U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended: Commission File Number:
March 31, 2000 0-17776
LEAK-X ENVIRONMENTAL CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 23-2823596
(State or other jurisdiction of (IRS Employer Identi-
incorporation or organization) fication Number)
790 East Market Street, Suite 270, West Chester, PA 19382
(Address of Principal Executive Offices) (Zip Code)
(610) 344-3380
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports) and (2) has been subject to filing requirements
for the past 90 days.
Yes No X
The number of shares of Common Stock, par value $.001 per share,
outstanding as of May 10, 2000 is 990,126 shares.
Transitional Small Business Disclosure Format: Yes X No
CONSOLIDATED BALANCE SHEETS
LEAK-X ENVIRONMENTAL CORPORATION AND SUBSIDIARIES
<TABLE>
March 31, December 31,
2000 1999
(Unaudited)
<S> <C> <C>
ASSETS:
CURRENT ASSETS
Cash and cash equivalents $ 27,889 $ 15,056
Accounts receivable, net 489,033 610,350
Estimated earnings in excess of billings 11,447 5,703
Other current assets 45,650 28,508
Net assets of discontinued operations 450,000 450,000
TOTAL CURRENT ASSETS 1,024,019 1,109,617
PROPERTY AND EQUIPMENT, NET 51,895 55,475
OTHER ASSETS - Deposits 6,269 6,269
TOTAL ASSETS $1,082,183 $1,171,361
LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES
Accounts payable and accrued expense $ 796,085 $ 833,107
Unearned revenue 13,294 48,532
Line of credit 457,000 457,000
Current portion of long-term debt 112,500 131,250
Net liabilities of discontinued operations 412,787 416,425
TOTAL CURRENT LIABILITIES $1,791,666 $1,886,314
LONG-TERM DEBT 0 0
STOCKHOLDERS' EQUITY
Common stock $.001 par value:
5,000,000 shares authorized,
990,126 issued and outstanding 990 990
Additional paid-in capital 8,310,195 8,310,195
Accumulated deficit (9,020,668) (9,026,138)
TOTAL STOCKHOLDERS' EQUITY (709,483) (714,953)
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $1,082,183 $1,171,361
See notes to consolidated financial statements.
</TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
LEAK-X ENVIRONMENTAL CORPORATION AND SUBSIDIARIES
(Unaudited)
<TABLE>
Three Months Ended March 31,
2000 1999
<S> <C> <C>
Revenues $ 659,497 $1,161,404
Cost of revenues 362,970 704,268
Gross profit 296,527 457,136
Selling, general and
administrative expenses 281,644 409,694
Operating income 14,883 47,442
Other income (381) (858)
Interest expense 9,646 2,588
Net income before taxes and
discontinued operations 5,618 45,712
Income tax expense 149 9,169
Net income before
discontinued operations 5,469 36,543
Discontinued Operations:
Operating Income ------ -------
Loss on Sale of Discontinued Operation ------ -------
0 0
Net Income $ 5,469 $ 36,543
Weighted average number of shares of common
stock outstanding Basic 990,126 990,126
Diluted 1,005,244 1,005,244
Net income per share:
Basic: Continuing operations 0.01 0.04
Discontinued operations 0.00 0.00
Total Basic 0.01 0.04
Diluted: Continuing operations 0.01 0.04
Discontinued operations 0.00 0.00
Total Diluted 0.01 0.04
See notes to consolidated financial statements.
</TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
LEAK-X ENVIRONMENTAL CORPORATION AND SUBSIDIARIES
(Unaudited)
<TABLE>
Three Months Ended March 31,
2000 1999
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CASH FLOW FROM
OPERATING ACTIVITIES:
Net income $ 5,470 $ 36,543
Adjustments to reconcile net income to net cash
used by operating activities of continuing operations:
Income from discontinued operations ------ ------
Depreciation 8,100 9,300
Allowance for bad debt ------ 15,000
Changes in assets and liabilities:
Accounts receivable 121,317 322,712
Costs and estimated earnings (5,744) 76,641
Other current assets (17,142) (44,610)
Accounts payable (116,558) (397,507)
Billings in excess of cost (35,238) (72,296)
Accrued expenses and other liabilities 79,536 5,043
NET CASH USED BY OPERATING ACTIVITIES OF
CONTINUING OPERATIONS 39,741 (49,174)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (4,520) (8,211)
Increase in other assets, net ------ ------
NET CASH USED BY INVESTING ACTIVITIES OF
CONTINUING OPERATIONS (4,520) (8,211)
CASH FLOWS FROM FINANCING ACTIVITIES:
Advance on line-of-credit ------ 93,871
Payments on long-term debt (18,750) (37,500)
Decrease in advances to discontinued operations ------- -------
NET CASH PROVIDED BY FINANCING ACTIVITIES OF
CONTINUING OPERATIONS (18,750) 56,371
NET CASH USED IN CONTINUING OPERATIONS 16,471 (1,014)
NET CASH PROVIDED BY (USED IN)
DISCONTINUED OPERATIONS (3,638) (347)
NET DECREASE IN CASH 12,833 (1,361)
CASH, beginning of the period 15,056 1,742
CASH, end of the period $27,889 $ 381
See notes to consolidated financial statements.
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LEAK-X ENVIRONMENTAL CORPORATION AND SUBSIDIARIES
(UNAUDITED)
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Note 1. Basis of Presentation
The accompanying unaudited consolidated financial statements
of Leak-X Environmental Corporation (the "Company") have been
prepared in accordance with generally accepted accounting
principles for interim financial information and with the
instructions to Form 10-QSB and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management,
all adjustments considered necessary for a fair presentation
(consisting of normal recurring accruals) have been included.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Operating results for the three month period ended March 31, 2000
are not necessarily indicative of the results that may be
expected for the year ending December 31, 2000. For further
information, refer to the consolidated financial statements and
footnotes thereto included in the Company's Annual Report on
Form 10-KSB for the year ended December 31, 1999. Per share data
for the periods are based upon the weighted average number of
shares of common stock outstanding during such periods, plus net
additional shares issued upon exercise of options and warrants
(see Note 4).
Note 2. Financial Matters
Total interest expense for the three months ended March 31,
2000 and March 31, 1999 was $9,646 and $2,588, respectively.
Note 3. Discontinued Operations
Net assets of discontinued operations at March 31, 2000
consist of accounts receivable of $450,000. Net liabilities of
discontinued operations at March 31, 2000 include accounts
payable and accrued expenses of $346,251 and $66,536,
respectively.
Note 4. Income Per Share
The following is a reconciliation of the numerator and
denominator underlying the income per share calculations:
Three Months Ended March 31, 1999
<TABLE>
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Income Shares Per Share
(Numerator) (Denominator) Amount
Income from continuing operations
available to common stockholders $36,543 990,126 $0.04
Effect of dilutive securities:
Incremental shares of assumed
conversions of options 15,118
Diluted income from continuing
operations available to common
stockholders and assumed conversions $36,543 1,005,244 $0.04
</TABLE>
The reconciliation for the three month period ended March 31,
2000 has not been presented since any incremental shares converted would
have been anti-dilutive.
Note 5. Line of Credit
On April 28, 2000, the Company received notification of a judgement which
was filed by its lender, First Union National Bank ("First Union") for
default under its current Loan Agreement against Lexicon Environmental
Associates, Inc. ("Lexicon") and Leak-X Environmental Corporation
("Leak-X"), as guarantor. The Company had been in an overadvance position
since mid-February, which it was unable to remedy. The Company had been in
the process of negotiating with First Union and securing alternative
financing when the judgement was filed. The Loan Agreement was due to
expire on June 30, 2000. The Loan Agreement permitted the Company to
borrow up to $750,000. Borrowings under the Loan Agreement were limited to
75% of eligible accounts receivable, as defined, and bears interest at the
prime rate plus three-quarter (3/4) percent. Borrowings under this facility
are also collateralized by a security interest in substantially all of the
assets of the Company and impose restrictions on the payment of dividends
and stock redemptions and the sale of property.
Item 2. Management's Discussion and Analysis or Plan of Operation
Results of Operations
Quarter Ended March 31, 2000 Compared to the Quarter Ended March 31, 1999
The Company's net income was $5,469, or $0.01 per share, for the quarter
ended March 31, 2000 (the "2000 Quarter"), as compared to net income of
$36,543, or $0.04 per share, for the quarter ended March 31, 1999
(the "1999 Quarter").
Revenues decreased $501,907, or 43%, to $659,497 for the
2000 Quarter, as compared to $1,161,404 for the 1999 Quarter.
The decrease in revenues is primarily attributable to a lower
volume of construction management services as the deadline for
underground storage tank compliance passed in December 1998.
Construction management services typically include a large
portion of subcontractor costs which become included in the
Company's revenues.
The Company's gross margin improved significantly to 45% in
the 2000 Quarter, as compared to 39% in the 1999 Quarter. As the
demand for low margin construction management services declined,
the Company experienced a higher volume of traditional
environmental engineering services which contribute a higher
gross margin.
Selling, general, and administrative ("SG&A") expenses
decreased $128,050 to $281,644 for the 2000 Quarter, as compared
to $409,694 in the 1999 Quarter. This decrease is primarily
attributable to the cost containment program implemented to
control the Company's corporate overhead costs. The Company's
focus is to incur minimum corporate overhead expenses in order to
preserve its working capital for growth within the Company.
The Company incurred higher interest expense of $9,646 in
the 2000 Quarter, as compared to $2,587 in the 1999 Quarter due
to higher debt levels and lower cash balances in Fiscal 2000.
Income tax expense of $149 in the 2000 Quarter was lower than
income tax expense of $9,169 in the 1999 Quarter due to higher
Fiscal 1998 taxes which were not recorded until 1999 and the
accrual of anticipated taxes for Fiscal 1999.
Liquidity and Capital Resources
The Company provided $39,741 of cash from operating activities of
continuing operations in the 2000 Quarter, as compared to utilizing
$49,174 in the 1999 Quarter. Net income from continuing operations
of $5,470 in the 2000 Quarter was lower than net income from continuing
operations in the 1999 Quarter of $36,543. The 2000 Quarter included
a $121,317 decrease in accounts receivable and a $116,558 decrease in
accounts payable, as compared to a decrease of $322,712 in accounts
receivable and a decrease of $397,507 in accounts payable in the
1999 Quarter. This change in accounts receivable and accounts payable
is primarily due to decreased revenues from a lower volume of construction
management services. The Company recorded a bad debt reserve of $15,000
for certain receivables in the 1999 Quarter.
Capital expenditures in the 2000 Quarter of $4,520, which
were primarily for computer equipment, were slightly lower than
the $8,211 in the 1999 Quarter.
Net cash utilized by financing activities of continuing
operations was $18,750 in the 2000 Quarter, as compared to net
cash provided by financing activities of continuing operations of
$56,371 in the 1999 Quarter. During the 1999 Quarter, the
Company's cash management system, which applies excess cash
balances against its outstanding line of credit resulted in an
increase of $93,871 on the line of credit balance. The Company
paid out $18,750 and $37,500, respectively, for the 2000 Quarter
and the 1999 Quarter.
The Company's working capital deficit of ($767,647) at
March 31, 2000 was consistent with working capital of ($776,697)
at December 31, 1999. The Company continues to manage its
working capital to support the Company's ongoing operations and
make payments on its debt.
On April 28, 2000, the Company received notification of a
judgement which was filed by its lender, First Union National
Bank ("First Union") for default under its current Loan Agreement
against Lexicon and Leak-X, as guarantor. The Company had been
in an overadvance position since mid-February, which it was
unable to remedy. The Company had been in the process of negotiating
with First Union and securing alternative financing when the judgement
was filed. The Loan Agreement was due to expire on June 30, 2000.
The Loan Agreement permitted the Company to borrow up to $750,000.
Borrowings under the Loan Agreement were limited to 75% of eligible accounts
receivable, as defined, and bears interest at the prime rate plus
three-quarter(3/4) percent. Borrowings under this facility are also
collateralized by a security interest in substantially all of the
assets of the Company and impose restrictions on the payment of
dividends and stock redemptions and the sale of property.
In response to this judgement, the Company's operating
subsidiary, Lexicon, filed a voluntary petition for Chapter 11
Reorganization in the Unites States Bankruptcy Court in the
Southern District of New York on May 2, 2000. Lexicon received
approval for temporary use of its collections during its
preliminary cash collateral hearing on May 12, 2000 in accordance
with its court approved budget. The final cash collateral
hearing is scheduled for May 25, 2000. Lexicon intends to
continue to operate as a Debtor-In-Possession and submit its
final Plan of Reorganization within the 90-day requirement. The
Company is actively pursuing alternative financing, including
debt and equity options.
Backlog at March 31, 2000 of $730,000 is consistent with
the level at December 31, 1999 of $800,000 as a result of
continued success in obtaining new work as the Company continues
to complete the ongoing projects which were booked at the
beginning of the fiscal year. The Company believes that all of
the current backlog will be completed in 2000, 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 has not had a significant
decrease in sales as a result of the Chapter 11 petition.
The Company has not experienced any difficulties as a
result of the "Y2K" problems. The Company's internal systems are
Y2K compliant and we have not experienced any problems with
vendors or clients. While we do not expect any problems, we will
continue to monitor compliance.
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. However, the Company does
not believe its present liquidity and cash flow are adequate for
its current needs. The Company is actively pursuing alternative
financing to help meet its 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: the Company's ability to obtain financing,
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.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27.1 Financial Data Schedule
(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 Company 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 the requirements of the Exchange Act,
the Registrant has caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
Dated: May 25, 2000
LEAK-X ENVIRONMENTAL CORPORATION
by: /s/ Joyce A. Rizzo
Joyce A. Rizzo
Chief Executive Officer
by: /s/ Eileen E. Bartoli
Eileen E. Bartoli
Controller and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE LEAK-X
ENVIRONMENTAL CORPORATION CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 2000 AND
THE RELATED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED
MARCH 31, 2000 AND THE ACCOMPANYING NOTES, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 27889
<SECURITIES> 0
<RECEIVABLES> 489033
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1024019
<PP&E> 287818
<DEPRECIATION> (235923)
<TOTAL-ASSETS> 1082183
<CURRENT-LIABILITIES> 1791666
<BONDS> 0
0
0
<COMMON> 990
<OTHER-SE> (710473)
<TOTAL-LIABILITY-AND-EQUITY> 1082183
<SALES> 659497
<TOTAL-REVENUES> 659497
<CGS> 362970
<TOTAL-COSTS> 362970
<OTHER-EXPENSES> 281644
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9646
<INCOME-PRETAX> 5618
<INCOME-TAX> 149
<INCOME-CONTINUING> 5469
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5469
<EPS-BASIC> 0.01
<EPS-DILUTED> 0.01
</TABLE>
