LEAK X ENVIRONMENTAL CORPORATION, 10KSB, 2000-05-26

LEAK X ENVIRONMENTAL CORPORATION
10KSB, 2000-05-26
ENGINEERING SERVICES

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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, 1999

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 Identification No.)
incorporation or organization)

790 East 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. X

The Issuers's revenues for the fiscal year ended December 31, 1999
were $3,667,171.

The aggregate market value of the Registrant's Common Stock held by
non-affiliates of the Registrant as of March 19, 2000 was
approximately $787,460. On such date, the closing price of the
Common Stock as quoted on The OTC Bulletin Board was $0.375.

The Registrant had 990,126 shares of Common Stock outstanding as of
March 24, 2000.

The Annual Report to Stockholders for the year ended December 31,
1999 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 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 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.

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 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 tank 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, 1999 and 1998, Bell
accounted for approximately 52% and 70% 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

During the year ended December 31, 1999 and 1998, the Company had
no expenditures 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
reputation 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 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 continued through the Year 1999.
Currently, the primary emphasis of these programs has shifted 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, 1999 was $950,000 as compared to $2,600,000
at December 31, 1998. The Company had 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 of
the December 31, 1998 backlog. The backlog at the end of Fiscal 1999 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 31, 2000, the Company employed sixteen persons
full-time and one part-time as follows: six in executive
management, nine in environmental consulting and two 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, 1999.

Item 2. DESCRIPTION OF PROPERTY

The Company utilizes the following principal facilities as of
the date hereof:

<TABLE>
<C> <C> <C> <C> <C>
Location Square Footage Lease Expiration Purpose Current Annual Rent
West Chester, PA 5,426 May 31, 2003 Office/Storage $89,065
Franklin Square, NY 1,350 December 31, 2001 Office $21,759
</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 1999 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 1999 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 1999 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 1999 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

None

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>
NAME AGE POSITION
<C> <C> <C>
Joyce A. Rizzo 51 Chief Executive Officer and
Chairman of the Board of
Directors of the Company and
Chief Executive Officer of
Lexicon Environmental Associates, Inc.

Robert D. Goldman 43 Secretary and Director of the Company and
President of Lexicon Environmental
Associates, Inc.

Eileen E. Bartoli 31 Chief Financial Officer

Timothy J. Mayette 39 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."

Biographical Information

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 was nominated as Chairman of the Board of
Directors in August 1999. 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.

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 USI
Administrators, a position that he has held since July 1999. Prior
thereto, Mr. Mayette was Chief Financial Officer of PMCC Financial
Corporation from October 1997 to July 1999.

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, 1999
through December 31, 1999, all filing requirements applicable to
its Officers, Directors, and greater than ten-percent beneficial
owners were complied with.

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, 1997, 1998, and 1999, 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>
Annual Compensation Long-Term Compensation Awards
<S> <C> <C> <C> <C>
Name and Options/SARs
Principal Position Year Salary Bonus ($) (#)

Joyce A. Rizzo, 1999 $163,909 $1,500 -0-
Chief Executive 1998 $159,135 $1,500 20,000
Officer 1997 $154,500 -0- -0-

Robert D. Goldman 1999 $121,025 $1,500 -0-
Secretary; 1998 $117,500 $1,500 15,000
President, Lexicon 1997 $109,850 $1,250 5,000

Donna Hymes 1999 $103,824 $1,500 -0-
Vice President, Lexicon 1998 $100,800 $1,500 10,000

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>
% 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
Donna Hymes 10,000 13% $2.375 09-17-08
</TABLE>

Aggregated Option Exercises in Last Fiscal Year and FY End Option Values

<TABLE>
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 41,924/20,000 $0/$0
Robert D. Goldman -0- $ 0.00 17,865/13,750 $0/$0
Donna Hymes -0- $ 0.00 17,769/10,000 $0/$0
</TABLE>
________________________

(1) The closing price for the Company's Common Stock on December
31, 1999 was $0.40 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 1999 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 24, 2000, 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>
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) 211,544 (4) 21.4%
William H. Gelles, Jr. (3) 212,233 (5) 21.4%
Joyce A. Rizzo (6) 43,295 (7) 4.2%
Robert D. Goldman (6) 21,711 (8) 2.1%
Donna Hymes (6) 17,769 (9) 1.8%
Timothy J. Mayette (10) 10,000 (11) 1.0%
Richard L. Schmidt (12) 145,000 14.6%

All Executive Officers and 98,207 (13) 14.7%
Directors as a Group
(consisting of five 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.

(5) Excludes 152 shares owned of record by Mr. Gelles's adult
children as to which Mr. Gelles disclaims beneficial ownership.

(6) The address of this person is Leak-X Environmental
Corporation, 790 E. Market Street, Suite 270, West Chester, PA 19382.

(7) Includes 31,924 incentive stock options granted to Ms. Rizzo
which were reissued in May 1997 at an exercise price of $1.56,
5,000 incentive stock options granted to Ms. Rizzo in May 1997
at an exercise price of $1.56 and 5,000 incentive stock
options granted to Mr. Goldman in September 1998 at an
exercise price of $2.375. Excludes 20,000 incentive stock
options which are not currently exercisable.

(8) Includes 3,846 warrants to purchase 3,846 shares and 11,615
incentive stock options granted to Mr. Goldman at an exercise
price of $3.90, which were reissued in May 1997 at an exercise
price of $1.56, 2,500 incentive stock options granted to Mr.
Goldman in May 1997 at an exercise price of $1.56 and 3,750
incentive stock options granted to Mr. Goldman in September
1998 at an exercise price of $2.375. Excludes 13,750
incentive stock options which are not currently exercisable.

(9) Includes 12,769 incentive stock options granted to Ms. Hymes
which were reissued in May 1997 at an exercise price of $1.56,
2,500 incentive stock options granted to Ms. Hymes in May 1997
at an exercise price of $1.56 and 2,500 incentive stock
options granted to Ms. Hymes in September 1998 at an exercise
price of $2.375. Excludes 10,000 incentive stock options
which are not currently exercisable.

(10) The address of this person is USI Administrators, 1 Huntington
Quadrangle, Melville, New York 11747.

(11) Includes 10,000 stock options granted to Mr. Mayette at an
exercise price of $2.125 which are currently exercisable.

(12) The address of this person is 509 Center Street, Middleburg,
Pennsylvania 17842.

(13) Includes an aggregate of 91,404 stock options and warrants
described in Notes 7, 8, 9 and 11 above, and 5,432 stock
options held by Eileen E. Bartoli, CFO.

Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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
Messrs. George A. Nolan and James G. Warburton. The principal
amount of the 1995 Notes was subsequently adjusted in accordance
with their terms to a total of $161,770. On September 29,1996, the
Company 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 Revolving Credit Agreement
with the Company's bank. The Revolving 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.

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 11 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 Environ-mental 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. (12)

10.40 Lease agreement between High V Limited Partnership
and Lexicon Environmental Associates, Inc. dated
December 1998. (12)

10.41 Extension of the Promissory Note from First Union
National Bank dated March 26, 1999. (12)

10.42 Commitment Letter from First Union National Bank
dated March 24, 1999. (12)

13.1 1999 Annual Report to Stockholders

21.1 List of Subsidiaries of the Company

27.1 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.

(12) Incorporated by reference from the Company's Annual
Report on Form 10-KSB for the Fiscal Year ended
December 31, 1998.

(b) Reports on Form 8-K

On March 16, 2000, the Company filed a Form 8-K with respect to its
overadvance position under its Loan Agreement with its lender, First Union
National Bank.

On March 17, 2000, the Company filed a Form 8-K to disclose that the
Comapny had received a formal default notice under its Loan Agreement with
its lender, First Union National Bank.

On May 3, 2000, the Company filed a Form 8-K with respect to its sole
operating subsidiaries filing of a voluntary petition for Chapter 11
Reorganization in response to a judgement filed by its lender, First
Union National Bank.

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

May 25, 2000
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 24th day of May,
2000.

/s/ Joyce A. Rizzo
Joyce A. Rizzo
Chief Executive Officer and Director

/s/ Robert D. Goldman
Robert D. Goldman
Secretary and Director

/s/ Timothy J. Mayette
Timothy J. Mayette
Director

/s/ Eileen E. Bartoli
Eileen E. Bartoli
Controller and Chief Financial Officer

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE LEAK-X
ENVIRONMENTAL CORPORATION CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1999 AND
THE RELATED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31,
1999, 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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 15056
<SECURITIES> 0
<RECEIVABLES> 610350
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1109617
<PP&E> 279626
<DEPRECIATION> (198344)
<TOTAL-ASSETS> 1171361
<CURRENT-LIABILITIES> 1886314
<BONDS> 0
0
0
<COMMON> 990
<OTHER-SE> (715943)
<TOTAL-LIABILITY-AND-EQUITY> 1171361
<SALES> 3667171
<TOTAL-REVENUES> 3667171
<CGS> 2174557
<TOTAL-COSTS> 2174557
<OTHER-EXPENSES> 1484135
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 31002
<INCOME-PRETAX> (20814)
<INCOME-TAX> 7559
<INCOME-CONTINUING> (28373)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (28373)
<EPS-BASIC> (0.02)
<EPS-DILUTED> (0.02)

</TABLE>

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

LEAK-X ENVIRONMENTAL CORPORATION
FORM 10-KSB

EXHIBIT 13.1

1999 ANNUAL REPORT TO STOCKHOLDERS

To our Stockholders:

The Company entered Fiscal 2000 with high hopes of stabilized and growing
operations and improved earnings, however, those hopes were dashed by actions
taken by the Company's bank in March 2000. Since late in 1999, the Company's
only operating subsidiary, Lexicon Environmental Associates, Inc. ("Lexicon")
had been negotiating with the Company's bank to resolve a default situation on
the Company's line of credit. The default situation was a result of a debt
that was incurred in Fiscal 1997 and 1998 by Groundwater Recovery Systems, Inc.
("GRS"), a former subsidiary of the Company. When GRS was divested in
September 1998, as part of the transaction, $457,000 of the debt incurred by
GRS remained with the Company. During the active negotiations with the bank
to resolve the default which had resulted from an overadvance on the line,
unbeknown to Lexicon, the bank filed a judgement against Lexicon. In order
to protect the Company's assets and business against what was an unknown
potential circumstance, the Company's only alternative was to file for
protection for Lexicon under Chapter 11 Reorganization.

As part of the Chapter 11 Reorganization process, Lexicon intends to
move forward in operating the Company and rebuilding relationships with its
clients and vendors. The Company has already reached an agreement with the
bank and its creditors on the use of the Company's cash collateral through
July 2000. This order enables the Company to use collected receipts for
payroll, normal operating expenses, and vendor payments. Since the Company's
employees are its principal asset, the Company has been very forthcoming with
them concerning the bank negotiations and the filing. Lexicon will continue
to place the concerns of its employees and clients at the core of its
ongoing operations. In preparation of its plan of reorganization, the Company
is pursuing an outside investment to provide debtor-in-possession financing.

With respect to the year ended December 31, 1999 ("Fiscal 1999"), the net
loss from continuing operations was $28,373 or $0.03 per share, as compared to
a net income from continuing operations in the year ended December 31, 1998
("Fiscal 1998") of $84,379 or $0.07 per share. The net loss for Fiscal 1999
was $28,373 or $0.03 per share, as compared to a net loss of $344,227 or $0.35
per share. 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.

Net revenues decreased 49% to $3,557,171 in Fiscal 1999, as compared to
$6,915,747 in Fiscal 1998. The Company reported a higher gross margin of
40.7% for Fiscal 1999, as compared to 27.7% for Fiscal 1998. The decrease in
sales with the improvement in gross margin in Fiscal 1999 is primarily due to
a greater contribution to revenues from higher margin engineering services,
as opposed to lower margin, high sales volume construction management
services.

The Company has 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. We are
continuing our "business as usual" with a positive attitude and intent
on success.

Very truly yours,

Joyce A. Rizzo
Chief Executive Officer

_______________________________

ABOUT THE COMPANY

Leak-X Environmental Corporation ("Leak-X" or the "Company")
is engaged in the consulting business within the environmental industry.
The Company's environmental consulting business 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.

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 underground storage tank ("UST")
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 provide field management of drilling contractors.
Analytical services are provided through various contract laboratories.
Lexicon also provides expert witness services to law firms on storage
tank matters.

____________________________

FINANCIAL REVIEW: DECEMBER 31, 1999

Liquidity and Capital Resources

The Company experienced a net increase of cash from
operating activities of continuing operations for the year ended
December 31, 1999 ("Fiscal 1999") of $68,425, as compared to a net
decrease of cash from operating activities of continuing
operations in the year ended December 31, 1998 ("Fiscal 1998")
of $265,660. The Company had a net loss from continuing operations of
$28,373 in Fiscal 1999 as compared to net income from continuing
operations of $84,379 in Fiscal 1998. Discontinued operations resulted
in a net loss of $428,606 in Fiscal 1998. 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. There was a decrease in accounts receivable and accounts
payable of $882,633 and $838,524, respectively in Fiscal 1999, as
compared to a decrease of $144,758 and $303,000, respectively, in Fiscal
1998. These changes in accounts receivable and accounts payable are
primarily due to the decrease in sales volume and its related costs
beginning in Fiscal 1998 and continuing through Fiscal 1999 as
the volume of construction management services decreased. The net
cash used by discontinued operations was $33,575 in Fiscal 1999 and
net cash provided by discontinued operations was $59,120 in Fiscal 1998.

Investing activities used $143,133 of cash in Fiscal 1999 as
compared to providing $89,568 of cash in Fiscal 1998. The Company sold
assets resulting in $2,593 of cash during Fiscal 1998. The Company
had capital expenditures of $11,883 and $19,298 in Fiscal 1999 and
Fiscal 1998, 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 $131,250 and $37,500 during
Fiscal 1999 and Fiscal 1998, respectively, under the terms of the same
transaction. The Company provided $15,992 of cash from a decrease in
other assets in Fiscal 1998.

Financing activities provided $106,719 of cash in Fiscal
1999 as compared to utilizing $122,055 of cash in Fiscal 1998
primarily due to $271,597 in repayments on the Company line of
credit in Fiscal 1998. The Company had borrowings of $106,719
and $185,000 in Fiscal 1999 and Fiscal 1998, respectively. The
Company paid down $37,408 of long-term debt during Fiscal 1998. The
exercise of stock options in Fiscal 1998 resulted in cash of $1,950.

The Company's working capital decreased to ($776,697) at
December 31, 1999, as compared to ($662,720) at December 31, 1998.
This change was primarily due to the increase of the Company's line of
credit during Fiscal 1999. The Company utilized working capital
to manage accounts payable, make required debt payments and to fund
ongoing operations.

Backlog at December 31, 1999 of $950,000 was lower than the
level at December 31, 1998 of $2,600,000. The Company had 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 of the December 31, 1998 backlog. The backlog at
the end of Fiscal 1999 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.

As disclosed in previously filed Form 8-Ks, the Company is in default
of its Loan Agreement with its lender, First Union National Bank
("First Union") due to an overadvance position of approximately $101,000
at January 31, 2000. The Company tried to negotiate with First Union to
repay the outstanding balance and secure alternative financing.
During these negotiations, First Union filed a judgement against the
Company for approximately $454,000, including interest and legal fees.
On May 2, 2000, the Company's sole operating subsidiary, Lexicon
filed a voluntary petition for Chapter 11 Reorganization
in the United States Bankruptcy Court of the Southern District in New
York in response to this judgement. Lexicon is continuing to
operate its business as a Debtor-In-Possession pursuant to the
applicable provisions of the Bankruptcy Code. On May 12, 2000, Lexicon
received temporary approval during its cash collateral hearing to
use its collections to continue to operate in accordance with its
court-approved budget. A final cash collateral hearing is scheduled
for May 25, 2000. Based on improved sales since January 31, 2000,
the Company has reduced the overadvance position to only $21,000.

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 does not believes its present liquidity and cash flow are
adequate for its current needs. The Company is currently trying to secure
alternative financing arrangements. 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: the ability of the Company
to obtain alternative financing, 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 1999 vs. 1998

The Company reported a net loss from continuing operations
in Fiscal 1999 of $28,373, ($0.02) per share, as compared to net income
from continuing operations in Fiscal 1998 of $84,379, or $0.07 per share.
This change in earnings is primarily due to a 47% decrease in sales at the
Company's environmental consulting business. The net loss in
Fiscal 1999 was $28,373 as compared to a net loss of $344,227 in Fiscal 1998.
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, all incurred by the divested GRS company.

Net revenues decreased 47% to $3,667,171 in Fiscal 1999 as compared
to $6,915,747 in Fiscal 1998. The decrease in sales is primarily
attributable to the decline in the volume of construction management services
during Fiscal 1999.

The Company reported a higher gross margin of 41% for Fiscal 1999 as
compared to 28% for Fiscal 1998. This improvement of gross margin in Fiscal
1999 is primarily due to a greater contribution of revenues from higher
margin engineering services, as opposed to lower margin construction
management services.

Selling, general and administrative expenses decreased $337,611 or
18.5%, in Fiscal 1999 as compared to Fiscal 1998. This decrease is primarily
due to actions taken to reduce the Company's corporate overhead costs.
The Company's focus is to minimize corporate overhead expenses in order
to preserve working capital for its operating subsidiary. In addition,
the Company initiated some cost-cutting and cash saving initiatives
during August 1999 at its operating subsidiary to further reduce overhead
expenses to compensate for the lower sales volume. These actions included
personnel layoffs, reduction of marketing expenses, and the deferral of
$26,295 in officer salaries.

Interest expense of $31,002 was higher in Fiscal 1999 as compared
to $18,528 in Fiscal 1998 due to higher debt levels at the Company as a
result of the sale of GRS. Other expense in Fiscal 1999 was $1,709 in
Fiscal 1999, as compared to $9,552 in Fiscal 1998 due to lower interest
income earned on smaller cash balances in Fiscal 1999. Income tax expense
of $7,559 in Fiscal 1999 was higher than income tax expense of $3,142 in
Fiscal 1998 due to higher income taxes paid in Fiscal 1999 as a result
of higher Fiscal 1998 income.

CONSOLIDATED BALANCE SHEET
LEAK-X ENVIRONMENTAL CORPORATION AND SUBSIDIARIES
<TABLE>

December 31,
1999
<S> <C>
ASSETS:
CURRENT ASSETS
Cash and cash equivalents $ 15,056
Accounts receivable, net 610,350
Estimated earnings in excess of billings 5,703
Other current assets 28,508
Net assets of discontinued operations 450,000
TOTAL CURRENT ASSETS 1,109,617

PROPERTY AND EQUIPMENT, NET 55,475

OTHER ASSETS 6,269

TOTAL ASSETS $1,171,361

LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 833,107
Unearned revenue 48,532
Line of credit 457,000
Current portion of long term debt 131,250
Net liabilities of discontinued operations 416,425
TOTAL CURRENT LIABILITIES $1,886,314

LONG-TERM DEBT

STOCKHOLDERS' EQUITY
Common stock $.001 par value:
5,000,000 shares authorized, 990,126
issued and outstanding 990
Additional paid-in capital 8,310,195
Accumulated deficit (9,026,138)
TOTAL STOCKHOLDERS' EQUITY (714,953)

TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $1,171,361
</TABLE>
See notes to consolidated financial statements

CONSOLIDATED STATEMENTS OF OPERATIONS
LEAK-X ENVIRONMENTAL CORPORATION AND SUBSIDIARIES
<TABLE>
Year Ended December 31,
1999 1998
<S> <C> <C>
Revenues $3,667,171 $6,915,747
Cost of revenues 2,174,557 4,997,503
Gross profit 1,492,614 1,918,244

Selling, general and
administrative expenses 1,484,135 1,821,747

Operating income (loss) 8,479 96,497

Interest expense 31,002 18,528
Other income (1,709) (9,552)
One-time write-off of goodwill ------ ------

Net income (loss) before taxes and
discontinued operations (20,814) 87,521

Income tax expense 7,559 3,142

Net income (loss) before discontinued operations (28,373) 84,379

Discontinued Operations:
Operating Loss ------ (275,401)
Loss on Sale of Discontinued Operations ------ (153,205)
0 (428,606)

Net Loss $ (28,373) $ (344,227)

Weighted average number of shares of common
stock outstanding Basic 990,126 1,160,847
Diluted 990,126 1,258,881

Net income (loss) per share:
Basic: Continuing operations (0.02) 0.07
Discontinued operations 0.00 (0.37)
Total Basic (0.02) (0.30)

Diluted: Continuing operations (0.03) 0.07
Discontinued operations 0.00 (0.34)
Total Diluted (0.03) (0.27)

See notes to consolidated financial statements.
</TABLE>

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
LEAK-X ENVIRONMENTAL CORPORATION AND SUBSIDIARIES

<TABLE>
Additional Retained
Common Stock Paid in Earnings
Shares Amount Capital (Deficit)
<S> <C> <C> <C> <C>
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)

Net Loss ----- ------ ------- (28,373)

December 31, 1999 990,126 990 8,310,195 (9,026,138)

See notes to consolidated financial statements.
</TABLE>

CONSOLIDATED STATEMENTS OF CASH FLOWS
LEAK-X ENVIRONMENTAL CORPORATION AND SUBSIDIARIES
<TABLE>

Year Ended December 31,
1999 1998
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) ($ 28,373) $ 84,379
Adjustments to reconcile net income (loss)
to net cash provided by (used in continuing operations
Discontinued operations ------- (428,606)
Depreciation 38,779 57,318
Loss (gain) on sale of assets ------- 1,793
Loss on sale of GRS ------- 153,205
Changes in assets and liabilities, net of effects
of business sold
Accounts receivable 882,633 144,758
Estimated earnings in excess of billings 84,276 27,769
Inventories ------- 63,545
Other current assets 56,915 7,085
Accounts payable (838,524) (303,000)
Unearned revenue (75,457) (158,222)
Accrued expenses and other liabilities (51,824) 84,316

Net cash provided by (used in) operating activities
of continuing operations 68,425 (265,660)

Net cash provided by (used in) discontinued operations (33,575) 59,120

Net cash provided by (used in) operating activities 34,850 (206,540)

INVESTING ACTIVITIES
Capital expenditures (11,883) (19,298)
Sale of asset ------ 2,593
Sale of GRS ------ 127,781
Deferred payout on sale of GRS (131,250) (37,500)
Other assets - net ------ 15,992

Net cash provided by (used in) investing activities (143,133) 89,568

FINANCING ACTIVITIES:
Borrowings on line of credit 121,597 185,000
Repayments on line of credit ------ (271,597)
Payments on long-term debt ------ (37,408)
Exercise of stock options ------ 1,950
Payments on notes payable to directors ------ 0

Net cash provided by (used in) financing activities 121,597 (122,055)

DECREASE IN CASH 13,314 (239,027)

CASH, beginning of the period 1,742 240,769

CASH, end of the period $ 15,056 $ 1,742

See notes to consolidated financial statements.
</TABLE>

CONSOLIDATED STATEMENTS OF CASH FLOWS
LEAK-X ENVIRONMENTAL CORPORATION AND SUBSIDIARIES
<TABLE>
Year Ended December 31,
1999 1998
<S> <C> <C>
SUPPLEMENTAL CASH FLOW INFORMATION:

Interest paid $ 28,790 $ 62,608
Income taxes paid 9,550 3,142

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 $0 ($2

See notes to consolidated financial statements.
</TABLE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LEAK-X ENVIRONMENTAL CORPORATION AND SUBSIDIARIES
Two Years Ended December 31, 1999

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business

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, 1999 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.

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 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 $346,314 and accrued liabilities of $70,111.

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 year ended
December 31, 1998. The net loss associated with GRS was $188,511 for the
year ended December 31, 1998.

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 5 - LINE OF CREDIT

On May 10, 1999, the Company signed a Loan Agreement (the "Agreement")
with First Union National Bank ("First Union"). The Agreement was due to
expire on June 30, 2000. Borrowings under the Loan Agreement are limited to 75%
(increased to 80% as of 12/31/99) 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 $586,903 at December 31, 1999. The calculated borrowing
base of 80% of eligible accounts receivable was $469,522, for which the
Company has utilized $446,507 of this eligible borrowing base as of
December 31, 1999. 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 February 23, 2000, the Company determined that its borrowings under
the Loan Agreement exceeded the permissible amount by approximately
$101,000 base on the eligible accounts receivable as of January 31, 2000.
The Company was unable to repay the overadvance at this time. However,
the Bank indicated that it would allow the overadvance position, but it
expected the Company to obtain alternative financing as soon as possible.
During this period, the Company and First Union continued to negotiate.
On March 16, 2000, the Company received formal notice from First Union
that the overadvance constitfault under the loan Agreement and that
all amounts due under the Agreement, approximately $434,000 were due and
payable immediately. On April 28, 2000, the Company was notified of a
judgement which was filed against Lexicon and Leak-X, as guarantor, for
a total of approximately, $454,000, including interest and legal fees
pursuant to the Agreement. The Company's sole operating subsidiary,
Lexicon, filed a voluntary petition for Chapter 11 Reorganization
on May 2, 2000.

NOTE 6 - LONG-TERM DEBT - Current Portion

Long-term debt consists of the following:
December 31,
1999

Deferred severance payments to be made pursuant
to the Stock Purchase Agreement with regards
to sale of Groundwater Recovery Systems, Inc. $131,250

$131,250
Less: Current Portion (131,250)
Long-Term Debt $ 0

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 $ 131,250 and $37,500 during Fiscal 1999 and Fiscal 1998, respectively.

NOTE 7 - STOCKHOLDERS' EQUITY

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>

Options Options Outstanding
Available Number Price
For grant of Shares Per Share
<S> <C> <C> <C>
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
Canceled 43,462 (43,462) $1.56-$2.375

Outstanding at December 31, 1999 103,807 186,154 $1.50-$2.375
</TABLE>

At the beginning of Fiscal 1998, the Company had 170,731 incentive
stock options outstanding. 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 termination 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.

During Fiscal 1999, a total of 43,462 stock options were canceled upon
termination of employees.

NOTE 8 - ACCOUNTING FOR EMPLOYEE STOCK OPTIONS (NOT UPDATED)

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, 1999 and 1998: 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, 1999 and 1998 was $0.06 per share and $0.02 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 $84,196 and $0.09 per share
for the fiscal year ended December 31, 1999 and $360,401 and $0.31 per share
for the fiscal year ended December 31, 1998. The proforma compensation
expenses per the Black Scholes formula for the years ended December 31, 2000,
2001, and 2002 will be $27,816, $27,702, and $21,782, 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, 1999, the Company
had available net operating loss carry forwards of approximately
$4,000,000 expiring throughout 2017. 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, GRS had revenues of approximately
$271,349 from one entity that is primarily owned by the President of GRS.
In Fiscal 1998, GRS also had purchases of $17,796 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, 1999 and 1998 were $11,477 and $10,658, 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):
<TABLE>
<S> <C> <C>
1999 1998
Number of major customers 1 1

Aggregate sales to major customers $1,860 $4,878

Percent of total revenues
to major customers 52% 70%

</TABLE>

Segment Information

Currently, the Company is only engaged in the environmental consulting
business. In Fiscal 1998, the Company was engaged in two operating segments.
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. The operations of the
groundwater remediation business have been reclassified and disclosed as a
discontinued operation. The net income from the environmental
consulting business, including corporate overhead, is $84,379 for the year
ended December 31, 1999 and the net loss from the groundwater remediation
business is $188,511 for the year ended December 31, 1998.

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:

2000 $110,824
2001 $113,970
2002 $ 94,129
2003 $ 39,674

Rent expense amounted to approximately $107,831 in 1999 and
$138,136 in 1998.

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
nsurance 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. In July 1999, the Court ruled that Exxon is responsible for
payments to the Gaservice subcontractors and that Leak-X is no longer a
defendant in the suit.

The following lawsuit is a claim which is 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.

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
$163,909 until December 31, 1999 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. During Fiscal 1999, Ms. Rizzo
deferred $6,829 of her salary. Effective January 1, 2000, Ms. Rizzo's
annual salary was increased to $168,826. 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 41,924 stock options at $1.56 in May 1997 (former options
totaling 41,924 were canceled on May 22, 1998) 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. Effective January 1, 1998, Messrs. Nolan
and Warburton's respective annual salaries were $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.

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>
<S> <C> <C> <S> <C> <C>

Period High Bid Low Bid Period High Bid Low Bid

1998 First Quarter $2.75 $1.63 1999 First Quarter $3.125 $1.75

1998 Second Quarter $2.75 $2.00 1999 Second Quarter $2.00 $0.6875

1998 Third Quarter $2.88 $2.00 1999 Third Quarter $0.6875 $0.375

1998 Fourth Quarter $3.63 $2.50 1999 Fourth Quarter $0.8125 $0.375

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 31, 2000, there were 186 holders of record of the
Company's Common Stock and approximately $2,400 beneficial owners of its
Common Stock.

DIRECTORS AND EXECUTIVE OFFICERS

Joyce A. Rizzo Chairman of the Board of Directors, Chief
Executive Officer of the Company and
Chief Executive Officer of Lexicon Environmental
Associates, Inc.
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

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

</TABLE>