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FORM 10-QSB
U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 2000
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[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE EXCHANGE ACT
For the transition period from ___________ to ____________
Commission file number 93-67656-S
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LEADING-EDGE EARTH PRODUCTS, INC.
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(Name of small business issuer as specified in its charter)
Oregon 93-1002429
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(State of incorporation or organization) (I.R.S. Employer ID No.)
319 Nickerson St. #186, Seattle, WA 98109
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(Address of principal executive offices) (Zip Code)
800-788-3599
Issuer's telephone number
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(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15 9d) 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.
Yes [X] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to
be filed by Section 12,13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 41,708,614 shares as of
December 15, 2000.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
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PART I
ITEM 1. FINANCIAL STATEMENTS
LEADING-EDGE EARTH PRODUCTS, INC.
"Unaudited" 31-Oct-00
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ASSETS
Current assets:
Cash $ 6,823
Receivables, net of reserve 0
Inventories 381,893
Prepaid expenses and deposits 10,632
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Total current assets 399,348
Long-lived Assets
Property, plant and equipment 1,268,067
Accumulated depreciation (93,842)
Intangible assets 198,000
Accumulated amortization (11,550)
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Total long-lived assets 1,360,675
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Land and equipment held for sale 134,108
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Total assets $ 1,894,131
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LIABILITIES AND SHAREHOLDERS' DEFICIT
Current Liabilities:
Credit line $ 48,421
Accounts payable 367,613
Accrued contract salary payable 191,915
Accrued royalties and interest payable 139,109
Loans from shareholder 367,987
Notes payable 201,703
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Total current liabilities 1,316,748
Long Term Liabilities:
Leases payable 907,955
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Total liabilities 2,224,703
Shareholders' equity (deficit):
Common stock, no par value 100 million
shares authorized, 39,875,254 issued 7,617,796
Note receivable from shareholders (80,000)
Accumulated deficit (7,868,368)
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Total shareholders' equity (330,572)
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Total liabilities and shareholders' equity $ 1,894,131
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The accompanying notes are an integral part of these financial
statements
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LEADING-EDGE EARTH PRODUCTS, INC.
Statement of Operations for Three and Six Months Ended
October 31, 2000 and October 31, 1999
"Unaudited"
Three months ended Six months ended
31-Oct-00 31-Oct-99 31-Oct-00 31-Oct-99
------------ ------------ ------------ ------------
INCOME:
Sales $ -- $ -- $ -- $ --
License and consulting revenues -- -- -- --
Interest 3 24,420 3 45,464
Other -- 84 14 784
------------ ------------ ------------ ------------
TOTAL INCOME 3 24,504 17 46,248
IDLE PLANT EXPENSES: 117,912 -- 220,408 --
RESEARCH & DEVELOPMENT EXPENSES: 22,992 10,028 42,344 20,126
GENERAL & ADMINISTRATIVE EXPENSES:
Contract salaries and incentives 33,000 23,000 73,955 39,529
Travel and entertainment 11,646 2,631 30,414 8,681
Legal and professional 47,889 42,597 119,685 71,743
Promotion & corp. development 7,319 17,516 22,909 36,604
Other general and administrative costs 105,673 5,484 183,903 16,234
Manufacturing equipment lease 12,442 35,206 12,442
------------ ------------ ------------ ------------
TOTAL GENERAL AND ADMINISTRATIVE 205,527 103,670 466,072 185,233
INTEREST AND OTHER EXPENSE
Interest 56,108 8,740 88,734 19,113
Adjustment for unpaid revenues from
Affiliate -- 15,002 -- 28,640
------------ ------------ ------------ ------------
TOTAL INTEREST AND OTHER EXPENSE 56,108 23,742 88,734 47,753
------------ ------------ ------------ ------------
TOTAL EXPENSES 402,539 137,440 817,558 253,112
------------ ------------ ------------ ------------
NET LOSS $ (402,536) $ (112,936) $ (817,541) $ (206,864)
Basic and diluted loss per share $ (0.01) $ (0.00) $ (0.02) $ (0.01)
Weighted average shares outstanding 39,929,863 29,394,454 39,163,007 29,394,454
============ ============ ============ ============
The accompanying notes are an integral part of these financial statements
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LEADING-EDGE EARTH PRODUCTS, INC.
Statement of Cash Flows for Three and Six months ended
October 31, 2000 and October 31, 1999
"Unaudited"
Three months ended Six months ended
31-Oct-00 31-Oct-99 31-Oct-00 31-Oct-99
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (402,536) $ (112,936) $ (817,541) $ (206,864)
ADJUSTMENTS TO RECONCILE NET LOSS TO CASH
FLOWS USED IN OPERATING ACTIVITIES:
Noncash compensation expenses related to
nonqualified stock options and grants
Depreciation and amortization 52,342 11,327 100,957 151,680
Write-off of long-term assets
Accrued royalty obligation
Settlement of lawsuit
CHANGES IN OPERATING ASSETS AND LIABILITIES:
Receivables 38,186
Inventory (49,378) (264,342)
Prepaid expenses and deposits 2,488 (8,812) 5,236 1,542
Accounts payable 159,228 227 242,083 (38,258)
Accrued salary obligations 23,000 18,000 41,000 3,000
Accrued interest payable 23,069 1,597 31,298 10,060
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Total adjustments to Operating Loss 210,749 22,339 194,418 128,024
CASH USED IN OPERATING ACTIVITIES (191,787) (90,597) (623,123) (78,840)
INVESTING ACTIVITIES:
Investment in affiliate (90,916) (206,684)
Equipment purchases, disposals (105,564) (1,011,391) (63,556)
Purchase intangible
Pmts on notes receivable fm stockholders
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CASH USED BY INVESTING ACTIVITIES (105,564) (90,916) (1,011,391) (270,240)
FINANCING ACTIVITIES:
Increase in line of credit 1,053 (2,789) 48,036 (2,181)
Sale of common stock 24,704 186,233 200,475 230,637
Exercise of stock options 75,000 75,000
Exercise of Class A warrants
Contributed capital
Proceeds from notes payable
Increase in leases payable 59,531 907,955
Proceeds from loans from stockholders 269,132 71,233 308,877 166,233
Payments on notes payable (97,100) 100,000 27,613
Payments on loans from stockholders (146,233) (146,233)
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CASH PROVIDED BY FINANCING 257,320 183,444 1,565,343 351,069
Net change in cash (40,031) 1,931 (69,171) 1,989
Cash at beginning of period 46,854 1,182 75,994 1,124
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Cash at end of period $ 6,823 $ 3,113 $ 6,823 $ 3,113
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The accompanying notes are an integral part of these financial statements
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October 31, 2000
Notes to Financial Statements
Note 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND POOLING INTERESTS Leading-Edge Earth Products, Inc. (an Oregon
corporation) believes its products have applications for single-family,
multifamily residential, and low-rise commercial construction. Significant
revenues have not yet been generated from research and development activities or
planned operations. The Company's business activities have been financed
primarily through the issuance of equity securities, outside loans, and loans
from shareholders.
LEEP was incorporated on December 23, 1991. On December 29, 1992, Leading-Edge
Earth Products, Inc., merged with an inactive public company, Crystal Asset
Management, Inc., which was incorporated in Oregon in 1968. This business
combination was accounted for as a pooling of interest. The newly combined
company was named Leading-Edge Earth Products, Inc. The stock began to trade
publicly in March 1993 under the trading symbol "LEEP".
USE OF 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, and the financial statements
reflect, all highly liquid short-term investments with original maturity of
three months or less as cash.
INVENTORY Inventory is stated at the lower of cost or market assuming FIFO. The
inventory that was purchased in April 2000 from LBS is stated at the historical
cost to the joint venture.
PROPERTY AND EQUIPMENT In October 2000, the Company took delivery of a custom
panel press, financed through a capital lease, with a cost of $99,500. The sum
of the minimum lease payments is $130,003. Management estimates the economic
life of this equipment to be 7 years.
NET LOSS PER COMMON SHARE Net Loss per common share is computed based on the
weighted average number of common shares and common share equivalents
outstanding. There was no difference between primary and fully diluted earnings
for the period presented.
STOCK-BASED COMPENSATION There was no stock-based compensation during the
quarter ended October 31, 2000.
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Note 2: RELATED PARTY TRANSACTIONS
ARCHITECTURAL SERVICES AGREEMENT LEEP has entered into an agreement with the
owner of DB Associates, a stockholder and member of the Board of Directors, to
provide architectural and sales services. In addition to normal hourly rates for
architectural services, DB Associates will be paid for sales and marketing
efforts at the rate of $1.00 per panel for each panel sold to persons or
companies for which DB Associates performs architectural work. DB Associates
will alternatively receive $0.25 per panel for providing architectural review
for compliance with the Company's standards on projects with which DB Associates
is not directly involved as architect.
STOCK OPTIONS During the quarter ended October 31, 2000 no stock options were
granted.
LOANS FROM STOCKHOLDERS On October 31, 2000, the Company owed $367,387 in
unsecured, demand notes payable to stockholders with interest accruing at 8% or
10% per annum. Also, as of October 31 $139,109 in accrued interest was owed to
officers and directors of the Company.
LINE OF CREDIT The unused portion of LEEP's $50,000 line of credit was $1,579.
The Company's CEO personally guaranteed this line of credit.
Note 3: COMMITMENTS AND CONTINGENCIES
In October, 2000 LEEP accepted delivery of a custom panel press costing
$99,500. LEEP leased this equipment through a full payout lease, accounted for
as a capital lease, for 60 months with monthly payments of $2,167. Grant Record
and an outside investor have provided a limited guarantee with recourse and the
manufacturer has provided a remarketing agreement.
Operating leases the Company is obligated for amount to $14,106 per month. These
leases expire in 20 to 40 months and represent a total obligation of $225,250
over their terms.
The current portion of leases payable is $167,357.
Note 4: INTERIM FINANCIAL STATEMENTS
The unaudited interim financial statements reflect all normal and necessary
adjustments that are, in the opinion of management, required for a fair
presentation of the results of the interim period.
Note 5: PROPERTY AND EQUIPMENT
Property and equipment at October 31, 2000 are summarized as follows:
Plant design $ 117,025
Manufacturing equipment 1,139,263
Office equipment 11,779
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Total $ 1,268,067
Accumulated depreciation (93,842)
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Net book value $ 1,174,225
Note 6: INVENTORIES
Inventories at October 31, 2000 are summarized as follows:
Raw Materials $262,452
Work in Process 104,623
Finished Goods 14,818
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Total $381,893
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LEADING-EDGE EARTH PRODUCTS, INC.
PLAN OF OPERATION: LEEPCORE production is located in a newly customized 30,000
square foot building and operational with a 100-foot long three-stage
rollforming system and three semi-automatic production presses. This current
complement of equipment is capable of producing 2,268 panels or 54,432 square
feet of LEEPCORE panels per month. Present facilities allow for two additional
presses at an additional cost of $250,000, which would give the Pennsylvania
plant the ability to produce 90,720 square feet of LEEPCORE panels per month.
The plant presently employs six people, which is sufficient to support the
present one shift operation.
LEEP's product is being marketed and sold as a pre-engineered building system,
or a central structural/element to serve as walls, roofs and floors for
pre-engineered buildings, to architects, builders and developers. A network of
specialized distributors is being developed and is presently introducing the
product in the marketplace in tandem with the Company's corporate sales program.
The Company designed and constructed a 3 x 3 x 9 meter (10' x 10' x 30')
`Modular Accommodation' building that it is marketing to the oil industry. It
is anticipated that the unit will be used singularly or in combinations to
accommodate lodging, computer installations, kitchens, tool sheds, dining,
exercise rooms, etc. LEEP has also been pursuing a contract to supply the US
Army with Rapid Deployment Shelters. LEEP remains optimistic about an Army
contract since it was selected as a finalist and LEEP structures are planned to
undergo field-testing. The Company is exploring opportunities in Florida where
new 120 MPH wind codes are coming into effect on both Florida coasts in 2001.
LEEP has expectations that LEEPCORE walls will be successful in high wind
resistant designs for Florida and other gulf coast states markets.
LEEP's primary focus for 2000/2001 is to manufacture, market and sell its LEEP
STRUCTURAL CORE product. LEEP's strategy is to establish markets and build sales
backlog. LEEP plans to develop the financing to construct a full-scale highly
automated manufacturing plant capable of producing 100,000 square feet of
pre-engineered panels per day, employ approximately 200 people, and reduce cost
of goods sold to a level that will allow LEEP to compete successfully in the
market. Financial commitments are not in place at this time for the full-scale
plant. LEEP's focus is to use the production capacity of the Pennsylvania plant
to meet the demands of sales to be generated by its sales efforts. LEEP's
STRUCTURAL CORE product is being produced on a daily basis in the Company's
Montoursville, PA plant.
LEEP retained a consulting group to assist with completing and implementing the
design of a full-scale manufacturing plant. The work will result in a set of
drawings, specifications, and equipment vendor list. LEEP will be able to use
the documentation package, permanently, to duplicate LEEP's first full-scale
production facility anywhere in the world.
LIQUIDITY AND CAPITAL RESOURCES: In recent years LEEP has been almost entirely
dependent on its CEO, Grant Record, arranging credit facilities, making personal
loans, procuring loans from other stockholders, and selling stock to investors
in order to meet the monthly cash needs of LEEP. At this time, other members of
the Board are assisting Mr. Record, and are having serious discussions with
qualified investors for the purpose of providing for LEEP's cash needs through
the next year. LEEP does not have any revenue beyond its first sale in Houston,
does not have orders for its product, and does not have assets that can be
liquidated to cover cash
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requirements.
LEEP has submitted a loan request for $20,000,000 to a bank for the purpose of
funding the establishment of its first full-scale highly automated manufacturing
plant and working capital to see it through the startup phase. The bank will
require a 60% guarantee from the USDA, Rural Development Business and Industry
Loan Program. LEEP has paid a non-refundable deposit of $12,500 to the bank and
has received a conditional commitment in return from the bank. LEEP has many
conditions to fulfill in order to qualify for the loan. The bank has submitted
the application to the USDA, which presently has the application under
consideration. The USDA is asking for an independent feasibility study from a
qualified independent consultant that LEEP has been unable to obtain to date.
The USDA has offered no assurance that the project could be funded. Of the
conditions yet to be met the most significant includes the requirement that LEEP
provide $5,000,000 cash equity into the project. At this time arrangements have
not been made to supply the needed cash equity or required collateral. LEEP must
acquire property for the plant that appraises at $2,500,000. At the present time
LEEP has paid $30,000 to obtain an option on a building, which when purchased,
will help meet the requirements of the USDA and LEEP. The bank has stipulated
that the loan cannot close unless the bank locates other participants for
$7,000,000 of the un-guaranteed portion of the loan. LEEP is seeking other bank
participation, but has not received additional commitments.
LEEP acquired manufacturing equipment costing $1,132,000 which was financed with
leases from finance companies in the amount of $1,132,000 over 60 months with
monthly payments of approximately $23,000 to pay for the machines. LEEP also was
able to order 400,000 pounds of steel to be used in the production of panels
with the help of a director. Two company directors have provided a limited
guarantee with recourse, and one of the manufacturers has provided a remarketing
agreement for $872,000. LEEP entered into agreements with one of the company
directors who provided the financial guarantees requiring LEEP to escrow
2,000,000 shares of Rule 144 restricted common stock in the director's name to
be issued to the director in the event of default by LEEP that results in the
director being required to make payments. LEEP is having difficulty staying
current on all equipment and property leases and is in danger of defaulting on
its property lease. The Company has received notice of default on a $73,000 loan
secured by 35 acres of undeveloped property in Idaho that LEEP is attempting to
sell. A note is currently due to be paid down by $23,058.
LEEP will continue borrowing money and selling stock to fund its corporate
overhead and maintain operations at its Pennsylvania plant. Because of its full
time staff, rent, lease payments on equipment, and needed supplies resulting
from entering the manufacturing phase of the business, LEEP's minimum cost of
operation is approximately $140,000 per month. With no revenue from operations
LEEP is having difficulties funding its overhead, and current liabilities have
more than doubled in the first six months of the fiscal year. Arrangements are
not in place to cover these costs for the foreseeable future.
In the year ended April 30, 1998, LEEP raised $20,000 from the sale of stock,
borrowed $51,562 from stockholders and $386,500 from a credit facility, and
issued stock for $605,132 worth of Company obligations. In the year ended April
30, 1999, LEEP received $46,816 from a credit facility, sold stock for $170,000
in cash and payables, and increased notes payable by $98,020. In
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the year just ended LEEP sold stock for $973,557 for cash, payables and services
rendered, and received $235,000 from the exercise of stock options. In the
quarter ended October 31, 2000 LEEP increased borrowing by $232,616, sold stock
for $24,704.
RESULTS OF OPERATIONS: There were no sales in the quarter just ended. LEEP is
currently manufacturing LEEPCORE panels for inventory in order to support future
sales. Large increases in operating expenses over the same quarter of last year
are due to the fact that LEEP is operating a manufacturing plant producing
finished goods for inventory that it was not doing last year. For further
analysis, see LEEP's Statement of Cash Flows.
PART II OTHER INFORMATION
ITEM I. LEGAL PROCEEDINGS
The company has received notice of default on a $73,000 plus interest note
secured by 35 acres of undeveloped property, which is held in the company's name
in Shoshone, Idaho. The property will be sold at a trustee sale on April 26,
2001 by Twin Falls Title and Escrow Company, Twin Falls, Idaho, in the event the
Company does not satisfy the loan pay off amount by that date. The purchase
price of the land was fully financed by the above note. As of the company's
decision to manufacture elsewhere, the company plans to sell the property to pay
the note balance during the 120-day cure period provided by the legal notice.
ITEM 2. CHANGES IN SECURITIES
There have been no changes in instruments defining the rights of holders of any
class of securities.
On August 1, 27, 30, September 15, 27, 29, 30, October 15, 27, and 30, 3,000
shares (for a total of 30,000 shares) of Rule 144 restricted common stock were
issued to lenders as required by the notes.
On September 29, 2000 130,000 shares of Rule 144 restricted common stock were
issued to a member of the Board for cash.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
No matters have been submitted to a vote of securities holders since the Annual
Meeting held in Seattle on April 28, 2000. Business transacted at that meeting
was summarized in LEEP's 10-KSB report filed on August 14, 2000.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit 27.1 Financial Data Schedule.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1034, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Leading-Edge Earth Products, Inc.
Date: December 19, 2000
/s/ GRANT C. RECORD /s/ JAMES R. MEDLEY
Grant C. Record James R. Medley
CEO and Secretary Treasurer
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EXHIBIT INDEX
Number Description
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27.1 Financial Data Schedule