVIEW: DECEMBER 31, 1998
Liquidity and Capital Resources
The Company experienced a net decrease of cash from operating activities
of continuing operations for the year ended December 31, 1998 ("Fiscal 1998")
of $265,660, as compared to a net increase of cash from operating activities
of continuing operations in the year ended December 31, 1997 (" Fiscal 1997")
of $143,715. The Company had net income from continuing operations of $84,379
in Fiscal 1998, as compared to a net loss from continuing operations of
$1,773,131 in Fiscal 1997. Discontinued operations resulted in a net loss of
$428,606 in Fiscal 1998 and $67,571 in Fiscal 1997. The net loss of $428,606
from discontinued operations in Fiscal 1998 includes a $275,401 operating loss
and a $153,205 loss on the sale of discontinued operations. Fiscal 1997
includes a one-time write-off of goodwill of $1,750,325 which resulted from a
1995 acquisition. There was a decrease in accounts receivable and accounts
payable of $144,758 and $303,000, respectively, in Fiscal 1998, as compared to
an increase of $751,056 and $662,702, respectively, in Fiscal 1997. These
changes in accounts receivable and accounts payable are primarily due to the
decrease in sales volume and its related costs from Fiscal 1997 to Fiscal
1998, as construction management services were reduced. The net cash provided
by discontinued operations was $59,120 in Fiscal 1998 and net cash used in
discontinued operations was $61,097 in Fiscal 1997.
Investing activities provided $89,568 of cash in Fiscal 1998, as compared
to utilizing $83,267 of cash in Fiscal 1997. The Company sold assets
resulting in $2,593 and $14,079 of cash during Fiscal 1998 and 1997,
respectively. The Company had capital expenditures of $19,298 and $35,187 in
Fiscal 1998 and Fiscal 1997, respectively, primarily for computers and field
equipment. The Company received net cash of $127,781 from the sale of one of
its subsidiary companies, Groundwater Recovery Systems, Inc. ("GRS") in
September 1998, and subsequently paid out $37,500 under the terms of the same
transaction. The Company provided $15,992 of cash from a decrease in other
assets in Fiscal 1998, as compared to utilizing $62,159 of cash from an
increase in other assets in Fiscal 1997 due to the investment made in the
Company's new remote monitoring services program.
Financing activities utilized $122,055 of cash in Fiscal 1998, as
compared to providing $85,296 of cash in Fiscal 1997 primarily due to $271,597
in repayments on the Company line of credit in Fiscal 1998. The Company had
borrowings of $185,000 and $200,000 in Fiscal 1998 and Fiscal 1997,
respectively. The Company paid down $37,408 and $52,934 of long-term debt
during Fiscal 1998 and Fiscal 1997, respectively. The exercise of stock
options in Fiscal 1998 resulted in cash of $1,950. The Company made payments
of $61,770 on the notes payable to directors in Fiscal 1997.
The Company's working capital decreased to ($662,720) at December 31,
1998 as compared to ($296,355) at December 31, 1997. This decrease was
primarily due to the sale of GRS which resulted in net liabilities acquired of
$280,984 in Fiscal 1998. The Company utilized working capital to manage
accounts payable, make required loan payments, and to fund ongoing
operations.
Backlog at December 31, 1998 of $2,600,000 was lower than the level at
December 31, 1997 of $5,800,000. The Company has several contracts with Bell
Atlantic to provide construction management, engineering, analytical, and soil
disposal services for Bell Atlantic's storage tank management program at its
New York City, Long Island, and New England facilities. A portion of the
construction management contract is provided by subcontractors under contract
to the Company. The construction management agreements represent $1,000,000
and $3,300,000 of the December 31, 1998 and December 31, 1997 backlog,
respectively. The backlog at the end of Fiscal 1998 is lower primarily due to
the completion of these and other construction management programs. Much of
the Company's backlog is subject to termination at will and rescheduling
without significant penalty. The Company believes that substantially all of
the current backlog will be completed during 1999, however, no assurance of
this can be given.
On December 29, 1997, the Company signed a Promissory Note (the "Note")
extending the Company's Revolving Credit Agreement (the "Credit Agreement")
dated June 27, 1996 with First Union National Bank ("First Union"). The Note
extended the Company's Credit Agreement to June 30, 1998. On July 9, 1998,
the Company signed a new Promissory Note (the "New Note") extending the Credit
Agreement with the First Union until December 31, 1998. On August 25, 1998,
the Company entered into an agreement with First Union to remove GRS from the
obligations of the New Note in consideration of a payment of $150,000 and
satisfactory completion of the sale of GRS. In addition, this agreement
deleted the tangible net worth covenant of the New Note. On December 16,
1998, First Union extended the New Note until March 31, 1999. On March 26,
1999, First Union extended the New Note for 60 days. The Company also
received a commitment letter from First Union to extend the maturity date of
the New Note to June 30, 2000. The Credit Agreement under the New Note
permits the Company to borrow up to $750,000. Borrowings under the Credit
Agreement are limited to 60% of eligible accounts receivable, as defined, and
bears interest at the prime rate plus three-quarter (3/4) percent. The
eligible accounts receivable, as defined by the terms of the Credit Agreement,
were $1,389,893 at December 31, 1998. The calculated borrowing base of 60% of
eligible accounts receivable was $833,936, for which the Company has utilized
$335,403 of this eligible borrowing base as of December 31, 1998. Borrowings
under this facility are also collateralized by a security interest in
substantially all of the assets of the Company, require the Company to meet
specified ratios, and, among other things, impose restrictions on the payment
of subordinated debt, dividends, stock redemptions and the sale of property.
On September 30, 1998, the Company entered into a Stock Purchase
Agreement (the "Stock Purchase Agreement") with George A. Nolan and James G.
Warburton (the "Purchasers") and GRS. Under the Stock Purchase Agreement, the
Purchasers acquired all the outstanding stock of GRS, a wholly-owned
subsidiary of the Company. GRS manufactures groundwater remediation
equipment.
Pursuant to the Stock Purchase Agreement, the Company received from the
Purchasers: (i) $150,000, which was paid to First Union to reduce the
Company's obligation under the Company's New Note with First Union dated July
9, 1998; (ii) $9,268.55, which was paid to First Union for the balance of the
Company's obligation under a promissory note made by GRS to First Union (the
"GRS Note"); (iii) certificates representing an aggregate of 230,768 shares of
the Company's Common Stock issued in the names of the Purchasers, which were
canceled; (iv) promissory notes payable to the Purchasers with balances as of
September 30, 1998 of $100,000 in the aggregate, which were canceled; and (v)
outstanding stock option agreements issued in the names of the Purchasers to
acquire 30,000 shares of the Company's common stock which were canceled.
In return, the Purchasers received from the Company: (i) all of the
outstanding stock of GRS and (ii) a consent executed by First Union indicating
(a) the removal of GRS as a co-borrower under the Company's Loan Documents
and (b) the removal of GRS as a borrower under the GRS Note. The Purchasers
will also receive a monthly payment of $6,250 each for a period of 24 months,
which commenced November 1, 1998, representing reduced severance payments
under the Purchasers' employment agreements which were terminated in
connection with the sale of GRS.
Computers, software and other equipment utilizing microprocessors that
use only two digits to identify a year in a date field may be unable to
process accurately certain date-based information after the year 2000. This
is commonly referred to as the "Y2K" problem. The Company is utilizing
internal resources to address the potential impact of the Y2K problem. Key
areas of the Company's operations that are being addressed include external
customers and suppliers and internal computers and software.
Y2K considerations may have an effect on some of the Company's customers
and suppliers, and thus indirectly on the Company. The Company is assessing
the potential effect on the Company with respect to customers and suppliers
with Y2K issues and does not expect a material affect on the Company's
financial condition or results of operation at this time. However, the
potential does exist that if customers of the Company are not Y2K compliant,
payments to the Company in the first quarter of the Year 2000 could be delayed
until the customers are able to correct their Y2K compliance deficiencies.
The Company has upgraded its internal computerized information systems to
ensure that it is able to process information that may be date sensitive and
to be Y2K compliant. No related software or hardware costs are expected. A
contingency plan is being formulated to address unavoidable Y2K risks with
customers, vendors, and other third parties.
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; changes in sales mix;
and the risk factors listed from time to time in the Company's SEC reports.
Results of Operations 1998 vs. 1997
The Company sold its GRS subsidiary in September 1998. As such, the
results of operations of GRS have been reclassified to discontinued operations
for the periods presented together with the Company's Gaservice Maintenance
Corporation subsidiary which was discontinued in March 1995. The Company's
continuing operations represent the results of the Company's environmental
consulting business and its corporate overhead.
The Company reported net income from continuing operations in Fiscal 1998
of $84,379, $0.07 per share, as compared to a net loss from continuing
operations in Fiscal 1997 of $1,773,131, or ($1.45) per share. Fiscal 1997
included a one-time write-off of goodwill associated with the purchase of GRS
of $1,750,325. Excluding this charge, the net loss from continuing operations
in Fiscal 1997 would have been $22,806. This improvement in earnings is
primarily due to a 24% increase in profits at the Company's environmental
consulting business. The net loss in Fiscal 1998 was $344,227, as compared to
a net loss of $1,840,702 in Fiscal 1997. The net loss in Fiscal 1998 included
a $275,401 operating loss from discontinued operations and a $153,205 loss on
the sale of discontinued operations. Fiscal 1997 included a net loss of
$67,571 from discontinued operations.
Net revenues decreased 8% to $6,915,747 in Fiscal 1998, as compared to
$7,549,825 in Fiscal 1997. The decrease in sales is primarily attributable to
the closure of the Company's New England operations in March 1998.
The Company reported a higher gross margin of 27.7% for Fiscal 1998, as
compared to 21.7% for Fiscal 1997. This improvement in Fiscal 1998 is
primarily due to a greater contribution to revenues from higher margin
engineering services, as opposed to lower margin construction management
services.
Selling, general and administrative expenses increased $168,279 or 10.2%,
in Fiscal 1998 as compared to Fiscal 1997. This increase is primarily due to
a $134,112 investment made in the Company's new remote monitoring services.
The Company launched a significant ad campaign, as well as a national
marketing effort to promote this new service in Fiscal 1998. Corporate
expenses were lower by $11,830 due to cost-cutting measures initiated in
Fiscal 1998, as well as the absence of the goodwill amortization which was
written-off at the end of Fiscal 1997.
Other expense in Fiscal 1997 includes the one-time write-off of
$1,750,325 in goodwill remaining from the acquisition of GRS in Fiscal 1995.
Other income was $9,552 in Fiscal 1998, as compared to $11,838 in Fiscal 1997,
due to lower interest income earned on smaller cash balances in Fiscal 1998.
Interest expense was higher at $18,528 in Fiscal 1998 from $15,705 in Fiscal
1997 due to higher debt levels at the Company as a result of the sale of GRS.
INDEPENDENT AUDITOR'S REPORT
Stockholders and Directors
Leak-X Environmental Corporation
West Chester, Pennsylvania
We have audited the accompanying consolidated balance sheet of Leak-X
Environmental Corporation and subsidiaries as of December 31, 1998 and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the two years ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material statement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Leak-X
Environmental Corporation and subsidiaries as of December 31, 1998, and the
results of its operations and its cash flows for each of the two years ended
December 31, 1998 in conformity with generally accepted accounting principles.
/s/ Radin, Glass & Co., LLP
Certified Public Accountants
New York, New York
February 19, 1999 and March 26, 1999 as to Note 5
CONSOLIDATED BALANCE SHEET
LEAK-X ENVIRONMENTAL CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
December 31,
1998
<S> <C>
ASSETS:
CURRENT ASSETS
Cash and cash equivalents $ 1,742
Accounts receivable, net 1,492,982
Estimated earnings in excess of billings 89,980
Other current assets 85,423
Net assets of discontinued operations 450,000
TOTAL CURRENT ASSETS 2,120,127
PROPERTY AND EQUIPMENT, NET 82,371
OTHER ASSETS 6,269
TOTAL ASSETS $ 2,208,767
LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 1,723,455
Unearned revenue 123,989
Line of credit 335,403
Current portion of long term debt 150,000
Net liabilities of discontinued operations 450,000
TOTAL CURRENT LIABILITIES 2,782,847
LONG-TERM DEBT 112,500
STOCKHOLDERS' EQUITY
Common stock $.001 par value:
5,000,000 shares authorized, 990,126
and 1,219,645 issued and outstanding
in 1998 and 1997, respectively 990
Additional paid-in capital 8,310,195
Accumulated deficit (8,997,765)
TOTAL STOCKHOLDERS' EQUITY (686,580)
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 2,208,767
</TABLE>
See notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF OPERATIONS
LEAK-X ENVIRONMENTAL CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997
<S> <C> <C>
Revenues $ 6,915,747 $ 7,549,825
Cost of revenues 4,997,503 5,911,263
Gross profit 1,918,244 1,638,562
Selling, general and
administrative expenses 1,821,747 1,653,468
Operating income (loss) 96,497 (14,906)
Interest expense 18,528 15,705
Other income (9,552) (11,338)
One-time write-off of goodwill ---------- 1,750,325
Net income (loss) before taxes and 87,521 (1,769,598)
discontinued operations
Income tax expense 3,142 3,533
Net income (loss) before discontinued
operations 84,379 (1,773,131)
Discontinued Operations:
Operating Loss (275,401) (67,571)
Loss on Sale of Discontinued
Operations (153,205) ----------
(428,606) (67,571)
Net Loss (344,227) $ (1,840,702)
Weighted average number of shares of
common stock outstanding
Basic 1,160,847 1,219,645
Diluted 1,258,881 1,219,645
Net income (loss) per share:
Basic: Continuing operations 0.07 (1.45)
Discontinued operations (0.37) (0.06)
Total Basic (0.30) (1.51)
Diluted: Continuing operations 0.07 (1.45)
Discontinued operations (0.34) (0.06)
Total Diluted (0.27) (1.51)
</TABLE>
See notes to consolidated financial statements.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
LEAK-X ENVIRONMENTAL CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Additional Retained
Common Stock Paid in Earnings
Shares Amount Capital (Deficit)
<S> <C> <C> <C> <C>
December 31, 1996 1,219,645 $1,220 $8,308,015 ($6,524,376)
Net Loss ---- ---- ---- ( 1,840,702)
December 31, 1997 1,219,645 1,220 $8,308,015 ( 8,365,078)
Cancellation of
Common Stock (230,769) (231) 231 (288,460)
Exercise of stock options 1,250 1 1,949 ----
Net Loss ---- ---- ---- (344,227)
December 31, 1998 990,126 $990 $8,310,195 ($8,997,765)
</TABLE>
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
LEAK-X ENVIRONMENTAL CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $84,379 ($1,773,131)
Adjustments to reconcile net income (loss)
to net cash provided by (used in
continuing operations
Discontinued operations (428,606) (67,571)
Depreciation 57,318 65,766
Write-off of goodwill -------- 1,750,325
Loss (gain) on sale of assets 1,793 (4,831)
Loss on sale of GRS 153,205 --------
Changes in assets and liabilities,
net of effects of business sold
Accounts receivable 144,758 (751,056)
Estimated earnings in
excess of billings 27,769 (97,392)
Inventories 63,545 154,346
Other current assets 7,085 6,311
Accounts payable (303,000) 662,702
Unearned revenue (158,222) 194,769
Accrued expenses and
other liabilities 84,316 3,477
Net cash provided by (used in)
operating activities
of continuing operations (265,660) 143,715
Net cash provided by (used in)
discontinued operations 59,120 (61,097)
Net cash provided by (used in)
operating activities (206,540) 82,618
INVESTING ACTIVITIES
Capital expenditures (19,298) (35,187)
Sale of asset 2,593 14,079
Sale of GRS 127,781 ----------
Deferred payout on sale of GRS (37,500) ----------
Other assets - net 15,992 (62,159)
Net cash provided by (used in)
investing activities 89,568 (83,267)
FINANCING ACTIVITIES:
Borrowings on line of credit 185,000 200,000
Repayments on line of credit (271,597) ----------
Payments on long-term debt (37,408) (52,934)
Exercise of stock options 1,950 ----------
Payments on notes payable to
directors 0 (61,770)
Net cash provided by (used in)
financing activities (122,055) 85,296
INCREASE (DECREASE) IN CASH (239,027) 84,647
CASH, beginning of the period 240,769 156,617
CASH, end of the period $1,742 $241,264
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $62,608 $65,708
Income taxes paid 3,142 3,533
Sale of Groundwater Recovery Systems, Inc.
Non cash (assets) liabilities
Accounts receivable, net ($473,942) -----------
Inventory (204,188) -----------
Other current assets (35,946) -----------
Property, plant & equipment (33,247) -----------
Other assets (10,227) -----------
Accounts payable, accrued expenses and
other current liabilities 388,106 -----------
Valuation of canceled stock 288,460 -----------
Forgiveness of Note Payable 100,000 -----------
Deferred payout (300,000) -----------
Net liabilities assumed ($280,984) -----------
</TABLE>
See notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LEAK-X ENVIRONMENTAL CORPORATION AND SUBSIDIARIES
Two Years Ended December 31, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
Leak-X Environmental Corporation ("Leak-X" or the "Company") is engaged
in the environmental consulting business which is conducted through its
wholly-owned subsidiary, Lexicon Environmental Associates, Inc. ("Lexicon").
Lexicon provides environmental engineering, hydrogeological, and remedial
consulting services, as well as construction management services for storage
tank related construction and telemonitoring services for ongoing compliance.
The Company operates primarily in the Northeastern United States in the
single industry which offers customers solutions that incorporate
environmental consulting and installation and remedial work for storage
tanks.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries, all of which are wholly-owned. Intercompany items and
transactions have been eliminated in consolidation.
Accounting Estimates
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.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
Property, Plant and Equipment
Property, plant and equipment are carried at cost. Depreciation and
amortization are provided by the straight-line method over the estimated
useful lives of the assets (ranging from 3 to 7 years, and for leasehold
improvements, the shorter of the term of the lease or the life of the asset).
Revenue Recognition
Service revenues are recognized as the services are performed. Such
revenues also include the cost of services subcontracted to third parties.
Stock-Based Compensation
The Company accounts for stock transactions in accordance with APB
Opinion No. 25, "Accounting For Stock Issued to Employees" and has adopted the
disclosure-only option under Statement of Financial Accounting Standards
("SFAS") No. 123, as of December 31, 1995.
Earnings Per Share
Basic earnings per share are computed on only the weighted average number
of common shares actually outstanding during the period, and the Diluted
computation considers potential shares issuable upon exercise or conversion of
other outstanding instruments where dilution would result.
Common stock equivalents have not been included in the computations of
diluted per share date for the period ended December 31, 1997, as they would
be anti-dilutive. However, the incremental shares of 98,034 from the assumed
conversion of options is included in the computation of diluted per share date
for the period ended December 31, 1998 due to the net income from continuing
operations.
Reverse Stock Split
The Company approved an amendment to effect a one-for-thirteen reverse
stock split of all the outstanding shares of the Company's Common Stock on
December 30, 1996. The effective date of such split was January 31, 1997.
The financial statements have been adjusted retroactively to account for such
split.
NOTE 2 - GASERVICE MAINTENANCE CORPORATION
The Company discontinued the operations of its wholly-owned subsidiary,
Gaservice Maintenance Corporation ("Gaservice"), as of March 31, 1995. The
Company has liquidated all assets of Gaservice, except for several outstanding
receivables (See Note 11 - Litigation). The Company has recorded an
additional reserve of $56,890 against these accounts receivable for the year
ended December 31, 1998 due to the continuing cost to litigate Gaservice's
claims.
Net assets of discontinued operations consist of accounts receivable of
$450,000. Net liabilities of discontinued operations include accounts payable
of $346,251 and accrued liabilities of $103,749.
NOTE 3 - SALE OF GROUNDWATER RECOVERY SYSTEMS, INC. ("GRS")
On September 30, 1998, the Company entered into a Stock Purchase
Agreement (the "Stock Purchase Agreement") with George A. Nolan and James G.
Warburton (the "Purchasers") and GRS. Under the Stock Purchase Agreement, the
Purchasers acquired all the outstanding stock of GRS, a wholly-owned
subsidiary of the Company. GRS manufactures groundwater remediation
equipment.
Pursuant to the Stock Purchase Agreement, the Company received from the
Purchasers: (i) $150,000, which was paid to First Union National Bank ("First
Union") to reduce the Company's obligation under the Company's Promissory Note
(the "New Note") and Revolving Credit Agreement (the "Credit Agreement") with
First Union dated July 9, 1998; (ii) $9,268.55, which was paid to First Union
for the balance of the Company's obligation under a promissory note made by
GRS to First Union (the "GRS Note"); (iii) certificates representing an
aggregate of 230,768 shares of the Company's Common Stock issued in the names
of the Purchasers which were canceled; (iv) promissory notes payable to the
Purchasers with balances as of September 30, 1998 of $100,000 in the
aggregate, which were canceled; and (v) outstanding stock option agreements
issued in the names of the Purchasers to acquire 30,000 shares of the
Company's common stock, which were canceled.
In return, the Purchasers received from the Company: (i) all of the
outstanding stock of GRS and (ii) a consent executed by First Union indicating
(a) the removal of GRS as a co-borrower under the Company's Loan Documents
and (b) the removal of GRS as a borrower under the GRS Note. The Purchasers
will also receive a monthly payment of $6,250 each for a period of 24 months
which commenced November 1, 1998 representing reduced severance payments under
the Purchasers' employment agreements which were terminated in connection with
the sale of GRS.
The operations of GRS have been reclassified to discontinued operations
on the consolidated statements of operations for the years ended December 31,
1998 and 1997. The net loss associated with GRS was $188,511 and $67,571 for
the years ended December 31, 1998 and 1997, respectively.
The loss on the sale of GRS consists of the following:
Net liabilities sold $215,335
Forgiveness of notes payable 100,000
Cash received 150,000
Valuation of canceled stock 288,460
Line of credit assumed ($607,000)
Post-closing payments ($300,000)
Net loss on sale of GRS ($153,205)
NOTE 4 - WRITE-OFF OF GOODWILL
In December 1997, the Company wrote off the balance of its goodwill which
was acquired as a result of the acquisition of GRS in September 1995. The
Company performed an evaluation of the operations of GRS, including
profitability, cash flow and liquidity analysis. The Company determined that
there was an impairment of the intangible asset of goodwill acquired with the
acquisition of GRS. As a result, the Company wrote off the goodwill
associated with GRS during Fiscal 1997 due to this impairment.
NOTE 5 - LINE OF CREDIT
On December 29, 1997, the Company signed a Promissory Note (the "Note")
extending the Company's Credit Agreement dated June 27, 1996 with First
Union. The Note extended the Company's Credit Agreement to June 30, 1998. On
July 9, 1998, the Company signed the New Note extending the Credit Agreement
with First Union until December 31, 1998. On August 25, 1998, the Company
entered into an agreement with First Union to remove GRS from the obligations
of the New Note in consideration of a payment of $150,000 and satisfactory
completion of the sale of GRS. In addition, this agreement deleted the
tangible net worth covenant of the New Note. On December 16, 1998, First
Union extended the New Note until March 31, 1999. On March 26, 1999, First
Union extended the New Note for 60 days. The Company also received a
commitment letter from First Union to extend the maturity date of the New Note
to June 30, 2000. The Credit Agreement under the New Note permits the Company
to borrow up to $750,000. Borrowings under the Credit Agreement are limited
to 60% of eligible accounts receivable, as defined, and bears interest at the
prime rate plus three-quarter (3/4) percent. The eligible accounts
receivable, as defined, by the terms of the Credit Agreement were $1,389,893
at December 31, 1998. The calculated borrowing base of 60% of eligible
accounts receivable was $833,936, for which the Company has utilized $335,403
of this eligible borrowing base as of December 31, 1998. Borrowings under
this facility are also collateralized by a security interest in substantially
all of the assets of the Company, require the Company to meet specified
ratios, and, among other things, impose restrictions on the payment of
subordinated debt, dividends, stock redemptions and the sale of property.
NOTE 6 - LONG-TERM DEBT - Current Portion
Long-term debt consists of the following:
December 31,
1998
Deferred severance payments to be made pursuant
to the Stock Purchase Agreement with regards
to sale of Groundwater Recovery Systems, Inc. $262,500
$262,500
Less: Current Portion (150,000)
Long-Term Debt $112,500
On September 30, 1998, the Company entered into a Stock Purchase
Agreement with George A. Nolan and James G. Warburton and GRS. Under the
Stock Purchase Agreement, the Purchasers acquired all the outstanding stock of
GRS, a wholly-owned subsidiary of the Company. As part of the Stock Purchase
Agreement, the Purchasers will receive a monthly payment of $6,250 each for a
period of 24 months commencing November 1, 1998 which represents reduced
severance payments under the Purchasers' employment agreements which were
terminated in connection with the sale of GRS. The Company made payments of
$37,500 during Fiscal 1998.
NOTE 7 - STOCKHOLDERS' EQUITY
The Company had 2,668,000 Common Stock Purchase Warrants outstanding for
a like number of Common Shares originally exercisable at $1.25 per share.
These Warrants expired on December 31, 1997. Due to transactions that have
occurred since the original issuance date of the Warrants, the exercise price
had been recalculated to $0.84 to purchase 1.49 shares of Common Stock to
account for anti-dilution effects. The number of outstanding warrants did not
change as a result of the 1:13 reverse stock split in January 1997. However,
the new exercise price was $10.92 to purchase 0.11 share of Common Stock.
In January 1997, the Company issued Warrants to purchase up to 30,500
shares of Common Stock at a price of $1.69 per share for a period extending
through December 31, 2001 as part of a Financial Advisory Services Agreement
between the Company and an investment banking firm.
In August 1997, the Company reduced the authorized number of shares of
Common Stock from 30,000,000 to 5,000,000 and the authorized number of shares
of Preferred Stock from 5,000,000 to 500,000.
On September 30, 1998, the Company entered into a Stock Purchase
Agreement with George A. Nolan and James G. Warburton and GRS. Under the
Stock Purchase Agreement, the Purchasers acquired all the outstanding stock of
GRS, a wholly-owned subsidiary of the Company. As part of the Stock Purchase
Agreement, an aggregate of 230,768 shares of the Company's Common Stock issued
in the names of the Purchasers were canceled.
Stock Option Plans
The Company has adopted five stock option plans (the 1988, 1992, 1995,
1996, and 1997 plans), ("the Plans") with an aggregate of 325,961 originally
reserved for issuance. The Plans provide for the Board, or a committee
thereof, to grant either Incentive Stock Options ("ISO's"), Non-Qualified
Stock Options ("NQSO's"), and/or Stock Appreciation Rights (SAR's)
(collectively referred to as the "Options") to qualified employees (including
officers, directors and advisors) of the Company. The Board of Directors or
its Committee will determine the time periods during which options granted
under the Plan may be exercised, although in no event shall any option granted
under the Plan have an expiration date later than ten (10) years from the date
of its grant. ISO's granted to ten percent (10%) stockholders may not have a
term of more than five (5) years.
The option price is determined by the Board of Directors or its Committee
but, in the grant of an ISO, in no event may the option price be less than the
fair market value. Stockholders of the Company which own (directly or through
attribution) more than 10% of the total voting power of all classes of capital
stock are subject to the additional restriction that the option price must be
equal to at least one hundred ten (110%) percent of the fair market value of
the Company's common stock on the date of grant. The Plans (but not options
previously granted under the Plans) shall terminate in ten years of the
adoption date or sooner, if the Board of Directors of the Company should so
deem.
Summary of 1988, 1992, 1995, 1996 and 1997 Stock Option Plans
<TABLE>
<CAPTION>
Options Options Outstanding
Available Number Price
For grant Of Shares Per Share
<S> <C> <C> <C>
Outstanding at December 31, 1996 92,480 98,731 $3.90 - $1.63
1997 Plan 100,000 ------
Canceled 98,731 (98,731) $3.90 - $2.4375
Reissued ( 98,731) 98,731 $1.56
Granted ( 72,000) 72,000 $1.50 - $1.56
Outstanding at December 31, 1997 120,480 170,731 $1.50 - $1.56
Canceled 39,865 ( 39,865) $1.50 - $1.56
Granted (100,000) 100,000 $2.375
Exercised (1,250) $1.56
Outstanding at December 31, 1998 60,345 229,616 $1.50 - $2.375
</TABLE>
At the beginning of Fiscal 1997, the Company had 98,731 incentive stock
options out-standing. On May 12, 1997, a total of 30,000 incentive stock
options were granted at $1.50 per share to George A. Nolan and James G.
Warburton as part of a salary waiver agreement. See Note 12 for additional
information.
On May 22, 1997, the Company canceled 98,731 options with exercise prices
ranging from $3.90-$2.4375, including 31,924 options granted to Joyce A. Rizzo
and 11,615 options granted to Robert D. Goldman. A total of 98,731 options
were regranted at an exercise price of $1.56 per share to eight employees,
including 31,924 to Joyce A. Rizzo and 11,615 to Robert D. Goldman. In
addition, a total of 42,000 new options were granted at an exercise price of
$1.56 per share to thirteen employees, including 10,000 to Joyce A. Rizzo and
5,000 to Robert D. Goldman.
On February 20, 1998, 20,000 incentive stock options with an exercise
price of $2.125 were granted to the Company's two outside board directors.
During Fiscal 1998, a total of 39,865 stock options were canceled upon terminati
on of employees, including 34,750 incentive stock options which had been to
GRS employees. In addition, a total of 80,000 new options were granted at an
exercise price of $2.375 per share to eight employees, including 20,000 to
Joyce A. Rizzo and 15,000 to Robert D. Goldman.
In November 1998, a total of 1,250 stock options were exercised at a
price of $1.56 per share.
NOTE 8 - ACCOUNTING FOR EMPLOYEE STOCK OPTIONS
In Fiscal 1997, the Company adopted the disclosure provisions SFAS No.
123, "Accounting for Stock-Based Compensation". For disclosure purposes, the
fair value of options is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions used for stock options granted during the years ended December 31,
1998 and 1997: annual dividends of $0; expected volatility of 50%; risk-free
interest rate of 7% and expected life of five years. The weighted average
fair value of stock options granted during the years ended December 31, 1998
and 1997 was $0.02 per share and $0.05 per share, respectively. If the
Company had recognized compensation cost for stock options in accordance with
SFAS No. 123, the Company's proforma net loss and net loss per share would
have been $360,401 and $0.31 per share for the fiscal year ended December 31,
1998 and $1,902,863 and $1.56 per share for the fiscal year ended December 31,
1997. The proforma compensation expenses per the Black Scholes formula for
the years ended December 31, 1999, 2000, 2001, and 2002 will be $59,100,
$31,003, $30,547, and $24,035, respectively.
NOTE 9 - INCOME TAXES
The Company accounts for income taxes according to SFAS No. 109,
"Accounting for Income Taxes." Under the liability method specified by SFAS
No. 109, a deferred tax asset or liability is determined based on the
difference between the financial statement and tax basis of assets and
liabilities as measured by the enacted rates which will be in effect when
these differences reverse.
The net operating loss carry forwards are subject to limitation in any
given year in the event of certain events, including significant changes in
ownership. The Company has not given recognition to these tax benefits in the
accompanying financial statements. At December 31, 1998, the Company had
available net operating loss carry forwards of approximately $4,000,000
expiring throughout 2016. The net operating loss carry forwards result in an
estimated $1,300,000 deferred tax assets which the Company has taken a
valuation reserve against for the same amount due to the lack of established
taxable income.
NOTE 10 - RELATED PARTY TRANSACTIONS
During Fiscal 1998 and 1997, GRS had revenues of approximately $271,349
and $239,929, respectively, from one entity that is primarily owned by the
President of GRS. In Fiscal 1998 and Fiscal 1997, GRS also had purchases of
$17,796 and $36,536, respectively, from the same entity.
NOTE 11 - OTHER INFORMATION
The Company has a profit-sharing plan (the "Profit-Sharing Plan")
pursuant to Section 401(k) of the Internal Revenue Code. Eligible employees
may defer a portion of their total compensation through contributions to the
Plan. The Company matches 25% of the first 4% of employee contributions,
subject to certain limitations. The Company's contributions under the
Profit-Sharing Plan for the year ended December 31, 1998 and 1997 were $10,658
and $13,885, respectively.
At the 1995 Annual Meeting of Stockholders, the Company received approval
of the Company's Employee Stock Option Plan (the "Purchase Plan"). The
purpose of the Purchase Plan is to provide all the employees of the Company
and its subsidiaries with a convenient way to become shareholders of the
Company. The Purchase Plan can be continued from year to year, but may be
modified or discontinued by the Company, at any time. The Company has not yet
implemented the Purchase Plan.
Customer Concentration
Major customers of the environmental services segment and the total
amount of sales and the percent of total sales are as follows (dollars in
thousands):
1998 1997
Number of major customers 1 1
Aggregate sales to major customers $4,878 $6,820
Percent of total revenues
to major customers 70% 68%
Segment Information
The Company was engaged in principally two operating segments during
Fiscal 1998 and 1997. The two segments were the environmental consulting
business and the groundwater remediation business. In September 1998, the
Company sold its groundwater remediation business and discontinued such
operations. As a result, the Company is effectively operating within one
segment of business. The operations of the groundwater remediation business
have been reclassified and disclosed as a discontinued operation. The net
income (loss) from the environmental consulting business, including corporate
overhead, is $84,379 and ($22,806) for the years ended December 31, 1998 and
1997, respectively, and the net loss from the groundwater remediation business
is ($188,511) and ($67,571) for the years ended December 31, 1998 and 1997,
respectively.
NOTE 12 - COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases office space under three separate leases expiring
through May 31, 2003. Future minimum lease payments are as follows:
1999 $107,747
2000 $110,824
2001 $113,970
2002 $ 94,129
2003 $ 39,674
Rent expense amounted to approximately $138,136 in 1998 and $199,839 in
1997.
Litigation
The following lawsuit represents claims filed against the Company for
which the Company may not be fully covered under the Company's existing
insurance policies. This suit represents potential exposure which the Company
may be subjected to in the case of an adverse outcome.
A lawsuit captioned Exxon Corporation, Plaintiff against Gaservice
Maintenance Corporation and Leak-X Environmental Corporation, Defendants,
Supreme Court of the State of New York, County of Kings, was commenced in
October 1995. The plaintiff in this action seeks $135,000 in damages
allegedly sustained as a result of breach of contract by Gaservice. The
Company believes these allegations are without foundation and is vigorously
defending itself against such claims. Another lawsuit captioned Exxon
Corporation, Plaintiff against Gaservice Maintenance Corporation and Leak-X
Environmental Corporation, Defendants, Supreme Court of the State of New York,
County of Queens, was commenced in October 1995. The plaintiff in this action
seeks $104,500 in damages allegedly sustained as a result of breach of
contract by Gaservice, as well as alleged negligence in retrofitting of tanks
which resulted in the escape of vapors. The Company believes these
allegations are without foundation and is vigorously defending itself against
such claims. The Company's insurance carrier has indicated that the
allegations contained in the Queens case regarding alleged vapors falls within
the terms and conditions of the Company's general liability policy. The
Company has filed counterclaims aggregating approximately $450,000 which
allege that (a) Exxon interfered with Gaservice's completion of all the
contracts; and (b) Exxon failed to pay for the actual work completed by
Gaservice. Gaservice has this $450,000 recorded as accounts receivable.
Certain subcontractors on the projects have been joined into the actions or
have filed separate claims because Exxon also failed to provide payments which
would enable the subcontractors to be paid by Gaservice.
The following lawsuits are claims which are covered under the Company's
insurance policies. Responsibility for the defense of these lawsuits has been
assumed by the Company's insurance carriers. The Company believes that the
allegations contained in these complaints are erroneous and it has meritorious
defenses to the claims and intends, through its insurance carrier, to
vigorously oppose the allegations. There can be no assurance, however, that
the outcome of these actions will be favorable to the Company, and an
unfavorable outcome could have a material adverse effect upon the Company's
overall business and financial condition.
Pursuant to a third party complaint served on Gaservice in May 1995,
Exxon Corporation brought Gaservice into an action captioned Conor Donellon,
Plaintiff against Exxon Corporation, defendant, Supreme Court of New York,
County of Kings. The plaintiff in this action seeks $20 million in damages
for injuries allegedly sustained as a result of falling while working as an
employee of the Company at an Exxon service station under construction in
October 1994.
A civil action captioned Westland Properties, Inc.; Westland Garden State
Plaza Limited, Partnership; and Westfield Corporation, Inc. vs. Exxon Company,
USA; OXYUSA, Inc.; Richard Bertola; Carol Bertola; Lawrence Bertola; Gaservice
Corporation; Gaservice Maintenance Corporation; Gaservice Acquisition
Corporation; and John Does 1-70; and ABC Corporations 1-70, Superior Court of
New Jersey, Law Division - Bergen Count was filed on June 12, 1995. The
plaintiffs in this action claim that a release of hazardous substances
occurred on their property and that it was allegedly caused by the
defendants. The amount of alleged damages is undetermined.
Pursuant to two third party complaints served on Gaservice Maintenance
Corporation ("Gaservice"), a wholly-owned subsidiary of the Company, in August
1996, Exxon Corporation and Gordon Supply Company brought Gaservice into an
action captioned Martino Ricciardi and Mary Ricciardi, Plaintiffs against
Gordon's Supply Company, Inc., Cord Meyer Development Company, and Exxon
Corporation, Defendants, Supreme Court of the State of New York, County of
Queens. The plaintiff in this action seeks $2.1 million in damages for
injuries allegedly sustained as a result of materials falling on him while
working on an Exxon construction site as an employee of Gaservice.
Employment Agreements
The Company entered into a five-year employment contract with Joyce A.
Rizzo on March 31, 1995 to serve as Chief Executive Officer of the Company and
President of Lexicon. Under the agreement, Ms. Rizzo's annual salary was
$159,135 until December 31, 1998 and she is entitled to receive minimum annual
increases in base salary of three percent (3%) over the preceding year's
salary and maximum increases of ten percent (10%) depending on whether the
Company attains certain pre-tax income levels. Effective January 1, 1999, Ms.
Rizzo's annual salary was increased to $163,909. Under the agreement, Ms.
Rizzo is entitled to receive incentive stock options if the Company attains
pre-tax income goals, as established by the Board of Directors. Under this
contract, Ms. Rizzo received 31,923 stock options at $3.90 in December
1995(former options totaling 31,923 were canceled on December 18, 1995),
10,000 stock options at $1.63 in February 1997 and 20,000 stock options at
$2.375 in September 1998. The Company has agreed to provide Ms. Rizzo with an
automobile allowance or in lieu thereof, will pay her an equal monthly cash
stipend. If Ms. Rizzo's employment is terminated without cause, the agreement
provides that she will be entitled to receive her then current compensation
for the lesser of two years or the remainder of the term. The agreement
provides that Ms. Rizzo will not compete with the Company during the term of
the agreement, nor for a period of two years thereafter. In the event of a
change in control of the Company which she opposes, Ms. Rizzo may become
entitled to up to 2.9 times her then current compensation.
On September 29, 1995, the Company entered into five year employment
agreements with George A. Nolan to serve as President and James G. Warburton
to serve as Vice President of GRS. Under the agreements, Messrs. Nolan and
Warburton's respective annual salaries were $152,440 until December 31, 1997.
Such salary was subject to automatic annual increases commencing January 1,
1997 of between three percent (3%) and ten (10%) dependent upon achievement of
net income targets to be established. Effective January 1, 1998, Messrs.
Nolan and Warburton's respective annual salaries were increased to $157,013.
In connection with the sale of GRS in September 1998, the Company terminated
these employment agreements and agreed to make pay a monthly payment of $6,250
each for a period of 24 months which commenced November 1, 1998 representing
reduced severance payments under these agreements.
In connection with the acquisition of GRS, the Company signed two one-year
promissory notes (the "1995 Notes") for $125,000 each bearing an interest rate
of ten percent (10%) per annum payable to George A. Nolan and James G. Waburton.
The principal amount of 1995 Notes was subsequently adjusted in accordance with
their terms to a total of $161,770. On September 29, 1996, the Comapny
converted the 1995 Notes into long-term debt (the "1996 Notes"). The 1996
Notes matured on March 31, 1998 and required quarterly interest payments at
an interest rate of ten percent (10%) per annum. In addition, the 1996 Notes
had been subordinated, as to principal, to the Credit Agreement with First
Union. The Credit Agreement prohibited payment of principal under the 1996
Notes to the extent that the Company's tangible net worth was less than
$100,000.
On May 12, 1997, the Company entered into two agreements with George A.
Nolan and James G. Warburton, former Directors of the Company and Officers of
GRS to waive a total of $52,005 each in salary and expense payments for the
period January 1, 1997 through September 30, 1997. The agreements required
aggregate payments of $61,770 to be made on the 1996 Notes for the same
period. Through December 31, 1997, Messrs. Nolan and Warburton waived a total
of $95,730 in salary and $7,800 in home office expense reimbursement and
received an aggregate amount of $61,770 in payment on the 1996 Notes. Under
the agreements, the Company also granted 15,000 incentive stock options each
to George Nolan and James Warburton at an exercise price of $1.50 per share
with 5,000 additional options each which would be granted upon audit if
certain operating profits were met for the fiscal year ended December 31,
1997. Such additional options were not granted since the operating profits
were not met.
On July 1, 1996, the Company entered into thirty-month employment
agreements with John S. Gelles and William H. Gelles, Jr. to serve as
employees of the Company, each at an monthly salary of $6,250 through December
31, 1996 and $4,167 thereafter through December 31, 1998. New terms for
continuation of these agreements could not be reached and these agreements
were not renewed. The Company also granted 15,385 incentive stock options
each to John and William Gelles to purchase 15,385 shares of Common Stock at
an exercise price of $3.445. These options were subsequently canceled and
regranted in May 1997 at an exercise price of $1.56 per share.
PRINCIPAL MARKET OR MARKETS
The Company's Common Stock is traded in the over-the-counter market and
is quoted through The OTC Bulletin Board under the symbol, LEAK.
The following table sets forth the quarterly range of actual high and low
closing bid prices of the Company's Common Stock for the two years indicated,
as reported by NASDAQ inter-dealer quotations and by the OTC Bulletin Board,
without retail mark-up, mark-down or commission, and may not necessarily
represent actual transactions. All stock prices have been adjusted to reflect
the Company's 1:13 reverse stock split (January 31, 1997):
<TABLE>
<CAPTION>
Period High Bid Low Bid Period High Bid Low Bid
<S> <C> <C> <C> <C> <C>
1997 First Quarter $2.03 $1.50 1998 First Quarter $2.75 $1.63
1997 Second Quarter $2.63 $1.50 1998 Second Quarter $2.75 $2.00
1997 Third Quarter $2.88 $2.00 1998 Third Quarter $2.88 $2.00
1997 Fourth Quarter $3.00 $2.25 1998 Fourth Quarter $3.63 $2.50
</TABLE>
The dividend policy of the Company is to retain earnings, if any, to
finance operations and to expand the Company's business. Accordingly, it is
anticipated that cash dividends will not be paid in the foreseeable future.
As of March 19, 1999, there were 184 holders of record of the Company's Common
Stock and approximately 2,400 beneficial owners of its Common Stock.
DIRECTORS AND EXECUTIVE OFFICERS
John S. Gelles Chairman of the Board of Directors
Joyce A. Rizzo Chief Executive Officer and Director of the Company and
Chief Executive Officer of Lexicon Environmental
Associates, Inc.
William H. Gelles, Jr. President, Treasurer and Director
Robert D. Goldman Secretary and Director of the Company and President of
Lexicon Environmental Associates, Inc.
Eileen E. Bartoli Chief Financial Officer
Timothy J. Mayette Director
Raymond W. Kane Director
GENERAL COUNSEL
Morrison & Foerster, LLP, 1290 Avenue of the Americas, New York, NY 10104
AUDITOR
Radin, Glass & Co., LLP, 360 Lexington Avenue, New York, NY 10017
TRANSFER AGENT/REGISTRAR
American Stock Transfer & Trust Company, 40 Wall Street, New York, NY 10005
Leak-X Environmental Corporation
Exhibit 21.1
List of Subsidiaries of the Company
Name State of Incorporation
Lexicon Environmental Associates, Inc. New York
Gaservice Maintenance Corporation New York
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Registration Statements
on Form S-8 of our report dated February 19, 1999 and March 26, 1999 as to
Note 5, with respect to the financial statements of Leak-X Environmental
Corporation included in its annual report on Form 10-KSB for the year ended
December 31, 1998.
/s/ Radin, Glass & Co., LLP
Certified Public Accountants
New York, New York
March 30, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE LEAK-X
ENVIRONMENTAL CORPORATION CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1998,
AND THE RELATED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER
31, 1998, AND THE ACCOMPANYING NOTES, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 1742
<SECURITIES> 0
<RECEIVABLES> 1492982
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2120127
<PP&E> 271415
<DEPRECIATION> (189044)
<TOTAL-ASSETS> 2208767
<CURRENT-LIABILITIES> 2782847
<BONDS> 112500
0
0
<COMMON> 990
<OTHER-SE> (687569)
<TOTAL-LIABILITY-AND-EQUITY> 2208767
<SALES> 6915747
<TOTAL-REVENUES> 6915747
<CGS> 4997503
<TOTAL-COSTS> 4997503
<OTHER-EXPENSES> 1821747
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18528
<INCOME-PRETAX> 87521
<INCOME-TAX> 3142
<INCOME-CONTINUING> 84379
<DISCONTINUED> (428606)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (344227)
<EPS-PRIMARY> (.30)
<EPS-DILUTED> (.27)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE LEAK-X
ENVIRONMENTAL CORPORATION CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1997,
AND THE RELATED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER
31, 1997, AND THE ACCOMPANYING NOTES, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 240769
<SECURITIES> 0
<RECEIVABLES> 2126682
<ALLOWANCES> 15000
<INVENTORY> 267733
<CURRENT-ASSETS> 3315621
<PP&E> 464050
<DEPRECIATION> 306026
<TOTAL-ASSETS> 3556133
<CURRENT-LIABILITIES> 3611976
<BONDS> 0
0
0
<COMMON> 1220
<OTHER-SE> (57063)
<TOTAL-LIABILITY-AND-EQUITY> 3611976
<SALES> 7549825
<TOTAL-REVENUES> 7549825
<CGS> 5911263
<TOTAL-COSTS> 5911263
<OTHER-EXPENSES> 1653468
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15705
<INCOME-PRETAX> (1769598)
<INCOME-TAX> 3533
<INCOME-CONTINUING> (1773131)
<DISCONTINUED> (67751)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1840702)
<EPS-PRIMARY> (1.51)
<EPS-DILUTED> (1.51)
</TABLE>
