SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED:
SEPTEMBER 30, 1996 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM _____ TO _____
Commission File No. 0-18303
- - -----------------------------------------------------------------
LEASING EDGE CORPORATION
_________________________________________________________________
(Exact name of registrant as specified in its charter)
Delaware No. 11-2990598
- - -------------------------------------- -----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6540 S. Pecos Road, Las Vegas, Nevada 89120
- - -------------------------------------------- ------------------
(Address of principal executive offices) (Zip Code)
(702) 454-7900
- - --------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports 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 such filing requirements for
the past 90 days.
Yes [X] No [ ]
Applicable only to issuers involved in bankruptcy proceedings
during the preceding five years:
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by sections 12, 13 or
15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court.
Yes [ ] No [ ]
Applicable only to corporate issuers:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date.
October 31, 1996: 4,012,686 common shares.
Traditional Small Business Disclosure Format (Check one): Yes [ ];
No [X]
LEASING EDGE CORPORATION AND SUBSIDIARIES
INDEX TO FORM 10-QSB
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - September 30, 1996
(Unaudited) and December 31, 1995 3
Consolidated Statements of Operations -
for the three and nine months ended
September 30 1996 and 1995 (Unaudited) 5
Consolidated Statements of Cash Flows -
for the nine months ended September 30, 1996
and 1995 (Unaudited) 6
Notes to Consolidated Financial Statements
(Unaudited) 8
Item 2. Management's Discussion and Analysis
of Financial Condition or Plan of Operations 11
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 16
(a) Exhibits
(b) Reports on Form 8-K
</TABLE>
PART I - FINANCIAL INFORMATION
- - ------------------------------
ITEM 1. FINANCIAL STATEMENTS
LEASING EDGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
(Unaudited) (Audited)
----------- ------------
<S> <C> <C>
ASSETS:
Cash $ 113,081 $ 209,084
Receivables - net of allowance
for doubtful accounts of $95,322
and $12,000 869,116 434,321
Notes receivable - employees 170,154 148,750
Inventory, net 1,126,784 1,336,747
Leased assets:
Operating leases 18,805,016 21,026,590
Sales-type and direct financing 5,177,092 3,165,539
Furniture and equipment - net of
accumulated depreciation of
$296,545 and $266,478 159,980 148,366
Other assets 618,620 413,847
Goodwill, net of accumulated
amortization of $73,541 and
$50,235 378,575 401,881
---------- ----------
TOTAL ASSETS $27,418,418 $27,285,125
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
(continued)
LEASING EDGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
(Unaudited) (Audited)
----------- ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Accounts payable $ 986,878 $ 1,576,165
Accrued liabilities 412,750 311,734
Notes payable and lines of credit 3,579,479 3,236,954
Nonrecourse and recourse discounted
lease rentals 16,068,062 16,260,002
Other liabilities 62,275 25,344
---------- ----------
TOTAL LIABILITIES 21,109,444 21,410,199
---------- ----------
STOCKHOLDERS' EQUITY:
Series A convertible preferred
stock, $.01 par value; 1,000,000
shares authorized, 380,000 shares
issued; 229,016 shares outstanding 2,290 2,290
Common stock, $.01 par value;
12,500,000 shares authorized,
3,786,811 and 3,132,319 shares issued
and 3,783,811 and 3,129,319 shares
outstanding at September 30, 1996
and December 31, 1995, respectively 37,869 31,324
Additional paid-in capital 9,852,592 9,526,259
Accumulated deficit (3,546,777) (3,647,947)
---------- ----------
6,345,974 5,911,926
Common stock held in treasury, at
cost; 3,000 shares (12,000) (12,000)
Note receivable from stockholder (25,000) (25,000)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 6,308,974 5,874,926
---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $27,418,418 $27,285,125
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
LEASING EDGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------- ----------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
Operating leases $2,393,681 $2,535,646 $7,475,629 $7,878,911
Sales-type leases 2,452,332 17,168 2,849,333 447,737
Direct finance leases 43,754 14,521 68,257 52,751
Direct sales and other 372,843 852,501 1,261,949 1,532,270
--------- --------- --------- ---------
Total revenues from
leasing operations 5,262,610 3,419,836 11,655,168 9,911,669
Distribution sales 1,299,348 1,537,706 4,347,091 4,400,963
--------- --------- ----------
- - ----------Total revenues 6,561,958 4,957,542 16,002,259
14,312,632
--------- --------- ----------
- - ----------Costs and expenses:
Operating leases 1,670,252 1,582,900 5,232,273 5,311,119
Sales-type leases 1,890,665 - 2,101,426 213,341
Interest expense 356,184 321,318 1,004,696 1,151,778
Direct sales 383,262 808,952 1,165,262 1,421,607
--------- --------- ---------
- - ---------Total costs from
leasing operations 4,300,363 2,713,170 9,503,657 8,097,845
Distribution cost of
sales 1,101,683 1,335,492 3,762,120 3,781,415
Selling, general and
administrative expenses 808,530 554,298 2,358,156 1,698,144
Interest expense 102,751 94,474 277,156 188,122
--------- --------- ---------
- - ---------Total costs and expenses 6,313,327 4,697,434 15,901,089
13,765,526
--------- --------- ---------
- - ---------Income before
income taxes 248,631 260,108 101,170 547,106
Provision for income
taxes - 88,783 - 203,581
--------- --------- ---------
- - ---------Net income $ 248,631 $ 171,325 $ 101,170
$ 343,525
========= ========= ========= =========
Earnings per common
share $ 0.05 $ 0.04 $ (0.02) $ 0.06
========= ========= ========= =========
Weighted average common
shares outstanding 4,009,807 3,136,750 3,710,361 2,844,391
========= ========= ========= =========
</TABLE>
The accompanying notes are integral part of these consolidated financial
statements.
LEASING EDGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
--------------------------
Sept. 30, Sept. 30,
1996 1995
------------ -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income $ 101,170 $ 343,525
Adjustments to reconcile net
income to cash provided
by operating activities:
Depreciation and amortization 5,285,647 5,761,458
Deferred income taxes - 186,868
Change in assets and liabilities
due to operating activities:
(Increase) decrease in
accounts receivable (456,199) 121,423
(Increase) decrease in
inventory 461,837 (490,680)
(Decrease) increase in
accounts payable (589,287) 136,175
(Decrease) increase in
accrued liabilities 101,016 (870,768)
All other operating activities (104,620) (286,885)
----------- ----------
Total adjustments 4,698,394 4,557,591
----------- ----------
Net cash provided by operating
activities 4,799,564 4,901,116
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales, transfers and disposals of
inventory and equipment 2,047,679 1,047,065
Purchases of inventory for lease (4,326,793) (5,360,727)
Purchases of furniture and equipment (41,682) (51,322)
Additions to net investment in
sales-type and direct finance leases (4,344,940) -
Sales-type and direct financing
lease rentals received 1,349,928 2,066,024
----------- ----------
Net cash used in investing activities (5,315,808) (2,298,960)
----------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
(Continued)
LEASING EDGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
--------------------------
Sept. 30, Sept. 30,
1996 1995
------------ -----------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from nonrecourse and
recourse discounted lease rentals 8,430,655 4,446,682
Payments on nonrecourse and recourse
discounted lease rentals (8,622,595) (8,747,785)
Proceeds from notes payable 651,279 3,312,217
Payments on notes payable (308,754) (2,010,423)
Proceeds from exercise of stock
options 37,125 -
Proceeds from sale of stock 467,515 445,534
Proceeds from exercise of warrants 55,592 -
Deferred equity transaction costs (118,814) (211,701)
Preferred stock dividends paid (171,762) (172,512)
----------- ----------
Net cash used in financing activities 420,241 (2,937,988)
----------- ----------
Net decrease in cash (96,003) (335,832)
Cash at beginning of period 209,084 479,118
----------- ----------
Cash at end of period $ 113,081 $ 143,286
=========== ==========
Supplemental Disclosure of Cash Flow
Information:
Cash paid during the period for:
Interest $ 1,255,256 $ 1,294,584
=========== ==========
Income taxes $ 34,061 $ 7,750
=========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
LEASING EDGE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1. Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of Leasing Edge Corporation (formerly, TJ Systems
Corporation) and its wholly owned subsidiaries, collectively
referred to as the "Company". All material intercompany accounts
and transactions have been eliminated. Certain reclassifications
have been made to prior years' amounts to conform with current
period presentation.
Basis of Presentation
In the opinion of the Company, the accompanying unaudited
Consolidated Financial Statements contain all adjustments necessary
to present fairly the results of its operations for the three and
nine months ended September 30, 1996 and 1995 and its cash flows
for the nine months ended September 30, 1996 and 1995. It is
suggested that this report be read in conjunction with the
Company's audited financial statements included in the Annual
Report on Form 10-KSB for the fiscal year ended December 31, 1995.
The operating results for the three and nine months ended September
30, 1996 and cash flows for the nine months ended September 30,
1996 are not necessarily indicative of the results that will be
achieved for the full fiscal year or for future periods.
Note 2. Earnings Per Share
Earnings per common and common equivalent share are computed based
on the weighted average number of common and common equivalent
shares outstanding during the three and nine month periods ended
September 30, 1996. Dilutive stock options included in the number
of common and common equivalent shares are based on the treasury
stock method.
Note 3. Revolving Line of Credit
On July 11, 1995, the Company entered into a Revolving Line of
Credit Agreement (the "Agreement") with Bank of America Nevada.
Borrowings under the Agreement, as amended, are limited to the
lesser of $2.5 million ($2.7 million through May 10, 1996); sixty
percent (60%) of the Company's Equity Position in approved leases,
as defined; or twenty-five percent (25%) of the residual value of
leased equipment, as defined. Borrowings under the Agreement bear
interest at the Bank's prime rate plus two percentage (2.0%)
points, are collateralized by certain personal property of the
Company and require the Company to pay an unused commitment fee
equal to one-half of one percent of the unused portion of the line,
calculated on a weighted-average basis. Restrictive covenants
under the Agreement include the maintenance of consolidated
tangible net worth, as defined, of at least $6.5 million; a
consolidated ratio of total liabilities, as defined, to tangible
net worth of no greater than 1.0:1.0; and a restriction on the
payment of cash dividends on shares of the Company's common stock.
The Agreement, as amended, expired on October 31, 1996. However,
the Company and Bank of America have orally agreed to restructure
the facility as a term note (the "Tentative Agreement") with an
initial expiration date of April 1, 1997; such expiration date may
be further extended to January 1, 1998, subject to the Company's
satisfaction of certain conditions. Proposed terms of the
Tentative Agreement require the Company to make a one-time
principal payment of $123,600 upon execution of the definitive
agreement; to make monthly principal payments of $40,000 plus
accrued interest beginning December 1, 1996 through April 1, 1997;
and, to use its best efforts to replace Bank of America with
alternative financing. Bank of America has agreed to waive the
consolidated minimum tangible net worth covenant through April 1,
1997, the initial expiration date of the Tentative Agreement.
There can be no assurance that the Company and Bank of America will
execute definitive documentation reflecting the proposed terms of
the Tentative Agreement.
At September 30, 1996, the Company had outstanding borrowings under
the Agreement of $2.5 million and the interest rate with respect to
the Agreement was 10.25 percent. Average and maximum borrowings
under the revolving line of credit during 1996 were $2.6 million
and $2.7 million, respectively, and the weighted average interest
rate was 10.28 percent.
In January 1995, PMCPI entered into a revolving credit agreement
(the "Merrill Line") with Merrill Lynch Financial Services, Inc.
Borrowings under the Merrill Line are limited to the lesser of
$500,000 or an amount equal to 80 percent of PMCPI's accounts
receivable, as defined, plus 60 percent of inventory, as defined.
The Merrill Line is secured by accounts receivable and inventory of
PMCPI and is guaranteed by the Company and expires November 30,
1996.
At September 30, 1996, PMCPI had outstanding borrowings under the
Merrill Line of $499,032 and the interest rate with respect to the
line was 9.25 percent. Average borrowings outstanding under the
revolving credit agreement during 1996 were approximately $376,000
and the weighted average interest rate was approximately 9.28
percent. Maximum borrowings outstanding under the revolving credit
agreement during 1996 were $499,032.
In November 1995, the Company entered into a letter agreement with
Union Chelsea National Bank (UCNB) whereby UCNB agreed to make
available to the Company a $250,000 line of credit (the "Equity
Line") to be used to fund the Company's equity investment in
certain leases discounted by UCNB (ie., the difference between the
cost of the leased equipment and the discounted present value of
the minimum lease payments assigned to UCNB). Borrowings under the
Equity Line are evidenced by term notes and require monthly
payments of principal and interest over a period equal to the term
of the related discounted lease with a final balloon payment of
between 30 and 50 percent depending on the lease term. Interest
rates on the term notes are at the applicable discounted lease rate
plus 1.25%. On July 18, 1996, UCNB increased the amount available
under the Equity Line to $1,000,000.
At September 30, 1996, the Company had outstanding term notes and
available credit under the Equity Line of $491,664 and $508,336,
respectively.
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN
OF OPERATION
Overview
The Company was originally founded in 1980 under the name TJ
Computer Services, Inc. ("TJCS"). In 1989, all of the outstanding
common stock of TJCS was acquired by Harrison Development, Inc., an
inactive public corporation organized in Colorado, which then
changed its name to TJ Systems Corporation. In October 1991, the
Company reincorporated in the State of Delaware and in June 1995,
changed its name to Leasing Edge Corporation. Unless the context
otherwise requires, the term the "Company" as used herein refers to
Leasing Edge Corporation and its wholly-owned subsidiary, Pacific
Mountain Computer Products, Inc.
Leasing Edge Corporation (the "Company") buys, sells, leases
and remarkets a wide variety of information processing and
communication equipment, including midrange computers,
telecommunications systems, peripherals, point-of-sale systems,
local area networks and select high technology and other capital
equipment produced by a variety of manufacturers, such as IBM,
Unisys, AT&T, EMC, Sun Microsystems, DEC and Tandem. The Company's
customers are primarily large corporations that meet the Company's
high credit standards and that possess significant and continuing
information processing and telecommunications needs.
Through Pacific Mountain Computer Products, Inc. ("Pacific
Mountain"), the Company is an authorized distributor of IBM and
other manufacturer's terminal, controller, printer and protocol
converter products. Pacific Mountain's main business is sales of
those products to retail customers and wholesalers. The Company
also leases such products to customers who desire to lease by
acquiring the products at favorable discounts facilitated by its
relationship with Pacific Mountain.
Nine Months Ended September 30, 1996 Compared to Nine Months Ended
September 30, 1995
Revenues
Total revenues from leasing operations increased $1,743,499,
or 17.6%, during the first nine months of 1996 compared to the
prior year period due primarily to a large lease transaction with
a major customer which was accounted for as a sales-type lease,
resulting in a significant percentage of the related revenue from
the transaction being recorded at lease inception, partially offset
by a decrease in revenue from the portfolio base of operating
leases of $403,282, or 5.1%, and a decrease in direct sales
revenues of $270,321, or 17.6%. The decrease in operating lease
revenue resulted from the expiration of certain month-to-month
leases which were not replaced by similar lease transactions.
Distribution sales increased 1.2%, to $4,347,091 for the 1996
period as compared to $4,400,963 for 1995. The decrease in year to
date distribution sales was due primarily to decreased unit sales
in the third quarter.
Costs and Expenses
Total costs from leasing operations as a percentage of leasing
revenue was 81.5% for the nine months ended September 30, 1996,
compared with 81.7% for the prior year period. Gross profit from
leasing operations (total revenues from leasing operations less
total costs from leasing operations) increased $337,687, or 18.6%,
due primarily to an increase in gross profit from sales-type lease
transactions of $513,511 combined with a decrease in portfolio
interest expense of $147,082, partially offset by a decrease in
gross profit from the portfolio base of operating leases of
$324,436. Gross margin from leasing operations (gross profit from
leasing operations as a percentage of total revenues from leasing
operations) improved to 18.5% from 18.3% due to the foregoing.
Leasing costs associated with the portfolio base of operating
leases decreased $78,846, or 1.5%. Gross profit on operating
leases decreased by $324,436, or 12.6%, due primarily to the
expiration of certain month-to-month leases. Such leases generally
have a higher profit margin than other operating leases since the
equipment has often already been depreciated to zero.
Direct sales costs (leasing costs with respect to the sale of
equipment off lease and leases with dollar buyout options treated
as sales) decreased $256,345, or 18.0%, and as a percentage of the
related revenue equalled the prior period's 92.3%.
Distribution cost of sales of $3,762,120 relates to
distribution sales of Pacific Mountain and represent a $19,295, or
0.5%, decrease from the prior year period. Gross margin on
distribution sales decreased to 13.5% in 1996 from 14.1% in 1995
due to a decrease in comparative sales volume of certain higher
margin products.
Selling, general and administrative expenses increased
$660,012, or 38.9%, in the 1996 period compared to 1995 due
primarily to a one-time gain of approximately $247,000 recorded in
1995 related to the settlement of the Company's obligations under
a severance agreement with the Company's former CEO combined with
an increase in 1996 staffing levels and the write-off of an
uncollectible receivable.
Interest expense on non-lease related indebtedness increased
$89,034, or 47.3% due to higher average debt levels partially
offset by slightly lower interest rates.
Three Months Ended September 30, 1996 Compared to Three Months
Ended September 30, 1995
Revenues
Total revenues from leasing operations increased $1,842,774,
or 53.9%, in the third quarter of 1996 compared to the prior year
quarter due to the large lease transaction previously discussed
partially offset by a decrease in revenue from the portfolio base
of operating leases of $141,965, or 5.6%, and a decrease in direct
sales revenue of $479,658, or 56.3%. As with the nine months, the
decrease in operating lease revenue was due primarily to the
expiration of certain month-to-month leases which were not replaced
by similar lease transactions.
Distribution sales decreased to 15.5%, to $1,299,348, from the
prior year quarter's $1,537,706 due to decreased unit sales.
Costs and Expenses
Total costs from leasing operations as a percentage of leasing
revenue increased to 81.7% for the quarter ended September 30, 1996
as compared to 79.3% for the prior year quarter. Gross profit from
leasing operations increased $255,581, or 36.2%, due primarily to
an increase in gross profit from sales-type lease transactions of
$544,499 partially offset by a decrease in gross profit from the
portfolio base of operating leases of $229,317. Gross margin from
leasing operations decreased to 18.3% from 20.7% due to the
foregoing.
Leasing costs associated with the portfolio base of operating
leases increased $87,352, or 5.5%. Gross profit on operating
leases decreased $229,317 due to the expiration of certain
month-to-month leases as previously noted.
Distribution cost of sales decreased $223,809, or 17.5%, to
$1,101,683 from the prior year quarter's $1,335,492. Gross margin
on distribution sales increased to 15.2% in 1996 from 13.2% in 1995
as a result of an improved focus on sales of higher margin
products.
Selling, general and administrative expenses increased
$254,232, or 45.8%, in the 1996 period compared to the prior year
period due primarily to the previously mentioned one-time gain of
$247,000 recorded in 1995.
Interest expense on non-lease related indebtedness of $102,751
was consistent with the prior year's $94,474.
The 1996 consolidated financial statements do not reflect a
provision for income taxes due to the utilization of net operating
loss carryforwards and changes in the related valuation allowance.
At September 30, 1996, the Company had unexpired net operating loss
carryforwards of approximately $3,850,000 which can be utilized to
offset future taxable income, if any.
Net Earnings
As a result of the foregoing, the Company recorded net income
for the three and nine month periods ended September 30, 1996 of
$248,631 and $101,170, respectively, as compared to net income of
$171,325 and $343,525 for the corresponding 1995 periods.
Liquidity and Capital Resources
As discussed in Note 3 to the Consolidated Financial
Statements, the Company's $2,500,000 revolving line of credit
agreement with Bank of America expired on October 31, 1996 and was
not renewed. The Company and Bank of America have orally agreed to
restructure the credit facility as a term note (the "Tentative
Agreement") with an initial expiration date of April 1, 1997; such
expiration date may be further extended to January 1, 1998, subject
to the Company's satisfaction of certain conditions. Proposed
terms of the Tentative Agreement require the Company to make a
one-time principal payment of $123,600 upon execution of the
definitive
agreement; to make monthly principal payments of $40,000 plus
accrued interest from December 1, 1996 through April 1, 1997; and,
to use its best efforts to replace Bank of America with alternative
financing. There can be no assurance that the Company and Bank of
America will execute definitive documentation reflecting the terms
of the Tentative Agreement. The Company has held preliminary
discussions with several financing sources who have expressed an
initial interest in replacing Bank of America although there can be
no assurance that any such financing source will agree to replace
Bank of America. Should the Company fail to receive adequate
equity or debt financing, the Company's growth will be materially
and adversely affected.
Since equipment the Company leases must be paid for by the
Company prior to leasing, the Company requires a substantial amount
of cash for its leasing activities. The Company's growth has been
significantly dependent upon its ability to borrow funds or raise
equity or debt financing to acquire additional equipment for
lease.
Historically, the Company has derived most of the funds necessary
for the purchase of equipment from nonrecourse financing and the
remainder from internally generated funds, recourse indebtedness
and existing cash. At September 30, 1996, the Company had
approximately $614,049 in cash and availability under its credit
lines.
At the inception of each lease, the Company establishes the
residual value of the leased equipment, which is the estimated
market value of the equipment at the end of the initial lease
term.
The Company's cash flow depends to a great extent on its ability to
realize the residual value of leased equipment after the initial
term of its leases with its customers. Historically, the Company
has realized its recorded investment in residual values through (i)
renegotiation of the lease during its term to add or modify
equipment; (ii) renewal or extension of the original lease; (iii)
leasing equipment to a new user after the initial lease term; or,
(iv) sale of the equipment. Each of these alternatives impacts the
timing of the Company's cash realization of such recorded residual
values. Equipment may be returned to the Company at the end of an
initial or extended lease term when it may not be possible for the
Company to resell or re-lease the equipment on favorable terms.
Developments in the high-technology equipment market tend to occur
at rapid rates, adding to the risk of obsolescence and shortened
product life cycles which could affect the Company's ability to
realize the residual value of such equipment. In addition, if the
lessee defaults on a lease, the financial institution that provided
nonrecourse financing may foreclose on its security interest in the
leased equipment and the Company may not realize any portion of
such residual value. If the residual value in any equipment cannot
be realized after the initial lease term, the recorded investment
in the equipment must be written down, resulting in reduced
earnings. There can be no assurance that the Company will not
experience material residual value or inventory write-downs in the
future.
The Company intends to continue to retain residual ownership
of all the equipment it leases. As of September 30, 1996, the
Company had a total net investment in lease transactions of $24.0
million compared to $24.2 million as of December 31, 1995. The
estimated residual value of the Company's portfolio of leases
expiring between October 1, 1996 and December 31, 2001 totals
$9,619,386, although there can be no assurance that the Company
will be able to realize such residual value in the future. As of
September 30, 1996, the estimated residual value of the Company's
portfolio of leases by year of lease termination is as follows:
<TABLE>
<CAPTION>
Year ending December 31,
------------------------
<S> <C>
1996 $ 485,000
1997 4,455,119
1998 1,646,867
1999 919,500
2000 1,504,800
2001 608,100
----------
Total $ 9,619,386
==========
</TABLE>
Leased equipment expenditures of $8,671,733 for the nine
months ended September 30, 1996 were financed through the
discounting of $8,430,655 of noncancelable lease rentals to various
financial institutions.
The Company believes that inflation has not been a significant
factor in its business.
Based on the Company's anticipated residual value realization,
distribution sales, and the refinancing of the Bank of America
credit line, management believes that it will have adequate capital
resources to continue its operations level for at least the next
twelve months, although, as stated above, should the Company fail
to receive adequate debt or equity financing, the Company's growth
will be materially and adversely affected.
PART II - OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11 Statement re Computation of Per Share
Earnings.
(b) Reports on Form 8-K
None.
Signatures
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
LEASING EDGE CORPORATION
(Registrant)
Date: November 13, 1996 /s/Michael F. Daniels
Michael F. Daniels, President
and Chief Executive Officer
(Principal Executive Officer)
Date: November 13, 1996 /s/ William J. Vargas
William J. Vargas, V.P.- Finance
(Principal Financial and
Accounting Officer)
ITEM 6
- - ------
EXHIBIT 11
- - ----------
LEASING EDGE CORPORATION AND SUBSIDIARIES
STATEMENT RE COMPUTATION OF PER SHARE
EARNINGS - PRIMARY
<TABLE>
<CAPTION>
Three Months Ended
-------------------------
Sept. 30, Sept. 30,
1996 1995
---------- ----------
<S> <C> <C>
Shares outstanding at beginning
of period 3,756,319 3,079,092
Effect of common shares issuable
upon exercise of dilutive stock
options net of shares assumed to
be repurchased (at the average
market price) out of exercise
proceeds 237,650 55,091
Effect of issuance of common stock 15,838 2,567
---------- ----------
Weighted average shares - primary 4,009,807 3,136,750
========== =========
Net income 248,631 171,325
Preferred stock dividends (57,254) (57,504)
----------
- - ----------Net earnings available to
common shareholders 191,377 113,821
========== ==========
Primary earnings per common
share 0.05 0.04
========== ==========
</TABLE>
Fully diluted earnings per share is not presented because the
effect of such calculation is anti-dlutive.
(Continued)
ITEM 6
- - ------
EXHIBIT 11
- - ----------
LEASING EDGE CORPORATION AND SUBSIDIARIES
STATEMENT RE COMPUTATION OF PER SHARE
EARNINGS - PRIMARY (Continued)
<TABLE>
<CAPTION>
Nine Months Ended
-------------------------
Sept. 30, Sept. 30,
1996 1995
---------- ----------
<S> <C> <C>
Shares outstanding at beginning
of period 3,129,319 1,903,421
Effect of common shares issuable
upon exercise of dilutive stock
options net of shares assumed to
be repurchased (at the average
market price) out of exercise
proceeds 239,111 55,549
Effect of issuance of common stock 341,931 885,421
---------- ----------
Weighted average shares - primary 3,710,361 2,844,391
========== =========
Net income 101,170 343,525
Preferred stock dividends (171,762) (172,512)
----------
- - ----------Net earnings available to
common shareholders (70,592) 171,013
========== ==========
Primary earnings per common
share (0.02) 0.06
========== ==========
</TABLE>
Fully diluted earnings per share is not presented because the
effect of such calculation is anti-dlutive.
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 113,081
<SECURITIES> 0
<RECEIVABLES> 1,134,592
<ALLOWANCES> 95,322
<INVENTORY> 1,126,784
<CURRENT-ASSETS> 0
<FN-1> UNCLASSIFIED BALANCE SHEET
<PP&E> 456,525
<DEPRECIATION> 296,545
<TOTAL-ASSETS> 27,418,418
<CURRENT-LIABILITIES> 0
<FN-1> UNCLASSIFIED BALANCE SHEET
<BONDS> 3,579,479
0
2,290
<COMMON> 37,869
<OTHER-SE> 6,305,815
<TOTAL-LIABILITY-AND-EQUITY> 27,418,418
<SALES> 5,609,040
<TOTAL-REVENUES> 16,002,259
<CGS> 4,927,382
<TOTAL-COSTS> 13,265,777
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 83,322
<INTEREST-EXPENSE> 277,156
<INCOME-PRETAX> 101,170
<INCOME-TAX> 0
<INCOME-CONTINUING> 101,170
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 101,170
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> 0
<FN-2> FULLY DILUTED EPS NOT PRESENTED AS
RESULT OF CALCULATION IS ANTI-
DILUTIVE
</TABLE>
